**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

 

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

 

----

 

**FORM 10-Q**

 

**(Mark One)**

 
| **ý**                                                  | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                                        |       |                                                                                                    |
| **For the  quarterly period ended September 30, 2005** |
|                                                        |       |                                                                                                    |
| **OR**                                                      |
|                                                        |       |                                                                                                    |
| **o**                                                       | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom              to              **

 

**Commissionfile number  001-12929**

 

**CommScope, Inc.**

(Exact name of registrant asspecified in its charter)

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

 

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

(Address of principal executiveoffices)

 

**28602**

(Zip Code)

 

**(828)324-2200**

(Registrant’s telephone number,including area code)

 

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

 

Yes ý     No o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ý     No o

 

Indicate bycheck mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes o     No ý

 

As of October 28, 2005 there were 55,010,974 shares of CommonStock outstanding.

 

 

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**CommScope, Inc.Form 10-QSeptember 30, 2005Table of Contents**

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

 

2

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**CommScope, Inc.**

**Condensed Consolidated Statements of Operations**

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

 
| ** **                                                                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                            | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                            | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Net sales                                                                                                             |       | $                      | 345,613    |                   | $          | 309,090 |   | $ | 991,378 |   | $ | 857,100 |   |
|                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Operating  costs and expenses:                                                                                        |       |                   |       |                   |       |   |   |   |   |
| Cost of  sales                                                                                                        |       | 251,077                |       | 231,101                |       | 736,071 |   | 669,550 |   |
| Selling,  general and administrative                                                                                  |       | 51,260                 |       | 51,510                 |       | 159,158 |   | 139,237 |   |
| Research and  development                                                                                             |       | 6,789                  |       | 7,397                  |       | 22,996 |   | 20,408 |   |
| In-process  research and development charges                                                                          |       | —                 |       | 90                     |       | — |   | 3,984 |   |
| Acquisition-related  transition and startup costs                                                                     |       | —                 |       | 215                    |       | — |   | 8,196 |   |
| Restructuring  costs                                                                                                  |       | 16,553                 |       | —                 |       | 20,128 |   | — |   |
| Total  operating costs and expenses                                                                                   |       | 325,679                |       | 290,313                |       | 938,353 |   | 841,375 |   |
|                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Operating  income                                                                                                     |       | 19,934                 |       | 18,777                 |       | 53,025 |   | 15,725 |   |
| Other income  (expense), net                                                                                          |       | 179                    |       | 603                    |       | (490 | ) | (282 | ) |
| Loss on  early extinguishment of debt                                                                                 |       | —                 |       | —                 |       | — |   | (5,029 | ) |
| Interest  expense                                                                                                     |       | (1,975                 | )          | (2,133                 | )          | (6,342 | ) | (7,332 | ) |
| Interest  income                                                                                                      |       | 1,286                  |       | 810                    |       | 3,434 |   | 1,734 |   |
|                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Income  before income taxes, equity in losses of OFS BrightWave, LLC and net gain on  OFS BrightWave, LLC transaction |       | 19,424                 |       | 18,057                 |       | 49,627 |   | 4,816 |   |
| Income tax  benefit (expense)                                                                                         |       | (7,902                 | )          | (2,974                 | )          | (16,267 | ) | 2,967 |   |
|                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Income  before equity in losses of OFS BrightWave, LLC and net gain on OFS BrightWave,  LLC transaction               |       | 11,522                 |       | 15,083                 |       | 33,360 |   | 7,783 |   |
| Equity in  losses of OFS BrightWave, LLC, net of tax of $865                                                          |       | —                 |       | —                 |       | — |   | (1,393 | ) |
| Net gain on  OFS BrightWave, LLC transaction, net of tax of $44,890                                                   |       | —                 |       | —                 |       | — |   | 76,437 |   |
| Net income                                                                                                            |       | $                      | 11,522     |                   | $          | 15,083 |   | $ | 33,360 |   | $ | 82,827 |   |
|                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Net income  per share:                                                                                                |       |                   |       |                   |       |   |   |   |   |
| Basic                                                                                                                 |       | $                      | 0.21       |                   | $          | 0.28 |   | $ | 0.61 |   | $ | 1.42 |   |
| Assuming  dilution                                                                                                    |       | $                      | 0.18       |                   | $          | 0.23 |   | $ | 0.52 |   | $ | 1.24 |   |
|                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Weighted  average shares outstanding:                                                                                 |       |                   |       |                   |       |   |   |   |   |
| Basic                                                                                                                 |       | 54,821                 |       | 54,018                 |       | 54,632 |   | 58,335 |   |
| Assuming  dilution                                                                                                    |       | 67,746                 |       | 67,231                 |       | 67,496 |   | 67,791 |   |

 

See notes to condensed consolidated financialstatements.

 

3

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**CommScope, Inc.**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                                                                                                                                                                                | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                                |       |                   |       |                  |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Cash and  cash equivalents                                                                                                                                                                                                                                                                                |       | $                      | 135,716    |                  | $          | 99,631 |   |
| Short-term  investments                                                                                                                                                                                                                                                                                   |       | 78,578                 |       | 77,620                |       |
| Total cash,  cash equivalents and short-term investments                                                                                                                                                                                                                                                  |       | 214,294                |       | 177,251               |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Accounts  receivable, less allowance for doubtful accounts of $14,785 and $12,761,  respectively                                                                                                                                                                                                          |       | 169,039                |       | 122,612               |       |
| Inventories                                                                                                                                                                                                                                                                                               |       | 120,529                |       | 108,342               |       |
| Prepaid  expenses and other current assets                                                                                                                                                                                                                                                                |       | 26,419                 |       | 13,244                |       |
| Deferred  income taxes                                                                                                                                                                                                                                                                                    |       | 28,325                 |       | 26,644                |       |
| Total  current assets                                                                                                                                                                                                                                                                                     |       | 558,606                |       | 448,093               |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Property,  plant and equipment, net                                                                                                                                                                                                                                                                       |       | 265,164                |       | 311,453               |       |
| Goodwill                                                                                                                                                                                                                                                                                                  |       | 151,359                |       | 151,384               |       |
| Other  intangibles, net                                                                                                                                                                                                                                                                                   |       | 73,058                 |       | 82,315                |       |
| Deferred  income taxes                                                                                                                                                                                                                                                                                    |       | 14,537                 |       | 17,341                |       |
| Other assets                                                                                                                                                                                                                                                                                              |       | 17,789                 |       | 19,993                |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Total Assets                                                                                                                                                                                                                                                                                              |       | $                      | 1,080,513  |                  | $          | 1,030,579 |   |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                                                                                             |       |                   |       |                  |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Accounts  payable                                                                                                                                                                                                                                                                                         |       | $                      | 73,110     |                  | $          | 52,898 |   |
| Other  accrued liabilities                                                                                                                                                                                                                                                                                |       | 89,758                 |       | 90,775                |       |
| Current  portion of long-term debt                                                                                                                                                                                                                                                                        |       | 13,000                 |       | 13,000                |       |
| Total  current liabilities                                                                                                                                                                                                                                                                                |       | 175,868                |       | 156,673               |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Long-term  debt                                                                                                                                                                                                                                                                                           |       | 287,550                |       | 297,300               |       |
| Pension and  postretirement benefit liabilities                                                                                                                                                                                                                                                           |       | 90,123                 |       | 90,620                |       |
| Other  noncurrent liabilities                                                                                                                                                                                                                                                                             |       | 32,967                 |       | 36,523                |       |
| Total  Liabilities                                                                                                                                                                                                                                                                                        |       | 586,508                |       | 581,116               |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Commitments  and contingencies                                                                                                                                                                                                                                                                            |       |                   |       |                  |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Stockholders’  Equity:                                                                                                                                                                                                                                                                               |       |                   |       |                  |       |
| Preferred  stock, $.01 par value; Authorized shares: 20,000,000; Issued and outstanding  shares: None at September 30, 2005 and December 31, 2004                                                                                                                                               |       | —                 |       | —                |       |
| Common  stock, $.01 par value; Authorized shares: 300,000,000; Issued shares,  including treasury stock: 65,204,203 at September 30, 2005 and  64,687,745 at December 31, 2004; Issued and outstanding shares:  55,004,203 at September 30, 2005 and 54,487,745 at December 31,  2004 |       | 652                    |       | 647                   |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                                               |       | 440,542                |       | 432,839               |       |
| Retained  earnings                                                                                                                                                                                                                                                                                        |       | 200,070                |       | 166,710               |       |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                                                                     |       | (1,724                 | )          | (5,198                | )          |
| Treasury  stock, at cost: 10,200,000 shares at September 30, 2005 and December 31,  2004                                                                                                                                                                                                        |       | (145,535               | )          | (145,535              | )          |
| Total  Stockholders’ Equity                                                                                                                                                                                                                                                                          |       | 494,005                |       | 449,463               |       |
|                                                                                                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Total  Liabilities and Stockholders’ Equity                                                                                                                                                                                                                                                          |       | $                      | 1,080,513  |                  | $          | 1,030,579 |   |

 

See notes to condensed consolidated financialstatements.

 

4

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**CommScope, Inc.**

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited— In thousands)**

 
| ** **                                                                         | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **September 30,** | ** ** |
| ** **                                                                         | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                                                               |       |                   |       |   |   |
| **Operating Activities:**                                                          |       |                   |       |   |   |
| Net income                                                                         |       | $                      | 33,360     |   | $ | 82,827 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                   |       |   |   |
| Depreciation  and amortization                                                     |       | 45,469                 |       | 45,161 |   |
| 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 |   |
| Restructuring  costs related to fixed asset impairment                             |       | 17,034                 |       | — |   |
| Accelerated  vesting of stock options                                              |       | 226                    |       | — |   |
| Deferred  income taxes                                                             |       | 1,638                  |       | 24,082 |   |
| Tax benefit  from stock option exercises                                           |       | 1,049                  |       | 1,991 |   |
| Changes in  assets and liabilities:                                                |       |                   |       |   |   |
| Accounts  receivable                                                               |       | (46,406                | )          | (24,646 | ) |
| Inventories                                                                        |       | (11,984                | )          | 40,007 |   |
| Prepaid  expenses and other current assets                                         |       | (2,204                 | )          | 446 |   |
| Accounts  payable and other accrued liabilities                                    |       | 18,979                 |       | 34,461 |   |
| Other  noncurrent liabilities                                                      |       | (1,909                 | )          | 10,062 |   |
| Other                                                                              |       | 529                    |       | (1,188 | ) |
| Net cash  provided by operating activities                                         |       | 55,781                 |       | 98,118 |   |
|                                                                               |       |                   |       |   |   |
| **Investing Activities:**                                                          |       |                   |       |   |   |
| Additions to  property, plant and equipment                                        |       | (16,350                | )          | (7,753 | ) |
| Acquisition  of Connectivity Solutions                                             |       | 653                    |       | (260,418 | ) |
| Net  (investment in) proceeds from short-term investments                          |       | (958                   | )          | 37,095 |   |
| Proceeds  from disposal of fixed assets                                            |       | 1,706                  |       | 3,926 |   |
| Net cash  used in investing activities                                             |       | (14,949                | )          | (227,150 | ) |
|                                                                               |       |                   |       |   |   |
| **Financing Activities:**                                                          |       |                   |       |   |   |
| Proceeds  from issuance of long-term debt                                          |       | —                 |       | 100,000 |   |
| Principal  payments on long-term debt                                              |       | (9,750                 | )          | (38,750 | ) |
| Proceeds  from issuance of convertible notes                                       |       | —                 |       | 250,000 |   |
| Repayment of  convertible notes                                                    |       | —                 |       | (172,500 | ) |
| Long-term  financing costs                                                         |       | (306                   | )          | (10,730 | ) |
| Proceeds  from exercise of stock options                                           |       | 6,402                  |       | 10,907 |   |
| Net cash  provided by (used in) financing activities                               |       | (3,654                 | )          | 138,927 |   |
|                                                                               |       |                   |       |   |   |
| Effect of  exchange rate changes on cash                                           |       | (1,093                 | )          | 18 |   |
|                                                                               |       |                   |       |   |   |
| Change in  cash and cash equivalents                                               |       | 36,085                 |       | 9,913 |   |
| Cash and  cash equivalents, beginning of period                                    |       | 99,631                 |       | 110,358 |   |
| Cash and  cash equivalents, end of period                                          |       | $                      | 135,716    |   | $ | 120,271 |   |

 

See notes to condensed consolidated financialstatements.

