**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

#### **Washington,D.C. 20549**

 

----

 

#### **FORM 10-Q**

 

**(Mark One)**

 
| **ý**                                                                                                                                                                                                                            | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                  |       |                                                                                                    |
| **For the  quarterly period ended March 31, 2006**                                                                                                                                                                               |
|                                                                                                                                                                                                                                  |       |                                                                                                    |
| **OR**                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                  |       |                                                                                                    |
| **o**                                                                                                                                                                                                                                 | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                                              |
| **For the transition period  from                to                ** |

 

**Commissionfile number  001-12929**

 

**CommScope, Inc.**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                     | ** ** | **36-4135495**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**1100CommScope Place, SEP.O. Box 339Hickory, North Carolina**

(Address of principal executiveoffices)

 

**28602**

(Zip Code)

 

**(828)324-2200**

(Registrant’s telephone number,including area code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

Yes ý    No o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer or a non-accelerated filer(as defined in Exchange Act Rule 12b-2). Large accelerated filer ý        Acceleratedfiler o        Non-acceleratedfiler o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o    No ý

 

As of April 24, 2006 there were58,015,996 shares of Common Stock outstanding.

 

 

----

 

**CommScope, Inc.Form 10-QMarch 31, 2006Table of Contents**

 
| Part I - Financial Information  (Unaudited): |                                                                                                 |
|---------------------------------------------------|------------------------------------------------------------------------------------------------------|
|                                              |                                                                                                 |   |
|                                              | Item 1. Condensed Consolidated Financial  Statements:                                                |   |
|                                              |                                                                                                 | Condensed Consolidated  Statements of Operations |   |
|                                              |                                                                                                 | Condensed  Consolidated Balance Sheets |   |
|                                              |                                                                                                 | Condensed  Consolidated Statements of Cash Flows |   |
|                                              |                                                                                                 | Condensed  Consolidated Statements of Stockholders’ Equity and Comprehensive Income |   |
|                                              |                                                                                                 | Notes  to Condensed Consolidated Financial Statements |   |
|                                              |                                                                                                 |   |
|                                              | Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   |
|                                              |                                                                                                 |   |
|                                              | Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |   |
|                                              |                                                                                                 |   |
|                                              | Item 4.  Controls and Procedures                                                                     |   |
|                                              |                                                                                                 |   |
| Part II -  Other Information:                |                                                                                                 |
|                                              |                                                                                                 |   |
|                                              | Item 6. Exhibits                                                                                     |   |
|                                              |                                                                                                 |   |
|                                              | Signatures                                                                                           |   |

 

2

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**CommScope, Inc.**

**CondensedConsolidated Statements ofOperations**

**(Unaudited– In thousands, except per share amounts)**

 
| ** **                           | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------|------------|------------------------|------------|
| ** **                           | ** ** | **March 31,**     | ** ** |
| ** **                           | ** ** | **2006**               | ** ** | **2005** | ** ** |
|                                 |       |                   |       |   |   |
| Net sales                            |       | $                      | 352,254    |   | $ | 309,054 |   |
|                                 |       |                   |       |   |   |
| Operating costs and expenses:        |       |                   |       |   |   |
| Cost of  sales                       |       | 267,515                |       | 236,892 |   |
| Selling,  general and administrative |       | 54,177                 |       | 53,882 |   |
| Research and  development            |       | 7,465                  |       | 7,770 |   |
| Restructuring  costs                 |       | 3,749                  |       | 2,029 |   |
| Total  operating costs and expenses  |       | 332,906                |       | 300,573 |   |
|                                 |       |                   |       |   |   |
| Operating income                     |       | 19,348                 |       | 8,481 |   |
| Other income (expense), net          |       | 638                    |       | (57 | ) |
| Interest expense                     |       | (1,985                 | )          | (2,078 | ) |
| Interest income                      |       | 2,053                  |       | 999 |   |
|                                 |       |                   |       |   |   |
| Income before income taxes           |       | 20,054                 |       | 7,345 |   |
| Income tax expense                   |       | (7,327                 | )          | (1,811 | ) |
|                                 |       |                   |       |   |   |
| Net income                           |       | $                      | 12,727     |   | $ | 5,534 |   |
|                                 |       |                   |       |   |   |
| Net income per share:                |       |                   |       |   |   |
| Basic                                |       | $                      | 0.22       |   | $ | 0.10 |   |
| Assuming  dilution                   |       | $                      | 0.19       |   | $ | 0.09 |   |
|                                 |       |                   |       |   |   |
| Weighted average shares outstanding: |       |                   |       |   |   |
| Basic                                |       | 56,724                 |       | 54,512 |   |
| Assuming  dilution                   |       | 70,667                 |       | 66,784 |   |

 

See notes to condensed consolidated financialstatements.

 

3

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**CommScope, Inc.**

**Condensed Consolidated BalanceSheets**

**(Unaudited – In thousands, except share amounts)**

 
| ** **                                                                                                                                                                                                                                                                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                       | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                       |       |               |       |                  |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                        |       | $                  | 133,226    |                  | $          | 146,549 |   |
| Short-term investments                                                                                                                                                                                                                                                                           |       | 108,746            |       | 102,101               |       |
| Total cash,  cash equivalents and short-term investments                                                                                                                                                                                                                                         |       | 241,972            |       | 248,650               |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Accounts  receivable, less allowance for doubtful accounts of $12,944 and $13,644,  respectively                                                                                                                                                                                                 |       | 191,561            |       | 165,608               |       |
| Inventories                                                                                                                                                                                                                                                                                      |       | 137,303            |       | 123,603               |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                        |       | 17,694             |       | 26,156                |       |
| Deferred income taxes                                                                                                                                                                                                                                                                            |       | 25,761             |       | 25,245                |       |
| Total  current assets                                                                                                                                                                                                                                                                            |       | 614,291            |       | 589,262               |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Property, plant and equipment, net                                                                                                                                                                                                                                                               |       | 261,986            |       | 252,877               |       |
| Goodwill                                                                                                                                                                                                                                                                                         |       | 151,360            |       | 151,356               |       |
| Other intangibles, net                                                                                                                                                                                                                                                                           |       | 73,250             |       | 69,297                |       |
| Deferred income taxes                                                                                                                                                                                                                                                                            |       | 22,595             |       | 24,623                |       |
| Other assets                                                                                                                                                                                                                                                                                     |       | 14,636             |       | 14,766                |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Total Assets                                                                                                                                                                                                                                                                                     |       | $                  | 1,138,118  |                  | $          | 1,102,181 |   |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                                                                                   |       |               |       |                  |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                                                                 |       | $                  | 77,644     |                  | $          | 63,444 |   |
| Other accrued liabilities                                                                                                                                                                                                                                                                        |       | 75,525             |       | 100,498               |       |
| Current portion of long-term debt                                                                                                                                                                                                                                                                |       | 13,000             |       | 13,000                |       |
| Total  current liabilities                                                                                                                                                                                                                                                                       |       | 166,169            |       | 176,942               |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Long-term debt                                                                                                                                                                                                                                                                                   |       | 281,050            |       | 284,300               |       |
| Pension and postretirement benefit  liabilities                                                                                                                                                                                                                                                  |       | 99,502             |       | 101,989               |       |
| Other noncurrent liabilities                                                                                                                                                                                                                                                                     |       | 17,395             |       | 16,925                |       |
| Total  Liabilities                                                                                                                                                                                                                                                                               |       | 564,116            |       | 580,156               |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Commitments and contingencies                                                                                                                                                                                                                                                                    |       |               |       |                  |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Preferred  stock, $.01 par value; Authorized shares: 20,000,000; Issued and outstanding  shares: None at March 31, 2006 and December 31, 2005                                                                                                                                          |       | —             |       | —                |       |
| Common  stock, $.01 par value; Authorized shares: 300,000,000; Issued shares,  including treasury stock: 68,042,350 at March 31, 2006 and 66,073,347 at  December 31, 2005; Issued and outstanding shares: 57,842,350 at March 31,  2006 and 55,873,347 at December 31, 2005 |       | 681                |       | 661                   |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                                      |       | 490,175            |       | 462,842               |       |
| Deferred  equity compensation                                                                                                                                                                                                                                                                    |       | —             |       | (8,980                | )          |
| Retained  earnings                                                                                                                                                                                                                                                                               |       | 229,415            |       | 216,688               |       |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                                                            |       | (734               | )          | (3,651                | )          |
| Treasury  stock, at cost: 10,200,000 shares at March 31, 2006 and December 31,  2005                                                                                                                                                                                                   |       | (145,535           | )          | (145,535              | )          |
| Total  Stockholders’ Equity                                                                                                                                                                                                                                                                 |       | 574,002            |       | 522,025               |       |
|                                                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Total  Liabilities and Stockholders’ Equity                                                                                                                                                                                                                                                 |       | $                  | 1,138,118  |                  | $          | 1,102,181 |   |

 

See notes to condensed consolidated financialstatements.

