**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

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

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from                to                **

**Commissionfile number 001-12929**

**CommScope, Inc.**

(Exact name of registrantas specified in its charter)
| **Delaware**                                                     | **36-4135495**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |

 

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

(Address of principalexecutive offices)

**28602**

(Zip Code)

**(828) 324-2200**

(Registrant’s telephonenumber, including area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes x   No o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes x   No o

Asof July 31, 2004 there were 54,066,431 shares of Common Stock outstanding.

 

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**CommScope, Inc.Form 10-QJune 30, 2004Table of Contents**
|                                                | ** **                                                                                                                                           | **Page No.**                                                                                     |
|------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|
| Part I—Financial Information (Unaudited): |                                                                                                                                                 |                                                                                             |
|                                           | Item 1.   Condensed  Consolidated Financial Statements:                                                                                    |                                                                                             |   |
|                                           |                                                                                                                                                 | Condensed Consolidated Statements of Operations                                                  |   | 3 |
|                                           |                                                                                                                                                 | Condensed Consolidated Balance Sheets                                                            |   | 4 |
|                                           |                                                                                                                                                 | Condensed Consolidated Statements of Cash Flows                                                  |   | 5 |
|                                           |                                                                                                                                                 | Condensed  Consolidated Statements of Stockholders’ Equity and Comprehensive Income  (Loss) |   | 6 |
|                                           |                                                                                                                                                 | Notes  to Condensed Consolidated Financial Statements                                            |   | 7 – 25 |
|                                           | Item  2.   Management’s Discussion and Analysis of  Financial Condition and Results of Operations       |                                                                                             | 26 – 41 |
|                                           | Item  3.   Quantitative and Qualitative Disclosures  about Market Risk                                                                     |                                                                                             | 41 |
|                                           | Item  4.   Controls and Procedures                                                                                                         |                                                                                             | 41 |
| Part  II—Other Information:               |                                                                                                                                                 |                                                                                             |
|                                           | Item  2.   Changes in Securities, Use of Proceeds and  Issuer Purchases of Equity Securities                                               |                                                                                             | 42 |
|                                           | Item  4.   Submission of Matters to a Vote of Security  Holders                                                                            |                                                                                             | 42 |
|                                           | Item  6.   Exhibits and Reports on Form 8-K                                                                                                |                                                                                             | 43 |
|                                           | Signatures                                                                                                                                           |                                                                                             | 44 |

 

2

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**CommScope, Inc.Condensed Consolidated Statements of Operations(Unaudited—In thousands, except per share amounts)**
| ** **                                                                                                                  | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                  | ** ** | **2004**                                        | ** ** | **2003**                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net sales                                                                                                                   |       | $                                               | 312,949    |                                          | $          | 141,422 |   | $ | 548,010 |   | $ | 270,790 |   |
| Operating costs and  expenses:                                                                                              |       |                                            |       |                                          |       |   |   |   |   |
| Cost of sales                                                                                                               |       | 240,772                                         |       | 112,623                                       |       | 438,449 |   | 217,874 |   |
| Selling, general and administrative                                                                                         |       | 51,743                                          |       | 21,811                                        |       | 87,727 |   | 41,881 |   |
| Research and development                                                                                                    |       | 8,145                                           |       | 1,455                                         |       | 13,011 |   | 3,044 |   |
| Impairment charges for fixed assets                                                                                         |       | —                                          |       | 31,728                                        |       | — |   | 31,728 |   |
| In-process research and development charges                                                                                 |       | —                                          |       | —                                        |       | 3,894 |   | — |   |
| Acquisition-related transition and startup costs                                                                            |       | 1,242                                           |       | —                                        |       | 7,981 |   | — |   |
| Total operating costs and expenses                                                                                          |       | 301,902                                         |       | 167,617                                       |       | 551,062 |   | 294,527 |   |
| Operating income (loss)                                                                                                     |       | 11,047                                          |       | (26,195                                       | )          | (3,052 | ) | (23,737 | ) |
| Other income  (expense), net                                                                                                |       | 241                                             |       | (4                                            | )          | (885 | ) | 205 |   |
| Loss on early  extinguishment of debt                                                                                       |       | —                                          |       | —                                        |       | (5,029 | ) | — |   |
| Interest expense                                                                                                            |       | (2,440                                          | )          | (2,183                                        | )          | (5,199 | ) | (4,341 | ) |
| Interest income                                                                                                             |       | 445                                             |       | 715                                           |       | 924 |   | 1,332 |   |
| Income (loss) before income taxes, equity in losses  of OFS BrightWave, LLC and net gain on OFS BrightWave, LLC transaction |       | 9,293                                           |       | (27,667                                       | )          | (13,241 | ) | (26,541 | ) |
| Income tax  benefit (expense)                                                                                               |       | (1,038                                          | )          | 10,237                                        |       | 5,941 |   | 9,820 |   |
| Income (loss) before equity in losses of OFS  BrightWave, LLC and net gain on OFS BrightWave, LLC transaction               |       | 8,255                                           |       | (17,430                                       | )          | (7,300 | ) | (16,721 | ) |
| Equity in losses  of OFS BrightWave, LLC, net of tax                                                                        |       | (578                                            | )          | (33,945                                       | )          | (1,393 | ) | (37,727 | ) |
| Net gain on OFS  BrightWave, LLC transaction, net of tax                                                                    |       | 76,437                                          |       | —                                        |       | 76,437 |   | — |   |
| Net income (loss)                                                                                                           |       | $                                               | 84,114     |                                          | $          | (51,375 | ) | $ | 67,744 |   | $ | (54,448 | ) |
| Net income (loss)  per share:                                                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Basic                                                                                                                       |       | $                                               | 1.40       |                                          | $          | (0.87 | ) | $ | 1.12 |   | $ | (0.92 | ) |
| Assuming dilution                                                                                                           |       | $                                               | 1.37       |                                          | $          | (0.87 | ) | $ | 1.10 |   | $ | (0.92 | ) |
| Weighted average  shares outstanding:                                                                                       |       |                                            |       |                                          |       |   |   |   |   |
| Basic                                                                                                                       |       | 60,193                                          |       | 59,220                                        |       | 60,436 |   | 59,220 |   |
| Assuming dilution                                                                                                           |       | 61,494                                          |       | 59,220                                        |       | 61,791 |   | 59,220 |   |

 

See notes to condensed consolidated financial statements.

3

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**CommScope, Inc. Condensed Consolidated Balance Sheets(Unaudited—In thousands, except share amounts)**
| ** **                                                                                                                                                                                                                                                                | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                                                                                                                                                                |       |                    |       |                        |       |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                 |       | $                       | 139,064    |                        |       | $ | 206,038 |   |   |
| Accounts receivable, less allowance for doubtful accounts  of $14,199 and $12,145, respectively                                                                                                                                                                           |       | 153,357                 |       |                        | 69,461     |   |   |
| Inventories                                                                                                                                                                                                                                                               |       | 103,998                 |       |                        | 32,723     |   |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                 |       | 15,116                  |       |                        | 8,389      |   |   |
| Deferred income taxes                                                                                                                                                                                                                                                     |       | 16,600                  |       |                        | 14,061     |   |   |
| Total current assets                                                                                                                                                                                                                                                      |       | 428,135                 |       |                        | 330,672    |   |   |
| Property, plant and equipment, net                                                                                                                                                                                                                                        |       | 342,996                 |       |                        | 176,290    |   |   |
| Goodwill                                                                                                                                                                                                                                                                  |       | 151,361                 |       |                        | 151,368    |   |   |
| Other intangibles, net of accumulated amortization of  $48,003 and $42,435, respectively                                                                                                                                                                             |       | 88,257                  |       |                        | 6,330      |   |   |
| Deferred income taxes                                                                                                                                                                                                                                                     |       | 15,229                  |       |                        | 44,756     |   |   |
| Advances to OFS BrightWave, LLC                                                                                                                                                                                                                                           |       | —                  |       |                        | 13,361     |   |   |
| Other assets                                                                                                                                                                                                                                                              |       | 21,573                  |       |                        | 17,004     |   |   |
| Total Assets                                                                                                                                                                                                                                                              |       | $                       | 1,047,551  |                        |       | $ | 739,781 |   |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                                                             |       |                    |       |                        |       |   |   |
| Accounts payable                                                                                                                                                                                                                                                          |       | $                       | 60,227     |                        |       | $ | 14,659 |   |   |
| Other accrued liabilities                                                                                                                                                                                                                                                 |       | 106,761                 |       |                        | 35,377     |   |   |
| Current portion of long-term debt                                                                                                                                                                                                                                         |       | 22,000                  |       |                        | —     |   |   |
| Total current liabilities                                                                                                                                                                                                                                                 |       | 188,988                 |       |                        | 50,036     |   |   |
| Long-term debt                                                                                                                                                                                                                                                            |       | 306,300                 |       |                        | 183,300    |   |   |
| Pension and postretirement benefit liabilities                                                                                                                                                                                                                            |       | 97,522                  |       |                        | 30,397     |   |   |
| Other noncurrent liabilities                                                                                                                                                                                                                                              |       | 27,149                  |       |                        | 20,342     |   |   |
| Total Liabilities                                                                                                                                                                                                                                                         |       | 619,959                 |       |                        | 284,075    |   |   |
| Commitments and  contingencies                                                                                                                                                                                                                                            |       |                    |       |                        |       |   |   |
| Stockholders’  Equity:                                                                                                                                                                                                                                               |       |                    |       |                        |       |   |   |
| Preferred stock, $.01 par value; Authorized shares:  20,000,000; Issued and outstanding shares: None at June 30, 2004 and December  31, 2003                                                                                                                              |       | —                  |       |                        | —     |   |   |
| Common stock, $.01 par value; Authorized shares:  300,000,000; Issued shares, including treasury stock: 64,167,545 at June 30,  2004 and 61,861,376 at December 31, 2003; Issued and outstanding shares:  53,967,545 at June 30, 2004 and 59,318,276 at December 31, 2003 |       | 641                     |       |                        | 619        |   |   |
| Additional paid-in capital                                                                                                                                                                                                                                                |       | 423,946                 |       |                        | 384,889    |   |   |
| Retained earnings                                                                                                                                                                                                                                                         |       | 158,699                 |       |                        | 90,955     |   |   |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                      |       | (10,159                 | )          |                        | (7,533     | ) |   |
| Treasury stock, at cost: 10,200,000 shares at June  30, 2004 and 2,543,100 at December 31, 2003                                                                                                                                                                      |       | (145,535                | )          |                        | (13,224    | ) |   |
| Total Stockholders' Equity                                                                                                                                                                                                                                                |       | 427,592                 |       |                        | 455,706    |   |   |
| Total Liabilities  and Stockholders’ Equity                                                                                                                                                                                                                          |       | $                       | 1,047,551  |                        |       | $ | 739,781 |   |   |

 

See notes to condensed consolidated financial statements.

4

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**CommScope, Inc.Condensed Consolidated Statements of Cash Flows(Unaudited—In thousands)**
| ** **                                                                                | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                | ** ** | **2004**                                      | ** ** | **2003** | ** ** |
| **Operating  Activities:**                                                                |       |                                          |       |   |   |
| Net income (loss)                                                                         |       | $                                             | 67,744     |   | $ | (54,448 | ) |
| Adjustments to reconcile  net income (loss) to net cash provided by operating activities: |       |                                          |       |   |   |
| Depreciation and amortization                                                             |       | 30,253                                        |       | 17,433 |   |
| In-process research and development charges                                               |       | 3,894                                         |       | — |   |
| 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                                         |       | 59,970 |   |
| Impairment charges for fixed assets                                                       |       | —                                        |       | 31,728 |   |
| Deferred income taxes                                                                     |       | 26,968                                        |       | (27,463 | ) |
| Tax benefit from stock option exercises                                                   |       | 909                                           |       | — |   |
| Changes in assets  and liabilities:                                                       |       |                                          |       |   |   |
| Accounts receivable                                                                       |       | (34,997                                       | )          | (5,750 | ) |
| Inventories                                                                               |       | 42,578                                        |       | (338 | ) |
| Prepaid expenses and other current assets                                                 |       | (1,196                                        | )          | (4,584 | ) |
| Accounts payable and other accrued liabilities                                            |       | 34,649                                        |       | 2,965 |   |
| Other noncurrent liabilities                                                              |       | 6,680                                         |       | 2,609 |   |
| Other                                                                                     |       | (443                                          | )          | 478 |   |
| Net cash provided  by operating activities                                                |       | 57,970                                        |       | 22,600 |   |
| **Investing  Activities:**                                                                |       |                                          |       |   |   |
| Additions to property, plant and equipment                                                |       | (4,507                                        | )          | (2,512 | ) |
| Acquisition of Connectivity Solutions                                                     |       | (293,375                                      | )          | — |   |
| Proceeds from disposal of fixed assets                                                    |       | 170                                           |       | 75 |   |
| Net cash used in  investing activities                                                    |       | (297,712                                      | )          | (2,437 | ) |
| **Financing  Activities:**                                                                |       |                                          |       |   |   |
| Proceeds from issuance of long-term debt                                                  |       | 75,000                                        |       | — |   |
| Principal payments on long-term debt                                                      |       | (7,500                                        | )          | — |   |
| Proceeds from issuance of convertible debentures                                          |       | 250,000                                       |       | — |   |
| Repayment of convertible notes                                                            |       | (172,500                                      | )          | — |   |
| Proceeds from issuance of stock                                                           |       | 32,853                                        |       | — |   |
| Long-term financing costs                                                                 |       | (10,656                                       | )          | (1,195 | ) |
| Proceeds from exercise of stock options                                                   |       | 5,817                                         |       | — |   |
| Net cash provided  by (used in) financing activities                                      |       | 173,014                                       |       | (1,195 | ) |
| Effect of exchange rate changes on cash                                                   |       | (246                                          | )          | 1,211 |   |
| Change in cash and cash equivalents                                                       |       | (66,974                                       | )          | 20,179 |   |
| Cash and cash  equivalents, beginning of period                                           |       | 206,038                                       |       | 120,102 |   |
| Cash and cash  equivalents, end of period                                                 |       | $                                             | 139,064    |   | $ | 140,281 |   |

 

See notes to condensed consolidated financial statements.