 

5

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**CommScope, Inc.**

**Condensed Consolidated Statements of Stockholders’ Equity**

**andComprehensive Income**

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

 
| ** **                                     | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **September 30,** | ** ** |
| ** **                                     | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                           |       |                   |       |   |   |
| Number of  common shares outstanding:          |       |                   |       |   |   |
| Balance at  beginning of period                |       | 54,487,745             |       | 59,318,276 |   |
| Issuance of  shares to Avaya Inc.              |       | —                 |       | 1,761,538 |   |
| Repurchase  of shares from Furukawa            |       | —                 |       | (7,656,900 | ) |
| Issuance of  shares for stock option exercises |       | 514,458                |       | 905,554 |   |
| Issuance of  shares to nonemployee directors   |       | 2,000                  |       | — |   |
| Balance at  end of period                      |       | 55,004,203             |       | 54,328,468 |   |
|                                           |       |                   |       |   |   |
| Common  stock:                                 |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | 647        |   | $ | 619 |   |
| Issuance of  shares to Avaya Inc.              |       | —                 |       | 18 |   |
| Issuance of  shares for stock option exercises |       | 5                      |       | 8 |   |
| Balance at  end of period                      |       | $                      | 652        |   | $ | 645 |   |
|                                           |       |                   |       |   |   |
| Additional  paid-in capital:                   |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | 432,839    |   | $ | 384,889 |   |
| Issuance of  shares to Avaya Inc.              |       | —                 |       | 32,335 |   |
| Issuance of  shares for stock option exercises |       | 6,397                  |       | 10,899 |   |
| Tax benefit  from stock option exercises       |       | 1,050                  |       | 1,991 |   |
| Issuance of  shares to nonemployee directors   |       | 30                     |       | — |   |
| Accelerated  vesting of stock options          |       | 226                    |       | — |   |
| Balance at  end of period                      |       | $                      | 440,542    |   | $ | 430,114 |   |
|                                           |       |                   |       |   |   |
| Retained  earnings:                            |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | 166,710    |   | $ | 90,955 |   |
| Net income                                     |       | 33,360                 |       | 82,827 |   |
| Balance at  end of period                      |       | $                      | 200,070    |   | $ | 173,782 |   |
|                                           |       |                   |       |   |   |
| Accumulated  other comprehensive loss:         |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | (5,198     | ) | $ | (7,533 | ) |
| Other  comprehensive income (loss), net of tax |       | 3,474                  |       | (718 | ) |
| Balance at  end of period                      |       | $                      | (1,724     | ) | $ | (8,251 | ) |
|                                           |       |                   |       |   |   |
| Treasury stock,  at cost:                      |       |                   |       |   |   |
| Balance at  beginning of period                |       | $                      | (145,535   | ) | $ | (13,224 | ) |
| Treasury  shares repurchased                   |       | —                 |       | (132,311 | ) |
| Balance at  end of period                      |       | $                      | (145,535   | ) | $ | (145,535 | ) |
|                                           |       |                   |       |   |   |
| Total  stockholders’ equity               |       | $                      | 494,005    |   | $ | 450,755 |   |

 
| ** **                                                                                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                        | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                        | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                              |       |                   |       |                   |       |   |   |   |   |
| Comprehensive  income:                                                                            |       |                   |       |                   |       |   |   |   |   |
| Net income                                                                                        |       | $                      | 11,522     |                   | $          | 15,083 |   | $ | 33,360 |   | $ | 82,827 |   |
| Other  comprehensive income (loss), net of tax:                                                   |       |                   |       |                   |       |   |   |   |   |
| Foreign  currency translation gain (loss) - foreign subsidiaries                                  |       | (1,176                 | )          | (1,064                 | )          | (5,176 | ) | (284 | ) |
| Foreign  currency transaction gain (loss) on long-term intercompany loans - foreign  subsidiaries |       | 2,791                  |       | 3,278                  |       | 7,473 |   | (131 | ) |
| Gain (loss)  on derivative financial instrument designated as a net investment hedge              |       | 36                     |       | (306                   | )          | 1,177 |   | (303 | ) |
| Total other  comprehensive income (loss), net of tax                                              |       | 1,651                  |       | 1,908                  |       | 3,474 |   | (718 | ) |
|                                                                                              |       |                   |       |                   |       |   |   |   |   |
| Total  comprehensive income                                                                       |       | $                      | 13,173     |                   | $          | 16,991 |   | $ | 36,834 |   | $ | 82,109 |   |

 

See notes to condensedconsolidated financial statements.

 

6

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**CommScope, Inc.**

**Notes to Condensed Consolidated FinancialStatements**

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

 

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

 

**Background**

 

CommScope, Inc. and its wholly-ownedsubsidiaries (“CommScope” or the “Company”) is a world leader in thedesign and manufacture of cable and connectivity solutions for communicationsnetworks.  The Company focuses on the “lastmile” in communications networks, which is the distribution access, or finallink to the customer.  Through theacquisition of substantially all of the assets and the assumption of certainliabilities of the Connectivity Solutions business (“Connectivity Solutions”)of Avaya, Inc. (“Avaya”) as of January 31, 2004 (see Note 2),the Company became a global leader in structured cabling for businessenterprise applications.  The Company isalso a global leader in broadband coaxial cables for the cable televisionindustry.  The Company also designs,manufactures and markets a broad line of high-performance electronic, coaxialand fiber optic cable products for data networking, Internet access, wirelesscommunication, telephony and other broadband applications.  In addition, the Company is a leadingprovider of environmentally secure enclosures and structured cabling solutionssupporting central offices for telecommunication service providers in theUnited States.

 

#### **Basis of Presentation**

#### ** **

The condensed consolidated balance sheet as of September 30,2005, the condensed consolidated statements of operations and comprehensiveincome for the three and nine months ended September 30, 2005 and 2004,and the condensed consolidated statements of cash flows and stockholders’equity for the nine months ended September 30, 2005 and 2004 are unauditedand reflect all adjustments of a normal recurring nature that are, in theopinion of management, necessary for a fair presentation of the interim periodfinancial statements.  The results ofoperations for the interim period are not necessarily indicative of the resultsof operations to be expected for the full year.

 

The accompanying condensed consolidated financialstatements for the nine months ended September 30, 2004 include theresults of Connectivity Solutions from January 31, 2004, the date of theConnectivity Solutions acquisition (see Note 2).  In addition, the condensed consolidatedresults of operations for the nine months ended September 30, 2004 includethe results of operations of OFS BrightWave, LLC (“OFS BrightWave”) through June 14,2004, the date CommScope disposed of its equity interest in OFS BrightWave (seeNote 6).

 

The unaudited interim condensed consolidatedfinancial statements of CommScope have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahave been condensed or omitted. The significant accounting policies followed bythe Company are set forth in Note 2 to the consolidated financial statements inthe Company’s Annual Report on Form 10-K for the year ended December 31,2004 (the “2004 Form 10-K”).  Therewere no changes in the Company’s significant accounting policies during thethree or nine months ended September 30, 2005.  In addition, the Company reaffirms the use ofestimates in the preparation of the financial statements as set forth in the2004 Form 10-K. These interim condensed consolidated financial statementsshould be read in conjunction with the Company’s December 31, 2004 auditedconsolidated financial statements and notes thereto included in the 2004 Form 10-K.

 

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

###### ** **

Net sales to Anixter International Inc. and itsaffiliates (“Anixter”) accounted for approximately 30% and 33% of the Company’stotal net sales during the three and nine months ended September 30, 2005,respectively, and approximately 40% and 35% of the Company’s total net salesduring the three and nine months ended September 30, 2004,respectively.  Sales to Anixter primarilyoriginate within the Enterprise segment. No other customer accounted for 10% or more of the Company’s total netsales for the three and nine months ended September 30, 2005 and 2004.

 

Accounts receivable from Anixter representedapproximately 32% of net accounts receivable as of September 30,2005.  No other customer accounted for10% or more of the Company’s net accounts receivable as of September 30,2005.

 

7

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**Product Warranties**

 

The Company recognizes a liability for the estimatedclaims that may be paid under its customer warranty agreements to remedypotential deficiencies of quality or performance of the Company’sproducts.  These product warrantiesextend over periods ranging from one to twenty-five years from the date ofsale, 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.

 

Activity in the product warranty accrual, includedin other accrued liabilities, for the three and nine months ended September 30,2005 consisted of the following:

 
| ** **                                     | ** ** | **Three Months**            | ** ** | **Nine Months**             | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** |
| ** **                                     | ** ** | **September 30, 2005** | ** ** | **September 30, 2005** | ** ** |
| Product warranty accrual,  beginning of period |       | $                           | 1,329      |                        | $          | 1,531 |   |
| Provision for warranty  claims                 |       | 86                          |       | 131                         |       |
| Less: warranty claims paid                     |       | (46                         | )          | (293                        | )          |
| Product warranty accrual,  end of period       |       | $                           | 1,369      |                        | $          | 1,369 |   |

 

# **Commitments andContingencies**

 

CommScope is either a plaintiff or a defendant inpending legal matters in the normal course of business; however, managementbelieves none of these legal matters will have a materially adverse effect onthe Company’s financial statements upon final disposition.  In addition, CommScope is subject to variousfederal, state, local and foreign laws and regulations governing the 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.

 

8

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

 

### *Basicnet income per share is computed by dividing net income by the weighted averagenumber of common shares outstanding during the applicable period.  Diluted net income per share is based on netincome adjusted for after-tax interest and amortization of debt issuance costsrelated to convertible debt, if dilutive, divided by the weighted averagenumber of common shares outstanding adjusted for the dilutive effect of stockoptions and convertible securities.*

 

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

 
| ** **                                                                                                   | ** ** | **Three Months**       | ** ** | **Nine Months**        | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                   | ** ** | **Ended**              | ** ** | **Ended**              | ** ** |
| ** **                                                                                                   | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                   | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Numerator:                                                                                                   |       |                   |       |                   |       |   |   |   |   |
| Net income for basic net  income per share                                                                   |       | $                      | 11,522     |                   | $          | 15,083 |   | $ | 33,360 |   | $ | 82,827 |   |
| Effect of assumed  conversion of 1% convertible senior subordinated debentures due 2024                      |       | 629                    |       | 665                    |       | 1,887 |   | 1,377 |   |
| Income available to common  shareholders for diluted net income per share                                    |       | $                      | 12,151     |                   | $          | 15,748 |   | $ | 35,247 |   | $ | 84,204 |   |
|                                                                                                         |       |                   |       |                   |       |   |   |   |   |
| Denominator:                                                                                                 |       |                   |       |                   |       |   |   |   |   |
| Weighted average number of  common shares outstanding for basic net income per share                         |       | 54,821                 |       | 54,018                 |       | 54,632 |   | 58,335 |   |
| Effect of dilutive  securities:                                                                              |       |                   |       |                   |       |   |   |   |   |
| Employee stock options (a)                                                                                   |       | 1,431                  |       | 1,719                  |       | 1,370 |   | 1,486 |   |
| 1% convertible senior  subordinated debentures due 2024                                                      |       | 11,494                 |       | 11,494                 |       | 11,494 |   | 7,970 |   |
| Weighted average number of  common and potential common shares outstanding for diluted net income per  share |       | 67,746                 |       | 67,231                 |       | 67,496 |   | 67,791 |   |

 

----

(a)          Options to purchase approximately 1.9 million and 0.6 million commonshares were excluded from the computation of net income per share, assumingdilution, for the three months ended September 30, 2005 and 2004,respectively, and options to purchase approximately 3.0 million and 0.7 millioncommon shares were excluded from the computation of net income per share,assuming dilution, for the nine months ended September 30, 2005 and 2004,respectively, because they would have been antidilutive.