 

4

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**CommScope, Inc.**

**CondensedConsolidated Statements of CashFlows**

**(Unaudited– In thousands)**

 
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | **March 31,**     | ** ** |
| ** **                                                                            | ** ** | **2006**               | ** ** | **2005** | ** ** |
|                                                                                  |       |                   |       |   |   |
| **Operating Activities:**                                                             |       |                   |       |   |   |
| Net income                                                                            |       | $                      | 12,727     |   | $ | 5,534 |   |
| Adjustments  to reconcile net income to net cash used in   operating activities: |       |                   |       |   |   |
| Depreciation  and amortization                                                        |       | 14,216                 |       | 15,743 |   |
| Equity based  compensation                                                            |       | 1,020                  |       | — |   |
| Deferred  income taxes                                                                |       | 1,614                  |       | 1,370 |   |
| Restructuring  costs related to fixed asset impairment                                |       | —                 |       | 1,678 |   |
| Tax benefit  from stock option exercises                                              |       | —                 |       | 87 |   |
| Changes in  assets and liabilities:                                                   |       |                   |       |   |   |
| Accounts  receivable                                                                  |       | (25,465                | )          | (39,916 | ) |
| Inventories                                                                           |       | (8,295                 | )          | (1,930 | ) |
| Prepaid  expenses and other current assets                                            |       | (958                   | )          | (693 | ) |
| Accounts  payable and other accrued liabilities                                       |       | (10,729                | )          | 7,418 |   |
| Other  noncurrent liabilities                                                         |       | (2,286                 | )          | 797 |   |
| Other                                                                                 |       | (237                   | )          | 1,236 |   |
| Net cash used in operating activities                                                 |       | (18,393                | )          | (8,676 | ) |
|                                                                                  |       |                   |       |   |   |
| **Investing Activities:**                                                             |       |                   |       |   |   |
| Additions to  property, plant and equipment                                           |       | (6,762                 | )          | (8,226 | ) |
| Acquisition  of MC2 product line                                                      |       | (13,810                | )          | — |   |
| Acquisition  of Connectivity Solutions                                                |       | —                 |       | 653 |   |
| Net  (purchases of) proceeds from short-term investments                              |       | (6,645                 | )          | 9,158 |   |
| Proceeds from  disposal of fixed assets                                               |       | 297                    |       | 426 |   |
| Net cash provided by (used in) investing  activities                                  |       | (26,920                | )          | 2,011 |   |
|                                                                                  |       |                   |       |   |   |
| **Financing Activities:**                                                             |       |                   |       |   |   |
| Principal  payments on long-term debt                                                 |       | (3,250                 | )          | (3,250 | ) |
| Proceeds  from exercise of stock options                                              |       | 27,670                 |       | 320 |   |
| Tax benefit  from stock option exercises                                              |       | 7,143                  |       | — |   |
| Net cash provided by (used in) financing  activities                                  |       | 31,563                 |       | (2,930 | ) |
|                                                                                  |       |                   |       |   |   |
| Effect of exchange rate changes on cash                                               |       | 427                    |       | (517 | ) |
|                                                                                  |       |                   |       |   |   |
| Change in cash and cash equivalents                                                   |       | (13,323                | )          | (10,112 | ) |
| Cash and cash equivalents, beginning of  period                                       |       | 146,549                |       | 99,631 |   |
| Cash and cash equivalents, end of period                                              |       | $                      | 133,226    |   | $ | 89,519 |   |

 

See notes to condensed consolidated financialstatements.

 

5

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**CommScope, Inc.**

**CondensedConsolidated Statements of Stockholders’Equity**

**andComprehensive Income**

**(Unaudited– In thousands, except share amounts)**

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **March 31,**     | ** ** |
| ** **                                     | ** ** | **2006**               | ** ** | **2005** | ** ** |
|                                           |       |                   |       |   |   |
| Number of common shares outstanding:           |       |                   |       |   |   |
| Balance at  beginning of period                |       | 55,873,347             |       | 54,487,745 |   |
| Issuance of  shares for stock option exercises |       | 1,969,003              |       | 39,476 |   |
| Balance at  end of period                      |       | 57,842,350             |       | 54,527,221 |   |
|                                           |       |                   |       |   |   |
| Common stock:                                  |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | 661        |   | $ | 647 |   |
| Issuance of  shares for stock option exercises |       | 20                     |       | — |   |
| Balance at  end of period                      |       | $                      | 681        |   | $ | 647 |   |
|                                           |       |                   |       |   |   |
| Additional paid-in capital:                    |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | 462,842    |   | $ | 432,839 |   |
| Issuance of  shares for stock option exercises |       | 27,650                 |       | 320 |   |
| Tax benefit  from stock option exercises       |       | 7,143                  |       | 87 |   |
| Expiration  of registration rights             |       | 500                    |       | — |   |
| Impact of  adoption of SFAS No. 123(R)    |       | (8,980                 | )          | — |   |
| Equity  compensation expense recognized        |       | 1,020                  |       | — |   |
| Balance at  end of period                      |       | $                      | 490,175    |   | $ | 433,246 |   |
|                                           |       |                   |       |   |   |
| Deferred equity compensation:                  |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | (8,980     | ) | $ | — |   |
| Impact of  adoption of SFAS No. 123(R)    |       | 8,980                  |       | — |   |
| Balance at  end of period                      |       | $                      | —     |   | $ | — |   |
|                                           |       |                   |       |   |   |
| Retained earnings:                             |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | 216,688    |   | $ | 166,710 |   |
| Net income                                     |       | 12,727                 |       | 5,534 |   |
| Balance at  end of period                      |       | $                      | 229,415    |   | $ | 172,244 |   |
|                                           |       |                   |       |   |   |
| Accumulated other comprehensive loss:          |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | (3,651     | ) | $ | (5,198 | ) |
| Other  comprehensive income (loss), net of tax |       | 2,917                  |       | (773 | ) |
| Balance at  end of period                      |       | $                      | (734       | ) | $ | (5,971 | ) |
|                                           |       |                   |       |   |   |
| Treasury stock, at cost:                       |       |                   |       |   |   |
| Balance at  beginning and end of period        |       | $                      | (145,535   | ) | $ | (145,535 | ) |
|                                           |       |                   |       |   |   |
| Total stockholders’ equity                |       | $                      | 574,002    |   | $ | 454,631 |   |

 
| ** **                                                                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                        | ** ** | **March 31,**     | ** ** |
| ** **                                                                                        | ** ** | **2006**               | ** ** | **2005** | ** ** |
|                                                                                              |       |                   |       |   |   |
| Comprehensive income:                                                                             |       |                   |       |   |   |
| Net income                                                                                        |       | $                      | 12,727     |   | $ | 5,534 |   |
| Other  comprehensive income (loss), net of tax:                                                   |       |                   |       |   |   |
| Foreign  currency translation gain (loss) - foreign subsidiaries                                  |       | (1,361                 | )          | (752 | ) |
| Foreign  currency transaction gain (loss) on long-term intercompany loans - foreign  subsidiaries |       | 4,449                  |       | (379 | ) |
| Gain (loss)  on derivative financial instrument designated as a net investment hedge              |       | (171                   | )          | 358 |   |
| Total other  comprehensive income (loss), net of tax                                              |       | 2,917                  |       | (773 | ) |
|                                                                                              |       |                   |       |   |   |
| Total comprehensive income                                                                        |       | $                      | 15,644     |   | $ | 4,761 |   |

 

See notes to condensed consolidated financialstatements.

 

6

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**CommScope, Inc.**

**Notesto Condensed Consolidated FinancialStatements**

**(Unaudited- In Thousands, Unless Otherwise Noted)**

 

**1.****                                     ****BACKGROUND AND BASIS OFPRESENTATION**

 

**Background**

 

CommScope, Inc., through its wholly-ownedsubsidiaries (CommScope or the Company), is a world leader in the designand manufacture of cable and connectivity solutions for communications networks.The Company focuses on the ‘last mile’ in communications networks, which is thedistribution access, or final link to the customer. The Company is a globalleader in structured cabling for business enterprise applications and broadbandcoaxial cables for the cable television industry. The Company also designs,manufactures and markets a broad line of high-performance electronic, coaxialand fiber optic cable products for data networking, Internet access, wirelesscommunication, telephony and other broadband applications. In addition, theCompany is a leading provider of environmentally secure enclosures andstructured cabling solutions supporting central offices for telecommunicationservice providers in the United States.

 

#### **Basis of Presentation**

#### ** **

The condensed consolidated balance sheet as of March 31,2006 and the condensed consolidated statements of operations, cash flows,stockholders’ equity and comprehensive income for the three months ended March 31,2006 and 2005 are unaudited and reflect all adjustments of a normal recurringnature that are, in the opinion of management, necessary for a fairpresentation of the interim period financial statements. The results ofoperations for the interim period are not necessarily indicative of the resultsof operations to be expected for the full year.

 

The unaudited interim condensed consolidatedfinancial statements of CommScope have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission (SEC). Accordingly,certain information and footnote disclosures normally included in financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America have been condensed or omitted. The significantaccounting policies followed by the Company are set forth in Note 2 to theconsolidated financial statements within the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005 (the 2005 Form 10-K). There wereno changes in the Company’s significant accounting policies during the threemonths ended March 31, 2006 other than the adoption of Statement ofFinancial Accounting Standards (SFAS) No. 123(R), “Share-Based Payments”(SFAS No. 123(R)), which is discussed below. In addition, the Companyreaffirms the use of estimates in the preparation of the financial statementsas set forth in the 2005 Form 10-K. These interim condensed consolidatedfinancial statements should be read in conjunction with the Company’s December 31,2005 audited consolidated financial statements and notes thereto included inthe 2005 Form 10-K.

 

###### **Concentrations of Risk**

###### ** **

Net sales to Anixter International Inc. and itsaffiliates (Anixter) accounted for 28% and 32% of the Company’s total net salesduring the three months ended March 31, 2006 and 2005, respectively. Salesto Anixter primarily originate within the Enterprise segment. No other customeraccounted for 10% or more of the Company’s total net sales for the three monthsended March 31, 2006 and 2005.

 

Accounts receivable from Anixter representedapproximately 33% of net accounts receivable as of March 31, 2006. Noother customer accounted for 10% or more of the Company’s net accountsreceivable as of March 31, 2006.

 

**Product Warranties**

 

The Company recognizes a liability for the estimatedclaims that may be paid under its customer warranty agreements to remedypotential deficiencies of quality or performance of the Company’s products. Theseproduct warranties extend over periods ranging from one to twenty-five yearsfrom the date of sale, depending upon the product subject to the warranty. TheCompany records a provision for estimated future warranty claims as cost ofsales based upon the historical relationship of warranty claims to sales and specifically-identifiedwarranty issues. The Company bases its estimates on assumptions that arebelieved to be reasonable under the circumstances and revises its estimates, asappropriate, when events or changes in circumstances indicate that revisions may benecessary.