5

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**CommScope, Inc.Condensed Consolidated Statements of Stockholders’ Equityand Comprehensive Income (Loss)(Unaudited—In thousands, except share amounts)**
| ** **                                                                 | ** ** | **Six Months Ended  June 30,**                                                            | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **        2004        ** | ** ** | **        2003        ** | ** ** |
| Number of common  shares outstanding:                                      |       |                                                                                                     |       |   |   |   |   |   |   |
| Balance at beginning of period                                             |       |                                                                                                     | 59,318,276 |   |   |   | 59,219,567 |   |   |
| Issuance of shares to Avaya Inc.                                           |       |                                                                                                     | 1,761,538  |   |   |   | — |   |   |
| Shares received from Furukawa in OFS BrightWave, LLC  transaction          |       |                                                                                                     | (7,656,900 | ) |   |   | — |   |   |
| Issuance of shares for stock option exercises                              |       |                                                                                                     | 544,631    |   |   |   | — |   |   |
| Balance at end of period                                                   |       |                                                                                                     | 53,967,545 |   |   |   | 59,219,567 |   |   |
| Common stock:                                                              |       |                                                                                                     |       |   |   |   |   |   |   |
| Balance at beginning of period                                             |       |                                                                                                     | $          | 619 |   |   |   | $ | 618 |   |   |
| Issuance of shares to Avaya Inc.                                           |       |                                                                                                     | 18         |   |   |   | — |   |   |
| Issuance of shares for stock option exercises                              |       |                                                                                                     | 4          |   |   |   | — |   |   |
| Balance at end of period                                                   |       |                                                                                                     | $          | 641 |   |   |   | $ | 618 |   |   |
| Additional paid-in  capital:                                               |       |                                                                                                     |       |   |   |   |   |   |   |
| Balance at beginning of period                                             |       |                                                                                                     | $          | 384,889 |   |   |   | $ | 383,541 |   |   |
| Issuance of shares to Avaya Inc.                                           |       |                                                                                                     | 32,335     |   |   |   | — |   |   |
| Issuance of shares for stock option exercises                              |       |                                                                                                     | 5,813      |   |   |   | — |   |   |
| Tax benefit from stock option exercises                                    |       |                                                                                                     | 909        |   |   |   | — |   |   |
| Balance at end of period                                                   |       |                                                                                                     | $          | 423,946 |   |   |   | $ | 383,541 |   |   |
| Retained earnings:                                                         |       |                                                                                                     |       |   |   |   |   |   |   |
| Balance at beginning of period                                             |       |                                                                                                     | $          | 90,955 |   |   |   | $ | 161,515 |   |   |
| Net income (loss)                                                          |       |                                                                                                     | 67,744     |   |   |   | (54,448 | ) |   |
| Balance at end of period                                                   |       |                                                                                                     | $          | 158,699 |   |   |   | $ | 107,067 |   |   |
| Accumulated other  comprehensive loss:                                     |       |                                                                                                     |       |   |   |   |   |   |   |
| Balance at beginning of period                                             |       |                                                                                                     | $          | (7,533 | ) |   |   | $ | (14,915 | ) |   |
| Other comprehensive income (loss)                                          |       |                                                                                                     | (2,626     | ) |   |   | 6,867 |   |   |
| Balance at end of period                                                   |       |                                                                                                     | $          | (10,159 | ) |   |   | $ | (8,048 | ) |   |
| Treasury stock, at  cost:                                                  |       |                                                                                                     |       |   |   |   |   |   |   |
| Balance at beginning of period                                             |       |                                                                                                     | $          | (13,224 | ) |   |   | $ | (13,224 | ) |   |
| Value of shares received from Furukawa in OFS  BrightWave, LLC transaction |       |                                                                                                     | (132,311   | ) |   |   | — |   |   |
| Balance at end of period                                                   |       |                                                                                                     | $          | (145,535 | ) |   |   | $ | (13,224 | ) |   |
| Total stockholders’  equity                                           |       |                                                                                                     | $          | 427,592 |   |   |   | $ | 469,954 |   |   |

 
| ** **                                                                                          | ** ** | **Three Months Ended  June 30,**                                  | ** ** | **Six Months Ended  June 30,**                                    | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                                          | ** ** | **      2004      ** | ** ** | **      2003      ** | ** ** | **      2004      ** | ** ** | **      2003      ** | ** ** |
| Comprehensive  income (loss):                                                                       |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                   |       |                                                                             | $          | 84,114                                                                           |       |   |   | $ | (51,375 | ) |   |   | $ | 67,744 |   |   |   | $ | (54,448 | ) |   |
| Other  comprehensive income (loss), net of tax:                                                     |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation gain (loss)—foreign  subsidiaries                                 |       |                                                                             | 816        |                                                                             |       |   | (552 | ) |   |   | 780 |   |   |   | (621 | ) |   |
| Foreign currency transaction gain (loss) on long-term  intercompany loans—foreign subsidiaries |       |                                                                             | (2,247     | )                                                                                |       |   | 6,953 |   |   |   | (3,409 | ) |   |   | 9,149 |   |   |
| Gain (loss) on derivative financial instrument  designated as a net investment hedge                |       |                                                                             | (115       | )                                                                                |       |   | (850 | ) |   |   | 3 |   |   |   | (1,661 | ) |   |
| Total other comprehensive income (loss), net of tax                                                 |       |                                                                             | (1,546     | )                                                                                |       |   | 5,551 |   |   |   | (2,626 | ) |   |   | 6,867 |   |   |
| Total  comprehensive income (loss)                                                                  |       |                                                                             | $          | 82,568                                                                           |       |   |   | $ | (45,824 | ) |   |   | $ | 65,118 |   |   |   | $ | (47,581 | ) |   |

 

See notes to condensed consolidated financial statements.

6

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

**1.**   BACKGROUND AND BASIS OF PRESENTATION

**Background**

CommScope, Inc.(“CommScope” or the “Company”), through its wholly owned subsidiaries, operatesin the cable and structured cabling systems manufacturing business, withmanufacturing facilities located in the United States, Europe, Australia, Asiaand Latin America. CommScope, Inc. was incorporated in Delaware in January1997. CommScope is a leading worldwide designer, manufacturer and marketer ofbroadband coaxial cables and other high-performance electronic and fiber opticcable products for cable television, telephony, Internet access, wirelesscommunications and other broadband services. Management believes CommScope isthe world’s largest manufacturer of coaxial cable for hybrid fiber coaxial(HFC) broadband networks. CommScope is also a leading supplier of coaxial,twisted pair, and fiber optic cables for premise wiring (local area networks),wireless and other communication applications. In late 2001, CommScope acquiredan equity interest in an optical fiber and fiber optic cable manufacturingbusiness. In June 2004, CommScope sold its equity interest in this opticalfiber and fiber optic cable manufacturing business (see Note 6). In January2004, CommScope acquired substantially all the assets and assumed certainliabilities of the Connectivity Solutions business (“Connectivity Solutions,”or as operated by the Company, the “Connectivity Solutions segment”) from AvayaInc. (“Avaya”) (see Note 2).

**Basis ofPresentation**

The condensed consolidated balance sheet as of June30, 2004, the condensed consolidated statements of operations, andcomprehensive income (loss) for the three and six month periods ended June 30,2004 and 2003 and the condensed consolidated statements of cash flows andstockholders’ equity for the six months ended June 30, 2004 and 2003 areunaudited and reflect all adjustments of a normal recurring nature which are,in the opinion of management, necessary for a fair presentation of the interimperiod financial statements. The results of operations for the interim periodare not necessarily indicative of the results of operations to be expected forthe full year. 

The unaudited interimcondensed consolidated financial statements of CommScope have been preparedpursuant to the rules and regulations of the Securities and ExchangeCommission. Accordingly, certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted. These interim condensed consolidated financial statementsshould be read in conjunction with the Company’s December 31, 2003 auditedconsolidated financial statements and notes thereto included in the Company’s2003 Annual Report on Form 10-K/A.

**Concentrations ofRisk**

Net sales to Anixter Corporation (“Anixter”) and itsaffiliates accounted for 32.9% and 31.4% of the Company’s total net salesduring the three and six month periods ended June 30, 2004, respectively. Salesto Anixter were primarily made from the Company’s Connectivity Solutionssegment. No other customer accounted for 10% or more of the Company’s total netsales for the three and six month periods ended June 30, 2004.

7

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

Accounts receivable fromAnixter and its affiliates represented approximately 29.3% of net accountsreceivable as of June 30, 2004. No other customer accounted for 10% or more ofthe Company’s net accounts receivable as of June 30, 2004.

**Product Warranties**

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

Prior to the acquisition of Connectivity Solutions asof January 31, 2004, the Company’s product warranty liability and the relatedactivity was insignificant to the financial position and results of operationsof the Company. However, the acquisition of Connectivity Solutions hassignificantly increased the Company’s product warranty exposure and relatedliability.

Activityin the product warranty accrual, included in other accrued liabilities, for thethree and six month periods ended June 30, 2004 consisted of the following:
| ** **                                                                           | ** ** | **Three  Months  Ended  June 30,  2004** | ** ** | **Six  Months  Ended  June 30,  2004** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| Product warranty  accrual, beginning of period                                       |       | $                                             | 8,224      |                                        | $          | 576 |   |
| Product warranty  accrual assumed in the acquisition of Connectivity Solutions  |       | —                                        |       | 8,314                                       |       |
| Provision for  warranty claims                                                       |       | 179                                           |       | 98                                          |       |
| Less: warranty  claims paid                                                          |       | (297                                          | )          | (882                                        | )          |
| Product warranty  accrual, end of period                                             |       | $                                             | 8,106      |                                        | $          | 8,106 |   |

 

8

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

**Stock Options**

The following table illustrates the effect on netincome (loss) and net income (loss) per share as if the Company had applied thefair value recognition provisions of Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” tostock-based employee compensation using the Black-Scholes option-pricing model:
| ** **                                                                                                                            | ** ** | **Three Months  Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2004**                                    | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net  income (loss), as reported                                                                                                       |       | $                                           | 84,114     |                                      | $          | (51,375 | ) | $ | 67,744 |   | $ | (54,448 | ) |
| Total stock-based employee compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | 1,810                                       |       | 1,718                                     |       | 3,448 |   | 3,439 |   |
| Pro forma  net income (loss)                                                                                                          |       | $                                           | 82,304     |                                      | $          | (53,093 | ) | $ | 64,296 |   | $ | (57,887 | ) |
| Net  income (loss) per share:                                                                                                         |       |                                        |       |                                      |       |   |   |   |   |
| Basic—as  reported                                                                                                               |       | $                                           | 1.40       |                                      | $          | (0.87 | ) | $ | 1.12 |   | $ | (0.92 | ) |
| Basic—pro  forma                                                                                                                 |       | $                                           | 1.37       |                                      | $          | (0.90 | ) | $ | 1.06 |   | $ | (0.98 | ) |
| Diluted—as  reported                                                                                                             |       | $                                           | 1.37       |                                      | $          | (0.87 | ) | $ | 1.10 |   | $ | (0.92 | ) |
| Diluted—pro forma                                                                                                                |       | $                                           | 1.35       |                                      | $          | (0.90 | ) | $ | 1.05 |   | $ | (0.98 | ) |

 

**Foreign CurrencyTranslation**

Although the Company primarily bills customers in foreign countries inUS dollars, a portion of these sales was denominated in currencies other thanthe US dollar. In addition, the financial position and results of operations ofmost of the Company’s foreign subsidiaries are measured using the US dollar asthe functional currency; however, certain foreign subsidiaries use their localcurrencies as the functional currency. Revenues and expenses of theselocal-currency-functional subsidiaries have been translated into US dollars ataverage exchange rates prevailing during the period. Assets and liabilities ofthese local-currency-functional subsidiaries have been translated at the ratesof exchange as of the balance sheet date. Net translation gains and losses ofthese local-currency-functional subsidiaries are recorded to accumulated othercomprehensive loss.

**Use of Estimates inthe Preparation of the Financial Statements**

The preparation of the accompanying condensed consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanyingnotes. These estimates and their underlying assumptions form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other objective sources. The Company bases itsestimates on historical experience and on assumptions that are believed to bereasonable under the circumstances and revises its estimates, as appropriate,when events or changes in circumstances indicate that revisions may benecessary. Significant accounting estimates reflected in the Company’sfinancial statements include the allowance for doubtful accounts; inventoryexcess and 

9

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

obsolescencereserves; distributor price protection reserves; reserves for sales returns,discounts, allowances and rebates; reserves for product warranty claims; incometax valuation allowances; impairment reviews for investments, fixed assets,goodwill and other intangibles; pension and postretirement benefit obligations;and the fair values of the assets acquired and liabilities assumed in theacquisition of Connectivity Solutions. Although these estimates are based onmanagement’s knowledge of and experience with past and current events and onmanagement’s assumptions about future events, it is at least reasonablypossible that they may ultimately differ materially from actual results.

**Commitments andContingencies**

CommScope leases certain equipment and facilitiesunder operating leases expiring at various dates, most of which expire prior tothe end of 2012. Future minimum rental payments required under operating leaseswith initial terms of one year or more are: $6.6 million in 2004; $7.4 millionin 2005; $6.0 million in 2006; $5.2 million in 2007; $4.7 million in 2008; and$15.1 million thereafter.

CommScope is either aplaintiff or a defendant in pending legal matters in the normal course ofbusiness; however, management believes none of these legal matters will have amaterially adverse effect on the Company’s financial statements upon finaldisposition. In addition, CommScope is subject to various federal, state, localand foreign laws and regulations governing the use, discharge, disposal andremediation of hazardous materials. Compliance with current laws andregulations has not had, and is not expected to have, a materially adverseeffect on the Company’s financial condition or results of operations.

**Impact of NewlyIssued Accounting Standards**

In April 2003, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 149, “Amendmentof Statement 133 on Derivative Instruments and Hedging Activities.” ThisStatement amends and clarifies financial accounting and reporting forderivative instruments and for hedging activities under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149clarifies the conditions under which a contract with an initial net investmentmeets the characteristic of a derivative; clarifies when a derivative containsa financing component; amends the definition of an underlying to conform it tolanguage used in FASB Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others;” and amends certain other existing pronouncements. ThisStatement is effective for contracts entered into or modified by the Companyafter March 31, 2004 and for hedging relationships designated by the Companyafter March 31, 2004. All provisions of this Statement will be appliedprospectively. The application of this Statement is not expected to have amaterial effect on the Company’s results of operations or financial position.

In December 2003, the FASB issued a revised SFAS No.132, “Employers’ Disclosures about Pensions and Other PostretirementBenefits—an amendment of FASB Statements No. 87, 88, and 106.” This Statementrevises employers’ disclosures about pension plans and other postretirementbenefit plans. It does not change the measurement or recognition of those plansrequired by SFAS No. 87, “Employers’ Accounting for Pensions;” SFAS No. 88,“Employers’ Accounting for Settlements and Curtailments of Defined BenefitPension Plans and for Termination Benefits;” and SFAS No. 106, “Employers’Accounting for Postretirement Benefits Other Than Pensions.” This Statementretains the disclosure requirements contained in SFAS No. 132, “Employers’Disclosures about Pensions and Other 

10

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

Postretirement Benefits,”which it replaces. Additional disclosures have been added including informationdescribing the types of plan assets, investment strategy, measurement dates,plan obligations, cash flows, and components of net periodic benefit costrecognized during interim periods. Except as noted below, this Statement waseffective for the Company as of December 31, 2003. The interim-perioddisclosures were effective for the Company beginning with the interim periodending March 31, 2004. Disclosure of certain information regarding theCompany’s foreign defined benefit plan is effective for the fiscal year endingDecember 31, 2004. Disclosure of the estimated future benefits is also deferreduntil the fiscal year ending December 31, 2004. The Company has adjusted itsquarterly disclosure and will adjust its future annual disclosure in accordancewith this Statement.

In January 2003, the FASB issued InterpretationNo. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,”which is an interpretation of Accounting Research Bulletin No. 51,“Consolidated Financial Statements.” FIN 46 addresses how to identify avariable interest entity and provides guidance on when such an entity should beconsolidated by an enterprise. In December 2003, the FASB issued a revision ofFIN 46 (“FIN 46R”) to clarify some of the provisions of the Interpretation andto exempt certain entities from its requirements. The Company does notcurrently hold an interest in a variable interest entity; thus, the initialapplication of FIN 46 and FIN 46R did not affect the Company’s results ofoperations, financial position or disclosures.

In April 2004, the FASB issued FASB Staff Position(FSP) No. FAS 129-1, “Disclosure Requirements under FASB Statement No. 129,’Disclosure of Information about Capital Structure,’ Relating to ContingentlyConvertible Securities.” This FSP interprets how the disclosure provisions ofStatement 129 apply to contingently convertible securities and to theirpotentially dilutive effects on net income (loss) per share. The guidance inthis FSP was effective immediately and applies to all existing and newlycreated securities. Management believes the Company’s disclosures comply withthe requirements of FSP No. FAS 129-1.

In June 2004, the FASB issued FSP No. FAS 106-2,“Accounting and Disclosure Requirements Related to the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003.” This FSP provides guidance onthe accounting for the effects of the Medicare Prescription Drug, Improvementand Modernization Act of 2003 (the “Act”) for employers that sponsorpostretirement health care plans that provide prescription drug benefits. Itsays that if the benefits provided by a plan are actuarially equivalent toMedicare Part D, measures of the accumulated postretirement benefit obligationand net periodic postretirement benefit cost on or after the date of enactmentshould reflect the effects of the Act. It also requires employers to providecertain disclosures regarding the effect of the federal subsidy provided by theAct. This FSP is effective for the Company for the third quarter endingSeptember 30, 2004. The Company is evaluating the impact of this FSP on itsfinancial statements and disclosures.

In July 2004, the EmergingIssues Task Force (“EITF”) reached a tentative conclusion on Issue No. 04-8,“The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” Iffinalized and ratified by the FASB, Issue No. 04-8 requires issuers ofcontingently convertible securities to include those securities in dilutedearnings per share computations (if dilutive) regardless of whether thecontingency has been met. The consensus reached by the EITF in this Issue iseffective for reporting periods ending after December 15, 2004. Issue No. 04-8also requires prior period diluted earnings per share amounts presented forcomparative purposes to be restated to conform to this consensus. If finalizedand ratified by the FASB, the Company believes that application of theconsensus in this Issue could have a material 

11

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

effecton its diluted earnings per share in periods subsequent to the issuance of theCompany’s 1% convertible debentures (see Note 4).

