** **

**UNITEDSTATES**

**SECURITIES 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** |
|------------|----------------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended September 30, 2004**

 

**OR**

 
| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**For thetransition period from            to            **

 

**Commission file number  001-12929**

 

**CommScope, Inc.**

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                                                        | ** ** | **36-4135495**                        |
|---------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)    | ** ** | (I.R.S. Employer  Identification No.) |
| ** **                                                          | ** ** | ** **                            |
| **1100 CommScope Place, SE  P.O. Box 339  Hickory, North Carolina** |
| (Address of principal  executive offices)                           |
| ** **                                                          |
| **28602**                                                           |
| (Zip Code)                                                          |
|                                                                |
| **(828) 324-2200**                                                  |
| (Registrant’s telephone  number, including area code)          |

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

 

Yes  ý  No  o

 

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct).

 

Yes  ý  No  o

 

Asof November 1, 2004 there were 54,381,736 shares of Common Stock outstanding.

 

 

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**CommScope, Inc.**

**Form 10-Q**

**September 30, 2004**

**Table 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 (Loss)          |   |
| 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.**

**Condensed Consolidated Statements of Operations**

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

 
| ** **                                                                                                                   | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Net sales                                                                                                                    |       | $                                     | 309,090    |                                 | $          | 148,723 |   | $ | 857,100 |   | $ | 419,513 |   |
|                                                                                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Operating  costs and expenses:                                                                                               |       |                                  |       |                                 |       |   |   |   |   |
| Cost of  sales                                                                                                               |       | 231,101                               |       | 118,082                              |       | 669,550 |   | 335,956 |   |
| Selling,  general and administrative                                                                                         |       | 51,510                                |       | 20,851                               |       | 139,237 |   | 62,732 |   |
| Research and  development                                                                                                    |       | 7,397                                 |       | 1,486                                |       | 20,408 |   | 4,530 |   |
| Impairment  charges for fixed assets                                                                                         |       | —                                |       | —                               |       | — |   | 31,728 |   |
| In-process  research and development charges                                                                                 |       | 90                                    |       | —                               |       | 3,984 |   | — |   |
| Acquisition-related  transition and startup costs                                                                            |       | 215                                   |       | —                               |       | 8,196 |   | — |   |
| Total  operating costs and expenses                                                                                          |       | 290,313                               |       | 140,419                              |       | 841,375 |   | 434,946 |   |
| Operating  income (loss)                                                                                                     |       | 18,777                                |       | 8,304                                |       | 15,725 |   | (15,433 | ) |
| Other income  (expense), net                                                                                                 |       | 603                                   |       | 4                                    |       | (282 | ) | 209 |   |
| Loss on  early extinguishment of debt                                                                                        |       | —                                |       | —                               |       | (5,029 | ) | — |   |
| Interest  expense                                                                                                            |       | (2,133                                | )          | (2,207                               | )          | (7,332 | ) | (6,548 | ) |
| Interest  income                                                                                                             |       | 810                                   |       | 649                                  |       | 1,734 |   | 1,981 |   |
| Income  (loss) before income taxes, equity in losses of OFS BrightWave, LLC and net  gain on OFS BrightWave, LLC transaction |       | 18,057                                |       | 6,750                                |       | 4,816 |   | (19,791 | ) |
| Income tax  benefit (expense)                                                                                                |       | (2,974                                | )          | (2,498                               | )          | 2,967 |   | 7,322 |   |
| Income  (loss) before equity in losses of OFS BrightWave, LLC and net gain on OFS  BrightWave, LLC transaction               |       | 15,083                                |       | 4,252                                |       | 7,783 |   | (12,469 | ) |
| Equity in  losses of OFS BrightWave, LLC, net of tax                                                                         |       | —                                |       | (3,130                               | )          | (1,393 | ) | (40,857 | ) |
| Net gain on  OFS BrightWave, LLC transaction, net of tax                                                                     |       | —                                |       | —                               |       | 76,437 |   | — |   |
| Net income  (loss)                                                                                                           |       | $                                     | 15,083     |                                 | $          | 1,122 |   | $ | 82,827 |   | $ | (53,326 | ) |
|                                                                                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Net income  (loss) per share:                                                                                                |       |                                  |       |                                 |       |   |   |   |   |
| Basic                                                                                                                        |       | $                                     | 0.28       |                                 | $          | 0.02 |   | $ | 1.42 |   | $ | (0.90 | ) |
| Assuming  dilution                                                                                                           |       | $                                     | 0.27       |                                 | $          | 0.02 |   | $ | 1.38 |   | $ | (0.90 | ) |
|                                                                                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Weighted  average shares outstanding:                                                                                        |       |                                  |       |                                 |       |   |   |   |   |
| Basic                                                                                                                        |       | 54,018                                |       | 59,220                               |       | 58,335 |   | 59,220 |   |
| Assuming  dilution                                                                                                           |       | 55,737                                |       | 59,610                               |       | 59,821 |   | 59,220 |   |

 

See notes to condensedconsolidated financial statements.

 

3

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**CommScope, Inc.**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                                                                                                                                                           | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| **Assets**                                                                                                                                                                                                                                                                           |       |                    |       |                   |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Cash and  cash equivalents                                                                                                                                                                                                                                                           |       | $                       | 178,856    |                   | $          | 206,038 |   |
| Accounts  receivable, less allowance for doubtful accounts of $15,181 and $12,145,  respectively                                                                                                                                                                                     |       | 142,828                 |       | 69,461                 |       |
| Inventories                                                                                                                                                                                                                                                                          |       | 109,064                 |       | 32,723                 |       |
| Prepaid  expenses and other current assets                                                                                                                                                                                                                                           |       | 12,630                  |       | 8,389                  |       |
| Deferred  income taxes                                                                                                                                                                                                                                                               |       | 16,786                  |       | 14,061                 |       |
| Total  current assets                                                                                                                                                                                                                                                                |       | 460,164                 |       | 330,672                |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Property,  plant and equipment, net                                                                                                                                                                                                                                                  |       | 327,691                 |       | 176,290                |       |
| Goodwill                                                                                                                                                                                                                                                                             |       | 151,363                 |       | 151,368                |       |
| Other  intangibles, net of accumulated amortization of $50,862 and $42,435,  respectively                                                                                                                                                                                            |       | 79,915                  |       | 6,330                  |       |
| Deferred  income taxes                                                                                                                                                                                                                                                               |       | 17,767                  |       | 44,756                 |       |
| Advances to OFS  BrightWave, LLC                                                                                                                                                                                                                                                     |       | —                  |       | 13,361                 |       |
| Other assets                                                                                                                                                                                                                                                                         |       | 18,018                  |       | 17,004                 |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Total Assets                                                                                                                                                                                                                                                                         |       | $                       | 1,054,918  |                   | $          | 739,781 |   |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                                                                       |       |                    |       |                   |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Accounts  payable                                                                                                                                                                                                                                                                    |       | $                       | 66,074     |                   | $          | 14,659 |   |
| Other  accrued liabilities                                                                                                                                                                                                                                                           |       | 94,479                  |       | 35,377                 |       |
| Current  portion of long-term debt                                                                                                                                                                                                                                                   |       | 21,500                  |       | —                 |       |
| Total  current liabilities                                                                                                                                                                                                                                                           |       | 182,053                 |       | 50,036                 |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Long-term  debt                                                                                                                                                                                                                                                                      |       | 300,550                 |       | 183,300                |       |
| Pension and  postretirement benefit liabilities                                                                                                                                                                                                                                      |       | 93,730                  |       | 30,397                 |       |
| Other  noncurrent liabilities                                                                                                                                                                                                                                                        |       | 27,830                  |       | 20,342                 |       |
| Total  Liabilities                                                                                                                                                                                                                                                                   |       | 604,163                 |       | 284,075                |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Commitments  and contingencies                                                                                                                                                                                                                                                       |       |                    |       |                   |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Stockholders’  Equity:                                                                                                                                                                                                                                                          |       |                    |       |                   |       |
| Preferred  stock, $.01 par value; Authorized shares: 20,000,000; Issued and outstanding  shares: None at September 30, 2004 and December 31, 2003                                                                                                                                    |       | —                  |       | —                 |       |
| Common  stock, $.01 par value; Authorized shares: 300,000,000; Issued shares,  including treasury stock: 64,528,468 at September 30, 2004 and 61,861,376 at  December 31, 2003; Issued and outstanding shares: 54,328,468 at September 30,  2004 and 59,318,276 at December 31, 2003 |       | 645                     |       | 619                    |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                          |       | 430,114                 |       | 384,889                |       |
| Retained  earnings                                                                                                                                                                                                                                                                   |       | 173,782                 |       | 90,955                 |       |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                                                |       | (8,251                  | )          | (7,533                 | )          |
| Treasury  stock, at cost: 10,200,000 shares at September 30, 2004 and 2,543,100 at  December 31, 2003                                                                                                                                                                                |       | (145,535                | )          | (13,224                | )          |
| Total  Stockholders’ Equity                                                                                                                                                                                                                                                     |       | 450,755                 |       | 455,706                |       |
|                                                                                                                                                                                                                                                                                 |       |                    |       |                   |       |
| Total  Liabilities and Stockholders’ Equity                                                                                                                                                                                                                                     |       | $                       | 1,054,918  |                   | $          | 739,781 |   |

 

See notes to condensedconsolidated financial statements.

 

4

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**CommScope,Inc.**

**CondensedConsolidated Statements of Cash Flows**

**(Unaudited— In thousands)**

 
| ** **                                                                                | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                                                      |       |                                 |       |   |   |
| **Operating  Activities:**                                                                |       |                                 |       |   |   |
| Net income  (loss)                                                                        |       | $                                    | 82,827     |   | $ | (53,326 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation  and amortization                                                            |       | 45,161                               |       | 25,523 |   |
| In-process  research and development charges                                              |       | 3,984                                |       | — |   |
| Gain on OFS  BrightWave, LLC transaction, pretax                                          |       | (132,425                             | )          | — |   |
| Impairment  of note receivable from OFS BrightWave, LLC, pretax                           |       | 11,098                               |       | — |   |
| Equity in  losses of OFS BrightWave, LLC, pretax                                          |       | 2,258                                |       | 64,978 |   |
| Impairment  charges for fixed assets                                                      |       | —                               |       | 31,728 |   |
| Deferred  income taxes                                                                    |       | 24,082                               |       | (27,820 | ) |
| Tax benefit  from stock option exercises                                                  |       | 1,991                                |       | — |   |
| Changes in  assets and liabilities:                                                       |       |                                 |       |   |   |
| Accounts  receivable                                                                      |       | (24,646                              | )          | (10,415 | ) |
| Inventories                                                                               |       | 40,007                               |       | 2,187 |   |
| Prepaid  expenses and other current assets                                                |       | 446                                  |       | 8,787 |   |
| Accounts  payable and other accrued liabilities                                           |       | 34,461                               |       | 9,203 |   |
| Other  noncurrent liabilities                                                             |       | 10,062                               |       | 4,033 |   |
| Other                                                                                     |       | (1,188                               | )          | 115 |   |
| Net cash  provided by operating activities                                                |       | 98,118                               |       | 54,993 |   |
|                                                                                      |       |                                 |       |   |   |
| **Investing  Activities:**                                                                |       |                                 |       |   |   |
| Additions to  property, plant and equipment                                               |       | (7,753                               | )          | (4,088 | ) |
| Acquisition  of Connectivity Solutions                                                    |       | (293,271                             | )          | — |   |
| Proceeds  from disposal of fixed assets                                                   |       | 3,926                                |       | 211 |   |
| Net cash  used in investing activities                                                    |       | (297,098                             | )          | (3,877 | ) |
|                                                                                      |       |                                 |       |   |   |
| **Financing  Activities:**                                                                |       |                                 |       |   |   |
| Proceeds  from issuance of long-term debt                                                 |       | 75,000                               |       | — |   |
| Principal  payments on long-term debt                                                     |       | (13,750                              | )          | — |   |
| Proceeds  from issuance of convertible notes                                              |       | 250,000                              |       | — |   |
| Repayment of  convertible notes                                                           |       | (172,500                             | )          | — |   |
| Proceeds  from issuance of stock                                                          |       | 32,853                               |       | — |   |
| Long-term  financing costs                                                                |       | (10,730                              | )          | (1,215 | ) |
| Proceeds  from exercise of stock options                                                  |       | 10,907                               |       | — |   |
| Net cash  provided by (used in) financing activities                                      |       | 171,780                              |       | (1,215 | ) |
|                                                                                      |       |                                 |       |   |   |
| Effect of  exchange rate changes on cash                                                  |       | 18                                   |       | 1,290 |   |
|                                                                                      |       |                                 |       |   |   |
| Change in  cash and cash equivalents                                                      |       | (27,182                              | )          | 51,191 |   |
| Cash and  cash equivalents, beginning of period                                           |       | 206,038                              |       | 120,102 |   |
| Cash and  cash equivalents, end of period                                                 |       | $                                    | 178,856    |   | $ | 171,293 |   |

 

See notes to condensedconsolidated financial statements.

 

5

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**CommScope,Inc.**

**CondensedConsolidated Statements of Stockholders’ Equityand Comprehensive Income (Loss)**

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

 
| ** **                                     | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                     | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                           |       |                                 |       |   |   |
| Number of  common shares outstanding:          |       |                                 |       |   |   |
| Balance at  beginning of period                |       | 59,318,276                           |       | 59,219,567 |   |
| Issuance of  shares to Avaya Inc.              |       | 1,761,538                            |       | — |   |
| Repurchase  of shares from Furukawa            |       | (7,656,900                           | )          | — |   |
| Issuance of  shares for stock option exercises |       | 905,554                              |       | — |   |
| Balance at  end of period                      |       | 54,328,468                           |       | 59,219,567 |   |
|                                           |       |                                 |       |   |   |
| Common  stock:                                 |       |                                 |       |   |   |
| Balance at  beginning of period                |       | $                                    | 619        |   | $ | 618 |   |
| Issuance of  shares to Avaya Inc.              |       | 18                                   |       | — |   |
| Issuance of  shares for stock option exercises |       | 8                                    |       | — |   |
| Balance at  end of period                      |       | $                                    | 645        |   | $ | 618 |   |
|                                           |       |                                 |       |   |   |
| Additional  paid-in capital:                   |       |                                 |       |   |   |
| Balance at  beginning of period                |       | $                                    | 384,889    |   | $ | 383,541 |   |
| Issuance of  shares to Avaya Inc.              |       | 32,335                               |       | — |   |
| Issuance of  shares for stock option exercises |       | 10,899                               |       | — |   |
| Tax benefit  from stock option exercises       |       | 1,991                                |       | — |   |
| Balance at  end of period                      |       | $                                    | 430,114    |   | $ | 383,541 |   |
|                                           |       |                                 |       |   |   |
| Retained  earnings:                            |       |                                 |       |   |   |
| Balance at  beginning of period                |       | $                                    | 90,955     |   | $ | 161,515 |   |
| Net income  (loss)                             |       | 82,827                               |       | (53,326 | ) |
| Balance at  end of period                      |       | $                                    | 173,782    |   | $ | 108,189 |   |
|                                           |       |                                 |       |   |   |
| Accumulated  other comprehensive loss:         |       |                                 |       |   |   |
| Balance at  beginning of period                |       | $                                    | (7,533     | ) | $ | (14,915 | ) |
| Other  comprehensive income (loss), net of tax |       | (718                                 | )          | 5,992 |   |
| Balance at  end of period                      |       | $                                    | (8,251     | ) | $ | (8,923 | ) |
|                                           |       |                                 |       |   |   |
| Treasury  stock, at cost:                      |       |                                 |       |   |   |
| Balance at  beginning of period                |       | $                                    | (13,224    | ) | $ | (13,224 | ) |
| Treasury  shares repurchased                   |       | (132,311                             | )          | — |   |
| Balance at  end of period                      |       | $                                    | (145,535   | ) | $ | (13,224 | ) |
|                                           |       |                                 |       |   |   |
| Total  stockholders’ equity               |       | $                                    | 450,755    |   | $ | 470,201 |   |

 
| ** **                                                                                        | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                        | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                              |       |                                  |       |                                 |       |   |   |   |   |
| Comprehensive  income (loss):                                                                     |       |                                  |       |                                 |       |   |   |   |   |
| Net income  (loss)                                                                                |       | $                                     | 15,083     |                                 | $          | 1,122 |   | $ | 82,827 |   | $ | (53,326 | ) |
| Other  comprehensive income (loss), net of tax:                                                   |       |                                  |       |                                 |       |   |   |   |   |
| Foreign  currency translation gain (loss) - foreign subsidiaries                                  |       | (1,064                                | )          | 275                                  |       | (284 | ) | (346 | ) |
| Foreign  currency transaction gain (loss) on long-term intercompany loans - foreign  subsidiaries |       | 3,278                                 |       | (662                                 | )          | (131 | ) | 8,487 |   |
| Loss on derivative  financial instrument designated as a net investment hedge                     |       | (306                                  | )          | (488                                 | )          | (303 | ) | (2,149 | ) |
| Total other  comprehensive income (loss), net of tax                                              |       | 1,908                                 |       | (875                                 | )          | (718 | ) | 5,992 |   |
|                                                                                              |       |                                  |       |                                 |       |   |   |   |   |
| Total  comprehensive income (loss)                                                                |       | $                                     | 16,991     |                                 | $          | 247 |   | $ | 82,109 |   | $ | (47,334 | ) |

 

See notes to condensedconsolidated financial statements.