 

7

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Activity in the product warranty accrual, includedin other accrued liabilities, for the three months ended March 31, 2006and 2005 consisted of the following:

 
| ** **                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Product warranty accrual, beginning of  period |       | $        | 2,035      |     | $          | 1,531 |   |
| Provision for warranty claims                  |       | 447      |       | 14       |       |
| Less: Warrany claims paid                      |       | (136     | )          | (112     | )          |
| Product warranty accrual, end of period        |       | $        | 2,346      |     | $          | 1,433 |   |

 

**Commitments and Contingencies**

 

CommScope is either a plaintiff or a defendant inpending legal matters in the normal course of business; however, managementbelieves none of these legal matters will have a materially adverse effect onthe Company’s financial statements upon final disposition. In addition, CommScopeis subject to various federal, state, local and foreign laws and regulationsgoverning the use, discharge, disposal and remediation of hazardous materials. Compliancewith current laws and regulations has not had, and is not expected to have, amaterially adverse effect on the Company’s financial condition or results ofoperations.

 

### ***Net Income Per Share***

 

### *Basicnet income per share is computed by dividing net income by the weighted averagenumber of common shares outstanding during the applicable period. Diluted netincome per share is based on net income adjusted for after-tax interest andamortization of debt issuance costs related to convertible debt, if dilutive,divided by the weighted average number of common shares outstanding adjustedfor the dilutive effect of stock options, phantom stock, performance units andconvertible securities (see Note 8).*

 

Below is a reconciliation of net income and weightedaverage common shares and potential common shares outstanding for calculatingdiluted net income per share:

 
| ** **                                                                                                   | ** ** | **Three Months  Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2006**                                | ** ** | **2005** | ** ** |
| Numerator:                                                                                                   |       |                                    |       |   |   |
| Net income  for basic net income per share                                                                   |       | $                                       | 12,727     |   | $ | 5,534 |   |
| Effect of  assumed conversion of 1% convertible senior subordinated debentures due 2024                      |       | 629                                     |       | 629 |   |
| Income available  to common shareholders for diluted net income per share                                    |       | $                                       | 13,356     |   | $ | 6,163 |   |
|                                                                                                         |       |                                    |       |   |   |
| Denominator:                                                                                                 |       |                                    |       |   |   |
| Weighted  average number of common shares outstanding for basic net income per share                         |       | 56,724                                  |       | 54,512 |   |
| Effect of  dilutive securities:                                                                              |       |                                    |       |   |   |
| Employee  stock options (a)                                                                                  |       | 2,373                                   |       | 778 |   |
| Phantom  stock and performance units                                                                         |       | 76                                      |       | — |   |
| 1%  convertible senior subordinated debentures due 2024                                                      |       | 11,494                                  |       | 11,494 |   |
| Weighted  average number of common and potential common shares outstanding for diluted  net income per share |       | 70,667                                  |       | 66,784 |   |

 

----

(a)          Options to purchase approximately 0.6 million and 5.6 million commonshares were excluded from the computation of net income per share, assumingdilution, for the three months ended March 31, 2006 and 2005, respectively,because they would have been antidilutive.

 

### ***Equity-Based Compensation***

 

On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R)using the modified prospective transition method to account for itsequity-based compensation arrangements. The Company previously appliedAccounting Principles Board (APB) Opinion No. 25, “Accounting for StockIssued to Employees,” and related Interpretations and provided the required proforma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation.”  See Note 8 for the pro forma disclosuresrequired for the three months ended March 31, 2005.  The adoption of SFAS No. 123(R) did not materiallyaffect the 

 

8

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accounting for the equity-based compensation associated with theCompany’s previously awarded phantom stock or performance units, which wasalready based on the market price of the stock at date of grant. Under themodified prospective transition method, new and previously granted but unvestedequity awards are recognized as compensation expense in the income statement ona straight-line basis over the requisite service period based on the estimatedfair value of the award (net of estimated forfeitures) at the grant date, andprior period results are not restated. The Company estimates the fair value ofstock options using the Black-Scholes valuation model. The balance previouslyreflected as deferred equity compensation (a contra-equity account) waseliminated against Additional Paid-In Capital (APIC) upon adoption of SFAS No. 123(R).

 

With the adoption of SFAS No. 123(R),the Company changed its method of expense attribution for equity-basedcompensation for future awards from recognition over the nominal vesting periodto recognition over the requisite service period. Compensation expense forequity-based awards granted prior to January 1, 2006 will continue to berecognized over the nominal vesting period. For the three months ended March 31,2006, additional pre-tax compensation expense of $0.2 million was recognizeddue to the continued use of the nominal vesting period for awards that weregranted prior to January 1, 2006 to retirement-eligible employees.

 

The Company records deferred tax assets related to compensation expensefor awards that will result in future tax deductions for the Company, based onthe amount of compensation cost recognized and the Company’s statutorytax rate in the jurisdiction in which it will receive a deduction. Differencesbetween the deferred tax assets recognized for financial reporting purposes andthe actual tax deductions reported on the Company’s income tax return arerecorded in APIC (if the tax deduction exceeds the deferred tax asset) or inthe Condensed Consolidated Statement of Operations as additional income taxexpense (if the deferred tax asset exceeds the tax deduction and no excess APICexists from previous awards). In determining the amount of excess APIC at theadoption of SFAS No. 123(R), the Company utilized the simplifiedalternative provided in FASB Staff Position FAS 123(R)-3, “Transition ElectionRelated to Accounting for the Tax Effects of Share-Based Payment Awards” (FSPFAS 123(R)-3).

 

Priorto the adoption of SFAS No. 123(R), the Company presented all tax benefitsresulting from the exercise of stock options as operating cash inflows in theCondensed Consolidated Statements of Cash Flows. SFAS No. 123(R) requiresthe benefit of tax deductions in excess of the compensation costs recognizedfor those options to be classified as financing cash inflows rather thanoperating cash inflows, on a prospective basis. As a result of utilizing thesimplified alternative provided under FSP FAS 123(R)-3, all tax benefitsresulting from the exercise of stock options that were vested as of the adoptionof SFAS No. 123(R) will be classified as financing cash inflows.

 

**Impact of Newly Issued Accounting Standards**

 

In November 2004, the FinancialAccounting Standards Board (FASB)issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43,Chapter 4.”  This statement is the resultof efforts to converge U.S. accounting standards for inventories withInternational Accounting Standards. SFAS No. 151 requires that items suchas idle facility expense, excessive spoilage and rehandling costs be recognizedas expenses in the current period. It also requires that allocation of fixedproduction overhead to the costs of conversion be based on normal capacity ofthe production facilities. The Company adopted this standard January 1,2006 and its adoption did not have a material impact on the Company’s financialcondition, results of operations or cash flows.

 

**2.****                                     ****ACQUISITIONS**

 

On March 6, 2006, CommScope acquired the assetssupporting the trunk and distribution cable television products business ofTrilogy Communications, Inc., along with certain other assets. Thepurchase price of $13.8 million was paid in cash. The products acquired wereintegrated into the Broadband segment.

 

9

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The preliminary allocation of the purchase price,based on estimated fair values of the assets acquired, is as follows:

 
| ** **                            | ** ** | **Amortization  Period** | ** ** | **Estimated Fair   Value** | ** ** |
|---------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                            | ** ** | **(in years)**           | ** ** | **(in millions)**          | ** ** |
| Inventory                             |       |                     |       | $                          | 4.9        |   |
|                                  |       |                     |       |                       |       |
| Machinery and equipment               |       |                     |       | 1.6                        |       |
|                                  |       |                     |       |                       |       |
| Intangible assets                     |       |                     |       |                       |       |
| Customer  relationships               |       | 16                       |       | 3.8                        |       |
| Non-compete  agreement                |       | 7                        |       | 1.7                        |       |
| Other  identifiable intangible assets |       | 10                       |       | 1.8                        |       |
| Total purchase price                  |       |                     |       | $                          | 13.8       |   |

 

The weighted average useful life of the intangibleassets acquired is 12.4 years.

 

In conjunction with the Company’s acquisition ofsubstantially all of the assets and assumption of certain liabilities of theConnectivity Solutions business of Avaya Inc. in January 2004, the Companyissued approximately 1.8 million shares of CommScope common stock. Theseunregistered shares included registration rights and the Company established aliability at the time the shares were issued for such registration costs. Duringthe three months ended March 31, 2006, the registration rights expired andthe Company reversed the liability that had been established, resulting in anincrease to additional paid-in capital of $500.

 

**3.****                                     ****BALANCE SHEET DATA**

 

**Short-termInvestments**

 

AtMarch 31, 2006 and December 31, 2005, the Company’s short-terminvestments were composed of the following:

 
| ** **         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Available for sale |       | $                  | 57,343     |                  | $          | 67,643 |   |
| Held-to-maturity   |       | 51,403             |       | 34,458                |       |
|               |       | $                  | 108,746    |                  | $          | 102,101 |   |

 

AtMarch 31, 2006, the held-to-maturity short-term investments were composedof the following:

 
| ** **                       | ** ** | **Amortized Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair Value** | ** ** |
|----------------------------------|------------|--------------------|------------|--------------------------------|------------|---------------------------------|------------|----------------|------------|
| Corporate  debt obligations      |       | $                  | 34,946     |                           | $          | 1                               |       | $              | (71        | ) | $ | 34,876 |   |
| State and  municipal obligations |       |               | 13,459     |                           |       | —                          |       |           | (6         | ) | 13,453 |   |
| Federal  agency notes            |       | 2,998              |       | —                         |       | (4                              | )          | 2,994          |       |
|                             |       | $                  | 51,403     |                           | $          | 1                               |       | $              | (81        | ) | $ | 51,323 |   |

 

AtDecember 31, 2005, the held-to-maturity short-term investments werecomposed of the following:

 
| ** **                       | ** ** | **Amortized Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair Value** | ** ** |
|----------------------------------|------------|--------------------|------------|--------------------------------|------------|---------------------------------|------------|----------------|------------|
| Corporate debt obligations       |       | $                  | 25,000     |                           | $          | —                          |       | $              | (88        | ) | $ | 24,912 |   |
| State and  municipal obligations |       |               | 6,467      |                           |       | —                          |       |           | (5         | ) | 6,462 |   |
| Federal agency notes             |       | 2,991              |       | —                         |       | (13                             | )          | 2,978          |       |
|                             |       | $                  | 34,458     |                           | $          | —                          |       | $              | (106       | ) | $ | 34,352 |   |