**2.**   ACQUISITIONOF CONNECTIVITY SOLUTIONS

Effective January 31, 2004, CommScope completed theacquisition of substantially all of the assets and assumed certain liabilitiesof Connectivity Solutions. The total purchase price consisted of $250 millionin cash, subject to post-closing adjustments and the closing of the acquisitionof certain international operations, and approximately 1.8 million shares ofCommScope common stock. These shares were valued at $32.4 million on theclosing date, based on the five-day average market price of CommScope’s commonstock beginning on the second trading day prior to the closing date and endingon the third trading day after the closing date, which was reduced by a $0.5million accrual for estimated registration costs. CommScope assumed certaincurrent liabilities and up to $65 million of other specified liabilities,primarily related to employee benefits. The cash portion of the purchase priceconsisted of $150 million from CommScope’s existing cash balances and $100million from borrowing under a new 5-year, $185 million senior secured creditfacility. The Company is currently preparing to seek third party resolutionconcerning the amount of post-closing adjustments to the purchase price, inaccordance with the terms of the Asset Purchase Agreement. Final resolution of this matter may result in an adjustmentto the amounts recorded in connection with the Connectivity Solutionsacquisition. However, management does not currently believe that suchadjustments, if any, will have a material effect on the Company's financialposition or results of operations.

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

12

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

TheCompany has prepared a preliminary estimate of the fair values assigned to eachmajor asset and liability caption of Connectivity Solutions as of the January31, 2004 closing date. This preliminary estimate reflects a purchase priceallocation based on preliminary estimates of the fair values of certain assetsand liabilities. These values are subject to change until certain third party valuationshave been finalized and changes in these values could have a material impact onthe purchase price allocation and the resultant amounts of the assets andliabilities disclosed below.
| ** **                                      | ** ** | **As of  January 31,  2004** | ** ** |
|-------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                      | ** ** | **(In millions)**                 | ** ** |
| Accounts receivable                             |       |                                   | $          | 46.7 |   |   |
| Inventories                                     |       |                                   | 112.0      |   |   |
| Other current  assets                           |       |                                   | 1.4        |   |   |
| Property, plant  and equipment                  |       |                                   | 183.4      |   |   |
| Other intangible  assets                        |       |                                   | 91.5       |   |   |
| Other noncurrent  assets                        |       |                                   | 0.1        |   |   |
| Total assets                                    |       |                                   | $          | 435.1 |   |   |
| Accounts payable                                |       |                                   | $          | 32.1 |   |   |
| Employee benefit  liabilities                   |       |                                   | 12.5       |   |   |
| Other current  liabilities                      |       |                                   | 36.9       |   |   |
| Pension and  postretirement benefit liabilities |       |                                   | 60.7       |   |   |
| Other noncurrent  liabilities                   |       |                                   | 3.5        |   |   |
| Total liabilities                               |       |                                   | $          | 145.7 |   |   |

 

Differences between the amounts reflected above andthe amounts disclosed in the Company’s 2003 annual report on Form 10-K/A aredue to updated information about certain estimates obtained by managementsubsequent to the filing of such Form 10-K/A. Differences in the amount ofproperty, plant and equipment and other intangible assets included in thisquarterly report on Form 10-Q and the amounts disclosed in the Company’squarterly report on Form 10-Q for the period ended March 31, 2004 are due to achange in accounting estimate primarily arising from the availability of newinformation. The effect of this change in accounting estimate on the condensedconsolidated financial statements for the three and six month periods endedJune 30, 2004 was not material.

The values of property, plant and equipment and otherintangible assets reflected above have been adjusted for the pro rataallocation of the excess of the fair value of acquired net assets over the costof the acquisition of Connectivity Solutions. This excess was allocated to thenoncurrent assets acquired based on their relative fair values. Furtheradjustments to the preliminary estimate may affect the calculation of theexcess of the fair value of acquired net assets over cost and therefore affectthe allocation of this excess to the noncurrent assets acquired. Adjustments tothis allocation will affect amounts recognized for depreciation andamortization expense and will be disclosed in the period recognized as a changein estimate.

13

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

Otherintangible assets reflected above were determined by management to meet thecriterion for recognition apart from goodwill and include the following:
| ** **                                 | ** ** | **Estimated Fair  Value** | ** ** | **Amortization  Period** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **(In millions)**         | ** ** | **(in years)**      | ** ** |
| Developed technologies (for internal use)  |       |                           | $          | 30.5                     |       |   |   | 9.0 |   |   |
| Developed  technologies (for external use) |       |                           | 17.8       |                     |       |   | 14.0 |   |   |
| Customer base                              |       |                           | 12.6       |                     |       |   | 9.0 |   |   |
| Favorable  contracts                       |       |                           | 9.6        |                     |       |   | 3.0 |   |   |
| Other                                      |       |                           | 4.0        |                     |       |   | 3.0 |   |   |
| Total amortizable intangible assets        |       |                           | $          | 74.5                     |       |   |   |   |   |   |
| Trademarks                                 |       |                           | 13.1       |                     |       |   |   |   |   |
| In-process  research and development       |       |                           | 3.9        |                     |       |   |   |   |   |
| Total intangible assets                    |       |                           | $          | 91.5                     |       |   |   |   |   |   |
| Weighted average  amortization period      |       |                           |       |                     |       |   | 6.8 |   |   |

 

Trademarks have been determined by management to haveindefinite lives and will not be amortized, based on management’s expectationthat the trademarked products will generate cash flows for the Company for anindefinite period. Management expects to maintain usage of trademarks onexisting products and introduce new products in the future that will alsodisplay the trademarks, thus extending their lives indefinitely.

In-process research and development assets werewritten off and reflected in the Company’s statement of operations asin-process research and development charges during the first quarter of 2004. Managementbelieved that the assets under development had no alternative future use as ofthe date of the third party valuation of this intangible asset, resulting inits immediate write-off.

The amortizable intangible assets reflected in thetable above were determined by management to have finite lives. The useful lifefor the developed technologies (for internal use) intangible asset was based onreview of historical lives of similar products, in conjunction withtechnology-specific factors and anticipated future trends in the industry. Theuseful life for the developed technologies (for external use) intangible assetwas based on the remaining lives of the related patents. The useful life for thecustomer base intangible asset was based on management’s forecasts of customerturnover. The useful life for the favorable contracts intangible asset wasbased on the remaining terms of the contracts. The useful life of the otherintangible assets was based on management’s estimate of the remaining usefullife. Management’s estimate was based on the age of the underlying assets andreview of historical lives of similar products.

These amortizable intangible assets will be amortizedover their remaining useful lives on a straight-line basis. Annual amortizationexpense for these intangible assets is expected to be $9.7 million in 2004,$10.5 million in 2005 and 2006, $6.1 million in 2007 and 2008 and $30.6 millionthereafter.

CommScope’sconsolidated results of operations for the three and six month periods endedJune 30, 2004 include the results of operations of the Connectivity Solutionssegment for the three month period 

14

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

ended June 30, 2004 and the five-month period fromFebruary 1, 2004 through June 30, 2004, respectively. The following tableincludes the actual consolidated results of operations for CommScope for thethree months ended June 30, 2004. In addition, the table presents pro formaconsolidated results of operations for CommScope for the three months endedJune 30, 2003, and the six month periods ended June 30, 2004 and 2003, asthough the acquisition of Connectivity Solutions had been completed as of thebeginning of each period. This pro forma information is intended to provideinformation regarding how CommScope might have looked if the acquisition hadoccurred as of the dates indicated. The amounts for the Connectivity Solutionsbusiness of Avaya included in this pro forma information for the three monthsended June 30, 2003 and the month of January 2004 are based on the historicalresults of the Connectivity Solutions business as a division of Avaya, however,and therefore may not be indicative of the actual results of the ConnectivitySolutions segment when operated as part of CommScope. Moreover, the pro formainformation does not reflect all of the changes that may result from theacquisition, including, but not limited to, challenges of transition,integration and restructuring associated with the transaction; challenges ofachieving anticipated synergies; ability to retain qualified employees andexisting business alliances; maintaining satisfactory relationships withrepresented employees; and customer demand for Connectivity Solutions segmentproducts. The pro forma adjustments represent management’s best estimates basedon information available at the time the pro forma information was prepared andmay differ from the adjustments that may actually be required. Accordingly, thepro forma financial information should not be relied upon as being indicativeof the historical results that would have been realized had the acquisitionoccurred as of the dates indicated or that may be achieved in the future.
| ** **                                      | ** ** | **Actual**                                  | ** ** | **Pro Forma**                          | ** ** | **Pro Forma**                        | ** ** |
|-------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                      | ** ** | **Three Months  Ended  June 30,** | ** ** | **Three Months  Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
| ** **                                      | ** ** | **2004**                                    | ** ** | **2003**                                    | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
| Revenue                                         |       |                                        | $          | 312,949                                     |       |                                      |       | $ | 278,765 |   |   | $ | 573,720 |   | $ | 535,433 |   |
| Net income (loss)                               |       |                                        | 84,114     |                                        |       |                                      | (51,345    | ) |   | 61,061 |   | (53,002 | ) |
| Net income (loss) per  share, assuming dilution |       |                                        | 1.37       |                                        |       |                                      | (0.84      | ) |   | 0.99 |   | (0.87 | ) |
|                                                 |            |                                             |            |                                             |            |                                           |            |  |  |  |  |  |  |  |  |  |  |

 

These pro forma results reflect the elimination ofintercompany sales during each period and immaterial pro forma adjustments forinterest expense, depreciation, amortization and related income taxes. Thesepro forma results also include $11.1 million and $24.5 million of corporateoverhead costs allocated by Avaya to the Connectivity Solutions business duringthe three and six month periods ended June 30, 2003, respectively. The proforma results for the six month period ended June 30, 2004 include an estimateof $4.0 million for corporate overhead costs that would have been allocated byAvaya to the Connectivity Solutions business during January 2004. During thethree month period ended June 30, 2004 and the five month period from February1, 2004 through June 30, 2004, CommScope incurred corporate overhead costs ofapproximately $2.1 million and $3.4 million, respectively, on behalf of theConnectivity Solutions segment. Certain overhead costs previously incurred onbehalf of and allocated to the Connectivity Solutions business by Avaya are nowbeing incurred directly by the Connectivity Solutions segment.

15

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

Netincome and net income per share for the three and six month periods ended June30, 2004 include certain material charges incurred during the periods, aslisted below on a pretax basis:
| ** **                                                       | ** ** | **Three  Months  Ended  June 30,  2004** | ** ** | **Six  Months  Ended  June 30,  2004** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| Impact of  inventory purchase accounting adjustments             |       | $                                             | 1,311      |                                        | $          | 14,628 |   |
| Acquisition-related in-process research and  development charges |       | —                                        |       | 3,894                                       |       |
| Acquisition-related transition and startup costs                 |       | 1,242                                         |       | 7,981                                       |       |
| Loss on early extinguishment of debt                             |       | —                                        |       | 5,029                                       |       |
|                                                                  |            |                                               |            |                                             |            |  |  |

 

**3.   INVENTORIES**
| ** **      | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------------|------------|
| Raw materials   |       | $                       | 38,860     |                        |       | $ | 10,285 |   |   |
| Work in process |       | 16,489                  |       |                        | 9,708      |   |   |
| Finished goods  |       | 48,649                  |       |                        | 12,730     |   |   |
|            |       | $                       | 103,998    |                        |       | $ | 32,723 |   |   |

 

**4.   LONG-TERM DEBT**
| ** **                 | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|----------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Senior Secured Term Loan   |       | $                       | 67,500     |                        |       | $ | — |   |   |
| 1% Convertible  Debentures |       | 250,000                 |       |                        | —     |   |   |
| 4% Convertible  Notes      |       | —                  |       |                        | 172,500    |   |   |
| IDA Notes                  |       | 10,800                  |       |                        | 10,800     |   |   |
|                       |       | 328,300                 |       |                        | 183,300    |   |   |
| Less: current  portion     |       | (22,000                 | )          |                        | —     |   |   |
|                       |       | $                       | 306,300    |                        |       | $ | 183,300 |   |   |

 

The Company entered into a new 5-year, $185 millionsenior secured credit facility on January 31, 2004, in connection with itsacquisition of Connectivity Solutions from Avaya. The new credit facility,which amended and restated CommScope’s previous credit facility, is comprisedof a $75 million term loan and a $110 million revolving credit facility. Thesenior secured credit facility is secured by substantially all of the Company’sassets, is guaranteed by all of the Company’s material domestic subsidiariesand contains certain financial and restrictive covenants. The term loanfacility is required to be repaid by CommScope in consecutive quarterlyinstallments of $3.75 million from March 31, 2004 to September 30, 2004, $11.75million on December 31, 2004 and $3.25 million on each quarterly payment datethereafter with a final payment of all outstanding principal and interest atmaturity on December 31, 2008. In connection with this senior secured creditfacility, the Company incurred costs of approximately $4.6 million, which werecapitalized as other assets and are being amortized over the term of thefacility. The interest rate on the 

16

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

$75 million term loanfacility is, at CommScope’s option, either the Eurodollar rate plus 2.250% to3.250%, or the Base Rate, defined as the higher of Prime Rate or Federal FundsRate plus 0.500%, plus 0.750% to 1.750%, in each case based on the Company’sfixed charge coverage ratio. The interest rate on the $110 million seniorsecured revolving credit facility is, at CommScope’s option, the LondonInterbank Offered Rate plus 2.00% to 3.00% or the Base Rate plus 0.500% to1.500%, in each case based on the Company’s fixed charge coverage ratio. As ofJune 30, 2004, the Company had availability of approximately $67 million and nooutstanding borrowings under this senior secured revolving credit facility. Thefacility contains certain restrictive covenants, including restrictions onincurring other indebtedness, entering into transactions to acquire or mergewith any entity, making other fundamental changes, selling assets and payingdividends, among other things. The Company is also required to comply withcertain financial covenants, as defined, including a fixed charge coverageratio, a funded senior debt to EBITDA ratio, a maximum annual capital expenditurescovenant and a covenant requiring minimum ongoing excess borrowing availabilityof $10 million. Management believes the Company was in compliance with all ofits covenants under this facility as of June 30, 2004.

In March 2004, the Company issued $250 millionaggregate principal amount of 1% convertible senior subordinated debentures dueMarch 15, 2024. The proceeds from these debentures were used primarily toextinguish the Company’s outstanding 4% convertible subordinated notes dueDecember 15, 2006, to repay outstanding borrowings under the Company’srevolving credit facility, and for general corporate purposes. The Companyrepurchased $102.9 million of its 4% convertible subordinated notes duringMarch 2004, and redeemed the remaining $69.6 million of these notes in April2004. The repurchase and redemption of these 4% convertible notes resulted in a$5.0 million pretax loss on the early extinguishment of debt during the firstquarter of 2004. The Company also repaid $25 million of borrowings under itssenior secured revolving credit facility in March 2004. In connection with theissuance of the debentures, the Company incurred costs of approximately $6.8million, which were capitalized as other assets and are being amortized over aperiod of five years, representing the period through the date on which thedebenture holders may first require the Company to repurchase the debentures.

The Company may redeem some or all of these debenturesat any time on or after March 20, 2009 at a redemption price equal to 100% ofthe principal amount of the debentures, plus accrued interest. Additionally,holders of these 1% convertible senior subordinated debentures may require theCompany to repurchase all or any portion of their debentures for cash on March20, 2009, March 15, 2014 and March 15, 2019 at a price equal to 100% of theprincipal amount of debentures to be repurchased, plus accrued interest.

These debentures are convertible into shares ofCommScope common stock in the following circumstances: during any fiscalquarter commencing after June 30, 2004, (1) if the closing price of CommScopecommon stock exceeds 120% of the conversion price then in effect for at leasttwenty trading days in the thirty consecutive trading day period ending on thelast trading day of the immediately preceding fiscal quarter; (2) subject tocertain exceptions, during the five business days after any five consecutivetrading day period in which the trading price per $1,000 principal amount ofthe debentures for each day of such period was less than 98% of the product ofthe closing sale price of CommScope common stock and the number of sharesissuable upon conversion of $1,000 principal amount of the debentures; (3) ifthe debentures have been called for redemption; or (4) upon the occurrence ofcertain corporate transactions.