 

6

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**CommScope, Inc.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited - In Thousands, ExceptPer Share Amounts or Unless Otherwise Noted)**

 

**1.  BACKGROUND AND BASIS OFPRESENTATION**

 

**Background**

 

CommScope, Inc. (“CommScope”or the “Company”), through its wholly owned subsidiaries, operates in the cableand structured cabling systems manufacturing business, with manufacturingfacilities located in the United States, Europe, Australia, Asia and SouthAmerica.  CommScope, Inc. wasincorporated in Delaware in January 1997. CommScope is a leading worldwide designer, manufacturer and marketer ofbroadband coaxial cables and other high-performance electronic and fiber opticcable products for cable television, telephony, Internet access, wirelesscommunications and other broadband services. Management believes CommScope is the world’s largest manufacturer ofcoaxial cable for hybrid fiber coaxial (HFC) broadband networks.  CommScope is also a leading supplier ofcoaxial, twisted pair, and fiber optic cables for premise wiring (local areanetworks), wireless and other communication applications.  In late 2001, CommScope acquired an equityinterest in an optical fiber and fiber optic cable manufacturing business.  In June 2004, CommScope sold its equityinterest in this optical fiber and fiber optic cable manufacturing business(see Note 6).  In January 2004, CommScopeacquired substantially all the assets and assumed certain liabilities of theConnectivity Solutions business (“Connectivity Solutions,” or as operated bythe Company, the “Connectivity Solutions segment”) from Avaya Inc. (“Avaya”)(see Note 2).

 

#### **Basis of Presentation**

 

The condensed consolidatedbalance sheet as of September 30, 2004, the condensed consolidated statementsof operations, and comprehensive income (loss) for the three and nine monthperiods ended September 30, 2004 and 2003 and the condensed consolidated statementsof cash flows and stockholders’ equity for the nine months ended September 30,2004 and 2003 are unaudited and reflect all adjustments of a normal recurringnature which are, in the opinion of management, necessary for a fairpresentation of the interim period financial statements.  The results of operations for the interimperiod are not necessarily indicative of the results of operations to beexpected 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.  Accordingly, certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahave been condensed or omitted.  Theseinterim condensed consolidated financial statements should be read inconjunction with the Company’s December 31, 2003 audited consolidated financialstatements and notes thereto included in the Company’s 2003 Annual Report onForm 10-K/A.

 

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

 

Net sales to AnixterInternational Inc. and its affiliates (“Anixter”) accounted for 39.9% and 34.5%of the Company’s total net sales during the three and nine month periods endedSeptember 30, 2004, respectively.  Salesto Anixter were primarily made from the Company’s Connectivity Solutionssegment.  No other customer accounted for10% or more of the Company’s total net sales for the three and nine month periodsended September 30, 2004.

 

Accounts receivable fromAnixter represented approximately 37.9% of net accounts receivable as ofSeptember 30, 2004.  No other customeraccounted for 10% or more of the Company’s net accounts receivable as ofSeptember 30, 2004.

 

7

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# **Goodwill and Other Intangible Assets**

 

The Company tests goodwill and otherintangible assets with indefinite lives for impairment annually at the sametime each year and on an interim basis when events or circumstanceschange.  Management has completed thisannual impairment test as of August 31, 2004 and believes that neither goodwillnor other intangible assets with indefinite lives were impaired as of this date.  There have been no events or changes incircumstances requiring additional impairment testing.

 

**Product Warranties**

 

The Company recognizes aliability for the estimated claims that may be paid under its customer warrantyagreements to remedy potential deficiencies of quality or performance of theCompany’s products.  These productwarranties extend over periods ranging from one to twenty-five years from thedate of sale, depending upon the product subject to the warranty.  The Company records a provision for estimatedfuture warranty claims based upon the historical relationship of warrantyclaims to sales and specifically-identified warranty issues.  The Company bases its estimates on historicalexperience and on assumptions that are believed to be reasonable under thecircumstances and revises its estimates, as appropriate, when events or changesin circumstances indicate that revisions may be necessary.

 

Prior to the acquisition ofConnectivity Solutions as of January 31, 2004, the Company’s product warrantyliability and the related activity was insignificant to the financial positionand results of operations of the Company. However, the acquisition of Connectivity Solutions has increased theCompany’s product warranty exposure and related liability.  During the three months ended September 30,2004, the Company revised the estimated fair value of the product liabilityaccrual assumed in the acquisition of Connectivity Solutions resulting in anadjustment to the purchase price allocation (see Note 2).

 

Activity in the productwarranty accrual, included in other accrued liabilities, for the three and ninemonth periods ended September 30, 2004 consisted of the following:

 
| ** **                                                                     | ** ** | **Three  Months  Ended  September  30, 2004** | ** ** | **Nine  Months  Ended  September  30, 2004** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| Product  warranty accrual, beginning of period                                 |       | $                                             | 8,106      |                                         | $          | 576 |   |
| Product  warranty accrual assumed in the acquisition of Connectivity Solutions |       | (6,000                                        | )          | 2,314                                        |       |
| Provision  for warranty claims                                                 |       | 114                                           |       | 212                                          |       |
| Less:  warranty claims paid                                                    |       | (170                                          | )          | (1,052                                       | )          |
| Product  warranty accrual, end of period                                       |       | $                                             | 2,050      |                                         | $          | 2,050 |   |

 

8

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### ***StockOptions***

 

The following tableillustrates the effect on net income (loss) and net income (loss) per share asif the Company had applied the fair value recognition provisions of Statementof Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-BasedCompensation,” to stock-based employee compensation using the Black-Scholesoption-pricing model:

 
| ** **                                                                                                                            | ** ** | **Three Months  Ended  September 30,** | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2004**                               | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                                  |       |                                   |       |                                  |       |   |   |   |   |
| Net income  (loss), as reported                                                                                                       |       | $                                      | 15,083     |                                  | $          | 1,122 |   | $ | 82,827 |   | $ | (53,326 | ) |
| Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | 1,863                                  |       | 1,694                                 |       | 5,311 |   | 5,133 |   |
| Pro forma  net income (loss)                                                                                                          |       | $                                      | 13,220     |                                  | $          | (572 | ) | $ | 77,516 |   | $ | (58,459 | ) |
|                                                                                                                                  |       |                                   |       |                                  |       |   |   |   |   |
| Net income  (loss) per share:                                                                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Basic—as  reported                                                                                                               |       | $                                      | 0.28       |                                  | $          | 0.02 |   | $ | 1.42 |   | $ | (0.90 | ) |
| Basic—pro  forma                                                                                                                 |       | $                                      | 0.24       |                                  | $          | (0.01 | ) | $ | 1.33 |   | $ | (0.99 | ) |
|                                                                                                                                  |       |                                   |       |                                  |       |   |   |   |   |
| Diluted—as  reported                                                                                                             |       | $                                      | 0.27       |                                  | $          | 0.02 |   | $ | 1.38 |   | $ | (0.90 | ) |
| Diluted—pro  forma                                                                                                               |       | $                                      | 0.24       |                                  | $          | (0.01 | ) | $ | 1.31 |   | $ | (0.99 | ) |

 

###### **Foreign Currency Translation**

 

Although the Companyprimarily bills customers in foreign countries in US dollars, a portion ofthese sales was denominated in currencies other than the US dollar.  In addition, the financial position andresults of operations of most of the Company’s foreign subsidiaries aremeasured using the US dollar as the functional currency; however, certainforeign subsidiaries use their local currencies as the functionalcurrency.  Revenues and expenses of theselocal-currency-functional subsidiaries have been translated into US dollars ataverage exchange rates prevailing during the period.  Assets and liabilities of theselocal-currency-functional subsidiaries have been translated at the rates ofexchange as of the balance sheet date. Net translation gains and losses of these local-currency-functionalsubsidiaries are recorded to accumulated other comprehensive loss.

 

### ***Use ofEstimates in the Preparation of the Financial Statements***

### * *

The preparation of theaccompanying condensed consolidated financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes.  These estimates and their underlyingassumptions form the basis for making judgments about the carrying values ofassets and liabilities that are not readily apparent from other objectivesources.  The Company bases its estimateson historical experience and on assumptions that are believed to be reasonableunder the circumstances and revises its estimates, as appropriate, when eventsor changes in circumstances indicate that revisions may be necessary.  Significant accounting estimates reflected inthe Company’s financial statements include the allowance for doubtful accounts;inventory excess and obsolescence reserves; distributor price protectionreserves; reserves for sales returns, discounts, allowances and rebates;reserves for product warranty claims; income tax valuation allowances;impairment reviews for investments, fixed assets, goodwill and other intangibles;pension and postretirement benefit obligations; and the fair values of theassets acquired and liabilities assumed in the acquisition of ConnectivitySolutions.  Although these estimates arebased on management’s knowledge of and experience with past and current eventsand on management’s assumptions about future events, it is at least reasonablypossible that they may ultimately differ materially from actual results.

 

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**Commitmentsand Contingencies**

 

CommScope leases certainequipment and facilities under operating leases expiring at various dates, mostof which expire prior to the end of 2012. Future minimum rental payments required under operating leases with initialterms of one year or more are: $9.3 million in 2004; $8.8 million in 2005; $7.5million in 2006; $6.7 million in 2007; $6.0 million in 2008; and $16.1 millionthereafter.

 

CommScope is either aplaintiff or a defendant in pending legal matters in the normal course ofbusiness; however, management believes that none of these legal matters willhave a material adverse effect on the Company’s financial statements upon finaldisposition.  In addition, CommScope issubject to various federal, state, local and foreign laws and regulations governingthe use, discharge, disposal and remediation of hazardous materials.  Compliance with current laws and regulationshas not had, and is not expected to have, a materially adverse effect on theCompany’s financial condition or results of operations.

 

**Impact of Newly Issued Accounting Standards**

 

In April 2003, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities.”  This Statement amends and clarifies financialaccounting and reporting for derivative instruments and for hedging activitiesunder SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities.”  SFAS No. 149 clarifies theconditions under which a contract with an initial net investment meets thecharacteristic of a derivative; clarifies when a derivative contains afinancing component; amends the definition of an underlying to conform it tolanguage used in FASB Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others;” and amends certain other existing pronouncements.  This Statement is effective for contractsentered into or modified by the Company after March 31, 2004 and for hedgingrelationships designated by the Company after March 31, 2004. All provisions ofthis Statement were to be applied prospectively.  The application of this Statement did nothave a material effect on the Company’s results of operations or financialposition.

 

In December 2003, the FASBissued a revised SFAS No. 132, “Employers’ Disclosures about Pensions and OtherPostretirement Benefits—an amendment of FASB Statements No. 87, 88, and 106.”  This Statement revises employers’ disclosuresabout pension plans and other postretirement benefit plans. It does not changethe measurement or recognition of those plans required by SFAS No. 87, “Employers’Accounting for Pensions;” SFAS No. 88, “Employers’ Accounting for Settlementsand Curtailments of Defined Benefit Pension Plans and for Termination Benefits;”and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other ThanPensions.” This Statement retains the disclosure requirements contained in SFASNo. 132, “Employers’ Disclosures about Pensions and Other PostretirementBenefits,” which it replaces.  Additionaldisclosures have been added including information describing the types of planassets, investment strategy, measurement dates, plan obligations, cash flows,and components of net periodic benefit cost recognized during interimperiods.  Except as noted below, thisStatement was effective for the Company as of December 31, 2003.  The interim-period disclosures were effectivefor the Company beginning with the interim period ending March 31, 2004.  Disclosure of certain information regardingthe Company’s foreign defined benefit plan is effective for the fiscal yearending December 31, 2004.  Disclosure ofthe estimated future benefits is also deferred until the fiscal year endingDecember 31, 2004.  The Company hasadjusted its quarterly disclosure and will adjust its future annual disclosurein accordance with this Statement.

 

In January 2003, the FASB issued InterpretationNo. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,”which is an interpretation of Accounting Research Bulletin No. 51, “ConsolidatedFinancial Statements.”  FIN 46addresses how to identify a variable interest entity and provides guidance onwhen such an entity should be consolidated by an enterprise.  In December 2003, the FASB issued a revisionof FIN 46 (“FIN 46R”) to clarify some of the provisions of the Interpretationand to exempt certain entities from its requirements. The Company does notcurrently hold an

 

10

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interestin a variable interest entity; thus, the initial application of FIN 46 and FIN46R did not affect the Company’s results of operations, financial position ordisclosures.

 

InApril 2004, the FASB issued FASB Staff Position (FSP) No. FAS 129-1, “DisclosureRequirements under FASB Statement No. 129, ‘Disclosure of Information aboutCapital Structure,’ Relating to Contingently Convertible Securities.”  This FSP interprets how the disclosureprovisions of SFAS No. 129 apply to contingently convertible securities and totheir potentially dilutive effects on net income (loss) per share.  The guidance in this FSP was effectiveimmediately and applies to all existing and newly created securities.  Management believes the Company’s disclosurescomply with the requirements of this FSP.

 

In June 2004, the FASB issued FSP No. FAS 106-2, “Accountingand Disclosure Requirements Related to the Medicare Prescription Drug,Improvement and Modernization Act of 2003.” This FSP provides guidance on the accounting for the effects of theMedicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”)for employers that sponsor postretirement health care plans that provideprescription drug benefits.  It says thatif the benefits provided by a plan are actuarially equivalent to Medicare PartD, measures of the accumulated postretirement benefit obligation and netperiodic postretirement benefit cost on or after the date of enactment shouldreflect the effects of the Act.  It alsorequires employers to provide certain disclosures regarding the effect of thefederal subsidy provided by the Act.  TheCompany implemented this FSP on a prospective basis during the three monthsended September 30, 2004.  Implementingthis FSP lowered the Company’s accumulated postretirement benefit obligationand net periodic postretirement benefit cost for the three and nine monthsended September 30, 2004 (see Note 12).

 

In October 2004, theFASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”)on Issue No. 04-8, “The Effect of Contingently Convertible Debt on DilutedEarnings per Share.”  Issue No. 04-8requires that all instruments that have embedded conversion features that arecontingent on market conditions indexed to an issuer’s share price be includedin diluted net income per share (if dilutive) regardless of whether the marketconditions have been met. The consensus reached by the EITF in this Issue isexpected to be effective for reporting periods ending after December 15, 2004.  Issue No. 04-8 applies retroactively toinstruments outstanding at the date of adoption of this consensus, which is theend of the first reporting period after its effective date, and requires priorperiod diluted net income per share amounts presented for comparative purposesto be restated to conform to this consensus. The Company believes its 1% convertible senior subordinated debentures(see Note 4) will be subject to the requirements of Issue No. 04-8.  The impact of the application of this Issueon the Company’s diluted net income per share is presented in Note 5.

 

**2.****                                      ACQUISITIONOF CONNECTIVITY SOLUTIONS**

 

Effective January 31, 2004,CommScope completed the acquisition of substantially all of the assets andassumed certain liabilities of Connectivity Solutions.  The total purchase price consisted of $250million in cash, subject to post-closing adjustments and the closing of theacquisition of certain international operations, and approximately 1.8 millionshares of CommScope common stock.  Theseshares were valued at $32.4 million on the closing date, based on the five-dayaverage market price of CommScope’s common stock beginning on the secondtrading day prior to the closing date and ending on the third trading day afterthe closing date, which was reduced by a $0.5 million accrual for estimatedregistration costs.  CommScope assumedcertain current liabilities and up to $65 million of other specifiedliabilities, primarily related to employee benefits.  The cash portion of the purchase priceconsisted of $150 million from CommScope’s existing cash balances and $100million from borrowing under a new 5-year, $185 million senior secured creditfacility.  The Company is seeking thirdparty resolution concerning the amount of post-closing adjustments to thepurchase price, in accordance with the terms of the Asset PurchaseAgreement.  Final resolution of thismatter may result in an adjustment to the amounts recorded in connection withthe Connectivity Solutions acquisition.  However, management does notcurrently believe that

 

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such adjustments, if any, will have a material effect on the Company’sfinancial position or results of operations.