 

10

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**Inventories**

 
| ** **      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|--------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2006**           | ** ** | **2005**              | ** ** |
|            |       |               |       |                  |       |
| Raw materials   |       | $                  | 51,658     |                  | $          | 49,936 |   |
| Work in process |       | 24,491             |       | 26,002                |       |
| Finished goods  |       | 61,154             |       | 47,665                |       |
|            |       | $                  | 137,303    |                  | $          | 123,603 |   |

 

**4.****                                      LONG-TERMDEBT**

 
| ** **                                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Senior secured term loan                       |       | $                  | 33,250     |                  | $          | 36,500 |   |
| 1% convertible senior subordinated  debentures |       | 250,000            |       | 250,000               |       |
| IDA notes                                      |       | 10,800             |       | 10,800                |       |
|                                           |       | 294,050            |       | 297,300               |       |
| Less: Current portion                          |       | (13,000            | )          | (13,000               | )          |
|                                           |       | $                  | 281,050    |                  | $          | 284,300 |   |

 

See Note 10 in the Notes to the ConsolidatedFinancial Statements in the 2005 Form 10-K for information on the termsand conditions of the senior secured credit facility. As of March 31,2006, the Company had availability of approximately $65 million and nooutstanding borrowings under the senior secured revolving credit facility. Theinterest rate on the senior secured term loan was 6.33% and 6.17% at March 31,2006 and December 31, 2005, respectively. Management believes the Companywas in compliance with all of its covenants under this facility as of March 31,2006.

 

See Note 10 in the Notes to the ConsolidatedFinancial Statements in the 2005 Form 10-K for information on the termsand conditions of the 1% convertible senior subordinated debentures. Theestimated fair value of the Company’s convertible debentures as of March 31,2006 and December 31, 2005 was $341.6 million and $258.2 million,respectively.

 

**5.****                                      RESTRUCTURINGCHARGES**

 

**2005Restructuring Initiatives**

 

InAugust 2005, the Board of Directors of CommScope adopted globalmanufacturing initiatives to reduce costs by improving manufacturing efficiencyand to enhance the Company’s long-term competitive position. Implementation ofthese initiatives includes shifting significant Enterprise and Broadbandsegment cable production capacity among CommScope’s global facilities and theexpected closing of a Broadband segment manufacturing facility in Scottsboro,Alabama in late 2006. As a result of these initiatives, the Company recognizedpretax charges of $34.5 million during 2005 and $3.7 million during the threemonths ended March 31, 2006.

 

Theactivity within the liability (included in other accrued liabilities) for theserestructuring initiatives was as follows:

 
| ** **                            | ** ** | **Employee-  Related  Costs** | ** ** | **Equipment  Relocation  Costs** | ** ** | **Asset  Impairment  Charges** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------|------------|
| Balance as  of December 31, 2005 |       | $                             | 8,087      |                             | $          | —                         |       | $         | —     |   | $ | 8,087 |   |
| Activity  during first quarter 2006   |       |                          |       |                             |       |                           |       |      |       |
| Additional  charge recorded           |       | 1,940                         |       | 1,809                            |       | —                         |       | 3,749     |       |
| Cash paid                             |       | (7,850                        | )          | (1,809                           | )          | —                         |       | (9,659    | )          |
| Non-cash                              |       | —                        |       | —                           |       | —                         |       | —    |       |
| Balance as  of March 31, 2006    |       | $                             | 2,177      |                             | $          | —                         |       | $         | —     |   | $ | 2,177 |   |

 

Employee-relatedcosts include the expected severance costs and related fringe benefits, accruedover the remaining period employees are required to work in order to receiveseverance benefits. Additional pretax employee-related costs of $1.5 million to$2.5 million are expected to be recognized during the balance of 2006.

 

11

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Equipmentrelocation costs relate directly to shifting manufacturing capacity among ourglobal manufacturing facilities and include costs to uninstall, pack, ship andre-install equipment as well as the costs to prepare the receiving facility toaccommodate the equipment. These costs are recognized as the expenses areincurred and additional costs of $2.5 million to $3.5 million are expected tobe recognized, substantially during the balance of 2006.

 

Assetimpairment charges relate to production equipment that has been identified asexcess, pending consolidation of certain production operations in otherfacilities. It is anticipated that this equipment will be available for saleonce the facility consolidation is complete. The equipment has been recorded atits estimated net realizable value upon sale plus an estimate of its remainingutility while still in service. Additional impairment charges may beincurred upon the disposition of these assets or if additional excess equipmentis identified.

 

**2004Restructuring Initiatives**

 

InOctober 2004, the Board of Directors of Connectivity SolutionsManufacturing, Inc. (CSMI), a wholly-owned subsidiary of the Company,adopted organizational and cost reduction initiatives at its Omaha, Nebraskafacility in order to improve its competitive position.

 

The activity within the liability for theserestructuring initiatives during the three months ended March 31, 2006 wasas follows:

 
| ** **                            | ** ** | **Employee-  Related  Costs** | ** ** | **Process  Improvement  Costs** | ** ** | **Impairment  Charges** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|-------------------------|------------|-----------|------------|
| Balance as  of December 31, 2005 |       | $                             | 173        |                            | $          | —                  |       | $         | —     |   | $ | 173 |   |
| Activity  during first quarter 2006:  |       |                          |       |                            |       |                    |       |      |       |
| Cash paid                             |       | (84                           | )          | —                          |       | —                  |       | (84       | )          |
| Balance as  of March 31, 2006    |       | $                             | 89         |                            | $          | —                  |       | $         | —     |   | $ | 89 |   |

 

No future charges are anticipated inconnection with these initiatives and the remainder of the liability isexpected to be substantially paid during the balance of 2006.

 

**6.****                                     ****DERIVATIVES AND HEDGINGACTIVITIES**

 

As of March 31, 2006 and 2005, the onlyderivative financial instrument outstanding was a cross currency swap of U.S.dollars for euros with a notional amount of $14 million. During the threemonths ended March 31, 2005, the swap was designated and documented as ahedge of the Company’s net investment in its Belgian subsidiary to reduce thevolatility in stockholders’ equity caused by changes in euro exchange rates. EffectiveOctober 1, 2005, a portion of the hedging instrument was designated as ahedge against fluctuations in the fair value of certain of the Company’seuro-denominated assets. Losses of $48 (pre-tax) on the portion designated as afair value hedge are reflected in in the Company’s Condensed ConsolidatedStatements of Operations for the three months ended March 31, 2006. Thedesignations of the hedging instrument were effective as of March 31, 2006and 2005, and are expected to continue to be effective for the duration of theagreement, resulting in no anticipated hedge ineffectiveness.

 

The fair value of the derivative instrument,reflected in other noncurrent liabilities, was approximately $6.1 million and$5.8 million as of March 31, 2006 and December 31, 2005,respectively.

 

There were no material reclassifications fromother comprehensive income (loss) to earnings during the three months ended March 31,2006 and 2005.

 

12

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Activity in the accumulated net loss on derivativeinstruments included in accumulated other comprehensive loss consisted of thefollowing:

 
| ** **                                                                                | ** ** | **Three Months  Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                | ** ** | **2005** | ** ** |
| Accumulated  net loss on derivative instruments, beginning of period                      |       | $                                       | (4,274     | ) | $ | (5,716 | ) |
| Net gain  (loss) on derivative financial instrument designated as a net investment  hedge |       | (171                                    | )          | 358 |   |
| Accumulated net loss on derivative instruments, end of period                             |       | $                                       | (4,445     | ) | $ | (5,358 | ) |

 

During the three months ended March 31,2006 and 2005, the income tax expense (benefit) related to the gain (loss) onthe derivative financial instrument designated as a net investment hedge andreported within other comprehensive income was $(101) and $210, respectively.

 

**7.****                   ****EMPLOYEE BENEFIT PLANS**

 
| ** **                            | ** ** | **Pension Benefits**                   | ** ** | **Other Postretirement  Benefits** | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | **Three Months Ended  March 31,** | ** ** |
| ** **                            | ** ** | **2006**                               | ** ** | **2005**                           | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                          |       | $                                      | 814        |                               | $          | 991 |   | $ | 1,128 |   | $ | 1,053 |   |
| Interest cost                         |       | 1,725                                  |       | 1,570                              |       | 1,229 |   | 1,152 |   |
| Recognized actuarial loss             |       | 13                                     |       | —                             |       | 140 |   | 89 |   |
| Amortization of prior service cost    |       | (97                                    | )          | —                             |       | (132 | ) | — |   |
| Amortization of transition obligation |       | 10                                     |       | 11                                 |       | — |   | — |   |
| Return on plan assets                 |       | (1,967                                 | )          | (1,584                             | )          | (139 | ) | (131 | ) |
| Net periodic benefit cost             |       | $                                      | 498        |                               | $          | 988 |   | $ | 2,226 |   | $ | 2,163 |   |

 

The Company contributed approximately $5.2 millionto its pension plans during the three months ended March 31, 2006 andanticipates making additional contributions of approximately $9.8 million tothese plans during 2006. The Company contributed approximately $1.0 million tothe other postretirement benefit plans during the three months ended March 31,2006 and anticipates making additional contributions of approximately $3.0million to these plans during 2006.

 

**8.EQUITY-BASED COMPENSATION PLANS**

 

Equity-basedcompensation awards are provided to employees and non-employee directors underthe Amended and Restated CommScope, Inc. 1997 Long-Term Incentive Plan(the CommScope Incentive Plan). Awards under the CommScope Incentive Plan may includestock options, restricted stock, performance units, performance shares andphantom shares for employees of the Company and stock, restricted stock andstock options for non-employee directors of the Company. As of March 31,2006, 13.2 million shares have been authorized for issuance under the CommScopeIncentive Plan and 0.4 million remain available to be issued.