17

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

The current conversion rate of these debentures is45.9770 shares per $1,000 principal amount of debentures, representing aconversion price of $21.75 per share. The conversion rate is subject toadjustment, without duplication, upon the occurrence of any of the followingevents, as more fully explained in the Indenture: (1) payment or issuance ofcommon stock as a dividend or distribution on the Company’s common stock; (2)the issuance to all holders of common stock of rights, warrants or options topurchase the Company’s common stock for a period expiring within 45 days of therecord date for such distribution at a price less than the average of theclosing sale prices for the 10 trading days preceding the declaration date forsuch distribution; (3) subdivisions, splits or combinations of the Company’scommon stock; (4) distributions by the Company to all holders of the Company’scommon stock of shares of the Company’s capital stock, evidences of indebtedness,property or assets, including rights, warrants, options and other securitiesbut excluding dividends or distributions covered by clauses (1) or (2) above orany dividend or distribution paid exclusively in cash; provided that in theevent that the Company distributes capital stock of, or similar equityinterests in, a subsidiary or other business unit of the Company, then theconversion rate will be adjusted based on the market value of the securities sodistributed relative to the market value of the Company’s common stock, in eachcase based on the average closing sales prices of those securities (where suchclosing prices are available) for the 10 trading days commencing on andincluding the fifth trading day after the date on which “ex-dividend trading”commences for such distribution on the New York Stock Exchange or such otherprincipal national or regional exchange or market on which the securities arethen listed or quoted or in the absence of such a quotation, a closing saleprice determined by the Company on a basis it considers appropriate; (5) thepayment of cash as a dividend or distribution on the Company’s common stock,excluding any dividend or distribution in connection with the Company’sliquidation, dissolution or winding up; or (6) the Company or any of itssubsidiaries makes a payment in respect of a tender offer or exchange offer forthe Company’s common stock to the extent that the cash and value of any otherconsideration included in the payment per share of the Company’s common stockexceeds the closing sale price per share of the Company’s common stock on thetrading day next succeeding the last date on which tenders or exchanges may bemade pursuant to such tender or exchange offer.

To the extent that the Company’s shareholder rightsagreement dated June 12, 1997, as amended, or any future rights plan adopted bythe Company is in effect upon conversion of the debentures into common stock,holders of the debentures will receive, in addition to the common stock, therights under the rights plan unless the rights have separated from the commonstock at the time of conversion, in which case the conversion rate will beadjusted as if the Company distributed to all holders of its common stock,shares of its capital stock, evidences of indebtedness, property or assets asdescribed in clause (4) above, subject to readjustment in the event of theexpiration, termination or redemption of such rights.

In the event of (1) any reclassification of theCompany’s common stock; (2) a consolidation, merger or binding share exchangeinvolving the Company; or (3) a sale or conveyance to another person or entityof all or substantially all of the Company’s property and assets, in whichholders of the Company’s common stock would be entitled to receive stock, othersecurities, other property, assets or cash for their common stock, uponconversion holders of the debentures will be entitled to receive the same typeof consideration that they would have been entitled to receive if they hadconverted the debentures into the Company’s common stock immediately prior toany of these events.

18

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

The Company may, from timeto time, increase the conversion rate if the Company’s board of directors hasmade a determination that this increase would be in the Company’s bestinterests. In addition, the Company may increase the conversion rate if the Company’sboard of directors deems it advisable to avoid or diminish any income tax toholders of common stock resulting from any stock or rights distribution.

**5.**   NETINCOME (LOSS) PER SHARE

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

On December 15, 1999, the Company issued $172.5million aggregate principal amount of convertible notes, which were convertibleinto shares of common stock at a conversion rate of 20.7512 shares per $1,000principal amount. The effect of the assumed conversion of these notes wasexcluded from the calculation of net loss per share, assuming dilution, for thethree and six month periods ended June 30, 2003 because it would have beenantidilutive in all periods. The Company repurchased $102.9 million of thesenotes during March 2004, and redeemed the remaining $69.6 million of thesenotes in April 2004. 

In March 2004, the Company issued $250 millionaggregate principal amount of 1% convertible senior subordinated debentures,which are convertible into shares of common stock at a conversion rate of45.9770 shares per $1,000 principal amount representing a conversion price of$21.75 per share. These debentures are convertible into shares of CommScopecommon stock under specific circumstances as described in Note 4. The effect ofthe assumed conversion of these debentures was excluded from the calculation ofnet income (loss) per share, assuming dilution, for the three and six month periodsended June 30, 2004 because the conversion contingencies were not metduring such periods. See Note 1 for discussion of EITF Issue No 04-8, relatedto the effect of contingently convertible debt on diluted earnings per share.

19

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

Belowis a reconciliation of weighted average common shares outstanding for basic netincome (loss) per share to weighted average common and potential common sharesoutstanding for diluted net income (loss) per share. 
| ** **                                                                                                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                          | ** ** | **2004**                                        | ** ** | **2003**                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Numerator:**                                                                                                      |       |                                            |       |                                          |       |   |   |   |   |
| Net income (loss) for basic and diluted net income  (loss) per share                                                |       | $84,114                                         |       | $(51,375                                      | )          | $67,744 |   | $(54,448 | ) |
| **Denominator:**                                                                                                    |       |                                            |       |                                          |       |   |   |   |   |
| Weighted average  number of common shares outstanding for basic net income (loss) per share                         |       | 60,193                                          |       | 59,220                                        |       | 60,436 |   | 59,220 |   |
| Effect of  dilutive employee stock options(A)                                                                       |       | 1,301                                           |       | —                                        |       | 1,355 |   | — |   |
| Weighted average number  of common and potential common shares outstanding for diluted net income  (loss) per share |       | 61,494                                          |       | 59,220                                        |       | 61,791 |   | 59,220 |   |

----

(A)       Optionsto purchase approximately 661 thousand common shares were excluded from thecomputation of net income per share, assuming dilution, for the three and sixmonth periods ended June 30, 2004, respectively, because they would havebeen antidilutive in both periods. Options to purchase approximately 6 millioncommon shares were excluded from the computation of net loss per share,assuming dilution, for the three and six month periods ended June 30, 2003because they would have been antidilutive in both periods.

**6.   OFSBRIGHTWAVE, LLC**

Effective November 16, 2001, CommScope acquiredan approximate 18.4% ownership interest in OFS BrightWave, LLC (“OFS BrightWave”),an optical fiber and fiber cable venture between CommScope and The FurukawaElectric Co., Ltd. of Japan (“Furukawa”). During the three months ended March 31,2004, OFS BrightWave began to move certain cable production from the Norcrossfacility to the Carrollton facility. Effective April 1, 2004, Furukawacontributed its investment in the Carrollton facility to OFS BrightWave. BecauseCommScope did not elect to make further corresponding investments in OFSBrightWave, this additional investment in OFS BrightWave by Furukawa reducedCommScope’s ownership percentage in OFS BrightWave from 18.4% to 9.4%,effective April 1, 2004.

Primarily as a result of the continuing weakness inthe global fiber optic cable market and Furukawa’s continuing efforts torestructure its OFS operations, the Company agreed with Furukawa to furtheramend their existing contractual arrangements in the second quarter of 2004 forthe mutual benefit of both companies. On June 11, 2004, CommScope assignedall of its rights and duties under its contractual arrangements with Furukawato its wholly-owned subsidiary, CommScope Optical Technologies, Inc. (“CommScopeOptical”). On June 14, 2004, CommScope Optical and Furukawa changed theperiod in which CommScope Optical could exercise its contractual right to sellits ownership interest in OFS 

20

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

BrightWave to Furukawafrom 2006 to any time on or after June 14, 2004 and changed the exerciseprice from $173.4 million in cash to the approximately 7.7 million shares ofCommScope common stock owned by Furukawa. On June 14, 2004, CommScopeOptical exercised its contractual right to sell and sold its 9.4% ownershipinterest in OFS BrightWave to Furukawa in exchange for delivery by Furukawa ofthe approximately 7.7 million shares of CommScope common stock owned byFurukawa, which were valued at $132.3 million as of the transaction date. CommScopecurrently holds these shares as treasury stock.

As a result of this transaction, CommScope no longerowns any equity interest in OFS BrightWave. However, CommScope maintained itsstrategic relationship with Furukawa by entering into a new four-year opticalfiber supply agreement with OFS Fitel, LLC (“Fitel”), a wholly-owned, indirectsubsidiary of Furukawa, replacing the existing supply agreement with Fitel thatwas scheduled to expire in November 2004. Through this supply agreement,CommScope continues to have access to a broad array of technologically advancedoptical fibers as well as a cross license arrangement for key intellectualproperty.

This transaction does not affect CommScope’s right toreceive full payment from OFS BrightWave under the $30 million revolving notedue in 2006, based on its original terms. The carrying value of this note wasreduced to approximately $11.1 million as of June 14, 2004 as a result ofCommScope recording its equity in losses of OFS BrightWave under equity methodaccounting rules, which require accounting for an advance to an equity methodinvestee in the same manner as the investment, once the carrying value of theinvestment has been reduced to zero. Primarily due to market conditions foroptical fiber and because CommScope will no longer have an equity ownershipinterest in OFS BrightWave, CommScope determined that there was another-than-temporary impairment in the carrying value of this asset as of thetransaction date. Accordingly, a pretax impairment charge of $11.1 million wasrecognized as a reduction of the gain on the OFS BrightWave transaction duringthe quarter ended June 30, 2004.

The OFS BrightWave transaction resulted in a netpretax gain in the amount of $121.3 million, or $1.24 per diluted share, net oftax, during the second quarter of 2004. This gain represents (1) the fairvalue of the common stock received by CommScope in exchange for CommScope’stransfer of its ownership interest in OFS BrightWave to Furukawa, plus (2) therealized gain from CommScope’s cumulative equity method share of OFS BrightWave’sunrealized foreign currency translation gains previously recorded inaccumulated other comprehensive loss, less (3) the impairment chargerelated to the $30 million note receivable from OFS BrightWave. The after-taxnet gain is reflected in the Company’s statement of operations after income(loss) before equity in losses of OFS BrightWave, LLC and net gain on OFSBrightWave, LLC transaction. The income tax impact of this gain enables theCompany to realize its deferred tax asset related to the Company’s share of thecumulative financial statement net losses of OFS BrightWave. In addition, this transactioncreates a capital gain for tax purposes, which allows the Company to deduct acapital loss related to the 2001 impairment of an investment, creating acurrent tax benefit of $1.4 million from this capital loss deduction.

CommScope’s portion of the losses of OFS BrightWavefor the period from April 1, 2004 through June 14, 2004, the periodfrom January 1, 2004 through June 14, 2004 and the three and sixmonth periods ended June 30, 2003 have been included in the condensedconsolidated financial statements of CommScope for the respective periods. Theseresults are net of elimination of intercompany profit related to interestpayments received from OFS BrightWave under the $30 million revolving note. Theelimination of intercompany profit, net of tax, was $14 for the period from April 1,2004 through June 14, 2004 and $27 for the three month period ended June 30,2003. The elimination of intercompany profit, net of tax, was 

21

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

$30 for the period from January 1,2004 through June 14, 2004 and $54 for the six month period ended June 30,2003.

Thefollowing table provides summary financial information for OFS BrightWave forthe period from April 1, 2004 through June 14, 2004, the period from January 1,2004 through June 14, 2004 and the three and six month periods ended June 30,2003:
| ** **   | ** ** | **Period from  April 1  through  June 14,  2004** | ** ** | **Three  Months  Ended  June 30,  2003** | ** ** | **Period from  January 1  through  June 14,  2004** | ** ** | **Six  Months  Ended  June 30,  2003** | ** ** |
|--------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------|------------|
| Net revenues |       |                                                             | $          | 19,975                                        |       |                                                               | $          | 21,781                                      |       |   | $ | 40,497 |   |   | $ | 50,046 |   |
| Gross profit |       |                                                             | (2,771     | )                                             |       | (41,839                                                            | )          |                                        | (8,612     | ) |   | (62,392 | ) |
| Net loss     |       |                                                             | (8,904     | )                                             |       | (292,553                                                           | )          |                                        | (20,860    | ) |   | (325,357 | ) |
|              |            |                                                                  |            |                                               |            |                                                                    |            |                                             |            |  |  |  |  |  |  |  |  |

 

**7.   INCOME TAXES RELATED TO OTHER COMPREHENSIVEINCOME/LOSS**
| ** **                                                                       | ** ** | **Three Months  Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                       | ** ** | ** 2004 **                        | ** ** | **2003**                                  | ** ** | ** 2004 ** | ** ** | **2003** | ** ** |
| Income tax  benefit (expense) for components of other comprehensive income/loss: |       |                                        |       |                                      |       |   |   |   |   |   |   |   |   |
| Gain/loss on  derivative instrument designated as a net investment hedge         |       |                                        | $68        |                                      |       | $499 |   |   | $(2 | ) |   | $976 |   |

 

**8.   DERIVATIVESAND HEDGING ACTIVITIES**

As of June 30, 2004 and 2003 the only derivativefinancial instrument outstanding was a cross currency swap, which wasdesignated and documented at inception, and quarterly thereafter, as a netinvestment hedge of a portion of the Company’s net investment in its Belgiansubsidiary. The original notional amount of this derivative financialinstrument, which is a cross currency swap of US dollars for euros, was $20million at inception of the hedging relationship and as of June 30, 2003. TheCompany amended this agreement in October 2003 to reduce the notionalamount to $14 million. No cash was required to effect this amendment; thechange in the notional amount was offset by an adjustment in the exchange rateunderlying the swap. The amended hedging instrument was effective as of theamendment date and as of June 30, 2004, and is expected to continue to beeffective for the duration of the agreement, resulting in no anticipated hedgeineffectiveness. The original hedging instrument was effective as of theinception date and as of June 30, 2003. The fair value of the amendedderivative instrument, reflected in other noncurrent liabilities, wasapproximately $5.9 million and $6.0 million as of June 30, 2004 and December 31,2003, respectively.

There were no material reclassifications from othercomprehensive income (loss) to earnings during the three and six month periodsended June 30, 2004 and 2003.

22

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

Activityin the accumulated net loss on derivative instruments included in accumulatedother comprehensive loss for the three and six month periods ended June 30,2004 and 2003 consisted of the following:
| ** **                                                                               | ** ** | **Three Months  Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                               | ** ** | **2004**                                    | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Accumulated net  loss on derivative instruments, beginning of period                     |       | $(3,863                                     | )          | $(1,613                                   | )          | $(3,981 | ) | $(802 | ) |
| Net gain (loss)  on derivative financial instrument designated as a net investment hedge |       | (115                                        | )          | (850                                      | )          | 3 |   | (1,661 | ) |
| Accumulated net loss on  derivative instruments, end of period                           |       | $(3,978                                     | )          | $(2,463                                   | )          | $(3,978 | ) | $(2,463 | ) |

 

**9.   SUPPLEMENTAL CASH FLOW INFORMATION**
| ** **                                                                                                                                                                       | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **2004**                                      | ** ** | **2003** | ** ** |
| Cash paid during the  period for:                                                                                                                                                |       |                                          |       |   |   |
| Income taxes                                                                                                                                                                     |       | $                                             | 99         |   | $ | 355 |   |
| Interest (net of capitalized amounts)                                                                                                                                            |       | 3,557                                         |       | 3,716 |   |
| Noncash investing  and financing activities:                                                                                                                                     |       |                                          |       |   |   |
| Fair value of  CommScope, Inc. common stock received from Furukawa in exchange for  CommScope Optical’s transfer of its investment in OFS BrightWave, LLC to  Furukawa |       | $                                             | 132,311    |   | — |   |
|                                                                                                                                                                                  |            |                                               |            |  |  |  |  |

 

**10.   SEGMENTS**

During the three and sixmonth periods ended June 30, 2004, the Company’s management evaluated theresults of operations in two reportable segments: the Cable segment, which isCommScope’s legacy cable business, and the Connectivity Solutions segment,which is the acquisition that was completed as of January 31, 2004. As theCompany continues to integrate the Connectivity Solutions segment into itsglobal operations and financial reporting systems, the Company’s managementexpects to reorganize its internal reporting, which may require reporting ofits results in more or different reportable segments in future periods.