 

9

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### ***Stock Options***

### * *

The following table illustrates the effect on netincome and net income per share as if the Company had applied the fair valuerecognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123,“Accounting for Stock-Based Compensation,” to stock-based employee compensationusing the Black-Scholes option pricing model:

 
| ** **                                                                                                                                               | ** ** | **Three Months**       | ** ** | **Nine Months**        | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                                                               | ** ** | **Ended**              | ** ** | **Ended**              | ** ** |
| ** **                                                                                                                                               | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                                               | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                                     |       |                   |       |                   |       |   |   |   |   |
| Net income, as reported                                                                                                                                  |       | $                      | 11,522     |                   | $          | 15,083 |   | $ | 33,360 |   | $ | 82,827 |   |
| Deduct: Total stock-based  employee compensation  expense  determined under fair value-based method for all awards, net of related tax effects |       | 8,613                  |       | 1,863                  |       | 12,212 |   | 5,311 |   |
|                                                                                                                                                     |       |                   |       |                   |       |   |   |   |   |
| Pro forma net income for  basic net income per share                                                                                                     |       | 2,909                  |       | 13,220                 |       | 21,148 |   | 77,516 |   |
|                                                                                                                                                     |       |                   |       |                   |       |   |   |   |   |
| Add: Effect of assumed  conversion of 1% convertible  senior subordinated debentures due 2024                                                       |       | 629                    |       | 665                    |       | 1,887 |   | 1,377 |   |
|                                                                                                                                                     |       |                   |       |                   |       |   |   |   |   |
| Pro forma net income for  diluted net income per  share                                                                                             |       | $                      | 3,538      |                   | $          | 13,885 |   | $ | 23,035 |   | $ | 78,893 |   |
|                                                                                                                                                     |       |                   |       |                   |       |   |   |   |   |
| Net income per share:                                                                                                                                    |       |                   |       |                   |       |   |   |   |   |
| Basic—as reported                                                                                                                                   |       | $                      | 0.21       |                   | $          | 0.28 |   | $ | 0.61 |   | $ | 1.42 |   |
| Basic—pro forma                                                                                                                                     |       | $                      | 0.05       |                   | $          | 0.24 |   | $ | 0.39 |   | $ | 1.33 |   |
|                                                                                                                                                     |       |                   |       |                   |       |   |   |   |   |
| Diluted—as reported                                                                                                                                 |       | $                      | 0.18       |                   | $          | 0.23 |   | $ | 0.52 |   | $ | 1.24 |   |
| Diluted—pro forma                                                                                                                                   |       | $                      | 0.05       |                   | $          | 0.20 |   | $ | 0.34 |   | $ | 1.15 |   |

 

On August 10, 2005, the Compensation Committee of the Company’s Board of Directors amended certain stock option agreements with employees to accelerate the vesting of certain outstanding unvested stock options.  Unvested options to purchase 2.1 million shares with an average exercise price of $17.54 per share became exercisable as a result of the vesting acceleration.  The intrinsic value of the stock options on the acceleration date was $2.6 million. As a result of this acceleration of vesting, the Company will not recognize compensation expense associated with these options in future periods, under SFAS No. 123(R), “Share-Based Payment,” which becomes effective for the Company in 2006. Pro forma net income presented in the table above for the three and nine months ended September 30, 2005 includes $7.0 million, net of tax, of additional compensation expense determined under the fair value-based method as a result of the accelerated vesting of stock options.

 

The Company recorded a non-cash compensation charge as aresult of the accelerated vesting of approximately $0.2 million in the threemonths ended September 30, 2005. This charge relates to the intrinsic value as of the acceleration dateand is based on an estimate of what would have been forfeited had the vestingnot been accelerated.  In determining the estimated forfeiture rates ofthe stock options, the Company reviewed the unvested options’ original life,time remaining to vest and historical turnover rates.  The compensation charge will be adjusted infuture periods based on actual employee turnover.

 

**Impact of Newly Issued Accounting Standards**

 

In December 2004, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-BasedPayment,” which establishes standards related to the accounting fortransactions in which an entity exchanges its equity instruments for goods orservices. This revised standard also addresses transactions in which an entityincurs liabilities in exchange for goods or services that are based on the fairvalue of the entity’s equity instruments or that may be settled by the issuanceof these equity instruments. SFAS No. 123(R) focuses primarily onaccounting for transactions in which an entity obtains employee services inshare-based payment transactions. This standard requires a public entity tomeasure the cost of employee services received in exchange for an award ofequity instruments based on the grant-date fair value of the award andrecognize the cost over the period during which an employee is required toprovide service in exchange for the award. In April 2005, the SEC amendedthe effective date to allow companies to 

 

10

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implement this standard at the beginning of their next fiscal yearbeginning after June 15, 2005. CommScope does not anticipate a material impact on its consolidatedstatement of operations upon implementation of this standard due to theaccelerated vesting of certain stock options in August 2005 (see “StockOptions” section within this Note). However, the Company believes that this statement will have a materialimpact if additional stock options are granted. The pro forma effects on net income and net income per share related tothe application of this standard had CommScope applied fair value recognitionprovisions for the three and nine months ended September 30, 2005 and 2004are reported within this Note in the section titled “Stock Options.”

 

In November 2004,the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43,Chapter 4.”  SFAS No. 151 clarifiesthat abnormal amounts of idle facility expense, freight, handling costs andwasted materials (spoilage) should be recognized as current-period charges andrequires the allocation of fixed production overhead to inventory based on thenormal capacity of the production facilities. SFAS No. 151 is effectivefor inventory costs incurred during fiscal years beginning after June 15,2005. Adoption of SFAS No. 151 is not expected to have a material impacton the Company’s financial condition, results of operations or cash flows.

 

InMay 2005, the FASB issued SFAS No. 154, “Accounting Changes and ErrorCorrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3.”  Under SFAS No. 154, changes inaccounting principles will generally be made by the retrospective applicationof the new accounting principle to the financial statements of prior periodsunless it is impractical to determine the effect of the change on priorperiods.  The reporting of a change inaccounting principle as a cumulative adjustment to net income in the period ofthe change, as was previously permitted under APB Opinion No. 20, will nolonger be permitted unless it is impractical to determine the effect of thechange on prior periods. Correction of an error in the application ofaccounting principles will continue to be reported by retroactively restatingthe affected financial statements. The provisions of SFAS No. 154 will notapply to new accounting standards that contain specific transition provisions.SFAS No. 154 is applicable to accounting changes made in fiscal yearsbeginning on or after December 15, 2005. The Company does not expect SFAS No. 154to have a material effect, if any, on its consolidated financial statements.

 

**2.****                                     ****ACQUISITION OF CONNECTIVITYSOLUTIONS**

 

Effective January 31, 2004, CommScope acquiredsubstantially all of the assets and assumed certain liabilities of ConnectivitySolutions.  The total purchase priceconsisted of approximately $250 million in cash and approximately 1.8 millionshares of CommScope common stock, valued at $32.4 million.  CommScope assumed certain current liabilitiesand approximately $65 million of other specified liabilities, primarily relatedto employee benefits.

 

CommScope’s consolidated results of operations forthe nine months ended September 30, 2004 include the results of operationsof the Connectivity Solutions business for the eight-month period from February 1,2004 through September 30, 2004. The following table presents pro forma consolidated results ofoperations for CommScope for the nine months ended September 30, 2004, asthough the acquisition of Connectivity Solutions had been completed as of January 1,2004.  This pro forma information isintended to provide information regarding how CommScope might have looked ifthe acquisition had occurred as of January 1, 2004 and is based on thehistorical results of the Connectivity Solutions business as a division ofAvaya for the month of January 2004. Therefore, the pro forma informationmay not be indicative of the actual results of the Connectivity Solutionsbusiness when operated as part of CommScope. Moreover, the pro forma information does not reflect all of the changesthat may result from the acquisition, including, but not limited to, challengesof transition, integration and restructuring associated with the transaction;challenges of achieving anticipated synergies; ability to retain qualifiedemployees and existing business alliances; maintaining satisfactoryrelationships with represented employees; and customer demand for ConnectivitySolutions products.  The pro formaadjustments represent management’s best estimates based on informationavailable at the time the pro forma information was prepared and may differfrom the adjustments that may actually have been required.  Accordingly, the pro forma financialinformation should not be relied upon as being indicative of the historicalresults that would have been realized had the acquisition occurred as of January 1,2004 or that may be achieved in the future.

 
| ** **                      | ** ** | **Nine Months**             | ** ** |
|---------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **Ended**                   | ** ** |
| ** **                      | ** ** | **September 30, 2004** | ** ** |
|                            |       |                        |       |
| Pro forma revenue               |       | $                           | 882,810    |   |
| Pro forma net income            |       | 75,762                      |       |
| Pro forma net income per  share |       | 1.13                        |       |
|                                 |            |                             |            |  |

 

11

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These pro forma results reflect the elimination ofintercompany sales and immaterial adjustments for interest expense,depreciation, amortization and related income taxes.  These pro forma results also include an estimateof $4.0 million, pretax, for corporate overhead costs that would have beenallocated by Avaya to the Connectivity Solutions business during January 2004.  During the eight-month period from February 1,2004 through September 30, 2004, CommScope incurred corporate overheadcosts of approximately $5.4 million on behalf of Connectivity Solutions.

 

The pro forma net income and net income per sharefor the nine months ended September 30, 2004 include certain materialunusual charges incurred during the period, as listed below on a pretax basis:

 
| Impact of  inventory purchase accounting adjustments             |   | $     | 14,628 |   |
|------------------------------------------------------------------|--------|-------|--------|--------|
| Acquisition-related  in-process research and development charges |   | 3,984 |   |
| Acquisition-related  transition and startup costs                |   | 8,196 |   |
| Loss on  early extinguishment of debt                            |   | 5,029 |   |

 

**3.****                                     ****INVENTORIES**

 
| ** **      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|------------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2005**               | ** ** | **2004**              | ** ** |
|            |       |                   |       |                  |       |
| Raw materials   |       | $                      | 45,661     |                  | $          | 40,250 |   |
| Work in process |       | 25,695                 |       | 22,156                |       |
| Finished goods  |       | 49,173                 |       | 45,936                |       |
|            |       | $                      | 120,529    |                  | $          | 108,342 |   |

 

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

 
| ** **                                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2005**               | ** ** | **2004**              | ** ** |
|                                           |       |                   |       |                  |       |
| Senior secured term loan                       |       | $                      | 39,750     |                  | $          | 49,500 |   |
| 1% convertible senior  subordinated debentures |       | 250,000                |       | 250,000               |       |
| IDA notes                                      |       | 10,800                 |       | 10,800                |       |
|                                           |       | 300,550                |       | 310,300               |       |
| Less: current portion                          |       | (13,000                | )          | (13,000               | )          |
|                                           |       | $                      | 287,550    |                  | $          | 297,300 |   |

 

The Company entered into a 5-year, $185 millionsenior secured credit facility on January 31, 2004 in connection with itsacquisition of Connectivity Solutions. See Note 12 in the Notes to the Consolidated Financial Statements in the2004 Form 10-K for information on the terms and conditions of the seniorsecured credit facility.  On June 27,2005, the senior secured credit facility was amended to, among other things,extend the maturity date of the $110 million revolving credit facility from January 31,2009 to January 31, 2010; reduce the interest rate on the $75 million termloan to, at the Company’s option, either the London Interbank Offered Rate (“LIBOR”)plus 1.50% to 2.00%, or the Base Rate, defined as the higher of Prime Rate orFederal Base Rate plus 0.50%, plus 0.00% to 0.75%, in each case based on theCompany’s fixed charge coverage ratio; reduce the interest rate on therevolving credit facility to, at the Company’s option, either LIBOR plus 1.25%to 1.75%, or the Base Rate plus 0.00% to 0.50%, in each case based on theCompany’s fixed charge coverage ratio; and make certain financial and othercovenants less restrictive.