 

The Company acquiredConnectivity Solutions primarily to expand the Company’s position in the ‘lastmile’ of telecommunications, establish a leadership position in the globalenterprise market and enhance the Company’s global growth opportunities.  The Connectivity Solutions segment is adesigner, manufacturer and marketer of physical layer end-to-end structuredcabling solutions supporting local area network applications for enterprisesand telecommunications service providers.

 

The Company has prepared apreliminary estimate of the fair values assigned to each major asset andliability caption of Connectivity Solutions as of the January 31, 2004 closingdate.  This preliminary estimate has beenupdated to reflect a revised purchase price allocation based on new informationrelated to estimates of the fair values of certain assets acquired and liabilitiesassumed.  These values are subject tochange until certain management estimates, including the amount of post-closingadjustments, have been finalized.  Changes in these estimates could have a material impact on the purchaseprice allocation and the resultant amounts of the assets and liabilitiesdisclosed below.

 
| ** **                                      | ** ** | **As of  January 31,  2004** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **(In millions)**            | ** ** |
|                                            |       |                         |       |
| Accounts  receivable                            |       | $                            | 46.3       |   |
| Inventories                                     |       | 114.3                        |       |
| Other  current assets                           |       | 1.4                          |       |
| Property,  plant and equipment                  |       | 175.7                        |       |
| Intangible assets                               |       | 86.0                         |       |
| Other  noncurrent assets                        |       | 0.1                          |       |
|                                            |       |                         |       |
| Total assets                                    |       | $                            | 423.8      |   |
|                                            |       |                         |       |
| Accounts  payable                               |       | $                            | 32.1       |   |
| Employee  benefit liabilities                   |       | 12.5                         |       |
| Other  current liabilities                      |       | 30.9                         |       |
| Pension and  postretirement benefit liabilities |       | 53.8                         |       |
| Other  noncurrent liabilities                   |       | 3.5                          |       |
|                                            |       |                         |       |
| Total  liabilities                              |       | $                            | 132.8      |   |

 

Differences between theamounts reflected above and the amounts disclosed in the Company’s 2003 annualreport on Form 10-K/A are due to updated information about certain estimatesobtained by management subsequent to the filing of such Form 10-K/A.  Differences in the amount of assets andliabilities included in this quarterly report on Form 10-Q and the amountsdisclosed in the Company’s quarterly reports on Form 10-Q for the periods endedMarch 31, 2004 and June 30, 2004 are due to changes in accounting estimatesprimarily arising from updated information about certain estimates and theavailability of new information.  Theeffect of this change in accounting estimate on the condensed consolidated financialstatements for the three and nine month periods ended September 30, 2004 wasnot material.

 

The values of property, plantand equipment and intangible assets reflected above have been adjusted for thepro rata allocation of the excess of the fair value of acquired net assets overthe cost of the acquisition of Connectivity Solutions.  This excess was allocated to the noncurrentassets acquired based on their relative fair values.  Further adjustments to the purchase priceallocation may affect the calculation of the excess of the fair value ofacquired net assets over cost and therefore affect the allocation of thisexcess to the noncurrent assets acquired. Adjustments to

 

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this allocation will affect amounts recognized for depreciation andamortization expense and will be disclosed in the period recognized as a changein estimate.

 

Intangible assets reflectedabove were determined by management to meet the criterion for recognition apartfrom goodwill and include the following:

 
| ** **                                 | ** ** | **Estimated Fair  Value** | ** ** | **Amortization  Period** | ** ** |
|--------------------------------------------|------------|---------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **(In millions)**         | ** ** | **(in years)**           | ** ** |
|                                       |       |                      |       |                     |       |
| Developed  technologies (for internal use) |       | $                         | 28.5       |                     | 9.0        |   |
| Developed  technologies (for external use) |       | 16.6                      |       | 14.0                     |       |
| Customer  base                             |       | 11.8                      |       | 9.0                      |       |
| Favorable  contracts                       |       | 9.0                       |       | 3.0                      |       |
| Other                                      |       | 3.8                       |       | 3.0                      |       |
|                                       |       |                      |       |                     |       |
| Total  amortizable intangible assets       |       | $                         | 69.7       |                     |       |   |
|                                       |       |                      |       |                     |       |
| Trademarks                                 |       | 12.3                      |       |                     |       |
| In-process  research and development       |       | 4.0                       |       |                     |       |
|                                       |       |                      |       |                     |       |
| Total  intangible assets                   |       | $                         | 86.0       |                     |       |   |
|                                       |       |                      |       |                     |       |
| Weighted  average amortization period      |       |                      |       | 7.0                      |       |

 

Trademarks have beendetermined by management to have indefinite lives and will not be amortized,based on management’s expectation that the trademarked products will generatecash flows for the Company for an indefinite period.  Management expects to maintain usage oftrademarks on existing products and introduce new products in the future thatwill also display the trademarks, thus extending their lives indefinitely.

 

In-process research anddevelopment assets were written off and reflected in the Company’s statement ofoperations as in-process research and development charges during the ninemonths ended September 30, 2004. Management believed that the assets under development had no alternativefuture use as of the date of the third party valuation of this intangibleasset, resulting in its immediate write-off, with subsequent adjustments andwrite-offs resulting from changes in the purchase price allocation in theperiod in which such changes are recognized.

 

The amortizable intangibleassets reflected in the table above were determined by management to havefinite lives.  The useful life for thedeveloped technologies (for internal use) intangible asset was based on reviewof historical lives of similar products, in conjunction withtechnology-specific factors and anticipated future trends in the industry.  The useful life for the developedtechnologies (for external use) intangible asset was based on the remaining livesof the related patents.  The useful lifefor the customer base intangible asset was based on management’s forecasts ofcustomer turnover.  The useful life forthe favorable contracts intangible asset was based on the remaining terms ofthe contracts.  The useful life of theother intangible assets was based on management’s estimate of the remaininguseful life.  Management’s estimate wasbased on the age of the underlying assets and review of historical lives ofsimilar products.

 

These amortizable intangibleassets will be amortized over their remaining useful lives on a straight-linebasis.  Annual amortization expense forthese intangible assets is expected to be $9.1 million in 2004, $9.9 million in2005 and 2006, $6.0 million in 2007, $5.7 million in 2008 and $29.1 millionthereafter.

 

CommScope’s consolidatedresults of operations for the three and nine month periods ended September 30,2004 include the results of operations of the Connectivity Solutions segmentfor the three month period ended September 30, 2004 and the eight-month periodfrom February 1, 2004 through September 30, 2004, respectively.  The following table includes the actualconsolidated results of operations for CommScope for the three months endedSeptember 30, 2004.  In addition,

 

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the table presents pro forma consolidatedresults of operations for CommScope for the three months ended September 30,2003, and the nine month periods ended September 30, 2004 and 2003, as thoughthe acquisition of Connectivity Solutions had been completed as of thebeginning of each period.  This pro formainformation is intended to provide information regarding how CommScope mighthave looked if the acquisition had occurred as of the dates indicated.  The amounts for the Connectivity Solutionsbusiness of Avaya included in this pro forma information for the three and ninemonths ended September 30, 2003 and the month of January 2004 are based on thehistorical results of the Connectivity Solutions business as a division ofAvaya, however, and therefore may not be indicative of the actual results ofthe Connectivity Solutions segment when operated as part of CommScope.  Moreover, the pro forma information does notreflect all of the changes that may result from the acquisition, including, butnot limited to, challenges of transition, integration and restructuringassociated with the transaction; challenges of achieving anticipated synergies;ability to retain qualified employees and existing business alliances;maintaining satisfactory relationships with represented employees; and customerdemand for Connectivity Solutions segment products.  The pro forma adjustments representmanagement’s best estimates based on information available at the time the proforma information was prepared and may differ from the adjustments that mayactually be required.  Accordingly, thepro forma financial information should not be relied upon as being indicativeof the historical results that would have been realized had the acquisitionoccurred as of the dates indicated or that may be achieved in the future.

 
| ** **                                      | ** ** | **Actual**                              | ** ** | **Pro Forma**                           | ** ** | **Pro Forma**                        | ** ** |
|-------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                                      | ** ** | **Three Months  Ended  September  30,** | ** ** | **Three Months  Ended  September  30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                      | ** ** | **2004**                                | ** ** | **2003**                                | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                            |       |                                    |       |                                    |       |                                 |       |   |   |
| Revenue                                         |       | $                                       | 309,090    |                                    | $          | 289,411                              |       | $ | 882,810 |   | $ | 824,844 |   |
| Net income  (loss)                              |       | 15,083                                  |       | 4,306                                   |       | 75,762                               |       | (51,245 | ) |
| Net income  (loss) per share, assuming dilution |       | 0.27                                    |       | 0.07                                    |       | 1.26                                 |       | (0.84 | ) |
|                                                 |            |                                         |            |                                         |            |                                      |            |  |  |  |  |  |  |

 

These pro forma resultsreflect the elimination of intercompany sales during each period and immaterialpro forma adjustments for interest expense, depreciation, amortization andrelated income taxes.  These pro formaresults also include $10.8 million and $35.3 million of corporate overheadcosts allocated by Avaya to the Connectivity Solutions business during thethree and nine month periods ended September 30, 2003, respectively.  The pro forma results for the nine monthperiod ended September 30, 2004 include an estimate of $4.0 million forcorporate overhead costs that would have been allocated by Avaya to theConnectivity Solutions business during January 2004.  During the three month period ended September30, 2004 and the eight month period from February 1, 2004 through September 30,2004, CommScope incurred corporate overhead costs of approximately $2.0 millionand $5.4 million, respectively, on behalf of the Connectivity Solutionssegment.  Certain overhead costspreviously incurred on behalf of and allocated to the Connectivity Solutionsbusiness by Avaya are now being incurred directly by the Connectivity Solutionssegment.

 

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Net income and net income pershare for the three and nine month periods ended September 30, 2004 includecertain material charges incurred during the periods, as listed below on apretax basis:

 
| ** **                                                       | ** ** | **Three Months  Ended  September  30, 2004** | ** ** | **Nine Months  Ended  September  30, 2004** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|
|                                                             |       |                                         |       |                                        |       |
| Impact of  inventory purchase accounting adjustments             |       | $                                            | —     |                                        | $          | 14,628 |   |
| Acquisition-related  in-process research and development charges |       | 90                                           |       | 3,984                                       |       |
| Acquisition-related  transition and startup costs                |       | 215                                          |       | 8,196                                       |       |
| Loss on  early extinguishment of debt                            |       | —                                       |       | 5,029                                       |       |
|                                                                  |            |                                              |            |                                             |            |  |  |

 

**3.  INVENTORIES**

 
| ** **       | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------|------------|-------------------------|------------|------------------------|------------|
|             |       |                    |       |                   |       |
| Raw  materials   |       | $                       | 37,988     |                   | $          | 10,285 |   |
| Work in  process |       | 17,762                  |       | 9,708                  |       |
| Finished  goods  |       | 53,314                  |       | 12,730                 |       |
|             |       | $                       | 109,064    |                   | $          | 32,723 |   |

 

**4.  LONG-TERM DEBT**

 
| ** **                 | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|----------------------------|------------|-------------------------|------------|------------------------|------------|
|                       |       |                    |       |                   |       |
| Senior  Secured Term Loan  |       | $                       | 61,250     |                   | $          | — |   |
| 1%  Convertible Debentures |       | 250,000                 |       | —                 |       |
| 4%  Convertible Notes      |       | —                  |       | 172,500                |       |
| IDA Notes                  |       | 10,800                  |       | 10,800                 |       |
|                       |       | 322,050                 |       | 183,300                |       |
| Less:  current portion     |       | (21,500                 | )          | —                 |       |
|                       |       | $                       | 300,550    |                   | $          | 183,300 |   |

 

The Company entered into a new 5-year, $185million senior secured credit facility on January 31, 2004, in connection with itsacquisition of Connectivity Solutions. The new credit facility, which amended and restated CommScope’s previouscredit facility, is comprised of a $75 million term loan and a $110 millionrevolving credit facility.  The creditfacility is secured by substantially all of the Company’s assets, is guaranteedby all of the Company’s material domestic subsidiaries and contains certainfinancial and restrictive covenants.  Theterm loan facility is required to be repaid by CommScope in consecutivequarterly installments of $3.75 million from March 31, 2004 to September 30,2004, $11.75 million on December 31, 2004 and $3.25 million on each quarterlypayment date thereafter with a final payment of all outstanding principal andinterest at maturity on December 31, 2008. The Company is required to make additional repayments under the termloan facility in the event that a significant asset or group of assets includedin the collateral base is sold.  TheCompany repaid an additional $2.5 million under the term loan facility duringthe three months ended September 30, 2004 due to the sale of its idle KingsMountain facility.  In connection withthis credit facility, the Company incurred costs of approximately $4.6 million,which were capitalized as other assets and are being amortized over the term ofthe facility.  The interest rate on the$75 million term loan facility is, at CommScope’s option, either the LondonInterbank Offered Rate plus 2.250% to 3.250%, or the Base Rate, defined as thehigher of Prime Rate or Federal Funds Rate plus 0.500%, plus 0.750% to 1.750%,in each case based on the Company’s fixed charge coverage ratio.  The interest rate on the $110 million seniorsecured revolving credit

 

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facility is, at CommScope’s option, the London Interbank Offered Rateplus 2.00% to 3.00% or the Base Rate plus 0.500% to 1.500%, in each case basedon the Company’s fixed charge coverage ratio. As of September 30, 2004, the Company had availability of approximately$52 million and no outstanding borrowings under this senior secured revolvingcredit facility.  The Company’s abilityto borrow under this facility depends on the amount of the borrowing base,which is determined as specified percentages of eligible receivables andinventory, reduced for certain reserves. The facility contains certain restrictive covenants, includingrestrictions on incurring other indebtedness, entering into transactions toacquire or merge with any entity, making other fundamental changes, sellingassets and paying dividends, among other things.  The Company is also required to comply withcertain financial covenants, as defined, including a fixed charge coverageratio, a funded senior debt to EBITDA ratio, a maximum annual capital expenditurescovenant and a covenant requiring minimum ongoing excess borrowing availabilityof $10 million.  Management believes theCompany was in compliance with all of its covenants under this facility as ofSeptember 30, 2004.

 

In March 2004, the Company issued $250million aggregate principal amount of 1% convertible senior subordinateddebentures due March 15, 2024.  Theproceeds from these debentures were used primarily to extinguish the Company’soutstanding 4% convertible subordinated notes due December 15, 2006, to repayoutstanding borrowings under the Company’s revolving credit facility, and forgeneral corporate purposes.  The Companyrepurchased $102.9 million of its 4% convertible subordinated notes duringMarch 2004, and redeemed the remaining $69.6 million of these notes in April2004.  The repurchase and redemption ofthese 4% convertible notes resulted in a $5.0 million pretax loss on the earlyextinguishment of debt during the first quarter of 2004.  The Company also repaid $25 million of borrowingsunder its senior secured revolving credit facility in March 2004.  In connection with the issuance of thedebentures, the Company incurred costs of approximately $6.9 million, whichwere capitalized as other assets and are being amortized over a period of fiveyears, representing the period through the date on which the debenture holdersmay first require the Company to repurchase the debentures.

 

The Company may redeem some or all of thesedebentures at any time on or after March 20, 2009 at a redemption price equalto 100% of the principal amount of the debentures, plus accrued interest.  Additionally, holders of these debentures mayrequire the Company to repurchase all or any portion of their debentures for cashon March 20, 2009, March 15, 2014 and March 15, 2019 at a price equal to 100%of the principal amount of debentures to be repurchased, plus accrued interest.

 

These debentures are convertible intoshares of CommScope common stock in the following circumstances: during anyfiscal quarter commencing after June 30, 2004, (1) if the closing price ofCommScope common stock exceeds 120% of the conversion price then in effect forat least twenty trading days in the thirty consecutive trading day periodending on the last trading day of the immediately preceding fiscal quarter; (2)subject to certain exceptions, during the five business days after any fiveconsecutive trading day period in which the trading price per $1,000 principalamount of the debentures for each day of such period was less than 98% of theproduct of the closing sale price of CommScope common stock and the number ofshares issuable upon conversion of $1,000 principal amount of the debentures;(3) if the debentures have been called for redemption; or (4) upon theoccurrence of certain corporate transactions.

