CommScope, Inc. Q2 2010 Earnings Call Transcript

As anticipated, North America wireless operators significantly increased spending in the quarter under 3G and 4G wireless infrastructure and from a geographic standpoint, the U.S. market was the most robust in the quarter. Strength in the North American wireless market and global enterprise markets were somewhat offset by lower sales in India and China.

The gross margin for the second quarter of 2010 was 30% and includes a gain of $9 million for an arbitration award related to warranty cost arising from a business that Andrew had acquired several years ago prior to the CommScope-Andrew merger. Now, excluding this special item, adjusted gross margin was 29%. Gross margin rose modestly on a sequential basis, but declined year-over-year due primarily to higher material cost, a return to normal business practices for salary and incentive compensation and lower prices for certain cable products.

SG&A expense for the second quarter of 2010 was $117 million, up $18 million year-over-year primarily due to the reinstatement of certain incentive-based employee cash bonus programs in 2010 that had been suspended for 2009 and higher selling cost due to higher sales.

Operating income in the second quarter of 2010 was $81 million compared to $74 million in the year-ago quarter. Adjusted operating income, which excludes the amortization of purchased intangibles and other special items declined 19% from the year-ago period to $101 million. The decline in adjusted operating income is primarily attributable to a decline in broadband operating income. However, adjusted operating income increased 53% sequentially primarily due to improved wireless performance.

Interest expense for the quarter was $23 million compared to $43 million in the year ago quarter. Last year we incurred non-cash charges of $17 million related to an interest make whole payment and the write-off of deferred financing fees in connection with accelerated debt payments. Excluding these items, interest expense in the year-ago quarter was $26 million. Interest expense declined year-over-year due to lower debt levels.

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