 

As of September 30, 2005, the Company hadavailability of approximately $67.5 million and no outstanding borrowings underthe revolving credit facility.  TheCompany’s ability to borrow under the facility depends on the amount of theborrowing base, which is determined as specified percentages of eligiblereceivables and inventory, reduced for certain reserves and the total amount ofletters of credit issued under the facility. Management believes theCompany was in compliance with all of its covenants under this facility as of September 30,2005.

 

In March 2004, the Company issued $250 millionaggregate principal amount of 1% convertible senior subordinated debentures dueMarch 15, 2024.  The proceeds fromthese debentures were used primarily to extinguish the Company’s outstanding 4%convertible subordinated notes due December 15, 2006, to repay outstandingborrowings under the Company’s revolving credit facility and for generalcorporate purposes.  The Companyrepurchased $102.9 million of its 4% convertible subordinated notes during March 2004and redeemed the remaining $69.6 million of these notes in April 2004.  The repurchase and pending redemption ofthese 4% convertible subordinated notes resulted in a $5.0 million pretax losson the early extinguishment of debt during the three months ended March 31,2004.  The Company also repaid $25million of borrowings under its revolving credit facility in March 2004.  See 

 

12

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Note12 in the Notes to the Consolidated Financial Statements in the 2004 Form 10-Kfor information on the terms and conditions of the 1% convertible seniorsubordinated debentures.

 

**5.****                                      RESTRUCTURINGCHARGES AND EMPLOYEE TERMINATION BENEFITS**

 

# **2005 Restructuring Initiatives**

 

In August 2005, the Board of Directorsof CommScope adopted global restructuring initiatives to reduce costs byimproving manufacturing efficiency and to enhance the Company’s long-termcompetitive position.

 

The activity within the liability for theserestructuring initiatives during the three and nine months ended September 30,2005 was as follows:

 
| ** **                                                            | ** ** | **Employee-** | ** ** | **Equipment**  | ** ** | **Asset**      | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|---------------|------------|----------------|------------|----------------|------------|------------|------------|
| ** **                                                            | ** ** | **Related**   | ** ** | **Relocation** | ** ** | **Impairment** | ** ** | ** ** | ** ** |
| ** **                                                            | ** ** | **Costs**     | ** ** | **Costs**      | ** ** | **Charges**    | ** ** | **Total**  | ** ** |
| Activity during three and  nine months ended September 30, 2005: |       |          |       |           |       |           |       |       |       |
| Beginning  balance                                                    |       | $             | —     |           | $          | —         |       | $          | —     |   | $ | — |   |
| Charge recorded                                                       |       | 1,014         |       | 640            |       | 14,790         |       | 16,444     |       |
| Cash paid                                                             |       | —        |       | (640           | )          | —         |       | (640       | )          |
| Non-cash                                                              |       | —        |       | —         |       | (14,790        | )          | (14,790    | )          |
| Balance as of September 30,  2005                                |       | $             | 1,014      |           | $          | —         |       | $          | —     |   | $ | 1,014 |   |

 

Employee-related costs reflect the expectedseverance costs and related fringe benefits, accrued over the projectedremaining service period for the affected employees.  Additional pretax employee-related costs of$9 million to $11 million are expected to be recognized during 2006.

 

Equipment relocation costs are recognized asthe costs are incurred.  Additional pretaxequipment relocation costs of $5 million to $7 million are expected to beincurred during 2006.

 

Asset impairment charges relate to productionequipment that has been identified as excess, pending the consolidation ofcertain production activities in other facilities.  It is anticipated that this equipment will besold and it has been recorded at its estimated net realizable value upon saleplus an estimate of its remaining utility while still in service.  Additional impairment charges may be incurredupon the disposition of these assets or if additional excess equipment isidentified.

 

Approximately 85% of the restructuring costsrecognized were allocable to the Enterprise segment with the remainder beingprimarily allocable to the Carrier segment.

 

# **2004 Restructuring Initiatives**

 

In October 2004, the Board of Directorsof Connectivity Solutions Manufacturing, Inc. (“CSMI”), a wholly-ownedsubsidiary of the Company, adopted organizational and cost reductioninitiatives at its Omaha, Nebraska facility in order to improve its competitiveposition.

 

13

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The activity within the liability for theserestructuring initiatives during the three and nine months ended September 30,2005 was as follows:

 
| ** **                                                   | ** ** | **Employee-** | ** ** | **Process**     | ** ** | **Asset**      | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|---------------|------------|-----------------|------------|----------------|------------|------------|------------|
| ** **                                                   | ** ** | **Related**   | ** ** | **Improvement** | ** ** | **Impairment** | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **Costs**     | ** ** | **Costs**       | ** ** | **Charges**    | ** ** | **Total**  | ** ** |
| Activity during three  months ended September 30, 2005: |       |          |       |            |       |           |       |       |       |
| Beginning  balance                                           |       | $             | 577        |            | $          | —         |       | $          | —     |   | $ | 577 |   |
| Additional charge recorded                                   |       | —        |       | 90              |       | 19             |       | 109        |       |
| Cash paid                                                    |       | (193          | )          | (90             | )          | —         |       | (283       | )          |
| Non-cash                                                     |       | —        |       | —          |       | (19            | )          | (19        | )          |
| Balance as of September 30,  2005                       |       | $             | 384        |            | $          | —         |       | $          | —     |   | $ | 384 |   |
|                                                         |       |          |       |            |       |           |       |       |       |   |   |   |   |
| Activity during nine  months ended September 30, 2005:  |       |          |       |            |       |           |       |       |       |
| Beginning  balance                                           |       | $             | 4,132      |            | $          | —         |       | $          | —     |   | $ | 4,132 |   |
| Additional charge recorded                                   |       | —        |       | 2,943           |       | 2,244          |       | 5,187      |       |
| Cash paid                                                    |       | (2,245        | )          | (2,943          | )          | —         |       | (5,188     | )          |
| Non-cash                                                     |       | —        |       | —          |       | (2,244         | )          | (2,244     | )          |
| Reversal of reserves                                         |       | (1,503        | )          | —          |       | —         |       | (1,503     | )          |
| Balance as of September 30,  2005                       |       | $             | 384        |            | $          | —         |       | $          | —     |   | $ | 384 |   |

 

Included in the asset impairment chargerecorded during the nine months ended September 30, 2005 is approximately$575 related to a warehouse building that is no longer in use.  The warehouse has been classified as held forsale ($10.2 million) and is carried at estimated fair value less costs to selland reported in other current assets as of September 30, 2005.  The remainder of the asset impairment chargerelates to equipment that is no longer used in production and has been scrappedor sold.

 

A portion of the reserves established in 2004for employee-related costs was released during the nine months ended September 30,2005.  There were fewer reductions inpersonnel under the initiatives than had been initially projected by theCompany, primarily due to higher than anticipated levels of business volume forcertain products.

 

Approximately 60% of the net restructuringcosts recognized were allocable to the Enterprise segment with the remainderbeing allocable to the Carrier segment. While the implementation of these restructuring initiatives isessentially complete, the Company may incur an immaterial level of additionalcharges during the balance of 2005 related to these initiatives.

 

During the first quarter of 2004, CommScopereduced the Connectivity Solutions workforce by approximately 45 employees. Thereductions were primarily related to the Company’s efforts to improveoperational efficiency and reduce cost. The affected employees were employed inmanagement and support functions at the Omaha facility. This workforcereduction resulted in pretax charges of approximately $1.6 million duringthe first quarter of 2004 (which was partially offset by an adjustment ofapproximately $0.3 million in the fourth quarter of 2004) that are recordedin acquisition-related transition and startup costs.  As of December 31, 2004, there was noremaining liability related to this workforce reduction.

 

**6.****                                      EQUITYINTEREST IN OFS BRIGHTWAVE, LLC**

 

In November 2001, CommScope acquired an18.4% ownership interest in OFS BrightWave, an optical fiber and fiber cableventure between CommScope and The Furukawa Electric Co., Ltd. (“Furukawa”).  On June 14, 2004, CommScope exercisedits contractual right to sell and sold its ownership interest in OFS BrightWaveto Furukawa in exchange for the approximately 7.7 million shares of CommScopecommon stock owned by Furukawa, which were valued at $132.3 million as of thetransaction date.  As a result of thistransaction, CommScope no longer owns any equity interest in OFS BrightWave.

 

This transaction does not affect CommScope’sright to receive full payment of principal and interest from OFS BrightWaveunder a $30 million note due in November 2006, based on its originalterms.  As of the transaction date,CommScope determined that there was an other-than-temporary impairment in thecarrying value of the note and recognized a pretax impairment charge of $11.1million as a reduction of the gain on the OFS BrightWave transaction, therebyreducing the carrying value of the note to zero.  CommScope has continued to receive quarterlyinterest payments in accordance with the terms of the note.

 

14

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The OFS BrightWave transaction resulted in anet pretax gain of $121.3 million ($76.4 million after-tax).  This gain represents (1) the fair valueof the common stock received by CommScope in exchange for its ownershipinterest in OFS BrightWave, plus (2) the realized gain from CommScope’scumulative equity method share of OFS BrightWave’s unrealized foreign currencytranslation gains previously recorded in accumulated other comprehensive loss,less (3) the impairment charge related to the $30 million note.

 

CommScope’s share of the losses of OFSBrightWave for the period from January 1, 2004 through June 14, 2004has been included in the Company’s condensed consolidated financialstatements.   These results are net ofelimination of intercompany profit in the amount of $30, net of tax, related tointerest payments received from OFS BrightWave under the $30 million note.  OFS BrightWave has elected to be taxed as apartnership; therefore, the Company’s income tax benefit from flow-throughlosses has been recorded based on the Company’s tax rates.

 

The following table provides summaryfinancial information for OFS BrightWave:

 
| ** **   | ** ** | **Period from**            | ** ** |
|--------------|------------|----------------------------|------------|
| ** **   | ** ** | **January 1 through** | ** ** |
| ** **   | ** ** | **June 14, 2004**     | ** ** |
| Net revenues |       | $                          | 40,497     |   |
| Gross profit |       | (8,612                     | )          |
| Net loss     |       | (20,860                    | )          |
|              |            |                            |            |  |

 

**7.****                                     ****DERIVATIVES AND HEDGINGACTIVITIES**

 

As of September 30, 2005 and 2004, the onlyderivative financial instrument outstanding was a cross currency swap of U.S.dollars for euros, which was designated and documented at inception as a netinvestment hedge of a portion of the Company’s net investment in its Belgiansubsidiary.  The hedging instrument waseffective as of September 30, 2005 and 2004, and is expected to continueto be effective for the duration of the agreement, resulting in no anticipatedhedge ineffectiveness.  The fair value ofthe derivative instrument, reflected in other noncurrent liabilities, wasapproximately $6.3 million and $8.4 million as of September 30, 2005 and December 31,2004, respectively.

 

There were no material reclassifications fromother comprehensive income (loss) to earnings during the three and nine monthsended September 30, 2005 and 2004.