 

The current conversion rate of these debentures is45.9770 shares per $1,000 principal amount of debentures, representing aconversion price of $21.75 per share. The conversion rate is subject to adjustment, without duplication,upon the occurrence of any of the following events, as more fully explained in the Indenture:  (1) payment or issuance of common stock as adividend or distribution on the Company’s common stock; (2) the issuance to allholders of common stock of rights, warrants or options to purchase the Company’scommon stock for a period expiring within 45 days of the record date for suchdistribution at a price less than the average of the closing sale prices forthe 10 trading days preceding the declaration date for such distribution; (3)subdivisions, splits or combinations of the Company’s common stock; (4)distributions by the Company to all holders of the Company’s common stock ofshares of the Company’s capital stock, evidences of indebtedness, property orassets, including rights, warrants, options and other securities but excludingdividends or distributions covered by clauses (1) or (2) above or any dividendor

 

16

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distribution paid exclusively in cash; provided that in the event thatthe Company distributes capital stock of, or similar equity interests in, asubsidiary or other business unit of the Company, then the conversion rate willbe adjusted based on the market value of the securities so distributed relativeto the market value of the Company’s common stock, in each case based on theaverage closing sales prices of those securities (where such closing prices areavailable) for the 10 trading days commencing on and including the fifthtrading day after the date on which “ex-dividend trading” commences for suchdistribution on the New York Stock Exchange or such other principal national orregional exchange or market on which the securities are then listed or quotedor in the absence of such a quotation, a closing sale price determined by theCompany on a basis it considers appropriate; (5) the payment of cash as adividend or distribution on the Company’s common stock, excluding any dividendor distribution in connection with the Company’s liquidation, dissolution orwinding up; or (6) the Company or any of its subsidiaries makes a payment inrespect of a tender offer or exchange offer for the Company’s common stock tothe extent that the cash and value of any other consideration included in thepayment per share of the Company’s common stock exceeds the closing sale priceper share of the Company’s common stock on the trading day next succeeding thelast date on which tenders or exchanges may be made pursuant to such tender orexchange offer.

 

To the extent that theCompany’s shareholder rights agreement dated June 12, 1997, as amended, or anyfuture rights plan adopted by the Company is in effect upon conversion of thedebentures into common stock, holders of the debentures will receive, inaddition to the common stock, the rights under the rights plan unless therights have separated from the common stock at the time of conversion, in whichcase the conversion rate will be adjusted as if the Company distributed to allholders of its common stock, shares of its capital stock, evidences ofindebtedness, property or assets as described in clause (4) above, subject toreadjustment in the event of the expiration, termination or redemption of suchrights.

 

In the event of (1) anyreclassification of the Company’s common stock; (2) a consolidation, merger orbinding share exchange involving the Company; or (3) a sale or conveyance toanother person or entity of all or substantially all of the Company’s propertyand assets, in which holders of the Company’s common stock would be entitled toreceive stock, other securities, other property, assets or cash for theircommon stock, upon conversion holders of the debentures will be entitled toreceive the same type of consideration that they would have been entitled toreceive if they had converted the debentures into the Company’s common stockimmediately prior to any of these events.

 

The Company may, fromtime to time, increase the conversion rate if the Company’s board of directorshas made a determination that this increase would be in the Company’s bestinterests.  In addition, the Company mayincrease the conversion rate if the Company’s board of directors deems itadvisable to avoid or diminish any income tax to holders of common stockresulting from any stock or rights distribution.

 

**5.  NET INCOME (LOSS) PER SHARE**

 

Basic net income (loss) per share is computed bydividing net income (loss) by the weighted average number of common sharesoutstanding during the applicable periods. Diluted net income (loss) per share is based on net income (loss)adjusted for after-tax interest and amortization of debt issuance costs relatedto convertible debt, if dilutive, divided by the weighted average number ofcommon shares outstanding adjusted for the dilutive effect of stock options andconvertible securities.

 

On December 15, 1999, the Company issued $172.5million aggregate principal amount of convertible notes, which were convertibleinto shares of common stock at a conversion rate of 20.7512 shares per $1,000principal amount.  The effect of theassumed conversion of these notes was excluded from the calculation of net lossper share, assuming dilution, for the three and nine month periods endedSeptember 30, 2003 because it would have been antidilutive in all periods.

 

17

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TheCompany repurchased $102.9 million of these notes during March 2004, andredeemed the remaining $69.6 million of these notes in April 2004.

 

InMarch 2004, the Company issued $250 million aggregate principal amount of 1%convertible senior subordinated debentures, which are convertible into sharesof common stock at a conversion rate of 45.9770 shares per $1,000 principalamount representing a conversion price of $21.75 per share.  These debentures are convertible into sharesof CommScope common stock under specific circumstances as described in Note4.  The effect of the assumed conversionof these debentures was excluded from the calculation of net income (loss) pershare, assuming dilution, for the three and nine month periods ended September30, 2004 because the conversion contingencies were not met during such periods.

 

Belowis a reconciliation of weighted average common shares outstanding for basic netincome (loss) per share to weighted average common and potential common sharesoutstanding for diluted net income (loss) per share.

 
| ** **                                                                                                          | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                          | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Numerator:**                                                                                                      |       |                                  |       |                                 |       |   |   |   |   |
| Net income  (loss) for basic and diluted net income (loss) per share                                                |       | $                                     | 15,083     |                                 | $          | 1,122 |   | $ | 82,827 |   | $ | (53,326 | ) |
|                                                                                                                |       |                                  |       |                                 |       |   |   |   |   |
| **Denominator:**                                                                                                    |       |                                  |       |                                 |       |   |   |   |   |
| Weighted  average number of common shares outstanding for basic net income (loss) per  share                        |       | 54,018                                |       | 59,220                               |       | 58,335 |   | 59,220 |   |
| Effect of  dilutive employee stock options (A)                                                                      |       | 1,719                                 |       | 390                                  |       | 1,486 |   | — |   |
| Weighted  average number of common and potential common shares outstanding for diluted  net income (loss) per share |       | 55,737                                |       | 59,610                               |       | 59,821 |   | 59,220 |   |
|                                                                                                                     |            |                                       |            |                                      |            |  |  |  |  |  |  |  |  |

 

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(A)      Options to purchaseapproximately 630 thousand and 661 thousand common shares were excluded fromthe computation of net income per share, assuming dilution, for the three andnine month periods ended September 30, 2004, respectively, because they wouldhave been antidilutive in both periods. Options to purchase approximately 5.9 million common shares wereexcluded from the computation of net income (loss) per share, assumingdilution, for the three and nine month periods ended September 30, 2003 becausethey would have been antidilutive in both periods.

 

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The consensus reached by the EITF on Issue No. 04-8,“The Effect of Contingently Convertible Debt on Diluted Earnings per Share” isexpected to be effective for reporting periods ending after December 15,2004.  The consensus requires restatementof previously reported net income per share, assuming dilution (see Note 1 forfurther discussion of Issue No. 04-8). The Company did not have any contingently convertible debt outstandingprior to the issuance of its 1% convertible senior subordinated debentures inMarch 2004.  Accordingly, no restatementof periods prior to the three months ended March 31, 2004 is required underthis consensus.  If the consensus hadbeen applied during the three and six months ended June 30, 2004 and the threeand nine months ended September 30, 2004, the impact would have been asfollows:

 
| ** **                                                                       | ** ** | **Three Months  Ended  June 30,  2004** | ** ** | **Six  Months  Ended  June 30,  2004** | ** ** | **Three  Months  Ended  September  30, 2004** | ** ** | **Nine  Months  Ended  September  30, 2004** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| Net income  per share, assuming dilution, as reported                            |       | $                                       | 1.37       |                                   | $          | 1.10                                          |       | $                                            | 0.27       |   | $ | 1.38 |   |
| Net income  per share, assuming dilution, applying EITF Issue No. 04-8 consensus |       | $                                       | 1.16       |                                   | $          | 1.01                                          |       | $                                            | 0.23       |   | $ | 1.24 |   |

 

There would be no effectfrom applying the consensus to the three months ended March 31, 2004 as theresult would have been antidilutive due to the net loss for the period.

 

**6.  OFS BRIGHTWAVE, LLC**

 

Effective November 16, 2001,CommScope acquired an approximate 18.4% ownership interest in OFS BrightWave,LLC (“OFS BrightWave”), an optical fiber and fiber cable venture betweenCommScope and The Furukawa Electric Co., Ltd. of Japan (“Furukawa”).  During the three months ended March 31, 2004,OFS BrightWave began to move certain cable production from the Norcrossfacility to the Carrollton facility. Effective April 1, 2004, Furukawa contributed its investment in theCarrollton facility to OFS BrightWave. Because CommScope did not elect to make further correspondinginvestments in OFS BrightWave, this additional investment in OFS BrightWave byFurukawa reduced CommScope’s ownership percentage in OFS BrightWave from 18.4%to 9.4%, effective April 1, 2004.

 

Primarily as a result of thecontinuing weakness in the global fiber optic cable market and Furukawa’scontinuing efforts to restructure its OFS operations, the Company agreed withFurukawa to further amend their existing contractual arrangements in the secondquarter of 2004 for the mutual benefit of both companies.  On June 11, 2004, CommScope assigned all ofits rights and duties under its contractual arrangements with Furukawa to itswholly-owned subsidiary, CommScope Optical Technologies, Inc. (“CommScopeOptical”).  On June 14, 2004, CommScopeOptical and Furukawa changed the period in which CommScope Optical couldexercise its contractual right to sell its ownership interest in OFS BrightWaveto Furukawa from 2006 to any time on or after June 14, 2004 and changed theexercise price from $173.4 million in cash to the approximately 7.7 million sharesof CommScope common stock owned by Furukawa. On June 14, 2004, CommScope Optical exercised its contractual right tosell and sold its 9.4% ownership interest in OFS BrightWave to Furukawa inexchange for the approximately 7.7 million shares of CommScope common stockowned by Furukawa, which were valued at $132.3 million as of the

 

19

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transaction date.  CommScopecurrently holds these shares as treasury stock. As a result of this transaction, CommScope no longer owns any equityinterest in OFS BrightWave.

 

This transaction does notaffect CommScope’s right to receive full payment from OFS BrightWave under the$30 million revolving note due in 2006, based on its original terms.  The carrying value of this note was reducedto approximately $11.1 million as of June 14, 2004 as a result of CommScoperecording its equity in losses of OFS BrightWave under equity method accountingrules, which require accounting for an advance to an equity method investee inthe same manner as the investment, once the carrying value of the investmenthas been reduced to zero.  Primarily dueto market conditions for optical fiber and because CommScope will no longerhave an equity ownership interest in OFS BrightWave, CommScope determined thatthere was an other-than-temporary impairment in the carrying value of thisasset as of the transaction date. Accordingly, a pretax impairment charge of $11.1 million was recognizedas a reduction of the gain on the OFS BrightWave transaction during the quarterended June 30, 2004.

 

The OFS BrightWavetransaction resulted in a net pretax gain of $121.3 million, or $1.24 perdiluted share, net of tax, during the second quarter of 2004. This gainrepresents (1) the fair value of the common stock received by CommScope inexchange for CommScope’s transfer of its ownership interest in OFS BrightWaveto Furukawa, plus (2) the realized gain from CommScope’s cumulative equitymethod share of OFS BrightWave’s unrealized foreign currency translation gainspreviously recorded in accumulated other comprehensive loss, less (3) theimpairment charge related to the $30 million note receivable from OFSBrightWave.  The after-tax net gain of$76.4 million is reflected in the Company’s statement of operations afterincome (loss) before equity in losses of OFS BrightWave, LLC and net gain onOFS BrightWave, LLC transaction.  Theincome tax impact of this gain enabled the Company to realize its deferred taxasset related to the Company’s share of the cumulative financial statement netlosses of OFS BrightWave.  In addition,this transaction created a capital gain for tax purposes, which allowed theCompany to deduct a capital loss related to the 2001 impairment of aninvestment, creating a current tax benefit of $1.4 million from this capitalloss deduction.

 

CommScope’s portion of the losses of OFS BrightWavefor the period from January 1, 2004 through June 14, 2004 and the three andnine month periods ended September 30, 2003 have been included in the condensedconsolidated financial statements of CommScope for the respective periods.  These results are net of elimination ofintercompany profit related to interest payments received from OFS BrightWaveunder the $30 million revolving note.   The elimination of intercompany profit, net of tax, was $30 for theperiod from January 1, 2004 through June 14, 2004 and $25 and $79 for the threeand nine month periods ended September 30, 2003, respectively.

 

The following table provides summary financialinformation for OFS BrightWave for the period from January 1, 2004 through June14, 2004 and the three and nine month periods ended September 30, 2003:

 
| ** **   | ** ** | **Three  Months  Ended  September  30,  2003** | ** ** | **Period from  January 1  through  June 14,  2004** | ** ** | **Nine  Months  Ended September  30,  2003** | ** ** |
|--------------|------------|------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------|------------|
|         |       |                                           |       |                                                |       |                                         |       |
| Net revenues |       | $                                              | 25,286     |                                                | $          | 40,497                                       |       | $ | 75,333 |   |
| Gross profit |       | (14,299                                        | )          | (8,612                                              | )          | (76,691                                      | )          |
| Net loss     |       | (27,171                                        | )          | (20,860                                             | )          | (352,528                                     | )          |
|              |            |                                                |            |                                                     |            |                                              |            |  |  |  |

 

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**7.  INCOME TAXES RELATED TO OTHERCOMPREHENSIVE INCOME/LOSS**

 
| ** **                                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                             | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Income tax  benefit for components of other comprehensive income/loss: |       |                                  |       |                                 |       |   |   |   |   |
| Loss on derivative  instrument designated as a net investment hedge    |       | $                                     | 179        |                                 | $          | 286 |   | $ | 178 |   | $ | 1,262 |   |
|                                                                        |            |                                       |            |                                      |            |  |  |  |  |  |  |  |  |

 

**8.  DERIVATIVES AND HEDGING ACTIVITIES**

 

As of September 30, 2004 and 2003 the only derivative financialinstrument outstanding was a cross currency swap of U.S. dollars for euros,which was designated and documented at inception, and quarterly thereafter, asa net investment hedge of a portion of the Company’s net investment in itsBelgian subsidiary.  The originalnotional amount of this derivative financial instrument was $20 million atinception of the hedging relationship and as of September 30, 2003.  The Company amended this agreement in October2003 to reduce the notional amount to $14 million.  No cash was required to effect thisamendment; the change in the notional amount was offset by an adjustment in theexchange rate underlying the swap.  Theamended hedging instrument was effective as of the amendment date and as ofSeptember 30, 2004, and is expected to continue to be effective for theduration of the agreement, resulting in no anticipated hedgeineffectiveness.  The original hedginginstrument was effective as of the inception date and as of September 30,2003.  The fair value of the amendedderivative instrument, reflected in other noncurrent liabilities, wasapproximately $6.3 million and $6.0 million as of September 30, 2004 andDecember 31, 2003, respectively.

 

There were no material reclassifications related to hedging activitiesfrom other comprehensive income (loss) to earnings during the three and ninemonth periods ended September 30, 2004 and 2003.

 

Activity in the accumulated net loss onderivative instruments included in accumulated other comprehensive loss for thethree and nine month periods ended September 30, 2004 and 2003 consisted of thefollowing:

 
| ** **                                                                        | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                        | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Accumulated net  loss on derivative instruments, beginning of period              |       | $                                     | (3,978     | )                                    | $          | (2,463 | ) | $ | (3,981 | ) | $ | (802 | ) |
| Net loss on  derivative financial instrument designated as a net investment hedge |       | (306                                  | )          | (488                                 | )          | (303 | ) | (2,149 | ) |
| Accumulated net  loss on derivative instruments, end of period                    |       | $                                     | (4,284     | )                                    | $          | (2,951 | ) | $ | (4,284 | ) | $ | (2,951 | ) |

 

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**9. SUPPLEMENTAL CASH FLOW INFORMATION**

 
| ** **                                                                                                                                                                 | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                                                                 | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Cash paid during  the period for:                                                                                                                                          |       |                                 |       |   |   |
| Income taxes                                                                                                                                                               |       | $                                    | 10,270     |   | $ | 360 |   |
| Interest (net of  capitalized amounts)                                                                                                                                     |       | 5,706                                |       | 3,826 |   |
|                                                                                                                                                                       |       |                                 |       |   |   |
| Noncash  investing and financing activities:                                                                                                                               |       |                                 |       |   |   |
| Fair value of  CommScope, Inc. common stock received from Furukawa in exchange for CommScope  Optical’s transfer of its investment in OFS BrightWave, LLC to Furukawa |       | $                                    | 132,311    |   | — |   |
|                                                                                                                                                                            |            |                                      |            |  |  |  |  |

 

**10.****            SEGMENTS**

 

Duringthe three and nine month periods ended September 30, 2004, the Company’smanagement evaluated the results of operations in two reportable segments: theCable segment, which is CommScope’s legacy cable business, and the ConnectivitySolutions segment, which is the acquisition that was completed as of January31, 2004.  As the Company continues tointegrate the Connectivity Solutions segment into its global operations andfinancial reporting systems, the Company’s management expects to reorganize itsinternal reporting, which may require reporting of its results in more ordifferent reportable segments in future periods.