Thefollowing tables provide summary financial information for these two reportablesegments as of June 30, 2004 and for the three and six month periods endedJune 30, 2004 and 2003:
| ** **                     | ** ** | **As of  June 30,  2004** | ** ** |
|--------------------------------|------------|-------------------------------------|------------|
| Total assets                   |       |                                |       |
| Cable segment                  |       | $                                   | 547,932    |   |
| Connectivity Solutions segment |       | 499,619                             |       |
| Consolidated  total assets     |       | $                                   | 1,047,551  |   |

 

23

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

 
| ** **                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                            | ** ** | **2004**                                        | ** ** | **2003**                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net sales:                            |       |                                            |       |                                          |       |   |   |   |   |
| Cable segment                         |       | $                                               | 169,510    |                                          | $          | 141,422 |   | $ | 305,325 |   | $ | 270,790 |   |
| Connectivity Solutions segment        |       | 150,707                                         |       | —                                        |       | 253,371 |   | — |   |
| Inter-segment eliminations            |       | (7,268                                          | )          | —                                        |       | (10,686 | ) | — |   |
| Consolidated net sales                |       | $                                               | 312,949    |                                          | $          | 141,422 |   | $ | 548,010 |   | $ | 270,790 |   |
| Operating income  (loss):             |       |                                            |       |                                          |       |   |   |   |   |
| Cable segment                         |       | $                                               | 10,266     |                                          | $          | (26,195 | ) | $ | 12,797 |   | $ | (23,737 | ) |
| Connectivity Solutions segment        |       | 1,086                                           |       | —                                        |       | (15,418 | ) | — |   |
| Inter-segment eliminations            |       | (305                                            | )          | —                                        |       | (431 | ) | — |   |
| Consolidated  operating income (loss) |       | $                                               | 11,047     |                                          | $          | (26,195 | ) | $ | (3,052 | ) | $ | (23,737 | ) |

 

**11.   EMPLOYEE TERMINATION BENEFITS**

The Company reduced theConnectivity Solutions segment workforce by approximately 45 employees duringthe first quarter of 2004. The reductions were primarily related to the Company’sefforts to improve operational efficiency and reduce cost. The affectedemployees worked in management and support functions at the Omaha, Nebraskafacility. This workforce reduction resulted in pretax charges of approximately$1.6 million during the first quarter of 2004 for employee terminationbenefits, which consisted of severance pay and related fringe benefits. TheCompany recorded this amount in acquisition-related transition and startupcosts. The Company paid $0.9 million and $1.2 million of these costs during thethree and six month periods ended June 30, 2004, respectively, resultingin a remaining accrual of $0.4 million as of June 30, 2004 related to thisfirst quarter 2004 workforce reduction. Management estimates that theseremaining benefits will be paid in full by the end of the third quarter of2004.

**12.  **EMPLOYEEBENEFIT PLANS
| ** **                            | ** ** | **Pension  Benefits**                           | ** ** | **Other Postretirement  Benefits** | ** ** |
|---------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                            | ** ** | **Three Months Ended  June 30,** | ** ** |
| ** **                            | ** ** | **2004**                                        | ** ** | **2003**                                | ** ** | **     2004     ** | ** ** | **     2003     ** | ** ** |
| Service cost                          |       | $                                               | 870        |                                    | $          | 26 |   |   | $ | 1,137 |   |   |   | $ | 714 |   |   |
| Interest cost                         |       | 1,322                                           |       | 32                                      |       |   | 1,225 |   |   |   | 524 |   |   |
| Recognized actuarial loss             |       | —                                          |       | —                                  |       |   | 203 |   |   |   | 118 |   |   |
| Amortization of transition obligation |       | 10                                              |       | 9                                       |       |   | — |   |   |   | — |   |   |
| Return on plan assets                 |       | (1,333                                          | )          | (14                                     | )          |   | (151 | ) |   |   | — |   |   |
| Net periodic benefit cost             |       | $                                               | 869        |                                    | $          | 53 |   |   | $ | 2,414 |   |   |   | $ | 1,356 |   |   |

 

24

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**CommScope, Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited—In Thousands, Except Per Share Amounts or Unless Otherwise Noted)**

 
| ** **                            | ** ** | **Pension  Benefits**                         | ** ** | **Other Postretirement  Benefits** | ** ** |
|---------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------|------------|
| ** **                            | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                            | ** ** | **2004**                                      | ** ** | **2003**                                | ** ** | **     2004     ** | ** ** | **     2003     ** | ** ** |
| Service cost                          |       | $                                             | 1,437      |                                    | $          | 50 |   |   | $ | 2,195 |   |   |   | $ | 1,429 |   |   |
| Interest cost                         |       | 2,216                                         |       | 63                                      |       |   | 2,270 |   |   |   | 1,049 |   |   |
| Recognized actuarial loss             |       | —                                        |       | —                                  |       |   | 406 |   |   |   | 236 |   |   |
| Amortization of transition obligation |       | 20                                            |       | 18                                      |       |   | — |   |   |   | — |   |   |
| Return on plan assets                 |       | (2,229                                        | )          | (28                                     | )          |   | (252) |   |   |   | — |   |   |
| Net periodic benefit cost             |       | $                                             | 1,444      |                                    | $          | 103 |   |   | $ | 4,619 |   |   |   | $ | 2,714 |   |   |

 

As a part of theacquisition of Connectivity Solutions, CommScope established a new defined benefitpension plan covering the represented domestic employees in the ConnectivitySolutions segment and a new postretirement benefit plan that includeshealthcare benefits and life insurance coverage for certain future retirees inthe Connectivity Solutions segment. These plans have been combined fordisclosure purposes with CommScope’s pension and postretirement benefit plans,which existed prior to the acquisition of Connectivity Solutions.

The Company contributedapproximately $70 thousand and $140 thousand to its pension plans for the threeand six month periods ended June 30, 2004, respectively. The Companyanticipates making additional contributions of approximately $138 thousand tothese plans before December 31, 2004. The Company contributed an immaterialamount to the postretirement benefit plans for the three and six month periodsended June 30, 2004. The Company anticipates making additionalcontributions of approximately $0.2 million to these plans before December 31,2004.

On December 8, 2003,the President signed the Medicare Prescription Drug, Improvement andModernization Act of 2003 (the “Act”) into law. The Act introduces aprescription drug benefit under Medicare (Medicare Part D) as well as afederal subsidy to sponsors of retiree health care benefit plans that providesa benefit that is at least actuarially equivalent to Medicare Part D. FASBStaff Position (“FSP”) No. FAS 106-2, “Accounting and DisclosureRequirements Related to the Medicare Prescription Drug, Improvement andModernization Act of 2003,” provides guidance on the accounting for the effectsof the Act and is effective for the third quarter ending September 30,2004. The Company is evaluating the impact of this FSP on its financialstatements and disclosures. Accordingly, net periodic postretirement benefitcost in this quarterly report on Form 10-Q does not reflect theeffects of the Act on the Company’s postretirement benefit plans. See Note 1for further discussion of FSP No. FAS 106-2.

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

The following discussionand analysis of our financial condition and results of operations for the threeand six month periods ended June 30, 2004 and 2003 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 2003 AnnualReport on Form 10-K/A.

**Overview**

We, through our wholly owned subsidiaries, are aleading worldwide designer, manufacturer and marketer of broadband coaxialcables and other high performance electronic and fiber optic cable products forcable television, telephony, Internet access, wireless communications and otherbroadband services. We seek to be a global leader in cable and connectivitysolutions for the ‘last mile’ in telecommunications. We define the ‘last mile’as the distribution access or final link from the network operator to the enduser, which includes cable and connectivity solutions for the home, businessenterprise or wireless provider.

In January 2004, we acquired the ConnectivitySolutions business (“Connectivity Solutions,” or as operated by the Company,the “Connectivity Solutions segment”) from Avaya Inc. (“Avaya”) primarily toexpand our position in the ‘last mile’ of telecommunications, establish aleadership position in the global enterprise market and enhance our globalgrowth opportunities.

Through the acquisition of the SYSTIMAX® Solutionsproducts in the Connectivity Solutions segment we became a leading globaldesigner, manufacturer and marketer of physical layer end-to-end structuredcabling solutions supporting local area network applications for enterprisesand telecommunications service providers. SYSTIMAX is widely recognized as aleading global brand in enterprise cable and connectivity solutions. It hasestablished channels to international markets and has a worldwide network ofindependent distributors, system integrators and value added resellers. Webelieve that this acquisition strengthens our global competitive position inthe enterprise market and provides new channels to market our products. TheConnectivity Solutions acquisition also expands the markets in which weoperate, which creates potential new growth opportunities.

During the three and sixmonth periods ended June 30, 2004, management evaluated the results ofoperations in two reportable segments: the Cable segment, which is our legacycable business, and the Connectivity Solutions segment, which is theacquisition that was completed as of January 31, 2004. As we continue tointegrate the Connectivity Solutions segment into our global operations andfinancial reporting systems, management may reorganize its internal reporting,which may require reporting of our results in more or different reportablesegments in future periods.

**CRITICAL ACCOUNTINGPOLICIES**

There have been no changes in our critical accountingpolicies or significant accounting estimates as disclosed in our 2003 AnnualReport on Form 10-K/A, except for changes resulting from our acquisition ofConnectivity Solutions as of January 31, 2004. As a result of this acquisition,the reserve for product warranty claims and the fair values of the assetsacquired and liabilities assumed in the acquisition of Connectivity Solutionsare new significant estimates.

*Product warranties**—*We recognize a liability for theestimated claims that may be paid under our customer warranty agreements toremedy potential deficiencies of quality or performance of our products. Werecord a provision for estimated future warranty claims based upon thehistorical relationship of 

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warranty claims to salesand specifically-identified warranty issues. We base our estimates onhistorical experience and on assumptions that are believed to be reasonableunder the circumstances and revise our estimates, as appropriate, when eventsor changes in circumstances indicate that revisions may be necessary. Althoughthese estimates are based on management’s knowledge of and experience with pastand current events and on management’s assumptions about future events, it isreasonably possible that they may ultimately differ materially from actualresults. 

*Fair values of assets acquiredand liabilities assumed in the acquisition of Connectivity Solutions**—*The acquisition of Connectivity Solutionsas of January 31, 2004 was accounted for using the purchase method ofaccounting. The purchase method requires management to make significantestimates. First, management must estimate the cost of the acquired entitybased on the fair value of the consideration paid or the fair value of the netassets acquired, whichever is more clearly evident. This cost must then beallocated to the assets acquired and liabilities assumed based on theirestimated fair values at the date of acquisition. In addition, management mustidentify and estimate the fair values of intangible assets that should berecognized as assets apart from goodwill. Management utilized third partyappraisals to assist in estimating the fair value of tangible property, plantand equipment and intangible assets acquired.

**COMPARISONOF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30,2004 WITH THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2003**
| ** **                                               | ** ** | **Three Months Ended June 30,** | ** ** | ** **                    | ** ** | ** **     | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------|------------|----------------|------------|
| ** **                                               | ** ** | **2004**                                            | ** ** | **2003**                      | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **$**                                               | ** ** | **% of Net  Sales** | ** ** | **$**          | ** ** | **% of Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
| ** **                                               | ** ** | **(millions)**                                      | ** ** | ** **                    | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                |       |                                                | $          | 312.9                         |       |           |       | 100.0 | % |   |   | $ | 141.4 |   |   |   | 100.0 | % |   | $ | 171.5 |   | 121.3 | % |
| Gross profit                                             |       |                                                | 72.2       |                          |       |           | 23.1       |   |   |   | 28.8 |   |   |   | 20.4 |   |   | 43.4 |   | 150.7 |   |
| SG&A expense                                         |       |                                                | 51.7       |                          |       |           | 16.5       |   |   |   | 21.8 |   |   |   | 15.4 |   |   | 29.9 |   | 137.2 |   |
| R&D expense                                          |       |                                                | 8.1        |                          |       |           | 2.6        |   |   |   | 1.5 |   |   |   | 1.1 |   |   | 6.6 |   | 440.0 |   |
| Impairment  charges for fixed assets                     |       |                                                | —     |                          |       |           | —     |   |   |   | 31.7 |   |   |   | 22.4 |   |   | (31.7 | ) | (100.0 | ) |
| Acquisition-related  transition and startup costs        |       |                                                | 1.2        |                          |       |           | 0.4        |   |   |   | — |   |   |   | — |   |   | 1.2 |   | — |   |
| Equity in losses  of OFS BrightWave, LLC, net of tax     |       |                                                | 0.6        |                          |       |           | 0.2        |   |   |   | 33.9 |   |   |   | 24.0 |   |   | (33.3 | ) | (98.2 | ) |
| Net gain on OFS  BrightWave, LLC transaction, net of tax |       |                                                | 76.4       |                          |       |           | 24.4       |   |   |   | — |   |   |   | — |   |   | 76.4 |   | — |   |
| Net income (loss)                                        |       |                                                | 84.1       |                          |       |           | 26.9       |   |   |   | (51.4 | ) |   |   | (36.4 | ) |   | 135.5 |   | (263.6 | ) |
| Net income (loss) per  diluted share                     |       |                                                | $          | 1.37                          |       |           |       |   |   |   |   | $ | (0.87 | ) |   |   |   |   |   | $ | 2.24 |   |   |   |

 

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| ** **                                               | ** ** | **Six Months Ended June 30,** | ** ** | ** **                    | ** ** | ** **     | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------|------------|----------------|------------|
| ** **                                               | ** ** | **2004**                                          | ** ** | **2003**                      | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **$**                                             | ** ** | **% of Net  Sales** | ** ** | **$**          | ** ** | **% of Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
| ** **                                               | ** ** | **(millions)**                                    | ** ** | ** **                    | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                |       |                                              | $          | 548.0                         |       |           |       | 100.0 | % |   |   | $ | 270.8 |   |   |   | 100.0 | % |   | $ | 277.2 |   | 102.4 | % |
| Gross profit                                             |       |                                              | 109.6      |                          |       |           | 20.0       |   |   |   | 52.9 |   |   |   | 19.5 |   |   | 56.7 |   | 107.2 |   |
| SG&A expense                                         |       |                                              | 87.7       |                          |       |           | 16.0       |   |   |   | 41.9 |   |   |   | 15.5 |   |   | 45.8 |   | 109.3 |   |
| R&D expense                                          |       |                                              | 13.0       |                          |       |           | 2.4        |   |   |   | 3.0 |   |   |   | 1.1 |   |   | 10.0 |   | 333.3 |   |
| Impairment  charges for fixed assets                     |       |                                              | —     |                          |       |           | —     |   |   |   | 31.7 |   |   |   | 11.7 |   |   | (31.7 | ) | (100.0 | ) |
| In-process  research and development charges             |       |                                              | 3.9        |                          |       |           | 0.7        |   |   |   | — |   |   |   | — |   |   | 3.9 |   | — |   |
| Acquisition-related  transition and startup costs        |       |                                              | 8.0        |                          |       |           | 1.5        |   |   |   | — |   |   |   | — |   |   | 8.0 |   | — |   |
| Equity in losses  of OFS BrightWave, LLC, net of tax     |       |                                              | 1.4        |                          |       |           | 0.3        |   |   |   | 37.7 |   |   |   | 13.9 |   |   | (36.3 | ) | (96.3 | ) |
| Net gain on OFS  BrightWave, LLC transaction, net of tax |       |                                              | 76.4       |                          |       |           | 13.9       |   |   |   | — |   |   |   | — |   |   | 76.4 |   | — |   |
| Net income (loss)                                        |       |                                              | 67.7       |                          |       |           | 12.4       |   |   |   | (54.4 | ) |   |   | (20.1 | ) |   | 122.1 |   | (224.4 | ) |
| Net income (loss) per  diluted share                     |       |                                              | $          | 1.10                          |       |           |       |   |   |   |   | $ | (0.92 | ) |   |   |   |   |   | $ | 2.02 |   |   |   |

 

Effective January 31,2004, we completed the acquisition of substantially all of the assets andassumed certain liabilities of Connectivity Solutions from Avaya and the Connectivity Solutions segment’soperating results have been included in our consolidated financial statementssince the date of acquisition. Accordingly, the consolidated results for thethree and six month periods ended June 30, 2004 include the operating resultsof the Connectivity Solutions segment for the three months ended June 30, 2004and the five-month period from February 1, 2004 through June 30, 2004,respectively. However, the consolidated results reflected above for the threeand six month periods ended June 30, 2003 do not include any actual or proforma results for the Connectivity Solutions segment. This information shouldbe considered when comparing to financial results of 2004 and 2003. See Note 2in the Notes to the Condensed Consolidated Financial Statements included inthis document.