 

PerformanceUnits (PUs) are stock awards where the number of shares ultimately received bythe employee depends on Company performance against specified targets and vestover a three-year period. The fair value of each PU is determined on the dateof grant, based on the Company’s stock price and assumes that performancetargets will be achieved. Over the performance period, the number of shares ofstock that will be issued is adjusted upward or downward based upon theprobable achievement of performance targets. The ultimate number of sharesissued and the related compensation cost recognized will be based on acomparison of the final performance metrics to the specified targets.

 

PhantomStock Awards (PSAs) entitle the holder to shares of common stock after thethree-year vesting period. The fair value of the awards is determined on thegrant date based on the Company’s stock price.

 

13

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Stockoptions are awards that allow the employee to purchase shares of the Company’scommon stock at a fixed price. Stock options are granted at an exercise priceequal to or greater than the Company’s stock price at the date of grant. Theseawards generally vest one-third per year over the three years following thegrant date and have a contractual term of ten years.

 

Thefollowing table sets forth the total equity-based compensation expenseresulting from PUs, PSAs and stock options included in the CondensedConsolidated Statements of Operations for the three months ended March 31,2006 (in thousands):

 
| Cost of  sales                              |   | $   | 298    |   |
|---------------------------------------------|--------|-----|--------|--------|
| Selling, general and administrative expense |   | 611 |   |
| Research and development expense            |   | 111 |   |
| Total  equity-based compensation expense    |   | $   | 1,020  |   |

 

Asof March 31, 2006, $10.3 million of total unrecognized compensation costsrelated to non-vested awards is expected to be recognized over a weightedaverage period of 2.3 years. There were no significant capitalizedequity-based compensation costs at March 31, 2006.

 

Thefollowing table summarizes the stock option activity for the three months endedMarch 31, 2006 (in thousands, except per share data):

 
| ** **                           | ** ** | **Shares** | ** ** | **Weighted  Average  Option  Exercise  Price Per  Share** | ** **  | **Weighted  Average  Grant Date  Fair  Value Per  Share** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|--------------------------------------|------------|------------|------------|-----------------------------------------------------------|-------------|-----------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding,  December 31, 2005 |       | 8,440      |       | $                                                         |  16.31 |                                                      |       |                            | $          |  42,705 |   |
| Granted                              |       | 7          |       | $                                                         |  19.91 |                                                      | $          |  9.01                      |       | — |   |
| Exercised                            |       | (1,969     | )          | $                                                         |  14.05 |                                                      |       |                            | $          |  21,190 |   |
| Expired                              |       | (4         | )          | $                                                         |  38.38 |                                                      |       |                            | —     |   |
| Outstanding,  March 31, 2006    |       | 6,474      |       | $                                                         |  16.99 |                                                      |       |                            | $          |  80,119 |   |
|                                      |            |            |            |                                                           |             |                                                           |            |                                 |            |  |  |  |

 

Asof March 31, 2006, the aggregate intrinsic value of exercisable stockoptions was $77,130, with a weighted average remaining contractual life of 5.7years.

 

Thefollowing table summarizes the PU and PSA activity for the three months ended March 31,2006 (in thousands, except per share data):

 
| ** **                          | ** ** | **Units** | ** ** | **Weighted   Average Grant   Date Fair   Value Per   Share** | ** ** |
|-------------------------------------|------------|-----------|------------|--------------------------------------------------------------|------------|
| Outstanding, December 31, 2005 |       | 484       |       | $                                                            | 19.91      |   |
| Granted                             |       | 12        |       | $                                                            | 23.98      |   |
| Forfeited                           |       | (7        | )          | $                                                            | 19.91      |   |
| Outstanding, March 31, 2006    |       | 489       |       | $                                                            | 20.01      |   |

 

Thefollowing table summarizes the non-vested stock option, PU and PSA activity forthe three months ended March 31, 2006 (in thousands):

 
| ** **                                | ** ** | **Stock  Options** | ** ** | **PUs and PSAs** | ** ** |
|-------------------------------------------|------------|--------------------|------------|------------------|------------|
| Non-vested awards, December 31, 2005 |       | 293                |       | 484              |       |
| Granted                                   |       | 7                  |       | 12               |       |
| Vested                                    |       | (13                | )          | (1               | )          |
| Forfeited                                 |       | (4                 | )          | (7               | )          |
| Non-vested awards, March 31, 2006    |       | 283                |       | 488              |       |

 

 

14

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Theshares under option at March 31, 2006 were in the following exercise priceranges:

 
| ** **                                  | ** ** | **Options Outstanding**    | ** ** | **Options Exercisable**                                             | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|--------------------------------------------------------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Shares  (in thousands)** | ** ** | **Weighted  Average  Remaining  Contractual Life  (in Years)** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** | **Shares  (in thousands)** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** |
| $7.43 to $10.00                             |       | 1,075                           |       | 6.6                                                                      |       | $ | 7.92 |   | 1,075 |   | $ | 7.92 |   |
| 10.01 to 15.50                              |       | 1,063                           |       | 2.9                                                                      |       | $ | 13.53 |   | 977 |   | $ | 13.52 |   |
| 15.51 to 16.50                              |       | 1,579                           |       | 6.5                                                                      |       | $ | 15.93 |   | 1,579 |   | $ | 15.93 |   |
| 16.51 to 18.00                              |       | 927                             |       | 5.1                                                                      |       | $ | 17.16 |   | 927 |   | $ | 17.16 |   |
| 18.01 to 24.00                              |       | 1,226                           |       | 8.6                                                                      |       | $ | 19.13 |   | 1,029 |   | $ | 18.97 |   |
| 24.01 to 47.06                              |       | 604                             |       | 3.7                                                                      |       | $ | 37.38 |   | 604 |   | $ | 37.38 |   |
| $7.43 to $47.06                             |       | 6,474                           |       | 5.9                                                                      |       | $ | 16.99 |   | 6,191 |   | $ | 16.94 |   |
|                                             |            |                                 |            |                                                                          |            |  |  |  |  |  |  |  |  |  |  |

 

TheCompany’s pro forma disclosures of net earnings for periods prior to theadoption of SFAS No. 123(R) were determined under a fair value method asprescribed by SFAS No. 123. Key input assumptions used to estimate thefair value of stock options include the grant price of the award, the expectedoption term, volatility of the Company’s stock, the risk-free rate and theCompany’s projected dividend yield. The Company believes that the valuationtechnique and the approach utilized to develop the underlying assumptions areappropriate in estimating the fair values of CommScope stock options. Estimatesof fair value are not intended to predict actual future events or the valueultimately realized by employees who receive equity awards, and subsequentevents are not indicative of the reasonableness of the original estimates offair value made by the Company under SFAS No. 123 or SFAS No. 123(R).

 

Hadthe Company accounted for equity-based compensation plans using the fair valuebased accounting method described by SFAS No. 123 for the periods prior to2006, the Company’s basic and diluted net income per share for the three monthsended March 31, 2005, would have been as follows (in thousands, except pershare data):

 
| Net income                                                                                                                   |   | $      | 5,534  |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Less: Total  equity-based employee compensation expense determined under fair value based  method for all awards, net of tax |   | (1,998 | )      |
| Pro forma net income for basic net income  per share                                                                         |   | $      | 3,536  |   |
| Add: Effect of assumed conversion of 1%  convertible senior subordinated debentures due 2024                                 |   | 629    |   |
| Pro forma net income for diluted net income  per share                                                                       |   | $      | 4,165  |   |
|                                                                                                                         |   |   |   |
| Net income per share:                                                                                                        |   |   |   |
| Basic-as reported                                                                                                            |   | $      | 0.10   |   |
| Basic-pro forma                                                                                                              |   | $      | 0.06   |   |
|                                                                                                                         |   |   |   |
| Diluted-as reported                                                                                                          |   | $      | 0.09   |   |
| Diluted-pro forma                                                                                                            |   | $      | 0.06   |   |

 

OnAugust 10, 2005, the Compensation Committee of the Company’s Board ofDirectors amended certain stock option agreements with employees to acceleratethe vesting of certain outstanding unvested stock options. Unvested options topurchase 2.1 million shares with an average exercise price of $17.54 per sharebecame exercisable as a result of the vesting acceleration. The intrinsic valueof the stock options on the acceleration date was $2.6 million. As a result ofthe accelerated vesting, the Company recognized no compensation expenseassociated with these options during the three months ended March 31, 2006.Had these options not been accelerated, the Company would have recognizedadditional pre-tax compensation expense for the three months ended March 31,2006 of $1.7 million.

 

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**9.****                                     ****SEGMENTS**

 

The Company’s reportable segments are defined bymajor product category as follows: Enterprise, Broadband and Carrier.

 

The Enterprise segment consists mainly ofstructured cabling systems for business enterprise applications andconnectivity solutions for wired and wireless networks within organizations.The segment also includes coaxial cable for various video and dataapplications.

 

The Broadband segment primarily consists ofcoaxial cable, fiber optic cable and conduit for cable television systemoperators. These products support multi-channel video, voice and high-speeddata services for residential and commercial customers using Hybrid FiberCoaxial architecture.

 

The Carrier segment consists of secureenvironmental enclosures for electronic devices and equipment, cables andcomponents used by wireless providers to connect antennae to transmisters and structuredcabling solutions for telephone central offices. These products are primarilyused by telecommunications service providers or “carriers.”