 

The following tables provide summary financialinformation for these two reportable segments as of September 30, 2004 and forthe three and nine month periods ended September 30, 2004 and 2003:

 
| ** **                      | ** ** | **As of****September****30, 2004** | ** ** |
|---------------------------------|------------|------------------------------------|------------|
| Total assets                    |       |                               |       |
| Cable segment                   |       | $                                  | 591,967    |   |
| Connectivity  Solutions segment |       | 462,951                            |       |
| Consolidated  total assets      |       | $                                  | 1,054,918  |   |

 
| ** **                            | ** ** | **Three Months Ended****September****30,** | ** ** | **Nine Months Ended****September****30,** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                            | ** ** | **2004**                                   | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net sales:                            |       |                                       |       |                                      |       |   |   |   |   |
| Cable segment                         |       | $                                          | 165,040    |                                      | $          | 148,723 |   | $ | 470,365 |   | $ | 419,513 |   |
| Connectivity  Solutions segment       |       | 151,869                                    |       | —                                    |       | 405,240 |   | — |   |
| Inter-segment  eliminations           |       | (7,819                                     | )          | —                                    |       | (18,505 | ) | — |   |
| Consolidated net  sales               |       | $                                          | 309,090    |                                      | $          | 148,723 |   | $ | 857,100 |   | $ | 419,513 |   |
|                                  |       |                                       |       |                                      |       |   |   |   |   |
| Operating income  (loss):             |       |                                       |       |                                      |       |   |   |   |   |
| Cable segment                         |       | $                                          | 7,458      |                                      | $          | 8,304 |   | $ | 20,256 |   | $ | (15,433 | ) |
| Connectivity  Solutions segment       |       | 10,993                                     |       | —                                    |       | (4,426 | ) | — |   |
| Inter-segment  eliminations           |       | 326                                        |       | —                                    |       | (105 | ) | — |   |
| Consolidated  operating income (loss) |       | $                                          | 18,777     |                                      | $          | 8,304 |   | $ | 15,725 |   | $ | (15,433 | ) |

 

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**11.**             EMPLOYEE TERMINATION BENEFITS

 

The Company reduced theConnectivity Solutions segment workforce by approximately 45 employees duringthe first quarter of 2004.  Thereductions were primarily related to the Company’s efforts to improveoperational efficiency and reduce cost. The affected employees worked in management and support functions at theOmaha, Nebraska facility.  This workforcereduction resulted in pretax charges of approximately $1.6 million during thefirst quarter of 2004 for employee termination benefits, which consisted ofseverance pay and related fringe benefits. The Company recorded this amount in acquisition-related transition andstartup costs.  The Company paid $0.1million and $1.3 million of these costs during the three and nine month periodsended September 30, 2004, respectively, resulting in a remaining accrual of$0.3 million as of September 30, 2004 related to this first quarter 2004workforce reduction.  Managementestimates that these remaining benefits will be paid in full by the end of2004.

 

**12.**             EMPLOYEE BENEFIT PLANS

 
| ** **                             | ** ** | **Pension Benefits**                  | ** ** | **Other Postretirement  Benefits** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **Three Months Ended  September 30,** | ** ** |
| ** **                             | ** ** | **2004**                              | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                   |       |                                  |       |                               |       |   |   |   |   |
| Service cost                           |       | $                                     | 870        |                               | $          | 26 |   | $ | 1,008 |   | $ | 714 |   |
| Interest cost                          |       | 1,322                                 |       | 32                                 |       | 1,158 |   | 524 |   |
| Recognized  actuarial loss             |       | —                                |       | —                             |       | 108 |   | 118 |   |
| Amortization of  transition obligation |       | 10                                    |       | 9                                  |       | — |   | — |   |
| Return on plan  assets                 |       | (1,333                                | )          | (14                                | )          | (151 | ) | — |   |
|                                   |       |                                  |       |                               |       |   |   |   |   |
| Net periodic  benefit cost             |       | $                                     | 869        |                               | $          | 53 |   | $ | 2,123 |   | $ | 1,356 |   |

 
| ** **                             | ** ** | **Pension Benefits**                 | ** ** | **Other Postretirement  Benefits** | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                             | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                   |       |                                 |       |                               |       |   |   |   |   |
| Service cost                           |       | $                                    | 2,306      |                               | $          | 76 |   | $ | 3,204 |   | $ | 2,143 |   |
| Interest cost                          |       | 3,538                                |       | 95                                 |       | 3,428 |   | 1,573 |   |
| Recognized  actuarial loss             |       | —                               |       | —                             |       | 515 |   | 354 |   |
| Amortization of  transition obligation |       | 30                                   |       | 28                                 |       | — |   | — |   |
| Return on plan  assets                 |       | (3,562                               | )          | (42                                | )          | (403 | ) | — |   |
|                                   |       |                                 |       |                               |       |   |   |   |   |
| Net periodic  benefit cost             |       | $                                    | 2,312      |                               | $          | 157 |   | $ | 6,744 |   | $ | 4,070 |   |

 

**As a part of theacquisition of Connectivity Solutions, CommScope established a new definedbenefit pension plan and a new postretirement benefit plan that includes healthcarebenefits and life insurance coverage for the represented domestic employees inthe Connectivity Solutions segment. These plans have been combined for disclosure purposes with CommScope’spension and postretirement benefit plans, which existed prior to theacquisition of Connectivity Solutions.**

 

**The Company contributedapproximately $70 and $210 to its pension plans for the three and nine monthperiods ended September 30, 2004, respectively. The Company anticipates making additional contributions of approximately$70 to these plans before December 31, 2004. The Company contributed approximately $20 and $70 to the postretirementbenefit plans for the three and nine month periods ended September 30, 2004,respectively.  The Company anticipates**

 

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**making additionalcontributions of approximately $0.1 million to these plans before December 31,2004.**

 

OnDecember 8, 2003, the President signed the Medicare Prescription Drug,Improvement and Modernization Act of 2003 (the “Act”) into law. The Actintroduces a prescription drug benefit under Medicare (Medicare Part D) as wellas a federal subsidy to sponsors of retiree health care benefit plans thatprovide a benefit that is at least actuarially equivalent to Medicare PartD.  FSP No. FAS 106-2, “Accounting andDisclosure Requirements Related to the Medicare Prescription Drug, Improvementand Modernization Act of 2003,” provides guidance on the accounting for theeffects of the Act and was effective for the quarter ending September 30,2004.  The Company elected to adopt theaccounting guidance in the FSP on a prospective basis.  Accordingly, an actuarial valuation of thepostretirement benefit obligation was performed as of July 1, 2004.  The accumulated postretirement benefitobligation was reduced by approximately $7.5 million as a result of thesubsidy.  The pretax net periodicpostretirement benefit cost for the three and nine months ended September 30,2004 was reduced by approximately $0.3 million as a result of thisvaluation.  See Note 1 for furtherdiscussion of the FSP.

 

**13.**             INCOMETAXES

 

TheCompany’s consolidated effective income tax rate, which includes the taxeffects of OFS Brightwave, LLC, was 16.5% and 33.2% for the three and ninemonth periods ended September 30, 2004, respectively, compared to 37.0% for thecomparable periods in 2003.  Thereduction in the effective income tax rate was primarily due to the acquisitionof Connectivity Solutions, which expanded the Company’s international activitiesin lower tax rate jurisdictions.  Duringthe first nine months of 2004, non-domestic operations were generallyprofitable, while as a result of certain material charges arising from theapplication of purchase accounting (see Note 2), domestic operationsexperienced a net loss which created a tax benefit at the statutory U.S.federal income tax rate of 35%.  Inaddition, the Company’s effective income tax rate for the nine months endedSeptember 30, 2004 was reduced by the reversal of a $1.4 million valuationallowance, which was established in 2001 for a deferred tax asset created bythe impairment of an investment.  Thecapital gain realized in the second quarter of 2004 allows the tax benefitassociated with that impairment loss to be realized.  However, the favorable impact of these twoitems on the consolidated effective income tax rate was somewhat offset by thetax on the net gain on the OFS BrightWave, LLC transaction in the secondquarter of 2004, $121.3 million pretax and $76.4 million after-tax.

 

**14.****            ****SUBSEQUENT EVENT**

 

On October 11, 2004, theCompany announced that its indirect subsidiary, Connectivity SolutionsManufacturing, Inc. (“CSMI”), will implement organizational and cost reductioninitiatives at its CSMI Omaha, Nebraska site in order to improve itscompetitive position.  These initiativesare expected to be substantially in place by mid-year 2005.  The Omaha facility is part of theConnectivity Solutions segment and was acquired on January 31, 2004 as part ofthe Company’s acquisition of the Connectivity Solutions business of Avaya.

 

As a result ofthese CSMI initiatives, CSMI expects to incur costs for process improvements,including facility redesign, and employee-related expenses, including severancepay, related fringe benefits and a curtailment loss for pension andpostretirement benefits.  The incrementalpretax costs, primarily in cash, to implement these initiatives are expected tobe $10 to $15 million.  Approximatelyhalf of these costs are expected to be recognized in the fourth quarter of2004, with the balance to be incurred in 2005. No charges have been recognized related to this restructuring during thethree and nine months ended September 30, 2004.

 

In addition, asmodifications are made to the manufacturing processes at the CSMI Omaha site, CSMImay identify fixed assets that are no longer needed.  CSMI may

 

24

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consider disposing ofthese assets and as a result could incur pretax losses on disposal orimpairment of these assets of up to $10 million.

 

The anticipatedcharges related to the restructuring represent management’s best estimate ofthe costs to be incurred as a direct result of the cost reduction initiativesat the CSMI Omaha manufacturing facility. The actual charges may differ from this estimate as a result of issuesencountered during the implementation and changes in market conditions.

 

25

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**ITEM 2.****                             MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

# ** **

The followingdiscussion and analysis of our financial condition and results of operationsfor the three and nine month periods ended September 30, 2004 and 2003 isprovided to increase the understanding of, and should be read in conjunctionwith, the unaudited condensed consolidated financial statements andaccompanying notes included elsewhere in this Form 10-Q 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 2003 Annual Report on Form 10-K/A.

 

**Overview**

 

We, through our whollyowned subsidiaries, are a leading worldwide designer, manufacturer and marketerof broadband coaxial cables and other high performance electronic and fiberoptic cable products for cable television, telephony, Internet access, wirelesscommunications and other broadband services. We seek to be a global leader in cable and connectivity solutions forthe ‘last mile’ in telecommunications. We define the ‘last mile’ as thedistribution access or final link from the network operator to the end user,which includes cable and connectivity solutions for the home, businessenterprise or wireless provider.

 

In January 2004, weacquired the Connectivity Solutions business (“Connectivity Solutions,” or asoperated by us, the “Connectivity Solutions segment”) from Avaya Inc. (“Avaya”)primarily to expand our position in the ‘last mile’ of telecommunications,establish a leadership position in the global enterprise market and enhance ourglobal growth opportunities.

 

Through the acquisitionof the SYSTIMAX® Solutions products in the Connectivity Solutions segment webecame a leading global designer, manufacturer and marketer of physical layerend-to-end structured cabling solutions supporting local area networkapplications for enterprises and telecommunications service providers.  SYSTIMAX is widely recognized as a leadingglobal brand in enterprise cable and connectivity solutions.  It has established channels to internationalmarkets and has a worldwide network of independent distributors, systemintegrators and value added resellers. We believe that this acquisition strengthens our global competitiveposition in the enterprise market and provides new channels to market ourproducts.  The Connectivity Solutionsacquisition also expands the markets in which we operate, which createspotential new growth opportunities.  OnOctober 11, 2004, we announced that our indirect subsidiary, ConnectivitySolutions Manufacturing, Inc. (“CSMI”) will implement organization and costreduction initiatives at the Omaha, Nebraska manufacturing operations of the ConnectivitySolutions segment in order to improve its competitive position.  These initiatives are expected to besubstantially in place by mid-year 2005. See Note 14 in the Notes to the Condensed Consolidated FinancialStatements included elsewhere in this Form 10-Q.

 

During the three andnine month periods ended September 30, 2004, management evaluated the resultsof operations in two reportable segments: the Cable segment, which is ourlegacy cable business, and the Connectivity Solutions segment, which is theacquisition that was completed as of January 31, 2004.  As we continue to integrate the ConnectivitySolutions segment into our global operations and financial reporting systems,management may reorganize its internal reporting, which may require reportingof our results in more or different reportable segments in future periods.

 

### ***CRITICALACCOUNTING POLICIES***

### * *

There have been no changes inour critical accounting policies or significant accounting estimates asdisclosed in our 2003 Annual Report on Form 10-K/A, except for changesresulting from our acquisition of Connectivity Solutions as of January 31,2004.  As a result of this

 

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acquisition,the reserve for product warranty claims and the fair values of the assetsacquired and liabilities assumed are new significant estimates.

 

*Product warranties* – We recognize a liability for the estimatedclaims that may be paid under our customer warranty agreements to remedypotential deficiencies of quality or performance of our products.  We record a provision for estimated futurewarranty claims based upon the historical relationship of warranty claims tosales and specifically-identified warranty issues.  We base our estimates on historicalexperience and on assumptions that are believed to be reasonable under thecircumstances and revise our estimates, as appropriate, when events or changesin circumstances indicate that revisions may be necessary.  Although these estimates are based onmanagement’s knowledge of and experience with past and current events and onmanagement’s assumptions about future events, it is reasonably possible thatthey may ultimately differ materially from actual results.

 

*Fair values of assets acquired and liabilities assumedin the acquisition of Connectivity Solutions* – The acquisition of Connectivity Solutionsas of January 31, 2004 was accounted for using the purchase method ofaccounting.  The purchase method requiresmanagement to make significant estimates. First, management must estimate the cost of the acquired entity based onthe fair value of the consideration paid or the fair value of the net assetsacquired, whichever is more clearly evident. This cost must then be allocated to the assets acquired and liabilitiesassumed based on their estimated fair values at the date of acquisition.  In addition, management must identify andestimate the fair values of intangible assets that should be recognized asassets apart from goodwill.  Management utilizedthird party appraisals to assist in estimating the fair value of tangibleproperty, plant and equipment and intangible assets acquired.