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**Net sales**

Belowis a summary that reflects our actual net sales for the three and six monthperiods ended June 30, 2004, which incorporate the Connectivity Solutionssegment net sales for the three month period ended June 30, 2004 and the fivemonth period from February 1, 2004 through June 30, 2004. This summary alsoreflects pro forma net sales for the three and six month periods ended June 30,2004 and 2003, as if Connectivity Solutions had been acquired on January 1,2004 and 2003, respectively. The pro forma net sales of the ConnectivitySolutions segment for the one-month period ended January 31, 2004, which isincluded in the pro forma net sales for the six months ended June 30, 2004, andthe pro forma net sales of the Connectivity Solutions segment for the three andsix month periods ended June 30, 2003 are based on the historical results ofthe Connectivity Solutions business as operated by Avaya during the periodspresented and therefore may not be indicative of the actual results of theConnectivity Solutions segment as operated by CommScope. Actual inter-segmentsales eliminations for the three months ended June 30, 2004 and the five monthperiod ended June 30, 2004 and pro forma inter-segment sales eliminations forthe pro forma periods are included below.
| ** **                     | ** **   | **Actual**                                            | ** ** | **Pro forma**                                    | ** ** |
|--------------------------------|--------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                     | ** **   | **Three months  ended  June 30, 2004** | ** ** | **Three months  ended  June 30, 2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                     | ** **   | **Net  Sales**                                        | ** ** | **% of  Net  Sales**                             | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar    Change  ** | ** ** | **%  Change** | ** ** |
| ** **                     | *** *** | **(dollars in millions)**                   | ** ** |
| Net sales by segment:          |         |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cable segment                  |         | $                                                     | 169.5      |                                                  | 54.2       | % | $ | 141.4 |   | 50.7 | % |   | $ | 28.1 |   |   |   | 19.9 | % |   |
| Connectivity Solutions segment |         | 150.7                                                 |       | 48.1                                                  |       | 142.7 |   | 51.2 |   |   | 8.0 |   |   |   | 5.6 |   |   |
| Inter-segment eliminations     |         | (7.3                                                  | )          | (2.3                                                  | )          | (5.3 | ) | (1.9 | ) |   | (2.0 | ) |   |   | 37.7 |   |   |
| Consolidated net  sales        |         | $                                                     | 312.9      |                                                  | 100.0      | % | $ | 278.8 |   | 100.0 | % |   | $ | 34.1 |   |   |   | 12.2 | % |   |
| Total domestic sales           |         | $                                                     | 216.6      |                                                  | 69.2       | % | $ | 195.7 |   | 70.2 | % |   | $ | 20.9 |   |   |   | 10.7 | % |   |
| Total international  sales     |         | 96.3                                                  |       | 30.8                                                  |       | 83.1 |   | 29.8 |   |   | 13.2 |   |   |   | 15.9 |   |   |
| Total worldwide sales          |         | $                                                     | 312.9      |                                                  | 100.0      | % | $ | 278.8 |   | 100.0 | % |   | $ | 34.1 |   |   |   | 12.2 | % |   |

 

Overall, consolidated net sales, on a pro forma basis,increased year over year for the second quarter, primarily due to higherdomestic and international sales of Broadband/Video Products within the Cablesegment. Our Cable segment sales increased in all major product categories andin all regions. The year-over-year improvement in Connectivity Solutionssegment sales for the second quarter was primarily due to higher domestic salesof Integrated Cabinet Solutions Products. 

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| ** **                     | ** ** | **Actual**                                 | ** ** | **Pro forma**                          | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|
| ** **                     | ** ** | **Six months   ended  June 30,** | ** ** | **Six months ended**June 30, | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                     | ** ** | **2004**                                   | ** ** | **2004**                                    | ** ** | **2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                     | ** ** | **Net  Sales**                             | ** ** | **% of  Net  Sales**                   | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar    Change  ** | ** ** | **%  Change** | ** ** |
| ** **                     | ** ** | **(dollars in millions)**        | ** ** |
| Net sales by  segment:         |       |                                       |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cable segment                  |       | $                                          | 305.3      |                                        | 55.7       | % | $ | 305.3 |   | 53.2 | % | $ | 270.8 |   | 50.6 | % |   | $ | 34.5 |   |   |   | 12.7 | % |   |
| Connectivity Solutions segment |       | 253.4                                      |       | 46.2                                        |       | 280.6 |   | 48.9 |   | 273.7 |   | 51.1 |   |   | 6.9 |   |   |   | 2.5 |   |   |
| Inter-segment eliminations     |       | (10.7                                      | )          | (1.9                                        | )          | (12.2 | ) | (2.1 | ) | (9.0 | ) | (1.7 | ) |   | (3.2 | ) |   |   | 35.6 |   |   |
| Consolidated net  sales        |       | $                                          | 548.0      |                                        | 100.0      | % | $ | 573.7 |   | 100.0 | % | $ | 535.5 |   | 100.0 | % |   | $ | 38.2 |   |   |   | 7.1 | % |   |
| Total domestic sales           |       | $                                          | 378.0      |                                        | 69.0       | % | $ | 392.4 |   | 68.4 | % | $ | 367.1 |   | 68.6 | % |   | $ | 25.3 |   |   |   | 6.9 | % |   |
| Total  international sales     |       | 170.0                                      |       | 31.0                                        |       | 181.3 |   | 31.6 |   | 168.4 |   | 31.4 |   |   | 12.9 |   |   |   | 7.7 |   |   |
| Total worldwide sales          |       | $                                          | 548.0      |                                        | 100.0      | % | $ | 573.7 |   | 100.0 | % | $ | 535.5 |   | 100.0 | % |   | $ | 38.2 |   |   |   | 7.1 | % |   |

 

Overall, consolidated netsales, on a pro forma basis, increased year over year for the first six monthsprimarily due to higher domestic and international sales of Broadband/VideoProducts within the Cable segment. Our Cable segment sales increased in allmajor product categories and in all regions. The year-over-year improvement inConnectivity Solutions segment sales, on a pro forma basis, for the first sixmonths was primarily due to higher domestic sales of Integrated CabinetSolutions Products, which was somewhat offset by lower domestic sales ofSYSTIMAX Products.

*Cable Segment*
| ** **                             | ** ** | **Three Months Ended June 30,** | ** ** | ** **                    | ** ** | ** **     | ** ** |
|----------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------|------------|----------------|------------|
| ** **                             | ** ** | **2004**                                            | ** ** | **2003**                      | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Net  Sales**                                      | ** ** | **% of Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of Net  Sales** | ** ** | **Dollar    Change  ** | ** ** | **%  Change** | ** ** |
| ** **                             | ** ** | **(dollars in millions)**                 | ** ** |
| Broadband/Video Products               |       | $                                                   | 127.6      |                          |       | 75.3           | %          |   | $ | 108.5 |   |   | 76.7 | % |   |   | $ | 19.1 |   |   |   | 17.6 | % |   |
| LAN Products                           |       | 31.6                                                |       |                          | 18.6       |           |       | 24.6 |   |   | 17.4 |   |   |   | 7.0 |   |   |   | 28.5 |   |   |
| Wireless & Other  Telecom Products |       | 10.3                                                |       |                          | 6.1        |           |       | 8.3 |   |   | 5.9 |   |   |   | 2.0 |   |   |   | 24.1 |   |   |
| Total Cable segment                    |       | $                                                   | 169.5      |                          |       | 100.0          | %          |   | $ | 141.4 |   |   | 100.0 | % |   |   | $ | 28.1 |   |   |   | 19.9 | % |   |

 
| ** **                             | ** ** | **Six Months Ended June 30,** | ** ** | ** **                    | ** ** | ** **     | ** ** |
|----------------------------------------|------------|---------------------------------------------------|------------|-------------------------------|------------|----------------|------------|
| ** **                             | ** ** | **2004**                                          | ** ** | **2003**                      | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Net  Sales**                                    | ** ** | **% of Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of Net  Sales** | ** ** | **Dollar    Change  ** | ** ** | **%  Change** | ** ** |
| ** **                             | ** ** | **(dollars in millions)**               | ** ** |
| Broadband/Video Products               |       | $                                                 | 230.1      |                          |       | 75.4           | %          |   | $ | 209.8 |   |   | 77.5 | % |   |   | $ | 20.3 |   |   |   | 9.7 | % |   |
| LAN Products                           |       | 56.9                                              |       |                          | 18.6       |           |       | 47.6 |   |   | 17.6 |   |   |   | 9.3 |   |   |   | 19.5 |   |   |
| Wireless & Other  Telecom Products |       | 18.3                                              |       |                          | 6.0        |           |       | 13.4 |   |   | 4.9 |   |   |   | 4.9 |   |   |   | 36.6 |   |   |
| Total Cable segment                    |       | $                                                 | 305.3      |                          |       | 100.0          | %          |   | $ | 270.8 |   |   | 100.0 | % |   |   | $ | 34.5 |   |   |   | 12.7 | % |   |

 

The increase in net salesof Broadband/Video Products for the three and six month periods ended June 30,2004 primarily resulted from strong international sales volumes. Despite lowersales of fiber optic cable and lower sales to our largest domestic Cablesegment customer, domestic sales of Broadband/Video Products increasedmoderately. Sales to essentially all other major domestic broadband customersincreased year over year for the three and six month periods ended June 30,2004. However, based on 

30

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informationfrom our domestic customers, we expect lower sales of Broadband/Video productsin the second half of 2004.

As a result of rising rawmaterial prices, we announced a price increase in April 2004 for essentiallyall broadband coaxial cable products that became effective beginning in lateMay. However, we expect ongoing pricing pressure and weak demand industry widefor fiber optic cable products for broadband applications through 2004. Theseprice increases did not materially impact second quarter or first six monthssales.

The increase in net salesof LAN Products for the three and six month periods ended June 30, 2004 wasprimarily driven by improved project business and the positive impact ofpreviously announced price increases for our products. In addition, the launchof our new UnipriseTM brand contributed to the increase in net salesof LAN Products. We believe the business environment for our LAN products isimproving based primarily on the improvement in information technologyspending, which has led to increased spending by our customers. We announcedtwo price increases for our LAN Products in the first quarter of 2004 as aresult of significant increases in the cost of certain raw materials.

The increase in net salesof Wireless and Other Telecom Products for the three and six month periods endedJune 30, 2004 was mainly due to a higher volume of sales combined with improvedproduct mix. The improvement in general economic conditions has led toincreased spending by certain major wireless carriers. In addition, we havedeveloped relationships with new customers, who are generally purchasing largerdiameter products, which have comparatively higher prices. We believe wecontinue to make steady progress communicating the Cell Reach® value propositionto new and existing customers, both domestically and internationally. While weexpect sales of wireless products to be somewhat volatile since customerspending is mainly project-driven, we remain optimistic about our long-termglobal wireless opportunities primarily as a result of improving globaleconomic conditions.

*Connectivity Solutions Segment*
| ** **                           | ** ** | **Actual**                                        | ** ** | **Pro forma**                                | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **Three months  ended  June 30,  2004** | ** ** | **Three months  ended  June 30,  2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **Net  Sales**                                    | ** ** | **% of  Net  Sales**                         | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
| ** **                           | ** ** | **(dollars in millions)**               | ** ** |
| SYSTIMAX Products                    |       | $                                                 | 116.7      |                                              | 77.4       | % | $ | 118.5 |   | 83.0 | % |   | $ | (1.8 | ) |   |   | (1.5 | )% |   |
| ExchangeMAX Products                 |       | 15.8                                              |       | 10.5                                              |       | 13.8 |   | 9.7 |   |   | 2.0 |   |   |   | 14.5 |   |   |
| Integrated Cabinet  Systems Products |       | 18.2                                              |       | 12.1                                              |       | 10.4 |   | 7.3 |   |   | 7.8 |   |   |   | 75.0 |   |   |
| Total Connectivity Solutions segment |       | $                                                 | 150.7      |                                              | 100.0      | % | $ | 142.7 |   | 100.0 | % |   | $ | 8.0 |   |   |   | 5.6 | % |   |

 
| ** **                           | ** ** | **Actual**                                  | ** ** | **Pro forma**                            | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                           | ** ** | **Five-month  period ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **2004**                                    | ** ** | **2004**                                      | ** ** | **2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **Net  Sales**                              | ** ** | **% of  Net  Sales**                     | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Net  Sales** | ** ** | **% of  Net  Sales** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
| ** **                           | ** ** | **(dollars in millions)**         | ** ** |
| SYSTIMAX Products                    |       | $                                           | 194.6      |                                          | 75.8       | % | $ | 210.4 |   | 75.0 | % | $ | 225.8 |   | 82.5 | % | $ | (15.4 | ) | (6.8 | )% |
| ExchangeMAX Products                 |       | 23.5                                        |       | 7.5                                           |       | 27.1 |   | 9.6 |   | 27.1 |   | 9.9 |   | 0.0 |   | 0.0 |   |
| Integrated Cabinet  Systems Products |       | 35.3                                        |       | 16.7                                          |       | 43.1 |   | 15.4 |   | 20.8 |   | 7.6 |   | 22.3 |   | 107.2 |   |
| Total Connectivity Solutions segment |       | $                                           | 253.4      |                                          | 100.0      | % | $ | 280.6 |   | 100.0 | % | $ | 273.7 |   | 100.0 | % | $ | 6.9 |   | 2.5 | % |

 

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The pro forma net sales in the table above for thethree months ended June 30, 2003 reflect sales recognized by the ConnectivitySolutions business during that period as operated by Avaya. The pro forma netsales in the table above for the six months ended June 30, 2004 reflect theactual sales of the Connectivity Solutions segment for the five-month periodended June 30, 2004 in addition to sales recognized by the ConnectivitySolutions business in January 2004 as operated by Avaya prior to our acquisitionof this business on January 31, 2004. The pro forma net sales in the tableabove for the six months ended June 30, 2003 reflect sales recognized by theConnectivity Solutions business during that period as operated by Avaya.

The discussion below focuses on the changes in netsales for the three months ended June 30, 2004 as compared to the pro forma netsales for the three months ended June 30, 2003. The discussion below alsocompares the pro forma net sales for the six months ended June 30, 2004 to thepro forma net sales for the six months ended June 31, 2003 since the actual netsales for the five-month period ended June 30, 2004 would not be comparable. However,these pro forma results may not be indicative of the actual results of theConnectivity Solutions segment as operated by CommScope.

The net sales of SYSTIMAX Products, on a pro formabasis, were relatively flat year over year for the second quarter primarily dueto unusually strong sales volumes in the second quarter of 2003. Second quarter2004 sales performance was somewhat impacted by previously announced priceincreases for our products. During the quarter ended March 31, 2004, weannounced two price increases for new projects primarily due to the rising costof copper and certain polymers. The year-over-year decrease in net sales ofSYSTIMAX Products, on a pro forma basis, for the first six months was primarilythe result of our effort to reduce external inventory balances held bydistributors to a more appropriate level. We expect demand for SYSTIMAXproducts to be driven by the ongoing need for bandwidth and high-performancestructured cabling in the enterprise market and affected by global informationtechnology spending, among other things.

The increase in net sales of ExchangeMAX Products, ona pro forma basis, for the second quarter was primarily related to higher salesvolumes from our netSet® remote provisioning systems, among other things.However, competitive pricing pressure continues to affect sales of ExchangeMAXProducts. Net sales of ExchangeMAX Products, on a pro forma basis, for thefirst six months were flat.

The increase in net salesof Integrated Cabinet Solutions (“ICS”) Products, on a pro forma basis, for thesecond quarter and first six months was primarily due to increased salesvolumes resulting from increasing service provider deployments of DigitalSubscriber Lines. However, second quarter 2004 sales of ICS products declinedfrom the first quarter levels as a large customer neared completion of currentplanned projects.

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

The year-over yearincreases in gross profit for the three and six month periods ended June 30,2004 were primarily due to the acquisition of the Connectivity Solutionsbusiness as of January 31, 2004. Second quarter 2004 gross profit marginincreased to 23.1% from 20.4% in the second quarter of 2003, primarily as aresult of the acquisition. Gross profit margin for the first six months wasflat year over year. Gross profit margins for the three and six month periodsended June 30, 2004 were affected by charges totaling $1.3 million and $14.6million, respectively, related to the impact of purchase accounting adjustmentson the Connectivity Solutions segment inventory. These purchase accountingadjustments resulted from the write-up above replacement manufacturing cost ofa portion of Connectivity Solutions’ finished goods and work in processinventory to reflect its acquired fair value as of the acquisition date underpurchase accounting guidance. This write-up to fair value results in anincrease in cost of sales and lower margins following the acquisition as theacquired inventory is sold.

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Over the last 12 months,the costs of copper, plastics and polymers have increased substantially. As aresult of these higher costs, we have announced price increases for certainproducts. While we expect improved gross margins as a result of the selectedprice increases, the inability to achieve continued market acceptance of theprice increases could result in lower gross profit and gross profit margin.