 

The following tables provide summaryfinancial information by segment as of March 31, 2006 and December 31,2005 and for the three months ended March 31, 2006 and 2005 (in millions):

 
| ** **                                         | ** ** | **As of  March 31,  2006** | ** ** | **As of  December 31,  2005** | ** ** |
|----------------------------------------------------|------------|---------------------------------|------------|------------------------------------|------------|
| Identifiable segment-related assets:               |       |                            |       |                               |       |
| Enterprise                                         |       | $                               | 371.1      |                               | $          | 352.4 |   |
| Broadband                                          |       | 366.1                           |       | 343.2                              |       |
| Carrier                                            |       | 110.5                           |       | 108.0                              |       |
| Total identifiable segment-related assets          |       | 847.7                           |       | 803.6                              |       |
|                                               |       |                            |       |                               |       |
| Reconciliation to total assets:                    |       |                            |       |                               |       |
| Cash, cash  equivalents and short-term investments |       | 242.0                           |       | 248.7                              |       |
| Deferred  income taxes                             |       | 48.4                            |       | 49.9                               |       |
| Total assets                                       |       | $                               | 1,138.1    |                               | $          | 1,102.2 |   |

 
| ** **                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|
| ** **                    | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Net sales:                    |       |                                   |       |   |   |
| Enterprise                    |       | $                                      | 172.1      |   | $ | 157.7 |   |
| Broadband                     |       | 125.9                                  |       | 108.1 |   |
| Carrier                       |       | 54.7                                   |       | 44.1 |   |
| Inter-segment  eliminations   |       | (0.4                                   | )          | (0.8 | ) |
| Consolidated net sales        |       | $                                      | 352.3      |   | $ | 309.1 |   |
|                          |       |                                   |       |   |   |
| Operating income:             |       |                                   |       |   |   |
| Enterprise                    |       | $                                      | 11.3       |   | $ | 8.9 |   |
| Broadband                     |       | 8.0                                    |       | 6.5 |   |
| Carrier                       |       | —                                 |       | (6.9 | ) |
| Consolidated operating income |       | $                                      | 19.3       |   | $ | 8.5 |   |

 

16

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**10.****                              ****SUPPLEMENTAL CASH FLOWINFORMATION**

 
| ** **                                                                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                               | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Cash paid during the period for:                                                                                                                         |       |                                   |       |   |   |
| Income taxes                                                                                                                                             |       | $                                      | 1,681      |   | $ | 4,726 |   |
| Interest                                                                                                                                                 |       | 2,190                                  |       | 2,223 |   |
|                                                                                                                                                     |       |                                   |       |   |   |
| Noncash investing and financing activities:                                                                                                              |       |                                   |       |   |   |
| Asset  previously classifed as held for sale transferred from prepaid and other  current assets to property, plant and equipment at estimated fair value |       | $                                      | 10,190     |   | $ | — |   |
| Fair value  less costs to sell of held for sale assets transferred from property, plant and  equipment to prepaid and other current assets               |       | —                                 |       | 11,190 |   |

 

17

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# **ITEM 2.**                             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

 

The following discussion and analysis of ourfinancial condition and results of operations for the three months ended March 31,2006 and 2005 is provided to increase the understanding of, and should be readin conjunction with, the unaudited condensed consolidated financial statementsand accompanying notes included in this document as well as the auditedconsolidated financial statements, related notes thereto and management’sdiscussion and analysis of financial condition and results of operations,including management’s discussion and analysis about the application ofcritical accounting policies included in our 2005 Annual Report on Form 10-K.

 

**Overview**

 

CommScope, Inc., through our wholly-ownedsubsidiaries, is a world leader in the design and manufacture of cable andconnectivity solutions for communications networks. We focus on the ‘last mile’in communications networks, which is the distribution access, or final link tothe customer. Through our acquisition of the Connectivity Solutions business ofAvaya Inc. on January 31, 2004, we became a global leader instructured cabling for business enterprise applications. We are also a globalleader in broadband coaxial cables for the cable television industry. We alsodesign, manufacture and market a broad line of high-performance electronic,coaxial and fiber optic cable products for data networking, Internet access,wireless communication, telephony and other broadband applications. Inaddition, we are a leading provider of environmentally secure enclosures andstructured cabling solutions supporting central offices for telecommunicationservice providers in the United States.

 

### ***CRITICAL ACCOUNTING POLICIES***

### * *

There have been no changes in our criticalaccounting policies or significant accounting estimates as disclosed in our2005 Annual Report on Form 10-K other than the implementation of SFAS No. 123(R)as of January 1, 2006 on the modified prospective basis (see Notes 1 and 8in the Notes to the Consolidated Financial Statements included elsewhere inthis Form 10-Q) .

 

### ***COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHSENDED MARCH 31, 2006 WITH THE THREE MONTHS ENDED MARCH 31, 2005***

 
| ** **                    | ** ** | **Three Months Ended March 31,** | ** ** | ** **           | ** ** | ** **        | ** ** |
|-------------------------------|------------|---------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                    | ** ** | **2006**                              | ** ** | **2005**             | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **$  (millions)**                     | ** ** | **% of  Net  Sales** | ** ** | **$  (millions)** | ** ** | **% of  Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%   Change** | ** ** |
|                          |       |                                  |       |                 |       |              |       |   |   |   |   |   |   |
| Net sales                     |       | $                                     | 352.3      |                 | 100.0      | %                 | $          | 309.1 |   | 100.0 | % | $ | 43.2 |   | 14.0 | % |
| Gross profit                  |       | 84.7                                  |       | 24.1                 |       | 72.2              |       | 23.4 |   | 12.5 |   | 17.4 |   |
| SG&A expense              |       | 54.2                                  |       | 15.4                 |       | 53.9              |       | 17.4 |   | 0.3 |   | 0.6 |   |
| R&D expense               |       | 7.5                                   |       | 2.1                  |       | 7.8               |       | 2.5 |   | (0.3 | ) | (3.8 | ) |
| Restructuring  costs          |       | 3.7                                   |       | 1.1                  |       | 2.0               |       | 0.6 |   | 1.7 |   | 84.8 |   |
| Net income                    |       | 12.7                                  |       | 3.6                  |       | 5.5               |       | 1.8 |   | 7.2 |   | 130.0 |   |
| Net income  per diluted share |       | 0.19                                  |       |                 |       | 0.09              |       |   |   |   |   |   |   |
|                               |            |                                       |            |                      |            |                   |            |  |  |  |  |  |  |  |  |  |

 

**Net sales**

 

Overall, the year-over-year increase in net sales isattributable to growth in domestic and international sales in the Broadbandsegment and domestic sales for the Enterprise and Carrier segments. Theimprovement in net sales can be attributed to the positive impact of priceincreases implemented for certain products in response to significant increasesin the costs of raw materials, improved project business and improved economicconditions for the telecommunications industry. International sales decreasedas a percentage of total net sales from 33.4% for the three months ended March 31,2005 to 30.4% for the three months ended March 31, 2006, largely as aresult of weakness in the European region. For further details by segment, see section titled“Segment Results” below.

 

18

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### ***Gross profit (net sales less cost of sales)***

### * *

The year-over-year increase in gross profit of $12.5million and gross profit margin to 24.1% from 23.4% was primarily due to theimpact of price increases implemented in response to increases in costs of rawmaterials, higher sales levels, an improvement in the mix of products sold andthe impact of expense reduction efforts.

 

We expect additional increases in the costs ofcertain raw materials, particularly copper and aluminum, and continuedvolatility in the costs of other raw materials such as plastics and otherpolymers, which are derived from oil and natural gas, to result in increasedcost of sales. If we are unable to achieve customer acceptance of priceincreases, higher sales volume and continued cost efficiencies to offset theincreasing costs of raw materials, we could realize lower gross profit andgross profit margin.

 

### ***Selling, general and administrative expense***

### * *

The year-over-year increase in selling, general andadministrative expense (SG&A) of $0.3 million was primarily due to highermarketing costs associated with the higher level of sales; these increasedcosts were substantially offset by a $1.0 million reduction in bad debt expensethat resulted from lower balances of foreign and problem account balances. Thedecrease in SG&A expense as a percentage of sales can be primarilyattributed to increased sales, largely resulting from price increases, lowerbad debt expense and expense control initiatives.

 

### ***Research and development***

### * *

Research and development (R&D) expense decreasedby $0.3 million year over year primarily due to cost reduction efforts. R&Dexpense as a percentage of net sales decreased modestly to 2.1% for the threemonths ended March 31, 2006 compared to 2.5% for the three months ended March 31,2005. This year-over-year decrease in R&D expense as a percentage of netsales is mainly due to increased sales, largely resulting from price increases,and expense control initiatives. The ongoing R&D activities generallyrelate to bringing new products to market and to modifying existing products tobetter serve our customers.

 

**Restructuring Costs**

 

We recognized pretax restructuring costs of $3.7million in the first quarter of 2006. These costs resulted from the continuedimplementation of the global manufacturing initiatives which began during thethird quarter of 2005. Included in the costs incurred during the firstquarter of 2006 were employee-related costs of $1.9 million, which consisted ofexpected severance costs and related fringe benefits, accrued over theremaining period employees are required to work in order to receive benefits,and equipment relocation costs of $1.8 million, which consisted of costsdirectly related to shifting manufacturing capacity among our globalmanufacturing facilities including costs to uninstall, pack, ship andre-install equipment as well as costs to prepare the receiving facility toaccommodate the equipment. During the first quarter of 2005, we recognized $2.0million of pretax restructuring costs related to the continued implementationof the organizational and cost reduction initiatives at the Omaha facility ofConnectivity Solutions Manufacturing, Inc., our wholly-owned manufacturingsubsidiary, which began during the fourth quarter of 2004.

 

We anticipate that we will recognize additionalpretax restructuring charges of up to $6 million to complete the implementationof the global manufacturing initiatives. The majority of these costs areexpected to be incurred during the balance of 2006.

 

There continues to be excess real estate at theOmaha facility which we are attempting to sell or lease. Additional charges,which are not expected to be material, could result from actions that may betaken.

 

### ***Net interest income/expense***

### * *

We recognized netinterest income of $67 for the three months ended March 31, 2006 comparedto net interest expense of $1,079 for the three months ended March 31,2005. The change was due to the impact of significantly higher balances ofinvested funds (cash, cash equivalents and short-term investments) as well asimproved rates of return on invested balances as a result of increases in LIBORand other short-term interest rates. Interest expense declined slightly as aresult of lower levels of outstanding debt due to scheduled principalrepayments and a reduction in the interest rate spreads on our senior securedcredit facility due to improvements in our fixed charge coverage ratio, offsetby the impact of increases in LIBOR and other short-term interest rates. Ourweighted average effective interest rate on outstanding borrowings, includingamortization of associated long-term financing costs, was essentially unchangedat 2.73% as of March 31, 2006 compared to 2.74% as of December 31,2005.