 

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

 
| ** **                                                                                     | ** ** | **Three Months**       | ** ** | **Nine Months**        | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                     | ** ** | **Ended**              | ** ** | **Ended**              | ** ** |
| ** **                                                                                     | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                     | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Accumulated net loss on  derivative instruments, beginning of period                           |       | $                      | (4,575     | )                      | $          | (3,978 | ) | $ | (5,716 | ) | $ | (3,981 | ) |
|                                                                                           |       |                   |       |                   |       |   |   |   |   |
| Net gain (loss) on  derivative financial instrument designated as a net  investment hedge |       | 36                     |       | (306                   | )          | 1,177 |   | (303 | ) |
|                                                                                           |       |                   |       |                   |       |   |   |   |   |
| Accumulated net loss on  derivative instruments, end of period                                 |       | $                      | (4,539     | )                      | $          | (4,284 | ) | $ | (4,539 | ) | $ | (4,284 | ) |

 

During the three months ended September 30,2005 and 2004, the income tax expense (benefit) related to the gain (loss) onthe derivative financial instrument designated as a net investment hedge andreported within other comprehensive income (loss) was $21 and $(179),respectively.  During the nine monthsended September 30, 2005 and 2004, the income tax expense (benefit)related to the gain (loss) on the derivative financial instrument designated asa net investment hedge and reported within other comprehensive income (loss)was $691 and $(178), respectively.

 

15

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**8.****                                     ****SUPPLEMENTAL CASH FLOWINFORMATION**

 
| ** **                                                                                                                                             | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                             | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                                             | ** ** | **2005**               | ** ** | **2004** | ** ** |
| Cash paid during the  period for:                                                                                                                      |       |                   |       |   |   |
| Income taxes                                                                                                                                           |       | $                      | 20,666     |   | $ | 10,270 |   |
| Interest                                                                                                                                               |       | 5,366                  |       | 5,706 |   |
|                                                                                                                                                   |       |                   |       |   |   |
| Noncash investing and  financing activities:                                                                                                           |       |                   |       |   |   |
| Fair value of CommScope, Inc.  common stock received from Furukawa in exchange for CommScope’s transfer of  its investment in OFS BrightWave |       | $                      | —     |   | $ | 132,311 |   |
| Fair value of CommScope, Inc.  common stock issued as partial consideration for Connectivity Solutions  acquisition                               |       | —                 |       | 32,853 |   |
| Fair value, less costs to  sell, of assets held for sale transferred from property, plant and equipment  to other current assets                       |       | 10,190                 |       | — |   |

 

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

 

During 2004, followingthe acquisition of Connectivity Solutions, the Company’s management evaluatedthe results of operations in two reportable business segments: the Cablesegment, which was the same as CommScope’s cable business prior to theacquisition of Connectivity Solutions, and the Connectivity Solutions segment,which was the Connectivity Solutions business that was acquired as of January 31,2004.

 

During the first quarter of 2005, as a result of thecontinued integration of the Connectivity Solutions business into the Company’sglobal operations and financial reporting systems, management changed thereportable segments used to evaluate the Company’s results of operations.  The new reportable segments that have beenidentified are defined by major product category as follows: Enterprise,Broadband and Carrier.  Results for thethree and nine months ended September 30, 2004, which include the resultsof the Connectivity Solutions business for the period from February 1,2004 through September 30, 2004, have been restated to conform to the newreportable segments.

 

The Enterprise segment consists mainly ofstructured cabling systems for business enterprise applications.  The segment also includes coaxial cable forvarious video and data applications.

 

The Broadband segment consists mainly ofcoaxial cable, fiber optic cable and conduit for cable television systemoperators.  These products supportmulti-channel video, voice and high-speed data services for residential andcommercial customers using Hybrid Fiber Coaxial architecture.

 

The Carrier segment consists of secureenvironmental enclosures for electronic devices and equipment, cables andcomponents used by wireless providers to connect antennae to transmitters andstructured cabling solutions for telephone central offices.  These products are primarily used bytelecommunications service providers or “carriers.”

 

16

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The following tables provide summaryfinancial information for these reportable segments as of September 30,2005 and December 31, 2004 and for the three and nine months ended September 30,2005 and 2004 (in millions):

 
| ** **                                         | ** ** | **As of**              | ** ** | **As of**             | ** ** |
|----------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                                         | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Identifiable segment  related assets:              |       |                   |       |                  |       |
| Enterprise                                         |       | $                      | 355.8      |                  | $          | 337.4 |   |
| Broadband                                          |       | 342.6                  |       | 353.1                 |       |
| Carrier                                            |       | 107.1                  |       | 98.9                  |       |
| Total  identifiable segment related assets         |       | 805.5                  |       | 789.4                 |       |
|                                               |       |                   |       |                  |       |
| Reconciliation to total  assets:                   |       |                   |       |                  |       |
| Cash, cash equivalents and  short-term investments |       | 214.3                  |       | 177.3                 |       |
| Deferred income taxes                              |       | 42.9                   |       | 43.9                  |       |
| Other assets, long-term                            |       | 17.8                   |       | 20.0                  |       |
| Total assets                                       |       | $                      | 1,080.5    |                  | $          | 1,030.6 |   |

 
| ** **                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                     | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                     | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales:                     |       |                   |       |                   |       |   |   |   |   |
| Enterprise                     |       | $                      | 167.9      |                   | $          | 168.6 |   | $ | 499.4 |   | $ | 438.4 |   |
| Broadband                      |       | 122.3                  |       | 108.3                  |       | 340.3 |   | 311.9 |   |
| Carrier                        |       | 55.6                   |       | 32.6                   |       | 153.4 |   | 108.1 |   |
| Inter-segment eliminations     |       | (0.2                   | )          | (0.4                   | )          | (1.7 | ) | (1.3 | ) |
| Consolidated net sales         |       | $                      | 345.6      |                   | $          | 309.1 |   | $ | 991.4 |   | $ | 857.1 |   |
|                           |       |                   |       |                   |       |   |   |   |   |
| Operating income (loss):       |       |                   |       |                   |       |   |   |   |   |
| Enterprise                     |       | $                      | 5.7        |                   | $          | 25.5 |   | $ | 36.8 |   | $ | 23.8 |   |
| Broadband                      |       | 13.9                   |       | 7.1                    |       | 26.2 |   | 23.0 |   |
| Carrier                        |       | 0.3                    |       | (13.8                  | )          | (10.0 | ) | (31.1 | ) |
| Consolidated operating  income |       | $                      | 19.9       |                   | $          | 18.8 |   | $ | 53.0 |   | $ | 15.7 |   |

 

Operating income for the three and nine months endedSeptember 30, 2005 includes restructuring costs of $16.6 million and $20.1million, respectively (see Note 5), and a $2.6 million benefit related to thereplacement of an employee profit sharing plan with an enhanced 401(k)plan.  The combined net cost (benefit) ofthese two items on operating income for the three and nine months ended September 30,2005 is $13.6 million and $15.7 million, respectively, for the Enterprisesegment,  $(1.4) million for theBroadband segment and $1.8 million and $3.2 million, respectively, for theCarrier segment. 

 

17

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**10.****                              ****EMPLOYEE BENEFIT PLANS**

 
| ** **                             | ** ** | **Pension Benefits**   | ** ** | **Other Postretirement  Benefits** | ** ** |
|----------------------------------------|------------|------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **Three Months Ended** | ** ** |
| ** **                             | ** ** | **September 30,** | ** ** |
| ** **                             | ** ** | **2005**               | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                   |       |                   |       |                               |       |   |   |   |   |
| Service cost                           |       | $                      | 977        |                               | $          | 870 |   | $ | 1,043 |   | $ | 1,008 |   |
| Interest cost                          |       | 1,560                  |       | 1,322                              |       | 1,077 |   | 1,158 |   |
| Recognized actuarial loss              |       | —                 |       | —                             |       | (92 | ) | 108 |   |
| Amortization of transition  obligation |       | 10                     |       | 10                                 |       | — |   | — |   |
| Return on plan assets                  |       | (1,578                 | )          | (1,333                             | )          | (130 | ) | (151 | ) |
| Net periodic benefit cost              |       | $                      | 969        |                               | $          | 869 |   | $ | 1,898 |   | $ | 2,123 |   |

 
| ** **                             | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------------------|------------|------------------------|------------|
| ** **                             | ** ** | **September 30,** | ** ** |
| ** **                             | ** ** | **2005**               | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                   |       |                   |       |   |   |   |   |   |   |
| Service cost                           |       | $                      | 2,951      |   | $ | 2,306 |   | $ | 3,139 |   | $ | 3,204 |   |
| Interest cost                          |       | 4,695                  |       | 3,538 |   | 3,306 |   | 3,428 |   |
| Recognized actuarial loss              |       | —                 |       | — |   | (95 | ) | 515 |   |
| Amortization of transition  obligation |       | 31                     |       | 30 |   | — |   | — |   |
| Return on plan assets                  |       | (4,743                 | )          | (3,562 | ) | (392 | ) | (403 | ) |
| Net periodic benefit cost              |       | $                      | 2,934      |   | $ | 2,312 |   | $ | 5,958 |   | $ | 6,744 |   |

 

The Company contributed approximately $5.9 millionand $9.2 million to its pension plans during the three and nine months ended September 30,2005, respectively, and anticipates making additional contributions ofapproximately $0.2 million to these plans during 2005.  The Company contributed approximately $0.3million and $1.0 million to the postretirement benefit plans during the threeand nine months ended September 30, 2005, respectively, and anticipatesmaking additional contributions of approximately $0.3 million to these plansduring 2005.

 

18

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

 

The following discussion and analysis of ourfinancial condition and results of operations for the three and nine monthsended September 30, 2005 and 2004 is provided to increase theunderstanding of, and should be read in conjunction with, the unauditedcondensed consolidated financial statements and accompanying notes included inthis document as well as the audited consolidated financial statements, relatednotes thereto and management’s discussion and analysis of financial conditionand results of operations, including management’s discussion and analysis aboutthe application of critical accounting policies, included in our 2004 AnnualReport on Form 10-K.

 

**Overview**

 

We, through our wholly-owned subsidiaries, are aworld leader in the design and manufacture of cable and connectivity solutionsfor communications networks. We focus on the “last mile” in communicationsnetworks, which is the distribution access, or final link to the customer.Through our acquisition of the Connectivity Solutions business (“ConnectivitySolutions”) of Avaya, Inc. (“Avaya”) on January 31, 2004, we became aglobal leader in structured cabling for business enterprise applications. Weare also a global leader in broadband coaxial cables for the cable televisionindustry. We also design, manufacture and market a broad line ofhigh-performance electronic, coaxial and fiber optic cable products for datanetworking, Internet access, wireless communication, telephony and otherbroadband applications. In addition, we are a leading provider ofenvironmentally secure enclosures and structured cabling solutions supportingcentral offices for telecommunication service providers in the United States.

 

During 2004, following the acquisition ofConnectivity Solutions, management evaluated the results of operations in tworeportable business segments: the Cable segment, which was the same as ourcable business prior to the acquisition of Connectivity Solutions, and theConnectivity Solutions segment, which was the Connectivity Solutions businessthat was acquired as of January 31, 2004.

 

During the first quarter of 2005, as a result of thecontinued integration of the Connectivity Solutions business into our globaloperations and financial reporting systems, management changed the reportablesegments used to evaluate our results of operations.  The new reportable segments that have beenidentified are defined by major product category as follows:  Enterprise, Broadband and Carrier.  Information for prior periods has beenrestated based on the new segments.

 

In August 2005, the Company’s Board ofDirectors adopted global manufacturing initiatives to reduce costs by improvingmanufacturing efficiency and to enhance the Company’s long-term competitiveposition.  Implementation of theinitiatives includes improving the efficiency of certain manufacturingprocesses, shifting production among our global facilities and the expectedclosing of a manufacturing facility in Scottsboro, Alabama in late 2006.  Implementation of the initiatives is expectedto be completed by early 2007.  While weexpect to realize annualized pretax savings of $35 to $40 million once theinitiatives are fully implemented, if we are unable to successfully completethe implementation, our results of operations could be materially adverselyaffected.