 

### ***COMPARISON OFRESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,2004 WITH THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003***

### * *

| ** **                                           | ** ** | **Three  Months Ended September 30,** | ** **     | ** ** | ** **          | ** ** | ** ** |
|------------------------------------------------------|------------|---------------------------------------|----------------|------------|---------------------|------------|------------|
| ** **                                           | ** ** | **2004**                              | ** **     | **2003**   | ** **          | ** ** | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **$**                                 | **(millions)** | ** ** | **% of Net  Sales** | ** ** | **$**      | **(millions)** | ** ** | **% of Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%****Change** | ** ** |
|                                                 |       |                                  |           |       |                |       |       |   |   |   |   |   |   |
| Net sales                                            |       | $                                     | 309.1          |       | 100.0               | %          | $          | 148.7 |   | 100.0 | % | $ | 160.4 |   | 107.9 | % |
| Gross profit                                         |       | 78.0                                  |           | 25.2       |                | 30.6       |       | 20.6 |   | 47.4 |   | 154.9 |   |
| SG&A expense                                     |       | 51.5                                  |           | 16.7       |                | 20.9       |       | 14.1 |   | 30.6 |   | 146.4 |   |
| R&D expense                                      |       | 7.4                                   |           | 2.4        |                | 1.5        |       | 1.0 |   | 5.9 |   | 393.3 |   |
| Equity in losses  of OFS BrightWave, LLC, net of tax |       | —                                |           | —     |                | 3.1        |       | 2.1 |   | (3.1 | ) | (100.0 | ) |
| Net income                                           |       | 15.1                                  |           | 4.9        |                | 1.1        |       | 0.7 |   | 14.0 |   | 1,272.7 |   |
| Net income per  diluted share                        |       | $                                     | 0.27           |       |                |       |       | $ | 0.02 |   |   |   | $ | 0.25 |   |   |   |
|                                                      |            |                                       |                |            |                     |            |            |  |  |  |  |  |  |  |  |  |  |

 

27

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| ** **                                               | ** ** | **Nine  Months Ended September 30,** | ** ** | ** **          | ** ** | ** **          | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                                               | ** ** | **2004**                             | ** ** | **2003**            | ** ** | ** **          | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **$****(millions)**                  | ** ** | **% of Net  Sales** | ** ** | **$****(millions)** | ** ** | **% of Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%****Change** | ** ** |
|                                                     |       |                                 |       |                |       |                |       |   |   |   |   |   |   |
| Net sales                                                |       | $                                    | 857.1      |                | 100.0      | %                   | $          | 419.5 |   | 100.0 | % | $ | 437.6 |   | 104.3 | % |
| Gross profit                                             |       | 187.5                                |       | 21.9                |       | 83.6                |       | 19.9 |   | 103.9 |   | 124.3 |   |
| SG&A expense                                         |       | 139.2                                |       | 16.2                |       | 62.7                |       | 14.9 |   | 76.5 |   | 122.0 |   |
| R&D expense                                          |       | 20.4                                 |       | 2.4                 |       | 4.5                 |       | 1.1 |   | 15.9 |   | 353.3 |   |
| Impairment  charges for fixed assets                     |       | —                               |       | —              |       | 31.7                |       | 7.6 |   | (31.7 | ) | (100.0 | ) |
| In-process  research and development charges             |       | 4.0                                  |       | 0.5                 |       | —              |       | — |   | 4.0 |   | — |   |
| Acquisition-related  transition and startup costs        |       | 8.2                                  |       | 1.0                 |       | —              |       | — |   | 8.2 |   | — |   |
| Equity in losses  of OFS BrightWave, LLC, net of tax     |       | (1.4                                 | )          | (0.2                | )          | (40.9               | )          | (9.7 | ) | 39.5 |   | (96.6 | ) |
| Net gain on OFS  BrightWave, LLC transaction, net of tax |       | 76.4                                 |       | 8.9                 |       | —              |       | — |   | 76.4 |   | — |   |
| Net income (loss)                                        |       | 82.8                                 |       | 9.7                 |       | (53.3               | )          | (12.7 | ) | 136.1 |   | (255.3 | ) |
| Net income (loss)  per diluted share                     |       | $                                    | 1.38       |                |       |                | $          | (0.90 | ) |   |   | $ | 2.28 |   |   |   |

** **

Effective January 31,2004, we completed the acquisition of substantially all of the assets andassumed certain liabilities of Connectivity Solutions from Avaya and theConnectivity Solutions segment’s operating results have been included in ourconsolidated financial statements since the date of acquisition. Accordingly,the consolidated results for the three and nine month periods ended September30, 2004 include the operating results of the Connectivity Solutions segmentfor the three months ended September 30, 2004 and the eight-month period fromFebruary 1, 2004 through September 30, 2004, respectively.  However, the consolidated results reflectedabove for the three and nine month periods ended September 30, 2003 do notinclude any actual or pro forma results for the Connectivity Solutions segment.This information should be considered when comparing the financial results of2004 and 2003. See Note 2 in the Notes to the Condensed Consolidated FinancialStatements included elsewhere in this Form 10-Q.

 

**28**

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** **

**Net sales**

** **

**Below is a summary thatreflects our actual net sales for the three and nine month periods ended**September 30, 2004, which incorporate the Connectivity Solutionssegment net sales for the three month period ended September 30, 2004 and the eight month period from February 1, 2004through September30, 2004.  This summary also reflects proforma net sales for the nine month period ended September 30, 2004 and thethree and nine month periods ended September30, 2003, as if Connectivity Solutions had been acquired on January 1, 2004 and2003, respectively.  The pro forma netsales of the Connectivity Solutions segment for the one-month period endedJanuary 31, 2004, which is included in the pro forma net sales for the ninemonths ended September30, 2004, and the pro forma net sales of the Connectivity Solutions segment forthe three and nine month periods ended September 30, 2003 are based on the historical results of theConnectivity Solutions business as operated by Avaya during the periodspresented and therefore may not be indicative of the actual results of theConnectivity Solutions segment as operated by us.  Actual inter-segment sales eliminations forthe three months ended September30, 2004 and the eight month period ended September 30, 2004 and pro forma inter-segment sales eliminationsfor the pro forma periods are included below.

** **
| ** **                      | ** ** | **Actual**                                    | ** ** | **Pro  forma**                                | ** ** | ** **     | ** ** | ** **          | ** ** |
|---------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|---------------------|------------|
| ** **                      | ** ** | **Three  months  ended  September 30,  2004** | ** ** | **Three  months  ended  September 30,  2003** | ** ** | ** **     | ** ** | ** **          | ** ** |
| **(dollars in  millions)**      | ** ** | **Net  Sales**                                | ** ** | **% of Net  Sales**                           | ** ** | **Net  Sales** | ** ** | **% of Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%****Change** | ** ** |
| Net sales by  segment:          |       |                                          |       |                                          |       |           |       |                |       |   |   |   |   |
| Cable segment                   |       | $                                             | 165.0      |                                          | 53.4       | %              | $          | 148.7               |       | 51.4 | % | $ | 16.3 |   | 11.0 | % |
| Connectivity  Solutions segment |       | 151.9                                         |       | 49.1                                          |       | 147.2          |       | 50.9                |       | 4.7 |   | 3.2 |   |
| Inter-segment  eliminations     |       | (7.8                                          | )          | (2.5                                          | )          | (6.5           | )          | (2.3                | )          | (1.3 | ) | 20.0 |   |
| Consolidated net  sales         |       | $                                             | 309.1      |                                          | 100.0      | %              | $          | 289.4               |       | 100.0 | % | $ | 19.7 |   | 6.8 | % |
|                            |       |                                          |       |                                          |       |           |       |                |       |   |   |   |   |
| Total domestic  sales           |       | $                                             | 215.5      |                                          | 69.7       | %              | $          | 194.3               |       | 67.1 | % | $ | 21.2 |   | 10.9 | % |
| Total  international sales      |       | 93.6                                          |       | 30.3                                          |       | 95.1           |       | 32.9                |       | (1.5 | ) | (1.6 | ) |
| Total worldwide sales           |       | $                                             | 309.1      |                                          | 100.0      | %              | $          | 289.4               |       | 100.0 | % | $ | 19.7 |   | 6.8 | % |

** **

**Overall, consolidated netsales, on a pro forma basis, increased year over year for the third quarter,primarily due to higher international sales of Broadband/Video Products anddomestic sales of LAN products within the Cable segment.  Our Cable segment sales increased in allmajor product categories and regions. The year-over-year improvement in Connectivity Solutions segment salesfor the third quarter was primarily due to higher domestic sales of SYSTIMAXproducts, partially offset by a reduction in sales of Integrated CabinetSolutions Products.**

** **

**29**

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** **
| ** **                      | ** ** | **Actual**                             | ** ** | **Pro  forma**                         | ** ** |
|---------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                      | ** ** | **Nine  months  ended  September 30,** | ** ** | **Nine  months  ended  September 30,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **2004**                               | ** ** | **2004**                               | ** ** | **2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(dollars in  millions)**      | ** ** | **Net  Sales**                         | ** ** | **% of  Net  Sales**                   | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%****Change** | ** ** |
| Net sales by  segment:          |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cable segment                   |       | $                                      | 470.3      |                                   | 54.9       | % | $ | 470.3 |   | 53.3 | % | $ | 419.5 |   | 50.9 | % | $ | 50.8 |   | 12.1 | % |
| Connectivity  Solutions segment |       | 405.3                                  |       | 47.3                                   |       | 432.5 |   | 49.0 |   | 420.9 |   | 51.0 |   | 11.6 |   | 2.8 |   |
| Inter-segment  eliminations     |       | (18.5                                  | )          | (2.2                                   | )          | (20.0 | ) | (2.3 | ) | (15.5 | ) | (1.9 | ) | (4.5 | ) | 29.0 |   |
| Consolidated net  sales         |       | $                                      | 857.1      |                                   | 100.0      | % | $ | 882.8 |   | 100.0 | % | $ | 824.9 |   | 100.0 | % | $ | 57.9 |   | 7.0 | % |
|                            |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total domestic  sales           |       | $                                      | 593.5      |                                   | 69.2       | % | $ | 607.9 |   | 68.9 | % | $ | 561.4 |   | 68.1 | % | $ | 46.5 |   | 8.3 | % |
| Total  international sales      |       | 263.6                                  |       | 30.8                                   |       | 274.9 |   | 31.1 |   | 263.5 |   | 31.9 |   | 11.4 |   | 4.3 |   |
| Total worldwide  sales          |       | $                                      | 857.1      |                                   | 100.0      | % | $ | 882.8 |   | 100.0 | % | $ | 824.9 |   | 100.0 | % | $ | 57.9 |   | 7.0 | % |

** **

**Overall, consolidated netsales, on a pro forma basis, increased year over year for the first nine monthsprimarily due to higher domestic and international sales of Broadband/VideoProducts within the Cable segment.  OurCable segment sales increased in all major product categories and in allregions.  The year-over-year improvementin Connectivity Solutions segment sales, on a pro forma basis, for the first ninemonths was primarily due to higher domestic sales of Integrated CabinetSolutions Products as sales of SYSTIMAX Products were essentially flat.**

** **

**In October 2004, we announcedthat due to escalating material costs, we would be implementing price increasesfor certain products.  Prices for theseproducts are expected to be increased approximately 3% to 9% withimplementation generally beginning in January 2005.**

** **

**30**

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** **

*Cable Segment*

 
| ** **                             | ** ** | **Three  Months Ended September 30,** | ** ** | ** **          | ** ** | ** **     | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|---------------------|------------|----------------|------------|
| ** **                             | ** ** | **2004**                              | ** ** | **2003**            | ** ** | ** **     | ** ** | ** ** | ** ** |
| **(dollars in millions)**              | ** ** | **Net  Sales**                        | ** ** | **% of Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
|                                   |       |                                  |       |                |       |           |       |   |   |   |   |   |   |
| Broadband/Video  Products              |       | $                                     | 124.8      |                | 75.6       | %              | $          | 117.9 |   | 79.3 | % | $ | 6.9 |   | 5.9 | % |
| LAN Products                           |       | 30.1                                  |       | 18.3                |       | 24.0           |       | 16.1 |   | 6.1 |   | 25.4 |   |
| Wireless &  Other Telecom Products |       | 10.1                                  |       | 6.1                 |       | 6.8            |       | 4.6 |   | 3.3 |   | 48.5 |   |
| Total Cable  segment                   |       | $                                     | 165.0      |                | 100.0      | %              | $          | 148.7 |   | 100.0 | % | $ | 16.3 |   | 11.0 | % |

 
| ** **                             | ** ** | **Nine  Months Ended September 30,** | ** ** | ** **          | ** ** | ** **     | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|---------------------|------------|----------------|------------|
| ** **                             | ** ** | **2004**                             | ** ** | **2003**            | ** ** | ** **     | ** ** | ** ** | ** ** |
| **(dollars in millions)**              | ** ** | **Net  Sales**                       | ** ** | **% of Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** |   |
|                                   |       |                                 |       |                |       |           |       |   |   |   |   |   |   |
| Broadband/Video  Products              |       | $                                    | 354.9      |                | 75.5       | %              | $          | 327.7 |   | 78.1 | % | $ | 27.2 |   | 8.3 | % |
| LAN Products                           |       | 87.0                                 |       | 18.5                |       | 71.6           |       | 17.1 |   | 15.4 |   | 21.5 |   |
| Wireless &  Other Telecom Products |       | 28.4                                 |       | 6.0                 |       | 20.2           |       | 4.8 |   | 8.2 |   | 40.6 |   |
| Total Cable  segment                   |       | $                                    | 470.3      |                | 100.0      | %              | $          | 419.5 |   | 100.0 | % | $ | 50.8 |   | 12.1 | % |

 

The increase in net sales ofBroadband/Video Products for the three and nine month periods ended September30, 2004 primarily resulted from strong international sales volumes and thepositive impact of previously announced price increases for certainproducts.  Despite lower sales of fiberoptic cable and lower sales to our largest domestic Cable segment customer, domesticsales of Broadband/Video Products increased moderately for the nine monthperiod ended September 30, 2004 and were essentially flat for the three monthperiod ended September 30, 2004.  Basedon information from our domestic customers, we expect lower sales ofBroadband/Video products for the balance of 2004.

 

As a result of rising rawmaterial prices, we announced a price increase in April 2004 for certainbroadband coaxial cable products that became effective beginning in lateMay.  However, we expect ongoing pricingpressure and weak demand industry wide for fiber optic cable products forbroadband applications for the balance of 2004.

 

The increase in net sales ofLAN Products for the three and nine month periods ended September 30, 2004 wasprimarily driven by improved project business and the positive impact ofpreviously announced price increases for certain products.  In addition, the launch of our new UnipriseTMbrand contributed to the increase in net sales of LAN Products.  We believe the business environment for ourLAN products is improving based primarily on the improvement in informationtechnology spending, which has led to increased spending by our customers.  We announced two price increases for certainLAN Products in the first quarter of 2004 as a result of significant increasesin the cost of certain raw materials.

 

The increase in net sales ofWireless and Other Telecom Products for the three and nine month periods endedSeptember 30, 2004 was mainly due to a higher volume of sales combined withimproved product mix.  The improvement ingeneral business conditions has led to increased spending by certain majorwireless carriers.  In addition, we havedeveloped relationships with new customers, who are generally purchasing largerdiameter products, which have comparatively higher prices.  We believe we continue to make steadyprogress communicating the Cell Reach® value proposition to new andexisting customers, both domestically and internationally.  While we expect sales of wireless products tobe somewhat volatile since customer spending is mainly

 

31

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project-driven,we remain optimistic about our long-term global wireless opportunitiesprimarily as a result of improving global business conditions.

 

*Connectivity Solutions Segment*

 
| ** **                            | ** ** | **Actual**                                    | ** ** | **Pro  forma**                               | ** ** |
|---------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                            | ** ** | **Three  months  ended  September 30,  2004** | ** ** | **Three  months ended  September 30,  2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(dollars in millions)**             | ** ** | **Net  Sales**                                | ** ** | **% of  Net  Sales**                         | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
|                                  |       |                                          |       |                                         |       |   |   |   |   |   |   |   |   |
| SYSTIMAX Products                     |       | $                                             | 128.6      |                                         | 84.7       | % | $ | 111.6 |   | 75.8 | % | $ | 17.0 |   | 15.2 | % |
| ExchangeMAX  Products                 |       | 11.3                                          |       | 7.4                                          |       | 13.3 |   | 9.0 |   | (2.0 | ) | (15.0 | ) |
| Integrated  Cabinet Systems Products  |       | 12.0                                          |       | 7.9                                          |       | 22.3 |   | 15.2 |   | (10.3 | ) | (46.2 | ) |
| Total Connectivity  Solutions segment |       | $                                             | 151.9      |                                         | 100.0      | % | $ | 147.2 |   | 100.0 | % | $ | 4.7 |   | 3.2 | % |

 
| ** **                            | ** ** | **Actual**                                   | ** ** | **Pro  forma**                        | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|---------------------------------------|------------|
| ** **                            | ** ** | **Eight-month  period ended  September 30,** | ** ** | **Nine  months ended  September 30,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **2004**                                     | ** ** | **2004**                              | ** ** | **2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(dollars in millions)**             | ** ** | **Net  Sales**                               | ** ** | **% of  Net  Sales**                  | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
|                                  |       |                                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| SYSTIMAX Products                     |       | $                                            | 323.2      |                                  | 79.7       | % | $ | 339.0 |   | 78.4 | % | $ | 337.4 |   | 80.2 | % | $ | 1.6 |   | 0.5 | % |
| ExchangeMAX  Products                 |       | 34.8                                         |       | 8.6                                   |       | 38.4 |   | 8.9 |   | 40.4 |   | 9.6 |   | (2.0 | ) | (5.0 | ) |
| Integrated  Cabinet Systems Products  |       | 47.3                                         |       | 11.7                                  |       | 55.1 |   | 12.7 |   | 43.1 |   | 10.2 |   | 12.0 |   | 27.8 |   |
| Total  Connectivity Solutions segment |       | $                                            | 405.3      |                                  | 100.0      | % | $ | 432.5 |   | 100.0 | % | $ | 420.9 |   | 100.0 | % | $ | 11.6 |   | 2.8 | % |

 

The pro forma net sales inthe table above for the three and nine months ended September 30, 2003 reflectsales recognized by the Connectivity Solutions business during that period asoperated by Avaya.  The pro forma netsales in the table above for the nine months ended September 30, 2004 reflectthe actual sales of the Connectivity Solutions segment for the eight-monthperiod ended September 30, 2004 in addition to sales recognized by theConnectivity Solutions business in January 2004 as operated by Avaya prior toour acquisition of this business on January 31, 2004.