 

19

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### ***Income taxes***

### * *

Our effective income tax rate was 36.5% for thethree months ended March 31, 2006 compared to 24.7% for the three monthsended March 31, 2005. The tax provision for the three months ended March 31,2006 included $0.4 million related to adjustments of reserves established as aresult of matters raised by various taxing authorities during audits of priortax returns and other adjustments that resulted from the completion oramendment of prior year tax returns. The effective rate excluding these itemsthat relate to prior years was 34.3%. Our effective tax rate reflects thebenefits derived from significant operations outside the U.S., which aregenerally taxed at rates lower than the U.S. statutory rate of 35%, offset tosome extent by state income taxes. The benefits from international activitiesin lower tax rate jurisdictions were greater during the three months ended March 31,2005 than during the three months ended March 31, 2006 due to changes inthe mix of earnings among foreign and domestic entities.

 

# **Segment Results**

 
| ** **                           | ** ** | **Three months  ended** | ** ** | **Three months  ended** | ** ** | ** **     | ** ** | ** **           | ** ** |
|--------------------------------------|------------|-------------------------|------------|-------------------------|------------|----------------|------------|----------------------|------------|
| ** **                           | ** ** | **March 31,**      | ** ** | **March 31,**      | ** ** | ** **     | ** ** | ** **           | ** ** |
| ** **                           | ** ** | **2006**                | ** ** | **2005**                | ** ** | ** **     | ** ** | ** **           | ** ** |
| ** **                           | ** ** | **Net  Sales**          | ** ** | **% of  Net  Sales**    | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
| Net sales by segment:                |       |                    |       |                    |       |           |       |                 |       |   |   |   |   |
| Enterprise                           |       | $                       | 172.1      |                    | 48.9       | %              | $          | 157.7                |       | 51.0 | % | $ | 14.4 |   | 9.1 | % |
| Broadband                            |       | 125.9                   |       | 35.7                    |       | 108.1          |       | 35.0                 |       | 17.8 |   | 16.5 |   |
| Carrier                              |       | 54.7                    |       | 15.5                    |       | 44.1           |       | 14.3                 |       | 10.6 |   | 24.0 |   |
| Inter-segment  eliminations          |       | (0.4                    | )          | (0.1                    | )          | (0.8           | )          | (0.3                 | )          | 0.4 |   |   |   |
| Consolidated  net sales              |       | $                       | 352.3      |                    | 100.0      | %              | $          | 309.1                |       | 100.0 | % | $ | 43.2 |   | 14.0 | % |
|                                 |       |                    |       |                    |       |           |       |                 |       |   |   |   |   |
| Total domestic sales                 |       | $                       | 245.1      |                    | 69.6       | %              | $          | 205.8                |       | 66.6 | % | $ | 39.3 |   | 19.1 | % |
| Total international sales            |       | 107.2                   |       | 30.4                    |       | 103.3          |       | 33.4                 |       | 3.9 |   | 3.8 |   |
| Total worldwide sales                |       | $                       | 352.3      |                    | 100.0      | %              | $          | 309.1                |       | 100.0 | % | $ | 43.2 |   | 14.0 | % |
|                                 |       |                    |       |                    |       |           |       |                 |       |   |   |   |   |
| Operating  income (loss) by segment: |       |                    |       |                    |       |           |       |                 |       |   |   |   |   |
| Enterprise                           |       | $                       | 11.3       |                    |       |           | $          | 8.9                  |       |   |   | $ | 2.4 |   | 27.0 | % |
| Broadband                            |       | 8.0                     |       |                    |       | 6.5            |       |                 |       | 1.5 |   | 23.1 |   |
| Carrier                              |       | —                  |       |                    |       | (6.9           | )          |                 |       | 6.9 |   | 100.0 |   |
| Consolidated  operating income       |       | $                       | 19.3       |                    |       |           | $          | 8.5                  |       |   |   | $ | 10.8 |   | 127.1 | % |

 

*Enterprise Segment*

 

The Enterprise segment consists mainly of structuredcabling systems for business enterprise applications and connectivity solutionsfor wired and wireless networks within organizations. The segment also includescoaxial cable for various video and data applications.

 

The increase in Enterprise segment net sales wasprimarily driven by price increases and the introduction of new products. Domesticsales were higher, reflecting increased sales volumes as well as the impact ofprice increases and new products. International sales were lower as a result ofa decline in sales volume, particularly in the Europe/Middle East/Africa region.We implemented price increases for certain Enterprise products during 2005 and thefirst quarter of 2006 as a result of significant increases in the cost ofcertain raw materials.

 

We expect demand for Enterprise products to bedriven by the ongoing need for bandwidth and high-performance structuredcabling in the enterprise market and affected by global information technologyspending, among other things.

 

The improvement in Enterprise segment operatingincome is primarily attributable to changes in product mix towards productsthat generate higher margins. The price increases that were realized weresubstantially offset by the impact of increased raw material costs. Operatingincome was favorably impacted by a modest reduction in R&D expenses andunfavorably impacted by restructuring costs of $3.0 million for the threemonths ended March 31, 2006 compared to $1.2 million for the three monthsended March 31, 2005.

 

20

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*Broadband Segment*

 

The Broadband segment primarily consists of coaxialcable, fiber optic cable and conduit for cable television system operators. Theseproducts support multi-channel video, voice and high-speed data services forresidential and commercial customers using Hybrid Fiber Coaxial architecture.

 

The increase in net sales of Broadband productsprimarily resulted from strong domestic and international sales for most of ourproduct lines.This increase reflects the impact of higher sales volumes andprice increases announced during 2005 and the first quarter of 2006 for certainproducts to mitigate the significant increase in raw material costs. Thedomestic sales increase can be also attributed to continued infrastructureneeds of our large cable television system operator customers. Net salesincreased in most international regions as a result of new projects and maintenanceprojects. Net sales for the three months ended March 31, 2006 includes$0.7 million related to the MC2® product that was acquired fromTrilogy Communications, Inc. on March 6, 2006.

 

The improvement in Broadband segment operatingincome reflects the impact of strong sales volumes and price increases, whichwere largely offset by the impact of raw material cost increases. Operatingincome for the three months ended March 31, 2006 included restructuringcosts of $0.7 million. There were no such costs incurred during the comparable2005 period.

 

*Carrier Segment*

 

The Carrier segment consists of secure environmentalenclosures for electronic devices and equipment, cables and components used bywireless providers to connect antennae to transmitters and structured cablingsolutions for telephone central offices. These products are primarily used bytelecommunications service providers or “carriers.”

 

The Carrier segment net sales increasedsubstantially on a year over year basis, primarily as a result of IntegratedCabinet Solutions (ICS) product group sales related to Digital Subscriber Line(DSL) deployments by telephone companies. The wireless product group net saleswithin this segment were essentially unchanged.  Net sales for the ExchangeMAX product groupwithin this segment decreased slightly, reflecting lower sales of twisted paircentral office cable products as a result of our decision to exit thisbusiness.

 

While we expect sales of Carrier products to besomewhat volatile since customer spending is mainly project-driven, we remainoptimistic about our opportunities for the ICS and wireless product groups. Weanticipate growth in sales primarily due to fiber to the node constructionactivity and DSL deployments, which provide opportunities for our ICS productgroup. We also expect continuing expansion in cellular telephone base stations,which affects growth for our wireless product group.

 

The improvement in Carrier segment operatingincome for the three months ended March 31, 2006 over the comparable 2005period is primarily due to the impact of cost reduction initiatives and thehigher sales volume of ICS products. Operating income for the three monthsended March 31, 2005 included $0.8 million of restructuring costs.

 

### ***LIQUIDITY AND CAPITAL RESOURCES***

### * *

**Cash Flow Overview**

 

Our principal sources of liquidity both on ashort-term and long-term basis are cash and cash equivalents, short-terminvestments, cash flows provided by operations and availability under creditfacilities. A reduction in sales and profitability could reduce cash providedby operations and limit availability under credit facilities. In addition,increases in working capital, excluding cash, cash equivalents and short-terminvestments, related to increasing sales could reduce our operating cash flowsin the short term until cash collections of accounts receivable catch up to thehigher level of billings.

 

21

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| ** **                                                                                                           | ** ** | **As of**                 | ** ** | ** **                  | ** ** | ** **         | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|-----------------------------|------------|--------------------|------------|
| ** **                                                                                                           | ** ** | **March  31,  2006** | ** ** | **December 31,  2005** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
|                                                                                                                 |       |                      |       |                        |       |               |       |   |   |
| Cash, cash  equivalents and short-term investments                                                                   |       | $                         | 242.0      |                        | $          | 248.7              |       | $ | (6.7 | ) | (2.7 | )% |
| Working  capital, excluding cash, cash equivalents and short-term investments and  current portion of long-term debt |       | 219.2                     |       | 176.7                       |       | 42.5               |       | 24.1 |   |
| Long-term debt, including current portion                                                                            |       | 294.1                     |       | 297.3                       |       | (3.2               | )          | (1.1 | ) |
| Book capital structure                                                                                               |       | 868.1                     |       | 819.3                       |       | 48.8               |       | 6.0 |   |
| Long-term  debt as a percentage of book capital structure                                                            |       | 33.9                      | %          | 36.3                        | %          |               |       |   |   |
|                                                                                                                      |            |                           |            |                             |            |                    |            |  |  |  |  |  |

 

The decrease in cash, cash equivalents andshort-term investments during the quarter ended March 31, 2006 wasprimarily driven by the utilization of cash flow from operations. Alsoaffecting the balance of cash, cash equivalents and short-term investmentsduring the quarter ended March 31, 2006 was $34.8 million of proceeds andtax benefits realized from the exercise of stock options, a $13.8 millioninvestment to acquire the MC2 75-ohm trunk and distribution cabletelevision products business and certain other assets from TrilogyCommunications, Inc., $6.8 million of capital expenditures and a $5.0million voluntary contribution to one of our defined benefit pension plans.