 

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

### * *

There have been no changes in our criticalaccounting policies or significant accounting estimates as disclosed in our2004 Annual Report on Form 10-K.

 

19

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### ***COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2005 WITH THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,2004***

 
| ** **                                        | ** ** | **Three Months Ended September 30,** | ** ** | ** **  | ** ** | ** **     | ** ** |
|---------------------------------------------------|------------|-------------------------------------------|------------|-------------|------------|----------------|------------|
| ** **                                        | ** ** | **2005**                                  | ** ** | **2004**    | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | ** **                                | ** ** | **%****of** | ** ** | ** **     | ** ** | **%****of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | **$**                                     | ** ** | **Net**     | ** ** | **$**          | ** ** | **Net** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| ** **                                        | ** ** | **(millions)**                            | ** ** | **Sales**   | ** ** | **(millions)** | ** ** | **Sales** | ** ** | **Change** | ** ** | **Change** | ** ** |
|                                              |       |                                      |       |        |       |           |       |   |   |   |   |   |   |
| Net sales                                         |       | $                                         | 345.6      |        | 100.0      | %              | $          | 309.1 |   | 100.0 | % | $ | 36.5 |   | 11.8 | % |
| Gross profit                                      |       | 94.5                                      |       | 27.4        |       | 78.0           |       | 25.2 |   | 16.5 |   | 21.2 |   |
| SG&A expense                                  |       | 51.3                                      |       | 14.8        |       | 51.5           |       | 16.7 |   | (0.2 | ) | (0.4 | ) |
| R&D expense                                   |       | 6.8                                       |       | 2.0         |       | 7.4            |       | 2.4 |   | (0.6 | ) | (8.1 | ) |
| Acquisition-related  transition and startup costs |       | —                                    |       | —      |       | 0.2            |       | 0.1 |   | (0.2 | ) | — |   |
| Restructuring costs                               |       | 16.6                                      |       | 4.8         |       | —         |       | — |   | 16.6 |   | — |   |
| Net income                                        |       | 11.5                                      |       | 3.3         |       | 15.1           |       | 4.9 |   | (3.6 | ) | (23.8 | ) |
| Net income per diluted share                      |       | $                                         | 0.18       |        |       |           | $          | 0.23 |   |   |   | $ | (0.5 | ) |   |   |

 
| ** **                                               | ** ** | **Nine Months Ended September 30,** | ** ** | ** **  | ** ** | ** **     | ** ** |
|----------------------------------------------------------|------------|------------------------------------------|------------|-------------|------------|----------------|------------|
| ** **                                               | ** ** | **2005**                                 | ** ** | **2004**    | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | ** **                               | ** ** | **%****of** | ** ** | ** **     | ** ** | **%****of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **$**                                    | ** ** | **Net**     | ** ** | **$**          | ** ** | **Net** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| ** **                                               | ** ** | **(millions)**                           | ** ** | **Sales**   | ** ** | **(millions)** | ** ** | **Sales** | ** ** | **Change** | ** ** | **Change** | ** ** |
|                                                     |       |                                     |       |        |       |           |       |   |   |   |   |   |   |
| Net sales                                                |       | $                                        | 991.4      |        | 100.0      | %              | $          | 857.1 |   | 100.0 | % | $ | 134.3 |   | 15.7 | % |
| Gross profit                                             |       | 255.3                                    |       | 25.8        |       | 187.5          |       | 21.9 |   | 67.8 |   | 36.2 |   |
| SG&A expense                                         |       | 159.2                                    |       | 16.1        |       | 139.2          |       | 16.2 |   | 20.0 |   | 14.4 |   |
| R&D expense                                          |       | 23.0                                     |       | 2.3         |       | 20.4           |       | 2.4 |   | 2.6 |   | 12.7 |   |
| In-process  research and development charges             |       | —                                   |       | —      |       | 4.0            |       | 0.5 |   | (4.0 | ) | — |   |
| Acquisition-related  transition and startup costs        |       | —                                   |       | —      |       | 8.2            |       | 1.0 |   | (8.2 | ) | — |   |
| Restructuring costs                                      |       | 20.1                                     |       | 2.0         |       | —         |       | — |   | 20.1 |   | — |   |
| Net gain on  OFS BrightWave, LLC transaction, net of tax |       | —                                   |       | —      |       | 76.4           |       | 8.9 |   | (76.4 | ) | — |   |
| Net income                                               |       | 33.4                                     |       | 3.4         |       | 82.8           |       | 9.7 |   | (49.4 | ) | (59.7 | ) |
| Net income per diluted share                             |       | $                                        | 0.52       |        |       |           | $          | 1.24 |   |   |   | $ | (0.72 | ) |   |   |

 

Effective January 31, 2004, we acquiredsubstantially all of the assets and assumed certain liabilities of ConnectivitySolutions from Avaya and the Connectivity Solutions operating results have beenincluded in our consolidated financial statements since the date ofacquisition. Accordingly, the consolidated results for the nine months ended September 30,2004 include the operating results of Connectivity Solutions for theeight-month period from February 1, 2004 through September 30, 2004.However, the consolidated results reflected above for the nine months ended September 30,2004 do not include any actual or pro forma results for January 2004 forthe Connectivity Solutions business. This information should be considered whencomparing to financial results of 2005. See Note 2 in the Notes to theCondensed Consolidated Financial Statements included elsewhere in this Form 10-Q.

 

20

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**Net sales**

 

Below is a summary that reflects our actual netsales for the three months ended September 2005 and 2004.

 
| ** **                  | ** ** | **Three Months  Ended  September 30,  2005** | ** ** | **Three Months  Ended  September 30,  2004** | ** ** | **Dollar  Change** | ** ** | **%  Change**             | ** ** |
|-----------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|--------------------|------------|---------------------------|------------|
| **(dollars in  millions)**  | ** ** | **Net  Sales**                                    | ** ** | **%****of****Net  Sales**                         | ** ** | **Net  Sales**     | ** ** | **%****of****Net  Sales** | ** ** | ** ** | ** ** |
| Net sales by segment:       |       |                                              |       |                                              |       |               |       |                      |       |   |   |   |   |
| Enterprise                  |       | $                                                 | 167.9      |                                              | 48.6       | %                  | $          | 168.6                     |       | 54.5 | % | $ | (0.7 | ) | (0.4 | )% |
| Broadband                   |       | 122.3                                             |       | 35.4                                              |       | 108.3              |       | 35.0                      |       | 14.0 |   | 12.9 |   |
| Carrier                     |       | 55.6                                              |       | 16.1                                              |       | 32.6               |       | 10.6                      |       | 23.0 |   | 70.6 |   |
| Inter-segment  eliminations |       | (0.2                                              | )          | (0.1                                              | )          | (0.4               | )          | (0.1                      | )          | 0.2 |   |   |   |
| Consolidated net sales      |       | $                                                 | 345.6      |                                              | 100.0      | %                  | $          | 309.1                     |       | 100.0 | % | $ | 36.5 |   | 11.8 | % |
|                        |       |                                              |       |                                              |       |               |       |                      |       |   |   |   |   |
| Total domestic sales        |       | $                                                 | 233.2      |                                              | 67.5       | %                  | $          | 215.5                     |       | 69.7 | % | $ | 17.7 |   | 8.2 | % |
| Total international sales   |       | 112.4                                             |       | 32.5                                              |       | 93.6               |       | 30.3                      |       | 18.8 |   | 20.1 |   |
| Total worldwide sales       |       | $                                                 | 345.6      |                                              | 100.0      | %                  | $          | 309.1                     |       | 100.0 | % | $ | 36.5 |   | 11.8 | % |

 

Below is a summary that reflects our actual netsales for the nine months ended September 30, 2005 and 2004.  The net sales for the nine months ended September 30,2004 incorporate the Connectivity Solutions net sales for the eight-monthperiod from February 1, 2004 through September 30, 2004.  This summary also reflects pro forma netsales for the nine months ended September 30, 2004, as if ConnectivitySolutions had been acquired on January 1, 2004.  The pro forma net sales of ConnectivitySolutions for the one-month period ended January 31, 2004, which isincluded in the pro forma net sales for the nine months ended September 30,2004, is based on the historical results of the Connectivity Solutions businessas operated by Avaya and therefore may not be indicative of the actual resultsof the Connectivity Solutions business as operated by us.  Actual inter-segment sales eliminations forthe eight-month period ended September 30, 2004 and pro forma inter-segmentsales eliminations for January 2004 are included below.

 
| ** **                  | ** ** | **Actual**             | ** ** | **Pro forma**          | ** ** | ** **             | ** ** |
|-----------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                  | ** ** | **Nine Months**        | ** ** | **Nine Months**        | ** ** | **Nine Months**        | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Ended**              | ** ** | **Ended**              | ** ** | **Ended**              | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2004**               | ** ** | **2005 Compared to** | ** ** |
| ** **                  | ** ** | ** **             | ** ** | **%****of**            | ** ** | ** **             | ** ** | **%****of** | ** ** | ** ** | ** ** | **%****of** | ** ** | **2004 Pro forma** | ** ** |
| ** **                  | ** ** | **Net**                | ** ** | **Net**                | ** ** | **Net**                | ** ** | **Net** | ** ** | **Net** | ** ** | **Net** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| **(dollars in  millions)**  | ** ** | **Sales**              | ** ** | **Sales**              | ** ** | **Sales**              | ** ** | **Sales** | ** ** | **Sales** | ** ** | **Sales** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Net sales by segment:       |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Enterprise                  |       | $                      | 499.4      |                   | 50.4       | %                      | $          | 438.4 |   | 51.1 | % | $ | 452.8 |   | 51.3 | % | $ | 46.6 |   | 10.3 | % |
| Broadband                   |       | 340.3                  |       | 34.3                   |       | 311.9                  |       | 36.4 |   | 311.9 |   | 35.3 |   | 28.4 |   | 9.1 |   |
| Carrier                     |       | 153.4                  |       | 15.5                   |       | 108.1                  |       | 12.6 |   | 119.4 |   | 13.5 |   | 34.0 |   | 28.5 |   |
| Inter-segment  eliminations |       | (1.7                   | )          | (0.2                   | )          | (1.3                   | )          | (0.1 | ) | (1.3 | ) | (0.1 | ) | (0.4 | ) |   |   |
| Consolidated net sales      |       | $                      | 991.4      |                   | 100.0      | %                      | $          | 857.1 |   | 100.0 | % | $ | 882.8 |   | 100.0 | % | $ | 108.6 |   | 12.3 | % |
|                        |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Total domestic sales        |       | $                      | 662.2      |                   | 66.8       | %                      | $          | 593.5 |   | 69.2 | % | $ | 607.8 |   | 68.8 | % | $ | 54.4 |   | 9.0 | % |
| Total international sales   |       | 329.2                  |       | 33.2                   |       | 263.6                  |       | 30.8 |   | 275.0 |   | 31.2 |   | 54.2 |   | 19.7 |   |
| Total worldwide sales       |       | $                      | 991.4      |                   | 100.0      | %                      | $          | 857.1 |   | 100.0 | % | $ | 882.8 |   | 100.0 | % | $ | 108.6 |   | 12.3 | % |

 

21

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The following discussion compares net sales for thenine months ended September 30, 2005 to the pro forma net sales for thenine months ended September 30, 2004, since the actual net sales for thenine months ended September 30, 2004 would not be comparable.  However, these pro forma results may not beindicative of the actual results of the product groups of the ConnectivitySolutions business as operated by us.