 

The discussion below focuseson the changes in net sales for the three months ended September 30, 2004 ascompared to the pro forma net sales for the three months ended September 30,2003.  The discussion below also comparesthe pro forma net sales for the nine months ended September 30, 2004 to the proforma net sales for the nine months ended September 30, 2003 since the actualnet sales for the eight-month period ended September 30, 2004 would not becomparable.  However, these pro formaresults may not be indicative of the actual results of the ConnectivitySolutions segment as operated by us.

 

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The net sales of SYSTIMAXProducts, on a pro forma basis, were moderately higher year over year for thethird quarter primarily due to strong domestic sales volumes driven by improvedproject business and the positive impact of previously announced priceincreases for certain products.  Duringthe quarter ended March 31, 2004, we announced two price increases for certainproducts on new projects, primarily due to the rising cost of copper andcertain polymers.  The year-over-year netsales of SYSTIMAX Products, on a pro forma basis for the first nine months wereessentially unchanged.  This wasprimarily the result of the strong third quarter net sales which weresubstantially offset by our effort during the first two quarters to reduceexternal inventory balances held by distributors to a more appropriatelevel.  We expect demand for SYSTIMAXproducts to be driven by the ongoing need for bandwidth and high-performancestructured cabling in the enterprise market and affected by global informationtechnology spending, among other things.

 

The decrease in net sales ofExchangeMAX Products, on a pro forma basis, for the third quarter and firstnine months was primarily related to the impact of competitive pricing pressurecontinuing to affect sales of ExchangeMAX Products.

 

The decrease in net sales ofIntegrated Cabinet Solutions (“ICS”) Products, on a pro forma basis, for thethird quarter primarily resulted from a large customer nearing completion ofcurrent planned projects.  The increasein ICS net sales on a pro forma basis for the first nine months was due toincreased sales volumes resulting from increasing service provider deploymentsof Digital Subscriber Lines.

 

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

### * *

The year-over-year increasesin gross profit for the three and nine month periods ended September 30, 2004were primarily due to the acquisition of the Connectivity Solutions business asof January 31, 2004.  Third quarter 2004gross profit margin increased to 25.2% from 20.6% in the third quarter of 2003,primarily as a result of the acquisition. Gross profit margin for the first nine months also increased year overyear, from 19.9% to 21.9%.   Gross profitmargin for the nine month period ended September 30, 2004 was affected bycharges totaling $14.6 million related to the impact of purchase accountingadjustments on the Connectivity Solutions segment inventory.   These purchase accounting adjustmentsresulted from the write-up above replacement manufacturing cost of a portion ofConnectivity Solutions’ finished goods and work in process inventory to reflectits acquired fair value as of the acquisition date under purchase accountingguidance.  This write-up to fair valueresults in an increase in cost of sales and lower margins following theacquisition as the acquired inventory is sold.

 

Over the last twelve months,the costs of metals, plastics and other polymers have increasedsubstantially.  As a result of thesehigher costs, we have announced price increases for certain products.  The inability to achieve continued marketacceptance of the price increases could result in lower gross profit and grossprofit margin.

 

### ***Selling, generaland administrative expense***

### * *

The increases in selling,general and administrative (“SG&A”) expense for the three and nine monthperiods ended September 30, 2004 as compared to the same periods in 2003 wereprimarily due to the acquisition of Connectivity Solutions.  SG&A expense as a percentage of net saleswas also slightly higher year over year in both the third quarter and firstnine months, primarily as a result of the acquisition.

 

### ***Research anddevelopment***

### * *

Research and development (“R&D”) expenseincreased for the three and nine month periods ended September 30, 2004 ascompared to the same periods in 2003 primarily due to the acquisition ofConnectivity Solutions, which has extensive research and developmentactivities.  R&D expense as apercentage of net sales was also slightly higher year over year in both thethird quarter and first nine months, primarily as a result of the acquisition.

 

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# **In-process research and development charges**

# ** **

We recognized a $4.0million pretax charge during the first nine months of 2004 for the write-off ofin-process research and development acquired in our acquisition of ConnectivitySolutions.  This in-process research anddevelopment was valued as an intangible asset by independent appraisal inaccordance with purchase accounting guidance. Since research and development activities are required to be expensed asincurred under U.S. generally accepted accounting principles, this acquiredintangible asset was written off immediately following the acquisition date,with subsequent adjustments and write-offs resulting from changes in thepurchase price allocation in the period in which such changes are recognized.

 

**Acquisition-relatedtransition and startup costs**

 

We incurred pretaxcharges of $0.2 million and $8.2 million for the three and nine month periodsended September 30, 2004, respectively, as a result of startup, transition andother costs related to the acquisition of Connectivity Solutions.  These charges primarily related toinformation technology, transition services, and other acquisition-relatedcosts.

 

We reduced the ConnectivitySolutions segment workforce by approximately 45 employees, or 2% of the segment’sglobal workforce, during the first quarter of 2004.  The reductions were primarily related to ourefforts to improve operational efficiency and reduce cost.  We recorded total pretax charges ofapproximately $1.6 million in acquisition-related transition and startup costsfor employee termination benefits related to this workforce reduction duringthe first quarter of 2004.

 

**Loss on earlyextinguishment of debt**

 

We recognized a $5.0 millionpretax loss during the first quarter of 2004 on the early extinguishment of our4% convertible subordinated notes.  Thisloss includes premiums paid and accrued to note holders in the amount of $3.1million and the write-off of the remaining balance of related long-term financingcosts in the amount $1.9 million.  Seefurther discussion under “Liquidity and Capital Resources.”

** **

### ***Net interestexpense***

### * *

Net interest expense for thethree and nine month periods ended September 30, 2004, as compared to thecomparable periods of the prior year, was impacted by higher averageoutstanding balances of long-term debt, incurred primarily for the acquisitionof Connectivity Solutions.  The decreasein our effective interest rate more than offset the impact of the higher debtbalances for the three month period ended September 30, 2004 and somewhatoffset the impact of the higher debt balances for the nine month period endedSeptember 30, 2004.  Our weighted averageeffective interest rate on outstanding borrowings, including amortization of associatedlong-term financing costs, decreased to 2.63% as of September 30, 2004 comparedto 4.87% as of December 31, 2003.  Thisdecrease in our effective interest rate was mainly due to the refinancing ofour existing $172.5 million aggregate principal amount of 4% convertible noteswith the issuance of $250.0 million aggregate principal amount of 1%convertible senior subordinated debentures.

 

### ***Income taxes***

### * *

Our consolidated effectiveincome tax rate, which includes the tax effects of OFS BrightWave, LLC, was16.5% and 33.2% for the three and nine month periods ended September 30, 2004,respectively, compared to 37.0% for the comparable periods in 2003.  The reduction in the effective income taxrate was primarily due to the acquisition of Connectivity Solutions, whichexpanded our international activities in lower tax rate jurisdictions.  During the first nine months of 2004,non-domestic operations were generally profitable, while as a result of certainmaterial charges arising from the application of purchase accounting (see Note2 in the Notes to the Condensed Consolidated Financial Statements includedelsewhere in this Form 10-Q), domestic operations experienced a net loss whichcreated a tax benefit at the statutory U.S. federal income tax rate of

 

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35%.  In addition, the effective income tax ratefor the nine months ended September 30, 2004 was reduced by the reversal of a$1.4 million valuation allowance, which was established in 2001 for a deferredtax asset created by the impairment of an investment.  The capital gain realized in the secondquarter of 2004 allows the tax benefit associated with that impairment loss tobe realized.  However, the favorableimpact of these two items on the consolidated effective income tax rate wassomewhat offset by the tax on the net gain on the OFS BrightWave, LLCtransaction in the second quarter of 2004, $121.3 million pretax and $76.4million after-tax.

 

### ***OFS BrightWave,LLC***

### * *

Effective November 16, 2001,we acquired an approximate 18.4% ownership interest in OFS BrightWave, anoptical fiber and fiber cable venture between us and Furukawa.  During the three months ended March 31, 2004,OFS BrightWave began to move certain cable production from the Norcrossfacility to the Carrollton facility. Effective April 1, 2004, Furukawa contributed its investment in theCarrollton facility to OFS BrightWave. Because we did not elect to make further corresponding investments inOFS BrightWave, this additional investment in OFS BrightWave by Furukawareduced our ownership percentage in OFS BrightWave from 18.4% to 9.4%,effective April 1, 2004.

 

Primarily as a result of thecontinuing weakness in the fiber optic cable market and Furukawa’s continuingefforts to restructure its OFS operations, we agreed with Furukawa to furtheramend our existing contractual arrangements in the second quarter of 2004 forthe mutual benefit of both companies.  OnJune 11, 2004, we assigned all of our rights and duties under our contractualarrangements with Furukawa to our wholly-owned subsidiary, CommScope OpticalTechnologies, Inc. (“CommScope Optical”). On June 14, 2004, CommScope Optical and Furukawa changed the period inwhich CommScope Optical could exercise its contractual right to sell itsownership interest in OFS BrightWave to Furukawa from 2006 to any time on orafter June 14, 2004 and changed the exercise price from $173.4 million in cashto the approximately 7.7 million shares of our common stock owned byFurukawa.  On June 14, 2004, CommScopeOptical exercised its contractual right to sell and sold its 9.4% ownershipinterest in OFS BrightWave to Furukawa in exchange for the approximately 7.7million shares of our common stock owned by Furukawa, which were valued at$132.3 million as of the transaction date. We currently hold these shares as treasury stock.

 

As a result of thistransaction, we no longer own any equity interest in OFS BrightWave.  However, we maintained our strategicrelationship with Furukawa by entering into a new four-year optical fibersupply agreement with OFS Fitel, LLC (“Fitel”), a wholly-owned, indirectsubsidiary of Furukawa, replacing the existing supply agreement with Fitel thatwas scheduled to expire in November 2004. Through this supply agreement, we continue to have access to a broadarray of technologically advanced optical fibers.  We also have a cross license arrangement witha subsidiary of Furukawa for key intellectual property.

 

This transaction does notaffect our right to receive full payment from OFS BrightWave under the $30million revolving note due in 2006, based on its original terms.  The carrying value of this note was reducedto approximately $11 million as of June 14, 2004 under equity method accountingrules, which requires accounting for an advance to an equity method investee inthe same manner as the investment, once the carrying value of the investmenthas been reduced to zero.  Primarily dueto market conditions for optical fiber and because we no longer have an equityownership interest in OFS BrightWave, we determined that there was another-than-temporary impairment in the carrying value of this asset as of thetransaction date.  Accordingly, a pretaximpairment charge of $11 million was recognized as a reduction of the gain onthe OFS BrightWave transaction during the quarter ended June 30, 2004.

 

The OFS BrightWavetransaction resulted in a net pretax gain in the amount of $121.3 million, or$1.24 per diluted share, net of tax, during the second quarter of 2004.  This gain represents (1) the fair value ofthe common stock received by us in exchange for our transfer of our ownershipinterest in OFS BrightWave to Furukawa, plus (2) the realized gain from ourcumulative equity

 

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methodshare of OFS BrightWave’s unrealized foreign currency translation gainspreviously recorded in accumulated other comprehensive loss, less (3) theimpairment charge related to the $30 million note receivable from OFSBrightWave.  The after-tax net gain isreflected in our statement of operations after income (loss) before equity inlosses of OFS BrightWave, LLC and net gain on OFS BrightWave, LLCtransaction.  The income tax impact ofthis gain enables us to realize our deferred tax asset related to our share ofthe cumulative financial statement net losses of OFS BrightWave.  In addition, this transaction creates acapital gain for tax purposes, which allows us to deduct a capital loss relatedto the 2001 impairment of an investment, creating a current tax benefit of $1.4million from this capital loss deduction.

 

Our share of the losses ofOFS BrightWave for the period from January 1, 2004 through June 14, 2004 wasapproximately $2.3 million, pretax.  Forthe three and nine month periods ended September 30, 2003, our share of thelosses of OFS BrightWave was approximately $5.0 million and $65.0 million,respectively.  Since OFS BrightWave haselected to be taxed as a partnership, we recorded a tax benefit related to ourshare in the flow-through losses of approximately $0.8 million for the periodfrom January 1, 2004 through June 14, 2004. We recorded a tax benefit related to our share in the flow-throughlosses of approximately $1.9 million and $24.0 million for the three and ninemonth periods ended September 30, 2003, respectively.

 

### ***LIQUIDITY AND CAPITALRESOURCES***

### * *

**Cash Flow Overview**

 

Our principal sources ofliquidity both on a short-term and long-term basis are cash and cashequivalents, cash flows provided by operations and availability under creditfacilities.  Reduced sales andprofitability could reduce cash provided by operations and limit availabilityunder credit facilities.  In addition,increases in working capital, excluding cash and cash equivalents, related toincreasing sales could reduce our operating cash flows in the short term untilcash collections of accounts receivable catch up to the higher level ofbillings.

 
| ** **                                                             | ** ** | **As of**                | ** ** | ** **              | ** ** | ** **         | ** ** |
|------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|--------------------|------------|
| **(dollars in millions)**                                              | ** ** | **September  30,  2004** | ** ** | **December  31,  2003** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
| ** **                                                             | ** ** | ** **               | ** ** | ** **              | ** ** | ** **         | ** ** | ** ** | ** ** |
|                                                                   |       |                     |       |                    |       |               |       |   |   |
| Cash and cash  equivalents                                             |       | $                        | 178.9      |                    | $          | 206.0              |       | $ | (27.1 | ) | (13.2 | )% |
|                                                                   |       |                     |       |                    |       |               |       |   |   |
| Working capital,  excluding cash and current portion of long-term debt |       | $                        | 120.8      |                    | $          | 74.6               |       | $ | 46.2 |   | 61.9 |   |
|                                                                   |       |                     |       |                    |       |               |       |   |   |
| Long-term debt,  including current maturities                          |       | $                        | 322.0      |                    | $          | 183.3              |       | $ | 138.7 |   | 75.7 | % |
| Stockholders’  equity                                             |       | 450.8                    |       | 455.7                   |       | (4.9               | )          | (1.1 | ) |
| Book capital  structure                                                |       | $                        | 772.8      |                    | $          | 639.0              |       | $ | 133.8 |   | 20.9 |  % |
| Long-term debt  as a % of book capital structure                       |       | 41.7                     | %          | 28.7                    | %          |               |       |   |   |

 

The decrease in cash as ofSeptember 30, 2004 as compared to December 31, 2003 was primarily driven by theuse of $150 million of cash on hand as partial payment to Avaya for theacquisition of Connectivity Solutions. We borrowed an additional $100 million under our new senior secured creditfacility to finance the remaining portion of the acquisition cost.  We used the proceeds from the issuance of$250 million aggregate principal amount of 1% convertible senior subordinateddebentures during the first nine months of 2004 to repurchase and redeem $172.5

 

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millionaggregate principal amount of our 4% convertible notes, to repay $25 million ofborrowings under our revolving credit facility, and for other general corporatepurposes.  These decreases in cash werepartially offset by cash flows from operations, as discussed below.

 

The increase in workingcapital was driven by our acquisition of Connectivity Solutions during thefirst quarter of 2004.  See furtherdiscussion of working capital changes below.

