CommScope Inc. (CTV) filed Quarterly Report for the period ended 2009-09-30.
Commscope Inc. is a world leader in infrastructure solutions for communication networks. Through its SYSTIMAX Solutions and Uniprise Solutions brands CommScope is the global leader in structured cabling systems for business enterprise applications. It is also the world's largest manufacturer of coaxial cable for Hybrid Fiber Coaxial applications. Backed by strong research and development CommScope combines technical expertise and proprietary technology with global manufacturing capability to provide customers with high-performance wired or wireless cabling solutions. Commscope Inc. has a market cap of $2.6 billion; its shares were traded at around $27.77 with a P/E ratio of 11 and P/S ratio of 0.6. Commscope Inc. had an annual average earning growth of 2.1% over the past 10 years.
Highlight of Business Operations:
The year-over-year decrease in gross profit of $57.0 million and $197.4 million for the three and nine months ended September 30, 2009, respectively, is primarily attributable to the decline in net sales. Also contributing to the decline is the underabsorption of manufacturing overhead as production levels were lowered in response to weaker global demand. Cost reduction efforts, including facility closures, reductions in staffing and the suspension of certain discretionary bonuses helped to reduce certain manufacturing costs. Benefits from lower raw material costs were not fully realized due to the higher cost inventory that was still on hand at the beginning of the year. Gross profit for the nine months ended September 30, 2009 includes charges of $21.2 million related to the TruePosition litigation. Gross profit for the three and nine months ended September 30, 2008 was adversely affected by $1.8 million and $59.3 million, respectively, of purchase accounting adjustments related to inventory acquired in the Andrew acquisition.
The year-over-year decrease in selling, general and administrative expense (SG&A) of $10.9 million and $81.5 million for the three and nine months ended September 30, 2009, respectively, was primarily due to cost reduction efforts including workforce reductions, lower selling costs due to the lower net sales and the suspension of discretionary bonus programs during 2009. Included in SG&A for the three and nine months ended September 30, 2008 was a benefit of $10.0 million related to the release of a liability resulting from the alignment of certain employee benefit policies between legacy CommScope and legacy Andrew. Also included in SG&A for the three and nine months ended September 30, 2008 were acquisition and integration related costs of $0.4 million and $4.2 million, respectively. Although SG&A expense declined in 2009 as compared to 2008, SG&A expense as a percentage of sales increased for the quarter and the year-to-date period due to the decreased level of net sales.
With the acquisition of Andrew, we recorded intangible assets of $965 million. In the fourth quarter of 2008, we recognized an impairment charge of $97 million related to certain of these intangible assets. As a result of this impairment, the amortization of purchased intangibles declined $3.5 million and $10.9 million for the three and nine months ended September 30, 2009, respectively, as compared to the same periods in 2008. Of the total amortization expense for the three and nine months ended September 30, 2009, $3.6 million and $10.8 million, respectively, relates to patents and technologies and is included in cost of sales. In the comparable prior year periods, amortization expense of $3.8 million and $11.6 million was included in cost of sales.
Foreign exchange losses of $1.6 million and $4.6 million are included in net other expense for the three and nine months ended September 30, 2009, respectively, compared to gains (losses) of $0.2 million and $(11.6) million for the comparable periods ended September 30, 2008, respectively. Realized losses of $0.5 million on the sale of auction rate securities are also included in net other expense for the three and nine months ended September 30, 2009. Net other expense for the nine months ended September 30, 2009 and 2008 includes losses of $8.6 million and $2.8 million, respectively, on the induced conversion of our 1% convertible senior subordinated debentures.
We incurred net interest expense of $24.8 million and $96.1 million during the three and nine months ended September 30, 2009, respectively, compared to net interest expense of $31.0 million and $96.7 million for the three and nine months ended September 30, 2008, respectively. During the nine months ended September 30, 2009, interest expense includes an $11.3 million charge for the interest make-whole payment related to the conversion of the 3.50% convertible debentures. Interest expense for the nine months ended September 30, 2009 also includes $7.5 million related to the write off of deferred financing costs in connection with accelerated debt payments. These increases in interest expense are partially offset by a reduction in interest expense resulting from lower outstanding debt balances in 2009 as compared to 2008. Our weighted average effective interest rate on outstanding borrowings, including the interest rate swap and amortization of deferred financing costs, was 6.44% as of September 30, 2009, 5.45% as of December 31, 2008 and 6.25% as of September 30, 2008.
Income before income taxes for the three and nine months ended September 30, 2008 includes $1.4 million and $26.9 million, respectively, of charges primarily related to restructuring initiatives, for which we have not recognized tax benefits. The merger of the legacy Andrew Brazilian entity into the legacy CommScope Brazilian entity resulted in the partial release of valuation allowances carried against the legacy CommScope Brazilian net operating loss carryforwards. This release provided a $5.0 million benefit to the tax provision for the three and nine months ended September 30, 2008. Also included in the income tax provision for the nine months ended September 30, 2008 is a benefit of $3.9 million related to the settlement of various U.S. and foreign income tax audits. The effective rate excluding these items was 17.1% and 21.0% for the three and nine months ended September 30, 2008, respectively.
CTV is in the portfolios of Robert Olstein of Olstein Financial Alert Fund, David Williams of Columbia Value and Restructuring Fund, David Dreman of Dreman Value Management, John Hussman of Hussman Economtrics Advisors, Inc., George Soros of Soros Fund Management LLC.
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