**Selling, generaland administrative expense**

The increases in selling, general and administrative (“SG&A”)expense for the three and six month periods ended June 30, 2004 as compared tothe same periods in 2003 were primarily due to the acquisition of ConnectivitySolutions as of January 31, 2004. SG&A expense as a percentage of net saleswas also slightly higher year over year in both the second quarter and firstsix months, primarily as a result of the acquisition.

**Research and development**

Research and development (“R&D”) expense increased for the threeand six month periods ended June 30, 2004 as compared to the same periods in2003 primarily due to the acquisition of Connectivity Solutions as of January31, 2004, which has extensive research and development activities. R&Dexpense as a percentage of net sales was also slightly higher year over year inboth the second quarter and first six months, primarily as a result of theacquisition.

**In-process research and development charges**

We recognized a $3.9million pretax charge during the first quarter of 2004 for the write-off ofin-process research and development acquired in our acquisition of ConnectivitySolutions. This in-process research and development was valued as an intangibleasset by independent appraisal in accordance with purchase accounting guidance.Since research and development activities are required to be expensed asincurred under U.S. generally accepted accounting principles, this acquiredintangible asset was written off immediately following the acquisition date.

**Acquisition-related transition and startup costs**

We incurred pretax charges of $1.2 million and $8.0million for the three and six month periods ended June 30, 2004, respectively,as a result of startup, transition and other costs related to the acquisitionof Connectivity Solutions. These charges primarily related to informationtechnology, transition services, and other acquisition-related costs.

We reduced theConnectivity Solutions segment workforce by approximately 45 employees, or 2%of the segment’s global workforce, during the first quarter of 2004. Thereductions were primarily related to our efforts to improve operationalefficiency 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 firstquarter of 2004. We intend to continue evaluating all aspects of our businessand to take appropriate action to position us for long-term success and strongcompetitiveness.

**Loss on early extinguishment of debt**

We recognized a $5.0million pretax loss during the first quarter of 2004 on the earlyextinguishment of our 4% convertible subordinated notes. This loss includes premiums paid and accrued to noteholders in the amount of $3.1 million and the write-off of the remainingbalance of related long-term financing costs in the amount $1.9 million. Seefurther discussion under “Liquidity and Capital Resources.”

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**Netinterest expense**

The year-over-year increases in net interest expense for the three andsix month periods ended June 30, 2004 were primarily due to higher averageoutstanding balances of long-term debt incurred primarily for the acquisitionof Connectivity Solutions. This increase was partially offset for these periodsby a decrease in our effective interest rate. Our weighted average effectiveinterest rate on outstanding borrowings, including amortization of associatedlong-term financing costs, decreased to 2.66% as of June 30, 2004 comparedto 4.87% as of December 31, 2003. This decrease in our effective interest ratewas mainly due to the refinancing of our existing $172.5 million aggregateprincipal amount of 4% convertible notes with the issuance of $250.0 millionaggregate principal amount of 1% convertible senior subordinated debentures.

**Incometaxes**

Our consolidated effective income tax rate was 35% and 36% for thethree and six month periods ended June 30, 2004, respectively, compared to 37%for the three and six month periods ended June 30, 2003. The reduction in oureffective income tax rate was primarily due to our acquisition of ConnectivitySolutions in the first quarter of 2004, which expanded our internationalactivities in lower tax rate jurisdictions. In addition, our 2004 effectiveincome tax rate was reduced by the reversal of a $1.4 million valuationallowance, which was established in 2001 for a deferred tax asset created bythe impairment of an investment. The capital gain realized in the secondquarter of 2004 will allow us to realize the tax benefit associated with thatimpairment loss. However, the favorable impact of these two items was mostlyoffset by the tax impact of the net gain on the OFS BrightWave, LLCtransaction, which was recorded at a 37% effective income tax rate in thesecond quarter of 2004.

**OFS BrightWave, LLC**

Effective November 16,2001, we acquired an approximate 18.4% ownership interest in OFS BrightWave, anoptical fiber and fiber cable venture between us and Furukawa. During the threemonths ended March 31, 2004, OFS BrightWave began to move certain cableproduction from the Norcross facility to the Carrollton facility. EffectiveApril 1, 2004, Furukawa contributed its investment in the Carrollton facilityto OFS BrightWave. Because we did not elect to make further correspondinginvestments in OFS BrightWave, this additional investment in OFS BrightWave byFurukawa reduced our ownership percentage in OFS BrightWave from 18.4% to 9.4%,effective April 1, 2004.

Primarily as a result of the continuing weakness inthe fiber optic cable market and Furukawa’s continuing efforts to restructureits OFS operations, we agreed with Furukawa to further amend our existingcontractual arrangements in the second quarter of 2004 for the mutual benefitof both companies. On June 11, 2004, we assigned all of our rights and dutiesunder our contractual arrangements with Furukawa to our wholly-ownedsubsidiary, CommScope Optical Technologies, Inc. (“CommScope Optical”). On June14, 2004, CommScope Optical and Furukawa changed the period in which CommScopeOptical could exercise its contractual right to sell its ownership interest inOFS BrightWave to Furukawa from 2006 to any time on or after June 14, 2004 andchanged the exercise price from $173.4 million in cash to the approximately 7.7million shares of our common stock owned by Furukawa. On June 14, 2004,CommScope Optical exercised its contractual right to sell and sold its 9.4%ownership interest in OFS BrightWave to Furukawa in exchange for delivery byFurukawa of the approximately 7.7 million shares of our common stock owned byFurukawa, which were valued at $132.3 million as of the transaction date. Wecurrently hold these shares as treasury stock.

As a result of this transaction, we no longer own anyequity interest in OFS BrightWave. However, we maintained our strategicrelationship with Furukawa by entering into a new four-year optical fibersupply agreement with OFS Fitel, LLC (“Fitel”), a wholly-owned, indirectsubsidiary of Furukawa, replacing the 

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existing supply agreementwith Fitel that was scheduled to expire in November 2004. Through this supplyagreement, we continue to have access to a broad array of technologicallyadvanced optical fibers. We also have a cross license arrangement with asubsidiary of Furukawa for key intellectual property.

This transaction does not affect our right to receivefull payment from OFS BrightWave under the $30 million revolving note due in2006, based on its original terms. The carrying value of this note was reducedto approximately $11 million as of June 14, 2004 under equity method accountingrules, which requires accounting for an advance to an equity method investee inthe same manner as the investment, once the carrying value of the investmenthas been reduced to zero. Primarily due to market conditions for optical fiberand because we no longer have an equity ownership interest in OFS BrightWave,we determined that there was an other-than-temporary impairment in the carryingvalue of this asset as of the transaction date. Accordingly, a pretaximpairment charge of $11 million was recognized as a reduction of the gain onthe OFS BrightWave transaction during the quarter ended June 30, 2004.

The OFS BrightWave transaction resulted in a netpretax gain in the amount of $121.3 million, or $1.24 per diluted share, net oftax, during the second quarter of 2004. This gain represents (1) the fair valueof the common stock received by us in exchange for our transfer of ourownership interest in OFS BrightWave to Furukawa, plus (2) the realized gainfrom our cumulative equity method share of OFS BrightWave’s unrealized foreigncurrency translation gains previously recorded in accumulated othercomprehensive loss, less (3) the impairment charge related to the $30 millionnote receivable from OFS BrightWave. The after-tax net gain is reflected in ourstatement of operations after income (loss) before equity in losses of OFSBrightWave, LLC and net gain on OFS BrightWave, LLC transaction. The income taximpact of this gain enables us to realize our deferred tax asset related to ourshare of the cumulative financial statement net losses of OFS BrightWave. Inaddition, this transaction creates a capital gain for tax purposes, whichallows us to deduct a capital loss related to the 2001 impairment of aninvestment, creating a current tax benefit of $1.4 million from this capitalloss deduction.

Our share of the losses ofOFS BrightWave for the period from April 1, 2004 through June 14, 2004, wasapproximately $0.9 million, pretax. For the period from January 1, 2004 throughJune 14, 2004, our share of the losses of OFS BrightWave was approximately $2.3million, pretax. For the three and six month periods ended June 30, 2003, ourshare of the losses of OFS BrightWave was approximately $53.9 million and $60.0million, respectively. Since OFS BrightWave has elected to be taxed as apartnership, we recorded a tax benefit related to our share in the flow-throughlosses of approximately $0.3 million for the period from April 1, 2004 throughJune 14, 2004 and approximately $0.8 million for the period from January 1,2004 through June 14, 2004. We recorded a tax benefit related to our share inthe flow-through losses of approximately $20.0 million and $22.2 million forthe three and six month periods ended June 30, 2003, respectively.

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**LIQUIDITY AND CAPITAL RESOURCES**

**CashFlow Overview**

Ourprincipal sources of liquidity both on a short-term and long-term basis arecash and cash equivalents, cash flows provided by operations and availabilityunder credit facilities. Reduced sales and profitability could reduce cashprovided by operations and limit availability under credit facilities. Inaddition, increases in working capital, excluding cash and cash equivalents, relatedto increasing sales could reduce our operating cash flows in the short termuntil cash collections of accounts receivable catch up to the higher level ofbillings.
| ** **                                                             | ** ** | **As of**                      | ** ** | ** **              | ** ** | ** **         | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|--------------------|------------|
| ** **                                                             | ** ** | **June  30,  2004**                 | ** ** | **December  31,  2003** | ** ** | **Dollar  Change** | ** ** | **%  Change** | ** ** |
| ** **                                                             | ** ** | **(dollars in millions)** | ** ** |
| Cash and cash equivalents                                              |       | $                                   | 139.1      |                    |       | $                  | 206.0      |   |   | $ | (66.9 | ) |   | (32.5 | )% |   |
| Working capital, excluding cash and current portion  of long-term debt |       | $                                   | 122.1      |                    |       | $                  | 74.6       |   |   | $ | 47.5 |   |   | 63.7 |   |   |
| Long-term debt, including current maturities                           |       | $                                   | 328.3      |                    |       | $                  | 183.3      |   |   | $ | 145.0 |   |   | 79.1 |   |   |
| Stockholders’  equity                                             |       | 427.6                               |       |                    | 455.7      |               |       | (28.1 | ) |   | (6.2 | ) |   |
| Book capital  structure                                                |       | $                                   | 755.9      |                    |       | $                  | 639.0      |   |   | $ | 116.9 |   |   | 18.3 |   |   |
| Long-term debt as a % of  book capital structure                       |       | 43.4                                | %          |                    | 28.7       | %                  |       |   |   |   |   |   |   |

 

The decrease in cash as of June 30, 2004 as comparedto December 31, 2003 was primarily driven by the use of $150 million of cash onhand as partial payment to Avaya for the acquisition of Connectivity Solutions.We borrowed an additional $100 million under our new senior secured creditfacility to finance the remaining portion of the acquisition cost. We used theproceeds from the issuance of $250.0 million aggregate principal amount of 1%convertible senior subordinated debentures during the first six months of 2004to repurchase $172.5 million aggregate principal amount of our 4% convertiblenotes, to repay $25 million of borrowings under our revolving credit facility,and for other general corporate purposes.

Ourlong-term debt as a percent of book capital structure increased during thefirst six months of 2004 primarily due to the issuance of $250 millionaggregate principal amount of 1% convertible senior subordinated debentures,which was partially offset by the extinguishment of our $172.5 millionaggregate principal amount of 4% convertible subordinated notes and therepayment of $25 million under our revolving credit facility. In addition, weborrowed $75 million under the new 5-year, $185 million senior secured creditfacility during the first six months of 2004. Our book capital structure wasalso impacted by our receipt of approximately 7.7 million shares of our commonstock, valued at approximately $132.3 million, from Furukawa in a nonmonetaryexchange for our investment in OFS BrightWave.
| ** **                                                                                                                                             | ** ** | **Six months ended  June 30,** | ** ** | **Dollar** | ** ** | **%**      | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                                             | ** ** | **2004**                                      | ** ** | **2003**   | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                                                                                                                                             | ** ** | **(dollars in millions)**           | ** ** |
| Net cash provided by operating activities                                                                                                              |       | $                                             | 58.0       |       | $          | 22.6       |       | $ | 35.4 |   | 156.6 | % |
| Increase  (decrease) in working capital, excluding cash, current portion of long-term  debt, and acquisition of Connectivity Solutions working capital |       | (34.6                                         | )          | 9.3        |       | (43.9      | )          | (472.0 | ) |
| Depreciation and  amortization                                                                                                                         |       | 30.3                                          |       | 17.4       |       | 12.9       |       | 74.1 |   |
| Capital expenditures                                                                                                                                   |       | 4.5                                           |       | 2.5        |       | 2.0        |       | 80.0 |   |
|                                                                                                                                                        |            |                                               |            |            |            |            |            |  |  |  |  |  |

 

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**Operating Activities**

Net cash provided by operating activities increasedyear over year primarily due to the decrease in working capital as we worked toreduce inventory balances in our Connectivity Solutions segment to a moreappropriate level. We expect working capital to increase as a percentage ofsales in 2004 as a result of the Connectivity Solutions acquisition. However,we believe that we can improve working capital performance of the ConnectivitySolutions segment by reducing inventory and improving inventory turnover.

Depreciation andamortization increased year over year primarily due to the acquisition ofConnectivity Solutions, which included approximately $75 million of amortizableintangible assets.

**Investing Activities**

Investment in property, plant and equipment during thefirst quarter was higher year over year primarily due to the capital spendingin the Connectivity Solutions segment. Including the Connectivity Solutionssegment, we currently expect total capital expenditures to be approximately $25million in 2004 compared to $5 million in 2003. The expected increase incapital spending during 2004 is primarily for cost reduction efforts,information technology initiatives and additional production capability inAsia. We expect total capital expenditures to remain at a level belowconsolidated depreciation and amortization expense for the next several years.

Asdiscussed further below, as of January 31, 2004, we completed the acquisitionfrom Avaya of substantially all of the assets, subject to current liabilities,and assumed up to $65 million of other specified liabilities, primarily relatedto employee benefits, of Connectivity Solutions. The total purchase priceconsisted of $250 million in cash, subject to post-closing adjustments, and approximately1.8 million shares of our common stock. We are currently preparing to seekthird party resolution concerning the amount of such post-closing adjustments,in accordance with the terms of the Asset Purchase Agreement. Final resolution of this matter mayresult in an adjustment to the amounts recorded in connection with theConnectivity Solutions acquisition. However, management does not currentlybelieve that such adjustments, if any, will have a material effect on ourfinancial position or results of operations.

**FinancingActivities**

We entered into a $100 million secured credit facilitythat closed January 10, 2003. The facility was not drawn at December 31, 2003. Wereplaced this facility on January 31, 2004 in connection with our acquisitionof Connectivity Solutions as described below.

The cash portion of the purchase price forConnectivity Solutions consisted of $150 million from our existing cashbalances and $100 million from borrowings under a new 5-year, $185 millionsenior secured credit facility, which consisted of a $75 million term loan anda $110 million revolving credit facility. In connection with this seniorsecured credit facility, we incurred costs of approximately $4.6 million, whichwere capitalized as other assets and are being amortized over the term of thefacility. As of June 30, 2004, we owed $67.5 million under the term loan. Wehad availability under the new revolving credit facility of approximately$67 million and had no outstanding borrowings under this revolving creditfacility as of June 30, 2004. We believe we were in compliance with all ofour covenants under this senior secured credit facility as of June 30, 2004. 

The purchase price for Connectivity Solutions alsoconsisted of the issuance to Avaya of approximately 1.8 million shares of ourcommon stock, which were valued at $32.4 million, net of an accrual forestimated registration costs of $0.5 million. The demand received from Avaya asof January 31, 2004 for registration of those shares has been withdrawn and Avayahas since sold the shares to an unrelated third party.

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In March 2004, we issued $250 million aggregateprincipal amount of 1% convertible senior subordinated debentures due March 15,2024. The proceeds from these debentures were used primarily to extinguish ouroutstanding 4% convertible subordinated notes due December 15, 2006, to repayoutstanding borrowings under our revolving credit facility, and for generalcorporate purposes. We repurchased $102.9 million of our 4% convertiblesubordinated notes during March 2004, and redeemed the remaining $69.6 millionof these notes in April 2004. The repurchase and redemption of these 4%convertible notes resulted in a $5.0 million pretax loss on the earlyextinguishment of debt during the first six months of 2004. We also repaid $25million of borrowings under our senior secured revolving credit facility inMarch 2004. In connection with the issuance of the debentures, we incurredcosts of approximately $6.8 million, which were capitalized as other assets andare being amortized over a period of five years, representing the periodthrough the date on which the debenture holders may first require us torepurchase the debentures.