 

The increase in net sales for the three months endedSeptember 30, 2005 over the comparable prior year period is attributed tosales growth in the Carrier and Broadband segments.  Each of the operating segments contributed tothe increase in net sales for the nine months ended September 30, 2005from the comparable prior year period. The improvements in net sales can be attributed to the positive impactof price increases implemented for certain products during 2004 in response tosignificant increases in the costs of raw materials, the introduction of newproducts, the negative impact on net sales of actions taken by us during thefirst half of 2004 to reduce inventory levels of distributors of SYSTIMAXproducts to a more appropriate level and increased construction related tohurricane damage.

 

*Enterprise Segment*

 

The Enterprise segment consists mainly of structuredcabling systems for business enterprise applications.  The segment also includes coaxial cable forvarious video and data applications.

 

Net sales for the Enterprise segment for the threemonths ended September 30, 2005 were essentially flat with the comparableprior year period, reflecting increased prices for most cable products andincreased international sales volume, offset by lower domestic sales due toincreased competition resulting from price increases that we have put intoplace.

 

The increase in Enterprise segment net sales for thenine months ended September 30, 2005 over the comparable prior year periodwas primarily driven by the effect of price increases announced during 2004,improved project business, the introduction of new products, stronginternational sales growth and management’s decision during 2004 to reduceinventory levels of distributors to a more appropriate level. We implementedprice increases for certain Enterprise products during 2004 as a result ofsignificant increases in the cost of certain raw materials.

 

We expect demand for Enterprise products to bedriven by the ongoing need for bandwidth and high-performance structuredcabling in the enterprise market and global information technology spending,among other things.  Due to seasonal spendingpatterns, sales of Enterprise products have typically been lower in the fourthquarter than the third quarter.

 

*Broadband Segment*

 

The Broadband segment consists mainly of coaxialcable, fiber optic cable and conduit for cable television systemoperators.  These products supportmulti-channel video, voice and high-speed data services for residential andcommercial customers using Hybrid Fiber Coaxial architecture.

 

The increase in net sales of Broadband products forthe three and nine months ended September 30, 2005 over the comparable prioryear periods primarily resulted from higher domestic sales for most of ourproduct lines as well as stronger international sales.  The increase in net sales can primarily beattributed to price increases announced during 2004 for certain products in responseto the significant increase in raw material costs as well as increasedconstruction related to hurricane damage. We expect these factors to continue to affect our business;however, due to seasonal spending patterns, sales of Broadband products havetypically been lower in the fourth quarter than the third quarter.  Whilethe sale of fiber optic products increased during the first nine months of2005, we expect ongoing price pressure.

 

*Carrier Segment*

 

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

 

The Carrier segment experienced significant netsales growth for the three and nine months ended September 30, 2005 overthe comparable prior year periods primarily due to the performance of thewireless and Integrated Cabinet Solutions (“ICS”) product groups.   We have developed relationships with newcustomers, who are generally purchasing a higher volume of wirelessproducts.  We have made substantialprogress communicating the Cell Reach® value proposition to new and existingwireless customers, both domestically and internationally, which was theprimary contributor to the increase in sales of wireless products.  The ICS business has rapidly expanded andreflects an increase in shipments related to Digital Subscriber Line (“DSL”)deployments by telephone companies.

 

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The increase in net sales of wireless and ICSproducts was partially offset by a decrease in net sales of ExchangeMAXproducts. The decrease in ExchangeMAX sales is primarily related to thecontinued impact of competitive pricing pressures and weak demand for centraloffice telecommunications equipment.  Wehave taken steps to eliminate selected unprofitable products and to increaseprices on certain products and are evaluating strategic options for thetelephone central office cable business.

 

While we expect sales of Carrier products to besomewhat volatile since customer spending is mainly project-driven, we remainoptimistic about our opportunities for the ICS and wireless productgroups.  We anticipate continued strongsales growth for our ICS product group primarily due to DSL deployments andfiber-to-the-node construction activity. We also expect continuing expansion incellular telephone base stations, which provides growth opportunities for ourwireless product group.

 

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

### * *

Gross profit for the three months ended September 30,2005 increased to 27.4% from 25.2% for the three months ended September 30,2004.   Gross profit for the nine monthsended September 30, 2005 increased to 25.8% from 21.9% for the nine monthsended September 30, 2004.   Theyear-over-year increases in gross profit for the three and nine month periodswere primarily due to the implementation of price increases on certain productlines, the positive effects of changes in sales mix among our various productlines, the ongoing cost reduction initiatives at the Omaha facility, the impactin 2004 of inventory adjustments related to the acquisition of the ConnectivitySolutions business and the $1.6 million favorable impact from adjusting accruedemployee benefits related to replacing an employee profit sharing plan with anenhanced 401(k) plan.  Gross profit forthe nine months ended September 30, 2004 was adversely impacted by $14.6million related to inventory purchase accounting adjustments on theConnectivity Solutions business.  Thesepurchase accounting adjustments resulted from the write-up above replacementmanufacturing cost of a portion of Connectivity Solutions’ finished goods andwork in process inventory to reflect its fair value as of the acquisition dateunder purchase accounting guidance.  Thewrite-up to fair value resulted in an increase in cost of sales and lower marginsfollowing the acquisition as the inventory was sold.

 

During the first quarter of 2005, management decidedto terminate a joint venture that operates a manufacturing facility in Tianjin,China, primarily for telephone central office products. We own a 60% interestin the joint venture.  The termination isexpected to occur during 2005.  Inconjunction with the decision to terminate the joint venture, we recognized animpairment loss during the first quarter of 2005 related to the investment inthe joint venture as it was determined that the investment was other thantemporarily impaired.  The impairmentloss, recognized in cost of sales, was not material to our consolidatedfinancial statements.

 

We expect additional increases in the costs ofcertain raw materials, such as plastics and other polymers, which are derivedfrom oil and natural gas, and copper to result in increased cost of sales.  We have announced cable price increases forselected products that are expected to be implemented beginning in December 2005.  The inability to realize the announced priceincreases or to achieve higher sales volume and continued cost efficiencies tooffset the increasing costs of raw materials could result in lower gross profitand gross profit margin.

 

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

### * *

The increase in selling, general and administrativeexpense (“SG&A”) for the nine months ended September 30, 2005 ascompared to the same period in 2004 was primarily due to the acquisition ofConnectivity Solutions as of January 31, 2004.  SG&A decreased for the three month periodas compared to the prior year primarily due to a $0.9 million benefit fromadjusting accrued employee benefits related to replacing an employee profitsharing plan with an enhanced 401(k) plan.  Excluding the impact of this adjustment, the increases in SG&A costsare related to bringing new products to market, marketing existing products andhigher employee compensation and benefit costs.

 

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

### * *

Research and development (“R&D”) expense decreasedby $0.6 million and increased by $2.6 million for the three and nine monthsended September 30, 2005, respectively, as compared to the same periods in2004.   The increase for the nine monthsended September 30, 2005 is primarily due to the acquisition ofConnectivity Solutions as of January 31, 2004.  R&D expense is primarily related toongoing R&D activities in developing new products and modifying existingproducts to better serve our customers.

 

# **In-processresearch and development charges**

 

We recognized a $4.0 million pretax charge duringthe nine months ended September 30, 2004 for the write-off of in-processR&D acquired in our acquisition of Connectivity Solutions.  This in-process R&D was valued as anintangible asset by independent appraisal in accordance with purchaseaccounting guidance.  Since R&Dactivities are required to be expensed as incurred under U.S. generallyaccepted accounting principles, this acquired intangible asset was written offimmediately following the acquisition date.

 

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**Acquisition-related transition and startup costs**

 

We incurred pretax charges of $0.2 million and $8.2million during the three and nine months ended September 30, 2004,respectively, for transition and startup costs related to the acquisition ofConnectivity Solutions.  These chargesprimarily related to information technology, transition services and otheracquisition-related costs.

 

We reduced the Connectivity Solutions workforce byapproximately 45 employees, or 2% of the acquired business’ global workforce,during the nine months ended September 30, 2004.  The reductions were primarily related to ourefforts to improve operational efficiency and reduce cost.  We recorded total pretax charges of approximately$1.6 million in acquisition-related transition and startup costs for employeetermination benefits related to this workforce reduction during the nine monthsended September 30, 2004.

 

**Restructuring Costs**

 

We recognized pretax restructuring costs of$16.6 million and $20.1 million during the three and nine months ended September 30,2005, respectively.  The costs incurredduring the three months ended September 30, 2005 were predominatelyrelated to commencing the implementation of global manufacturing initiativesthat were adopted in August 2005.

 

Among the pretax restructuring costs incurred duringthe three months ended September 30, 2005 related to the globalmanufacturing initiatives were $14.8 million of asset impairment charges, $1.0million of employee-related costs and $0.6 million of equipment relocationcosts.  It is anticipated that additionalemployee-related costs of $9 to $11 million and additional equipment relocationcosts of $5 to $7 million will be substantially recognized by the middleof 2006.  Additional impairment chargesmay be incurred upon the disposition of the assets that have been impaired orif additional excess equipment is identified.

 

The remainder of the restructuring costs incurredduring the nine months ended September 30, 2005 resulted from thecontinued implementation of the organizational and cost reduction initiativesat the Omaha facility of Connectivity Solutions Manufacturing, Inc.(CSMI), our wholly-owned manufacturing subsidiary.  These initiatives were announced in October 2004and implementation began during the fourth quarter of 2004.  Included in the restructuring costs for thenine months ended September 30, 2005 were ongoing process improvementcosts of $2.9 million, which consisted of consulting and other costs associatedwith modifying manufacturing operations; asset impairment charges of $2.2million related to equipment that was no longer in use and included $0.6million related to a warehouse which was classified as held for sale; andreversal of reserves for employee-related costs of $1.5 million as a result offewer reductions in personnel than we had initially projected, primarily due tohigher than anticipated levels of business volume.

 

While the implementation of these CSMI initiativesis essentially complete, we may recognize an immaterial amount of additionalpretax restructuring charges during the balance of 2005.

 

**Loss on early extinguishment of debt**

 

We recognized a $5.0 million pretax loss during thenine months ended September 30, 2004 on the early extinguishment of our 4%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-termfinancing costs in the amount of $1.9 million.

 

### ***Net interest expense***

### * *

The decrease in net interest expense for the threeand nine months ended September 30, 2005 compared to the prior year wasprimarily due to the impact of having repurchased or redeemed the $172.5million aggregate principal amount of our 4% convertible subordinated notes in March andApril 2004 using proceeds from our issuance of $250 million of 1%convertible senior subordinated debentures in March 2004.  The decrease is also attributable to therepayment of borrowings under the term loan and revolving credit facility ofour senior secured credit facility which were used to finance a portion of theacquisition of Connectivity Solutions. Our weighted average effective interest rate on outstanding borrowings,including amortization of associated long-term financing costs, remainedessentially unchanged at 2.69% as of September 30, 2005 compared to 2.70%as of December 31, 2004.  Thisreflects a reduction in the interest rate on the term loan as a result of the June 27,2005 amendment to the senior secured credit facility (see Financing Activities section below)and repayments of the term loan, which were substantially offset by increasesin LIBOR and other short-term interest rates.

 

Increases in interest income resulting fromhigher average balances of invested funds and higher short-term interest ratesalso contributed to the decrease in net interest expense.

 

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### ***Income taxes***

### * *

Our effective income tax rate was 41% and 33% forthe three and nine months ended September 30, 2005, respectively, comparedto 17% and 33% for the three and nine months ended September 30, 2004,respectively.  During the three monthsended September 30, 2005, we recorded a non-cash charge of approximately$2.2 million related to establishing a valuation allowance for deferred taxassets.  These deferred tax assets relateto net operating loss carryforwards at one of our international subsidiarieswhere the available evidence does not indicate that it is more likely than notthat the deferred tax asset will be realizable.

 

The effective income tax rates excluding the impactof providing the valuation allowance for the three and nine months ended September 30,2005 were 29% and 28%, respectively. These effective income tax rates are lower than the U.S. corporate taxrate of 35% due to benefits derived from our international activities in lowertax rate jurisdictions.