 

Our long-term debt as a percentof book capital structure increased during the first nine months of 2004primarily due to the issuance of $250 million aggregate principal amount of 1%convertible senior subordinated debentures, which was substantially offset bythe extinguishment of our $172.5 million aggregate principal amount of 4%convertible subordinated notes and the repayment of $25 million under ourrevolving credit facility.  In addition,we borrowed $75 million under the new 5-year, $185 million senior securedcredit facility during the first nine months of 2004 and have repaidapproximately $14 million of this term loan as of September 30, 2004.  Our book capital structure was also impactedby our receipt of approximately 7.7 million shares of our common stock, valuedat approximately $132.3 million, from Furukawa in a nonmonetary exchange forour investment in OFS BrightWave.

 
| ** **                                                                                                                                                | ** ** | **Nine months  ended  September****30,** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------|------------|---------------|------------|
| **(dollars in millions)**                                                                                                                                 | ** ** | **2004**                                 | ** ** | **2003**           | ** ** | ** **    | ** ** |
|                                                                                                                                                      |       |                                     |       |               |       |          |       |   |   |
| Net cash  provided by operating activities                                                                                                                |       | $                                        | 98.1       |               | $          | 55.0          |       | $ | 43.1 |   | 78.4 | % |
|                                                                                                                                                      |       |                                     |       |               |       |          |       |   |   |
| Increase  (decrease) in working capital, excluding cash and current portion of  long-term debt, and acquisition of Connectivity Solutions working capital |       | $                                        | 46.2       |               | $          | (7.8          | )          | $ | 54.0 |   | (690.0 | )% |
| Less:  Acquisition of Connectivity Solutions working capital                                                                                              |       | 90.0                                     |       | —             |       | 90.0          |       |   |   |
| Adjusted  decrease in working capital, excluding cash and current portion of long-term  debt, and acquisition of Connectivity Solutions working capital   |       | $                                        | (43.8      | )                  | $          | (7.8          | )          | $ | (36.0 | ) | 459.3 | % |
|                                                                                                                                                      |       |                                     |       |               |       |          |       |   |   |
| Depreciation and  amortization                                                                                                                            |       | $                                        | 45.2       |               | $          | 25.5          |       | $ | 19.7 |   | 77.3 | % |
| Capital  expenditures                                                                                                                                     |       | 7.8                                      |       | 4.1                |       | 3.7           |       | 90.2 |   |

 

**Operating Activities**

 

Net cash provided byoperating activities increased year over year primarily due to the decrease inworking capital as we worked to reduce inventory balances in our ConnectivitySolutions segment to a more appropriate level. We expect working capital to increase as a percentage of sales in 2004as a result of the Connectivity Solutions acquisition.  However, we believe that we can continue toimprove working capital performance of the Connectivity Solutions segment byreducing inventory and improving inventory turnover.

 

Depreciation and amortizationincreased year over year primarily due to the acquisition of ConnectivitySolutions, which included approximately $70 million of amortizable intangibleassets.

 

**Investing Activities**

 

Investment in property, plantand equipment was higher year over year primarily due to the capital spendingin the Connectivity Solutions segment. Including the Connectivity Solutions segment, we currently expect totalcapital expenditures to be approximately $12 - 15 million in

 

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2004compared to $5 million in 2003.  Theexpected increase in capital spending during 2004 is primarily for costreduction efforts, information technology initiatives and additional productioncapability in Asia.  We expect totalcapital expenditures to remain at a level below consolidated depreciation andamortization expense for the next several years.

 

As discussed further below,as of January 31, 2004, we completed the acquisition from Avaya ofsubstantially all of the assets, subject to current liabilities, and assumed upto $65 million of other specified liabilities, primarily related to employeebenefits, of Connectivity Solutions.  Thetotal purchase price consisted of $250 million in cash, subject to post-closingadjustments, and approximately 1.8 million shares of our common stock. We areseeking third party resolution concerning the amount of such post-closingadjustments, in accordance with the terms of the Asset Purchase Agreement.  Final resolution of this matter may result inan adjustment to the amounts recorded in connection with the ConnectivitySolutions acquisition.  However, management does not currently believethat such adjustments, if any, will have a material effect on our financialposition or results of operations.

 

**Financing Activities**

 

We entered into a $100 millionsecured credit facility that closed January 10, 2003.  The facility was not drawn at December 31,2003.  We replaced this facility onJanuary 31, 2004 in connection with our acquisition of Connectivity Solutionsas described below.

 

The cash portion of thepurchase price for Connectivity Solutions consisted of $150 million from ourexisting cash balances and $100 million from borrowings under a new 5-year,$185 million senior secured credit facility, which consisted of a $75 millionterm loan and a $110 million revolving credit facility.  In connection with this senior secured creditfacility, we incurred costs of approximately $4.6 million, which werecapitalized as other assets and are being amortized over the term of thefacility.  As of September 30, 2004, weowed $61.3 million under the term loan. We had availability under the new revolving credit facility ofapproximately $52 million and had no outstanding borrowings under thisfacility as of September 30, 2004.  Ourability to borrow under this facility depends on the amount of our borrowingbase, which is determined as specific percentages of eligible receivables andinventory, reduced for certain reserves. We believe we were in compliance with all of our covenants under thissenior secured credit facility as of September 30, 2004.

 

The purchase price forConnectivity Solutions also consisted of the issuance to Avaya of approximately1.8 million shares of our common stock, which were valued at $32.4 million onthe closing date, net of an accrual for estimated registration costs of $0.5million (see Note 2 in the Notes to the Condensed Consolidated FinancialStatements included elsewhere in this Form 10-Q).  Avaya has since sold the shares to anunrelated third party.

 

In March 2004, we issued $250 million aggregateprincipal amount of 1% convertible senior subordinated debentures due March 15,2024.  The proceeds from these debentureswere used primarily to extinguish our outstanding 4% convertible subordinated notesdue December 15, 2006, to repay outstanding borrowings under our revolvingcredit facility, and for general corporate purposes.  We repurchased $102.9 million of our 4%convertible subordinated notes during March 2004, and redeemed the remaining$69.6 million of these notes in April 2004.  The repurchase and redemption of these 4%convertible notes resulted in a $5.0 million pretax loss on the earlyextinguishment of debt during the first nine months of 2004.  We also repaid $25 million of borrowingsunder our senior secured revolving credit facility in March 2004.  In connection with the issuance of thedebentures, we incurred costs of approximately $6.9 million, which werecapitalized as other assets and are being amortized over a period of five years,representing the period through the date on which the debenture holders mayfirst require us to repurchase the debentures. See Note 4 in the Notes to the Condensed Consolidated FinancialStatements included elsewhere in this Form 10-Q for additional discussion ofthe terms of these debentures.

 

In October 2004, the FinancialAccounting Standards Board ratified the consensus reached by the EmergingIssues Task Force on Issue No. 04-8, “The Effect of Contingently ConvertibleDebt on Diluted Earnings per Share.”

 

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We believe that our 1% convertible senior subordinated debentures willbe subject to the requirements of Issue No. 04-8.  The impact of the application of this Issueon our diluted net income per share is presented in Note 5 in the Notes to theCondensed Consolidated Financial Statements included elsewhere in this Form10-Q.

 

We are currentlyevaluating potential modifications to our 1% debentures which, if adopted,would reduce the dilutive impact of the debentures.  No assurance can be given that any suchmodifications will be pursued by us or agreed to by the debenture holders.

 

**Future Cash Needs**

 

We expect that our primaryfuture cash needs will be to fund working capital, capital expenditures, debtservice, and employee obligations.  Weincurred pretax transition and startup costs of approximately $8.2 millionduring the nine months ended September 30, 2004, related to the acquisition ofConnectivity Solutions, which were primarily for information technology,transition services and other acquisition-related costs.  Most of these costs were incurred in thefirst six months of 2004 and we believe we have incurred most of theacquisition-related transition and startup costs associated with ConnectivitySolutions as of September 30, 2004.  Inaddition, we have assumed up to $65 million of other specified liabilities inthis transaction, primarily related to employee benefits.  These noncurrent employee benefit liabilitieswill be funded with cash flow from future operations.  We believe that our existing cash and cashflows from operations, combined with availability under our senior securedrevolving credit facility, will be sufficient to meet our presently anticipatedfuture cash needs.  We may, from time totime, borrow under our revolving credit facility or issue securities, if marketconditions are favorable, to meet our future cash needs or to reduce ourborrowing costs.

 

### ***RESTRUCTURING INITIATIVES***

### * *

On October 11, 2004, weannounced that our indirect subsidiary, CSMI, will implement organizational andcost reduction initiatives at its Omaha, Nebraska site in order to improve itscompetitive position.  These initiativesare expected to be substantially in place by mid-year 2005.  The CSMI Omaha facility is part of theConnectivity Solutions segment and was acquired on January 31, 2004 as part ofthe acquisition of the Connectivity Solutions business of Avaya.

 

As a result of these CSMIinitiatives, CSMI expects to incur costs for process improvements, includingfacility redesign, and employee-related expenses, including severance pay,related fringe benefits and a curtailment loss for pension and postretirementbenefits.  The incremental pretax costs,primarily in cash, to implement these initiatives are expected to be $10 to $15million.  Approximately half of thesecosts are expected to be recognized in the fourth quarter of 2004, with thebalance to be incurred in 2005.  Nocharges have been recognized related to this restructuring during the three andnine months ended September 30, 2004.

 

In addition, as modificationsare made to the manufacturing processes at the CSMI Omaha site, CSMI mayidentify fixed assets that are no longer needed.  CSMI may consider disposing of these assetsand as a result could incur pretax losses on disposal or impairment of theseassets of up to $10 million.

 

The anticipated charges related to the restructuringrepresent management’s best estimate of the costs to be incurred as a directresult of the cost reduction initiatives at the CSMI Omaha manufacturing facility.  The actual charges may differ from thisestimate as a result of issues encountered during the implementation andchanges in market conditions.

 

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### ***CONTRACTUALOBLIGATIONS***

### * *

As a result of the acquisitionof Connectivity Solutions as of January 31, 2004, in addition to financingactivities that occurred during the nine months ended September 30, 2004, wehave had a material change in our contractual obligations since December 31,2003.  The following table summarizingour contractual obligations has been updated from December 31, 2003 to reflectour consolidated contractual obligations as of September 30, 2004 (inmillions):

 
| ** **                          | ** ** | **Total  Payments  Due** | ** **            | **Amount of Payments Due per Period** | ** **    |
|-------------------------------------|------------|--------------------------|-----------------------|---------------------------------------|---------------|
| **Contractual Obligations**         | ** ** | ** **               | **Less than  1 year** | ** **                            | **1-3 years** | ** ** | **3-5 years** | ** ** | **After 5  years** | ** ** |
|                                |       |                     |                  |                                  |          |   |   |   |   |   |   |
| Long-term debt                      |       | $                        | 322.0                 |                                  | $             | 21.5 |   | $ | 26.0 |   | $ | 13.7 |   | $ | 260.8 |   |
| Operating leases                    |       | 47.4                     |                  | 9.0                                   |          | 14.7 |   | 9.7 |   | 14.0 |   |
| Purchase  obligations               |       | 2.9                      |                  | 2.9                                   |          | — |   | — |   | — |   |
| Pension  liabilities                |       | 34.9                     |                  | 0.2                                   |          | 3.3 |   | 2.4 |   | 29.0 |   |
| Postretirement  benefit liabilities |       | 58.9                     |                  | 0.2                                   |          | 2.4 |   | 4.3 |   | 52.0 |   |
| Foreign currency  derivative        |       | 6.3                      |                  | —                                |          | — |   | — |   | 6.3 |   |
|                                |       |                     |                  |                                  |          |   |   |   |   |   |   |
| Total  contractual obligations      |       | $                        | 472.4                 |                                  | $             | 33.8 |   | $ | 46.4 |   | $ | 30.1 |   | $ | 362.1 |   |

### * *

Inaddition to the contractual obligations listed above, we are contractuallyobligated to pay $2.5 million per year through March 15, 2024 for interest onour $250.0 million convertible debentures.

 

### ***FORWARD-LOOKINGSTATEMENTS***

### * *

Certain statements in thisForm 10-Q that are other than historical facts are intended to be “forward-lookingstatements” within the meaning of the Securities Exchange Act of 1934, thePrivate Securities 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, integration and restructuring plansrelated to our acquisition of substantially all of the assets and certainliabilities of the Connectivity Solutions business, sales and earningsexpectations, expected demand, cost and availability of key raw materials,internal production capacity and expansion, competitive pricing, relative marketposition and outlook.  While we believesuch statements are reasonable, the actual results and effects could differmaterially from those currently anticipated. These forward-looking statements are identified, including, withoutlimitation, by their use of such terms and phrases as “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 subjectto various risks and uncertainties, many of which are outside our control,including, without limitation, the challenges of transition, integration andrestructuring associated with the acquisition of Connectivity Solutions,including cost reduction plans at CSMI’s Omaha, Nebraska site; the impact ofpurchase accounting adjustments; the challenges of achieving anticipatedsynergies; variability in the effective tax rate; the ability to retainqualified employees and existing business alliances; maintaining satisfactoryrelationships with represented employees; customer demand for our products,applications and services; post-closing adjustments in connection withacquisitions; expected demand from major domestic MSOs; telecommunicationsindustry capital spending; ability to maintain successful relationships withour major distributors; industry consolidation; ability of our customers to secureadequate financing to fund their infrastructure projects or to pay us; productdemand and industry excess capacity;

 

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changesor fluctuations in global business conditions; competitive pricing and acceptanceof our products; changes in cost and availability of key raw materials,especially those that are available only from limited sources; ability torecover higher material and transportation costs from our customers throughprice increases; possible future impairment charges for goodwill and otherlong-lived assets; industry competition and the ability to retain customers;possible disruption due to customer or supplier bankruptcy, reorganization orrestructuring; our ability to obtain financing and capital on commerciallyreasonable terms; covenant restrictions and our ability to comply withcovenants in our debt agreements; ability to timely comply with Section 404 ofthe Sarbanes-Oxley Act and related regulations; successful operation of ourvertical integration activities; successful expansion and related operation ofour facilities; achievement of sales, growth and earnings goals; ability toachieve reductions in costs; ability to retain and attract key personnel;developments in technology; intellectual property protection; productperformance issues and associated warranties; adequacy and availability ofinsurance; regulatory changes affecting us or the industries we serve; anyadjustments required by the Securities and Exchange Commission in connectionwith its review of our public filings; acquisition activities and the abilityto integrate acquisitions; the accounting and financial reporting impact of ourstock options and convertible debt; environmental issues; terrorist activity orarmed conflict; political instability; major health concerns and other factors;and any statements of belief and any statements of assumptions underlying anyof the foregoing.  Actual results mayalso differ due to changes in telecommunications industry capital spending,which is affected by a variety of factors, including, without limitation,general business conditions, acquisitions of telecommunications companies byothers, consolidation within the telecommunications industry, the financialcondition of telecommunications companies and their access to financing,competition among telecommunications companies, technological developments, andnew legislation and regulation of telecommunications companies.  These and other factors are discussed ingreater detail in Exhibit 99.1 to this Form 10-Q. The information contained in this Form 10-Q represents our best judgment at the date ofthis report based on information currently available.  However, we do not intend, and are notundertaking any duty or obligation, to update this information to reflectdevelopments or information obtained after the date of this report.

 

# **ITEM 3.**                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK

 

As disclosed in our Annual Report on Form 10-K/A for the year endedDecember 31, 2003, our major market risk exposure relates to adversefluctuations in commodity prices, interest rates and foreign currency exchangerates.  We have established a riskmanagement strategy that includes the reasonable use of derivative andnonderivative financial instruments primarily to manage our exposure to thesemarket risks.  We believe our exposureassociated with these market risks has not materially changed since December31, 2003.  We have not acquired any newderivative financial instruments since December 31, 2003 or terminated anyderivative financial instruments that existed at that date.

 

# **ITEM4.**                             CONTROLS ANDPROCEDURES

 

Our disclosure controls andprocedures are designed to ensure that information****required to be disclosed in reports that we file or submitunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in the rules and forms of theSecurities and Exchange Commission. Our Chief Executive Officer and our ChiefFinancial Officer have reviewed the effectiveness of our disclosure controlsand procedures as of the end of the period covered by this report and haveconcluded that the disclosure controls and procedures are effective.

 

There were no changes in ourinternal control over financial reporting during the three months endedSeptember 30, 2004 that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**PART II – OTHER INFORMATION**

 

# **ITEM6.**                             EXHIBITS

 
| 10.1   |   | Form  of Nonqualified Stock Option Agreement under Amended and Restated CommScope,  Inc. 1997 Long Term Incentive Plan                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                           |
| 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). |
|   |   |                                                                                                                                                                                                                                           |
| 99.1   |   | Forward-Looking  Information                                                                                                                                                                                                                   |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|              |   | COMMSCOPE,  INC.                                      |
|-------------------|--------|-------------------------------------------------------|
|              |   |                                                  |
| November  8, 2004 |   |                                                  | /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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