We may redeem some or all of these debentures at anytime on or after March 20, 2009 at a redemption price equal to 100% of theprincipal amount of the debentures, plus accrued interest. Additionally,holders of these 1% convertible subordinated debentures may require us torepurchase all or any portion of their debentures for cash on March 20, 2009,March 15, 2014 and March 15, 2019 at a price equal to 100% of the principalamount of debentures to be repurchased, plus accrued interest.

These debentures are convertible into shares of ourcommon stock in the following circumstances: during any fiscal quartercommencing after June 30, 2004, (1) if the closing price of our common stockexceeds 120% of the conversion price then in effect for at least twenty tradingdays in the thirty consecutive trading day period ending on the last trading dayof the immediately preceding fiscal quarter; (2) subject to certain exceptions,during the five business days after any five consecutive trading day period inwhich the trading price per $1,000 principal amount of the debentures for eachday of such period was less than 98% of the product of the closing sale priceof our common stock and the number of shares issuable upon conversion of $1,000principal amount of the debentures; (3) if the debentures have been called forredemption; or (4) upon the occurrence of certain corporate transactions.

The current conversion rate of these debentures is45.9770 shares per $1,000 principal amount of debentures, representing aconversion price of $21.75 per share. The conversion rate is subject toadjustment, without duplication, upon the occurrence of any of the followingevents, as more fully explained in the Indenture: (1) payment or issuance ofcommon stock as a dividend or distribution on our common stock; (2) theissuance to all holders of common stock of rights, warrants or options topurchase our common stock for a period expiring within 45 days of the recorddate for such distribution at a price less than the average of the closing saleprices for the 10 trading days preceding the declaration date for such distribution;(3) subdivisions, splits or combinations of our common stock; (4) distributionsby us to all holders of our common stock of shares of our capital stock,evidences of indebtedness, property or assets, including rights, warrants,options and other securities but excluding dividends or distributions coveredby clauses (1) or (2) above or any dividend or distribution paid exclusively incash; provided that in the event that we distribute capital stock of, orsimilar equity interests in, a subsidiary or other business unit of ours, thenthe conversion rate will be adjusted based on the market value of thesecurities so distributed relative to the market value of our common stock, ineach case based on the average closing sales prices of those securities (wheresuch closing prices are available) for the 10 trading days commencing on andincluding the fifth trading day after the date on which “ex-dividend trading”commences for such distribution on the New York Stock Exchange or such otherprincipal national or regional exchange or market on which the securities arethen listed or quoted or in the absence of such a quotation, a closing saleprice determined by us on a basis we consider appropriate; (5) the payment ofcash as a dividend or distribution on our common stock, excluding any dividendor distribution in connection with our liquidation, dissolution or winding up;or (6) we or any of our subsidiaries makes a payment in respect of a tenderoffer or exchange offer for our common stock to the extent that the cash andvalue of any other 

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consideration included inthe payment per share of our common stock exceeds the closing sale price pershare of our common stock on the trading day next succeeding the last date onwhich tenders or exchanges may be made pursuant to such tender or exchangeoffer. 

To the extent that our shareholder rights agreementdated June 12, 1997, as amended, or any future rights plan adopted by us is ineffect upon conversion of the debentures into common stock, holders of thedebentures will receive, in addition to the common stock, the rights under therights plan unless the rights have separated from the common stock at the timeof conversion, in which case the conversion rate will be adjusted as if wedistributed to all holders of our common stock, shares of our capital stock,evidences of indebtedness, property or assets as described in clause (4) above,subject to readjustment in the event of the expiration, termination orredemption of such rights. 

In the event of (1) any reclassification of our commonstock; (2) a consolidation, merger or binding share exchange involving us; or(3) a sale or conveyance to another person or entity of all or substantiallyall of our property and assets, in which holders of our common stock would be entitledto receive stock, other securities, other property, assets or cash for theircommon stock, upon conversion holders of the debentures will be entitled toreceive the same type of consideration that they would have been entitled toreceive if they had converted the debentures into our common stock immediatelyprior to any of these events. 

We may, from time to time,increase the conversion rate if our board of directors has made a determinationthat this increase would be in our best interests. In addition, we may increasethe conversion rate if our board of directors deems it advisable to avoid ordiminish any income tax to holders of common stock resulting from any stock orrights distribution.

**Future Cash Needs**

We expect that our primary future cash needs will beto fund working capital, capital expenditures, debt service, and employeeobligations. We incurred pretax transition and startup costs of approximately$8.0 million during the six months ended June 30, 2004, related to theacquisition of Connectivity Solutions, which were primarily for informationtechnology, transition services and other acquisition-related costs. We believewe have incurred most of the acquisition-related transition and startup costsassociated with Connectivity Solutions as of June 30, 2004. In addition, wehave assumed up to $65 million of other specified liabilities in thistransaction, primarily related to employee benefits. These noncurrent employeebenefit liabilities will be funded with cash flow from future operations.

We believe that ourexisting cash and cash flows from operations, combined with availability underour senior secured revolving credit facility, will be sufficient to meet ourpresently anticipated future cash needs. We may, from time to time, borrow underour revolving credit facility or issue securities, if market conditions arefavorable, to meet our future cash needs or to reduce our borrowing costs.

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**CONTRACTUALOBLIGATIONS**

As aresult of the acquisition of Connectivity Solutions as of January 31, 2004 inaddition to financing activities that occurred during the six months ended June30 2004, we have had a material change in our contractual obligations sinceDecember 31, 2003. The following table summarizing our contractual obligationshas been updated from December 31, 2003 to reflect our consolidated contractualobligations as of June 30, 2004 (in millions):
| ** **                          | ** ** | **Total**  | ** ** | **Amount of Payments Due per Period** | ** ** |
|-------------------------------------|------------|------------|------------|----------------------------------------------------------------|------------|
| **Contractual Obligations**    | ** ** | ** ** | ** ** | **Payments  Due**                                              | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **After 5  years** | ** ** |
| Long-term debt                      |       |       | $          | 328.3                                                          |       |   |   | $ | 22.0 |   |   |   | $ | 26.0 |   |   |   | $ | 19.5 |   |   | $ | 260.8 |   |
| Operating leases                    |       |       | 45.0       |                                                           |       |   | 6.6 |   |   |   | 13.4 |   |   |   | 9.9 |   |   | 15.1 |   |
| Purchase  obligations               |       |       | 3.9        |                                                           |       |   | 3.9 |   |   |   | — |   |   |   | — |   |   | — |   |
| Pension  liabilities                |       |       | 33.0       |                                                           |       |   | 0.2 |   |   |   | 3.3 |   |   |   | 2.4 |   |   | 27.1 |   |
| Postretirement  benefit liabilities |       |       | 64.5       |                                                           |       |   | 0.2 |   |   |   | 2.4 |   |   |   | 4.3 |   |   | 57.6 |   |
| Foreign currency  derivative        |       |       | 5.9        |                                                           |       |   | — |   |   |   | — |   |   |   | — |   |   | 5.9 |   |
| Total contractual  obligations      |       |       | $          | 480.6                                                          |       |   |   | $ | 32.9 |   |   |   | $ | 45.1 |   |   |   | $ | 36.1 |   |   | $ | 366.5 |   |
|                                     |            |            |            |                                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

In addition to thecontractual obligations listed above, we are contractually obligated to pay$2.5 million per year through March 15, 2024 for interest on our $250.0 millionconvertible debentures. 

**FORWARD-LOOKINGSTATEMENTS**

Certain statements in this Form 10-Q that are otherthan historical facts are intended to be “forward-looking statements” withinthe meaning of the Securities Exchange Act of 1934, the Private SecuritiesLitigation Reform Act of 1995 and other related laws and include but are notlimited to those statements relating to our business position, plans,transition, outlook, revenues, earnings, margins, accretion, synergies andother financial items, integration and restructuring plans related to ouracquisition of substantially all of the assets and certain liabilities of theConnectivity Solutions business, sales and earnings expectations, expecteddemand, cost and availability of key raw materials, internal productioncapacity and expansion, competitive pricing, relative market position andoutlook. While we believe such statements are reasonable, the actual resultsand effects could differ materially from those currently anticipated. Theseforward-looking statements are identified, including, without limitation, bytheir use of such terms and phrases as “intends,” “intend,” “intended,” “goal,”“estimate,” “estimates,” “expects,” “expect,” “expected,” “project,” “projects,”“projected,” “projections,” “plans,” “anticipates,” “anticipated,” “should,” “designedto,” “foreseeable future,” “believe,” “believes,” “think,” “thinks” and “scheduled”and similar expressions. 

These statements aresubject to various risks and uncertainties, many of which are outside ourcontrol, including, without limitation, the challenges of transition,integration and restructuring associated with the acquisition of ConnectivitySolutions; the impact of purchase accounting adjustments; the challenges ofachieving anticipated synergies; the ability to retain qualified employees andexisting business alliances; maintaining satisfactory relationships withrepresented employees; customer demand for our products, applications andservices; post-closing adjustments; any statements of belief and any statementsof assumptions underlying any of the foregoing; expected demand from majordomestic MSOs; telecommunications industry capital spending; ability tomaintain successful relationships with our major distributors; industryconsolidation; ability of our customers to secure adequate financing to fundtheir infrastructure projects or to pay us; product demand and industry excesscapacity; changes or fluctuations in global business conditions; competitivepricing and acceptance of our products; changes in cost and availability of keyraw materials, especially those that are available only from limited sources;ability to 

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recoverhigher material and transportation costs from our customers through priceincreases; possible future impairment charges for goodwill and other long-livedassets; industry competition and the ability to retain customers; possibledisruption due to customer or supplier bankruptcy, reorganization orrestructuring; our ability to obtain financing and capital on commerciallyreasonable terms; covenant restrictions and our ability to comply withcovenants in our debt agreements; successful operation of our vertical integrationactivities; successful expansion and related operation of our facilities;achievement of sales, growth and earnings goals; ability to achieve reductionsin costs; ability to retain and attract key personnel; developments intechnology; intellectual property protection; product performance issues andassociated warranties; adequacy and availability of insurance; regulatorychanges affecting us or the industries we serve; acquisition activities and theability to integrate acquisitions; the accounting and financial reportingimpact of our stock options and convertible debt; environmental issues;terrorist activity or armed conflict; political instability; major healthconcerns and other factors. Actual results may also differ due to changes intelecommunications industry capital spending, which is affected by a variety offactors, including, without limitation, general business conditions,acquisitions of telecommunications companies by others, consolidation withinthe telecommunications industry, the financial condition of telecommunicationscompanies and their access to financing, competition among telecommunicationscompanies, technological developments, and new legislation and regulation oftelecommunications companies. These and other factors are discussed in greaterdetail in Exhibit 99.1 to this Form 10-Q. Theinformation contained in this Form 10-Qrepresents our best judgment at the date of this report based on informationcurrently available. However, we do not intend, and are not undertaking anyduty or obligation, to update this information to reflect developments orinformation obtained after the date of this report.

**ITEM3**.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK

As disclosed in our AnnualReport on Form 10-K/A for the year ended December 31, 2003, our major marketrisk exposure relates to adverse fluctuations in commodity prices, interestrates and foreign currency exchange rates. We have established a riskmanagement strategy that includes the reasonable use of derivative andnonderivative financial instruments primarily to manage our exposure to thesemarket risks. We believe our exposure associated with these market risks hasnot materially changed since December 31, 2003. We have not acquired any newderivative financial instruments since December 31, 2003 or terminated anyderivative financial instruments that existed at that date.

**ITEM4**.   CONTROLS AND PROCEDURES

Our disclosure controls and procedures are designed toensure that information required to be disclosed in reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the Securities and Exchange Commission. Our Chief Executive Officerand our Chief Financial Officer have reviewed the effectiveness of ourdisclosure controls and procedures as of the end of the period covered by thisreport and have concluded that the disclosure controls and procedures areeffective. 

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

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**PARTII**—OTHER INFORMATION

**ITEM 2**.   CHANGES INSECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
| **Period**                    | ** ** | ** ** | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price  Paid per  Share** | ** ** | **Total Number of  Shares  Purchased as  Part of Publicly  Announced Plan** | ** ** | **Maximum Number  of Shares that  May Yet Be  Purchased Under  the Plans** | ** ** |
|-------------------------------|------------|------------|------------|--------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|
| April 1 – April 30, 2004 |       |       | —     |                                             |       |                                     | —     |                                                                                                      |       | —                                                                                                        |       | — |   |
| May 1 – May 31, 2004     |       |       | —     |                                             |       |                                     | —     |                                                                                                      |       | —                                                                                                        |       | — |   |
| June 1 – June 30,  2004  |       |       | 7,656,900  | (A)                                              |       |                                     |       | (B)                                                                                                       |       | Not applicable                                                                                                |       | Not applicable |   |

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(A)       On June 14, 2004, CommScopeOptical exercised its contractual right to sell and sold its 9.4% ownershipinterest in OFS BrightWave to Furukawa in exchange for delivery by Furukawa of7,656,900 shares of CommScope common stock owned by Furukawa.

(B)        Theconsideration for the purchase of all of the CommScope common stock held byFurukawa consisted of the transfer of CommScope Optical’s 9.4% ownershipinterest in OFS BrightWave, LLC to Furukawa.

**ITEM4**.   SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

The Company held its Annual Meeting of Stockholders(the “Meeting”) on May 7, 2004. Proxies for the Meeting were solicited pursuantto Regulation 14A under the Securities Exchange Act of 1934, as amended. Atotal of 61,354,730 shares of Common Stock with one vote each were entitled tovote at the Meeting and holders of 58,049,948 shares voted in person or byproxy, constituting a quorum.

At theMeeting, two of the Company’s directors were elected for three-year termsending at the 2007 Annual Meeting of Stockholders by the vote set forth below:
| **Name of Director** | ** ** | ** ** | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|--------------------------------|------------|------------|------------|--------------------|------------|-------------------------|------------|
| Boyd L. George                 |       | 53,757,540 |       |               | 4,292,408  |                    |       |
| George N. Hutton, Jr.          |       | 55,644,427 |       |               | 2,405,521  |                    |       |

 

The Company’s other four directors, whose terms ofoffice continue after the Meeting with terms expiring at the annual meetings inparentheses after their names, are James N. Whitson (2005), June E. Travis(2005), Frank M. Drendel (2006) and Duncan M. (“Lauch”) Faircloth (2006).

A proposal to approve the Amended and RestatedCommScope, Inc. 1997 Long-Term Incentive Plan, as amended effective May 7, 2004was approved by 42,734,971 votes cast in favor, 8,555,737 votes cast against,1,349,146 votes abstaining and 5,410,094 broker non-votes.

A proposal to re-approve the material terms of theperformance goals set forth under the Annual Incentive Plan as required underSection 162(m) of the Internal Revenue Code and the regulations promulgatedthereunder was approved by 53,919,213 votes cast in favor, 2,772,346 votes castagainst and 1,358,389 votes abstaining.

A proposal to ratify theappointment by the board of directors of the Company of Deloitte & ToucheLLP as independent auditors for the Company for the 2004 fiscal year wasapproved by 57,500,600 votes cast in favor, 511,205 votes cast against and38,143 votes abstaining.

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**ITEM6**.   EXHIBITS AND REPORTS ON FORM 8-K

(a)          Exhibits

31.1                Certification ofChief Executive Officer pursuant to Rule 13a-14(a).

31.2                Certification ofChief Financial Officer pursuant to Rule 13a-14(a).

32                          Certificationof 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 of2003 (furnished pursuant to Item 601(b)(32)(ii) of Regulation S-K).

99.1                Forward-LookingInformation

(b)         Reports on Form 8-K filedduring the three months ended June 30, 2004:

On May 4, 2004, we furnished a current report on Form8-K announcing our financial results for the first quarter of 2004.

On June 15, 2004, we filed a current report on Form8-K announcing the restructuring of our relationship with Furukawa.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                  | Commscope,  Inc.                                     |
|------------------|------------------------------------------------------|
| *August 9, 2004* | * *                                             | /s/ Jearld L. Leonhardt |   |
| Date             | Jearld L. Leonhardt                                  |
| ** **       | Executive Vice President and Chief Financial Officer |
| ** **       | signing both in his capacity as Executive Vice       |
| ** **       | President on behalf of the Registrant and as         |
| ** **       | Chief Financial Officer of the Registrant            |
|                  |                                                      |  |  |

 

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