 

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

### * *

On June 14, 2004 we exercised our contractualright to sell our ownership interest in OFS BrightWave, LLC (“OFS BrightWave”)to The Furukawa Electric Co. Ltd. (“Furukawa”) in exchange for theapproximately 7.7 million shares of our common stock owned by Furukawa whichhad a fair value of $132.3 million as of the transaction date.

 

As a result of the transaction, we no longer own anyequity interest in OFS BrightWave.  TheOFS BrightWave transaction resulted in a pretax gain of $121.3 million ($76.4million net of tax).  This gainrepresents (1) the fair value of the common stock received by us inexchange for the transfer of our ownership interest to Furukawa, plus (2) therealized gain from our cumulative equity method share of OFS BrightWave’sunrealized foreign currency translation gains previously recorded inaccumulated other comprehensive loss, less (3) an $11.1 million impairmentcharge related to fully impairing the $30 million note receivable from OFSBrightWave.  This transaction does notaffect our right to receive full payment from OFS BrightWave under the $30 millionnote due in 2006, based on its original terms.

 

For the nine months ended September 30, 2004,our share of the losses of OFS BrightWave through June 14, 2004 wasapproximately $2.3 million, pretax. Since OFS BrightWave elected to be taxed as a partnership, we recorded atax benefit related to our share in the flow-through losses of approximately$0.9 million for the nine months ended September 30, 2004.

 

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

### * *

**Cash Flow Overview**

 

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

 
| ** **                                                                                                           | ** ** | **As of**                     | ** ** | ** **                  | ** ** | ** **         | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|--------------------|------------|
| ** **                                                                                                           | ** ** | **September  30,  2005** | ** ** | **December 31,  2004** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
|                                                                                                                 |       |                          |       |                        |       |               |       |   |   |
| Cash, cash equivalents and short-term  investments                                                                   |       | $                             | 214.3      |                        | $          | 177.3              |       | $ | 37.0 |   | 20.9 | % |
| Working capital,  excluding cash, cash equivalents and short-term investments and current  portion of long-term debt |       | 181.4                         |       | 127.2                       |       | 54.2               |       | 42.6 |   |
| Long-term debt, including current portion                                                                            |       | 300.6                         |       | 310.3                       |       | (9.7               | )          | (3.1 | ) |
| Book capital structure                                                                                               |       | 794.6                         |       | 759.8                       |       | 34.8               |       | 4.6 |   |
| Long-term debt as a percentage of book  capital structure                                                            |       | 37.8                          | %          | 40.8                        | %          |               |       |   |   |
|                                                                                                                      |            |                               |            |                             |            |                    |            |  |  |  |  |  |

 

The increase in cash, cash equivalents andshort-term investments during the nine months ended September 30, 2005 wasprimarily driven by net cash provided by operations.  A more detailed discussion of operatingactivities is provided below.  Theincrease in working capital was primarily attributable to increases in accountsreceivable and inventory and the reclassification of certain property, plantand equipment to other current assets. The increase in accounts receivable was primarily the result of a changein our credit terms for certain customers to reduce the prompt paymentdiscount.  The increase in inventory wasattributable to higher

 

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salesvolumes and raw material costs.  Inconjunction with the restructuring initiatives at our Omaha facility, we havereclassified a warehouse building with a net carrying value of approximately$10.2 million from property, plant and equipment to other current assets as aresult of it being considered held for sale.

 
| ** **                                                                                                                                  | ** ** | **Nine months ended  September 30,** | ** ** | **Dollar** | ** ** | **%**      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                                  | ** ** | **2005**                                  | ** ** | **2004**   | ** ** | **Change** | ** ** | **Change** | ** ** |
|                                                                                                                                        |       |                                      |       |       |       |       |       |   |   |
| Net cash provided by operating activities                                                                                                   |       | $                                         | 55.8       |       | $          | 98.1       |       | $ | (42.3 | ) | (43.1 | )% |
| Depreciation and amortization                                                                                                               |       | 45.5                                      |       | 45.2       |       | 0.3        |       | 0.7 |   |
| Increase in  working capital, excluding cash, current portion of long-term debt, and  acquisition of Connectivity Solutions working capital |       | 54.2                                      |       | 46.2       |       | 8.0        |       | 17.3 |   |
| Capital expenditures                                                                                                                        |       | 16.4                                      |       | 7.8        |       | 8.6        |       | 110.3 |   |
|                                                                                                                                             |            |                                           |            |            |            |            |            |  |  |  |  |  |

 

**Operating Activities**

 

During the nine months ended September 30,2005, operating activities provided approximately $55.8 million in cashcompared to providing $98.1 million during the nine months ended September 30,2004.   Cash generated from operationsduring the nine months ended September 30, 2004 was positively impacted bya decrease in working capital as we worked to reduce inventory balances,primarily in our SYSTIMAX product group, to a more appropriate level.  During the nine months ended September 30,2005, net income of $33.4 million, depreciation and amortization of $45.5million and an increase in accounts payable and accrued liabilities of $19.0million more than offset a $46.4 million increase in accounts receivable and anincrease in inventory of $12.0 million. The increase in accounts receivable can be primarily attributed to achange in credit terms for certain customers to reduce the prompt paymentdiscount as well as seasonal trends. The change in credit practices wasimplemented in January 2005.

 

We expect to generate net cash from operationsduring the balance of 2005, primarily due to increased margins from sales ofcertain product groups.  In addition, wewill continue to focus on enhancing global operational efficiency, sales growthfrom various product groups and management of working capital.

 

**Investing Activities**

 

Investment in property, plant and equipment for thenine months ended September 30, 2005 was $8.6 million higher than thecomparable prior year period. Construction of our new manufacturing facility inAsia, which will provide additional production capability, cost reductionefforts and continuing information technology initiatives were the primaryreasons for capital expenditures during the first nine months of 2005.

 

We currently expect capital expenditures to be $21to $23 million in 2005 compared to $13.2 million in 2004.  The expected increase in capital spending isprimarily for cost reduction efforts, information technology initiatives and additionalproduction capability in Asia.  We expectcapital expenditures to remain at a level below consolidated depreciation andamortization expense for the next several years.

 

**Financing Activities**

 

During the nine months ended September 30, 2005, we reduced the principal balance ofour outstanding long-term debt by $9.75 million in accordance with thescheduled maturities outlined in our respective debt agreements.

 

On June 27, 2005, our senior secured creditfacility was amended to, among other things, extend the maturity date of the$110 million revolving credit facility from January 31, 2009 to January 31,2010; reduce the interest rate on the $75 million term loan to, at our option,either the London Interbank Offered Rate (“LIBOR”) plus 1.50% to 2.00%, or theBase Rate, defined as the higher of Prime Rate or Federal Base Rate plus 0.50%,plus 0.00% to 0.75%, in each case based on our fixed charge coverage ratio;reduce the interest rate on the revolving credit facility to, at our option,either LIBOR plus 1.25% to 1.75%, or the Base Rate plus 0.00% to 0.50%, in eachcase based on our fixed charge coverage ratio; and make certain financial andother covenants less restrictive.

 

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**Future Cash Needs**

 

We expect that our primary future cash needs will beto fund working capital, capital expenditures, debt service and employeebenefit obligations.  We contributed $9.2million to defined benefit pension plans during the nine months ended September 30,2005 and expect to make additional contributions of approximately $0.2 millionduring 2005. We expect that our noncurrent employee benefit liabilities will befunded through cash flow from future operations.

 

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

 

There were no material changes in our contractualobligations during the quarter ended September 30, 2005.

 

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

### * *

Certain statements in this Form 10-Qthat 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,global manufacturing initiatives, synergies and other financial items, integrationand restructuring plans related to our acquisition of substantially all of theassets and certain liabilities of the Connectivity Solutions business, salesand earnings expectations, expected demand, cost and availability of key rawmaterials, internal production capacity and expansion, competitive pricing,relative market position and outlook. While we believe such statements arereasonable, our actual results and effects could differ materially from thosecurrently anticipated. These forward-looking statements are identified by theuse of such terms and phrases as “intends,” “intend,” “intended,” “goal,” “estimate,”“estimates,” “expects,” “expect,” “expected,” “project,” “projects,” “projected,”“projections,” “plans,” “anticipates,” “anticipated,” “should,” “designed to,” “foreseeablefuture,” “believe,” “believes,” “think,” “thinks,” “scheduled” and similarexpressions.  This list of indicativeterms and phrases is not intended to be all-inclusive.

 

 

These statements are subject to various risks anduncertainties, many of which are outside our control, including, withoutlimitation, the challenges of executing the global manufacturing initiatives;delays or challenges related to removing, transporting or reinstallingequipment; the challenges of integration and restructuring associated with theacquisition of Connectivity Solutions or any future acquisition orrestructuring, including cost reduction plans at CSMI’s Omaha, Nebraskafacility; the challenges of achieving anticipated synergies; the ability tomaintain existing business alliances; maintaining satisfactory relationshipswith represented employees; customer demand for our products, applications andservices; expected demand from major domestic MSOs; telecommunications industrycapital spending; ability to maintain successful relationships with our majordistributors; industry consolidation; ability of our customers to secureadequate financing to fund their infrastructure projects or to pay us; changesor fluctuations in global business conditions; competitive pricing andacceptance of our products; changes in cost and availability of key rawmaterials, especially those that are available only from limited sources;consolidation among our suppliers; ability to recover higher material and transportationcosts from our customers through price increases; possible future impairmentcharges for goodwill and other long-lived assets; industry competition and theability to retain customers; possible production disruption due to supplierbankruptcy, reorganization or restructuring; variability in our effective taxrate; our ability to obtain financing and capital on commercially reasonableterms; covenant restrictions and our ability to comply with covenants in ourdebt agreements; successful operation of our vertical integration activities;successful expansion and related operation of our facilities; achievement ofsales, growth and earnings goals; ability to achieve reductions in costs;ability to retain and attract key personnel; developments in technology;intellectual property protection; product performance issues and associatedwarranties; adequacy and availability of insurance; regulatory changesaffecting us or the industries we serve; any changes required by the Securitiesand Exchange Commission in connection with its review of our public filings;authoritative changes in generally accepted accounting principles bystandard-setting bodies; environmental remediation issues; terrorist activityor armed conflict; political instability; major health concerns and otherfactors; and any statements of belief and any statements of assumptionsunderlying any of the foregoing. These and other factors are discussed ingreater detail in Exhibit 99.1 to this Form 10-Q. The informationcontained in this Form 10-Q represents our best judgment at the date ofthis report based on information currently available. However, we do notintend, and are not undertaking any duty or obligation, to update thisinformation to reflect developments or information obtained after the date ofthis report.

 

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

# ** **

As disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2004, our major market risk exposurerelates to adverse fluctuations in commodity prices, interest rates and foreigncurrency exchange rates.  We haveestablished a risk management strategy that includes the reasonable use ofderivative and nonderivative financial instruments primarily to manage ourexposure to these market risks.  Webelieve our exposure associated with these market risks has not materiallychanged since December 31, 2004.  Wehave not acquired any new derivative financial instruments since December 31,2004 or terminated any derivative financial instruments that existed at thatdate.

 

# **ITEM 4.**                 CONTROLS AND PROCEDURES

# ** **

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

 

There were no changes in our internal control overfinancial reporting during the three months ended September 30, 2005 that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

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# **PART II – OTHER INFORMATION**

# ** **

| **ITEM 6.** | ** ** | **EXHIBITS** |
|-------------|------------|--------------|
| ** **  | ** ** | ** **   |
|        |       | 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**

 

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

 
|                   | COMMSCOPE, INC.                                       |
|------------------------|-------------------------------------------------------|
|                   |                                                  |
| November 7,  2005 |                                                  | /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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