 
| ** **                                                                                                                       | ** ** | **Three months ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                       | ** ** | **March 31,**     | ** ** | **Dollar** | ** ** | **%**      | ** ** |
| ** **                                                                                                                       | ** ** | **2006**               | ** ** | **2005**   | ** ** | **Change** | ** ** | **Change** | ** ** |
|                                                                                                                             |       |                   |       |       |       |       |       |   |   |
| Net cash used in operating activities                                                                                            |       | $                      | (18.4      | )          | $          | (8.7       | )          | $ | (9.7 | ) | (111.5 | )% |
| Depreciation and amortization                                                                                                    |       | 14.2                   |       | 15.7       |       | (1.5       | )          | (9.6 | ) |
| Increase in  working capital, excluding cash, cash equivalents and short-term investments  and current portion of long-term debt |       | 42.5                   |       | 47.1       |       | (4.6       | )          | (9.8 | ) |
| Capital expenditures                                                                                                             |       | 6.8                    |       | 8.2        |       | (1.4       | )          | (17.1 | ) |
|                                                                                                                                  |            |                        |            |            |            |            |            |  |  |  |  |  |

 

**Operating Activities**

 

During the three months ended March 31, 2006,operating activities utilized $18.4 million in cash compared to using $8.7million during the three months ended March 31, 2005. During the threemonths ended March 31, 2006, net income of $12.7 million and depreciationand amortization of $14.2 million were more than offset by a $25.5 millionincrease in accounts receivable, a $10.7 million decrease in accounts payableand accrued liabilities and an $8.3 million increase in inventories. Theincrease in accounts receivable can be primarily attributed to an increase insales over the fourth quarter of 2005, particularly the portion of the increasethat occurred during the latter part of the first quarter of 2006. Thereduction in accounts payable and accrued liabilities is primarily due topayments during the three months ended March 31, 2006 of year-end incentiveprograms and severance payments resulting from the global manufacturinginitiatives, somewhat offset by increases in accounts payable due to higher rawmaterials purchases.

 

We expect to generate net cash from operationsduring 2006, primarily due to increased margins from sales of certain productgroups and the impact of cost reduction efforts.

 

**Investing Activities**

 

During the three months ended March 31,2006, we acquired certain assets supporting the MC2  75-ohm trunk and distribution cabletelevision products business and certain other assets from TrilogyCommunications, Inc. for a cash payment of $13.8 million.

 

Investment in property, plant and equipment duringthe first quarter decreased by $1.4 million year-over-year to $6.8 million. Theprimary capital expenditures made during the first quarter of 2006 related to theexpansion of our new manufacturing facility in Asia that will provideadditional production capability and continuing investments to support costreduction initiatives.

 

22

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We currently expect total capital expenditures to beapproximately $33 million in 2006 compared to $19.9 million in 2005. Theexpected increase in capital spending during 2006 is primarily for costreduction efforts and additional production capability, primarily in Asia. Weexpect total capital expenditures to remain at a level below consolidateddepreciation and amortization expense for the next several years.

 

**Financing Activities**

 

The exercise of 1.97 million stock optionsduring the three months ended March 31, 2006 generated $27.7 million ofproceeds and $7.1 million from the tax benefits generated by such stock optionexercises.

 

During the three months ended March 31, 2006,we reduced the principal balance of our outstanding long-term debt by $3.25million in accordance with the scheduled maturities outlined in our respectivedebt agreements.

 

**Future Cash Needs**

 

We expect that ourprimary future cash needs will be to fund working capital, capitalexpenditures, debt service, and employee benefit obligations. We elected tomake a voluntary contributon of $9.2 million to a defined benefit pension planduring April 2006. We expect to make additional contributions ofapproximately $3.6 million to our pension and other postretirement benefitplans during 2006. We expect that our noncurrent employee benefit liabilitieswill be funded through cash flow from future operations. In conjunction withour restructuring initiatives, we have accrued a liability of approximately$2.3 million as of March 31, 2006, which is expected to be substantiallypaid during 2006 with final cash settlements during the first quarter of 2007.

 

We believe that our existing cash, cash equivalentsand short-term investments and cash flows from operations, combined withavailability under our senior secured revolving credit facility, will besufficient to meet our presently anticipated future cash needs. We may, fromtime to time, borrow under our revolving credit facility or issue securities,if market conditions are favorable, to meet our future cash needs or to reduceour borrowing costs.

 

There were no material changes in our contractualobligations during the quarter ended March 31, 2006.

 

### ***FORWARD-LOOKING STATEMENTS***

### * *

Certain statements in this Form 10-Qthat are other than historical facts are intended to be “forward-looking statements”within the meaning of the Securities Exchange Act of 1934, the PrivateSecurities Litigation Reform Act of 1995 and other related laws andinclude but are not limited to those statements relating to our businessposition, plans, transition, outlook, revenues, earnings, margins, accretion,synergies and other financial items, restructuring plans, sales and earningsexpectations, expected demand, cost and availability of key raw materials,internal production capacity and expansion, competitive pricing, relativemarket position and outlook. While we believe such statements are reasonable,the actual results and effects could differ materially from those currentlyanticipated. These forward-looking statements are identified, by the use ofcertain terms and phrases including but not limited to “intends,” “intend,” “intended,”“goal,” “estimate,” “estimates,” “expects,” “expect,” “expected,” “project,” “projects,”“projected,” “projections,” “plans,” “anticipates,” “anticipated,” “should,” “designedto,” “foreseeable future,” “believe,” “believes,” “think,” “thinks” and “scheduled”and similar expressions.

 

These statements are subject to various risks anduncertainties, many of which are outside our control, including, withoutlimitation, changes incost and availability of key raw materials and our ability to recover thesecosts from our customers through price increases; the challenges of executingour previously announced global manufacturing initiatives; the integration andexpected synergies related to the acquisition of the MC2® productline from Trilogy Communications, Inc.; customer demand for our productsand the ability to maintain existing business alliances with key Enterprise,Broadband and Carrier customers or distributors; competitive pricing andacceptance of our products; industry competition and the ability to retaincustomers through product innovation; possible production disruption due tosupplier bankruptcy, reorganization or restructuring; successful ongoingoperation of our vertical integration activities; the possibility of furtherrestructuring actions; possible future impairment charges for fixed orintangible assets; increased obligations under employee benefit plans; abilityto achieve expected sales, growth and earnings goals; ability to achieveexpected benefits from future acquisitions; costs of protecting or defendingour intellectual property; ability to obtain capital on commercially reasonableterms; adequacy and availability of insurance; costs and challenges ofcompliance with domestic and foreign environmental laws; variability inexpected tax rate; product performance issues and associated warranty claims;regulatory changes affecting us or the industries we serve; any changesrequired by the Securities and Exchange Commission in connection with itsreview of our public filings; authoritative changes in generally acceptedaccounting principles by standard-setting bodies; environmental remediationissues; terrorist 

 

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activityor armed conflict; political instability; major health concerns; and anystatements of belief and any statements of assumptions underlying any of theforegoing. These and other factors are discussed in greater detail in Item 1A.to our Annual Report on Form 10-K for the year ended  December 31, 2005. The informationcontained in this Form 10-Q represents our best judgment at the date ofthis report based on information currently available. However, we do notintend, and are not undertaking any duty or obligation, to update thisinformation to reflect developments or information obtained after the date ofthis report.

 

# **ITEM 3.**                 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

# ** **

As disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2005, our major market risk exposurerelates to adverse fluctuations in commodity prices, interest rates and foreigncurrency exchange rates. We have established a risk management strategy thatincludes the reasonable use of derivative and nonderivative financialinstruments primarily to manage our exposure to these market risks. We believeour exposure associated with these market risks has not materially changedsince December 31, 2005. We have not acquired any new derivative financialinstruments since December 31, 2005 or terminated any derivative financialinstruments that existed at that date.

 

# **ITEM 4.**                 CONTROLS AND PROCEDURES

# ** **

Our disclosure controls and procedures are designedto ensure that information****requiredto be disclosed in reports that we file or submit under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the Securities and ExchangeCommission. Our Chief Executive Officer and our Chief Financial Officer havereviewed the effectiveness of our disclosure controls and procedures as of theend of the period covered by this report and have concluded that the disclosurecontrols and procedures are effective.

 

There were no changes in our internal control overfinancial reporting during the three months ended March 31, 2006 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

# **PART II – OTHER INFORMATION**

# ** **

| **ITEM 6.** | ** ** | **EXHIBITS** |
|-------------|------------|--------------|
| ** **  | ** ** | ** **   |
|        |       | 10.1         |   | CommScope, Inc. Annual Incentive Plan  2006 Financial Targets (Incorporated by reference from the Company’s Current  Report on Form 8-K dated March 23, 2006 (File No. 1-12929)) |
|        |       |         |   |   |
|        |       | 31.1         |   | Certification of Chief Executive Officer  pursuant to Rule 13a-14(a). |
|        |       |         |   |   |
|        |       | 31.2         |   | Certification of Chief Financial Officer pursuant to Rule 13a-14(a). |
|        |       |         |   |   |
|        |       | 32           |   | Certification of Chief Executive Officer  and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (furnished pursuant to Item 601(b)(32)(ii) of Regulation S-K). |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|             | COMMSCOPE, INC.                                  |
|------------------|-------------------------------------------------------|
|             |                                                  |
| May 5, 2006 |                                                  | /s/ Jearld L.  Leonhardt |   |
| Date             | Jearld L.  Leonhardt                                  |
|             | Executive Vice  President and Chief Financial Officer |
|             | signing both in  his capacity as Executive Vice       |
|             | President on  behalf of the Registrant and as         |
|             | Chief Financial  Officer of the Registrant            |
|                  |                                                       |  |  |

 

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