CommScope, Inc.

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CommScope, Inc.

1100 CommScope Place SE
Hickory, North Carolina 28603
U.S.A.
Telephone: (828) 324-2200
Toll Free: (800) 982-1708
Fax: (828) 328-3400
Web site: http://www.commscope.com

Public Company
Incorporated: 1997
Employees: 4,300
Sales: $1.15 billion (2004)
Stock Exchanges: New York
Ticker Symbol: CTV
NAIC: 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing

CommScope, Inc. is a Hickory, North Carolina-based company that designs and manufactures coaxial and fiber optic cable and related products used by cable and satellite television providers and other applications, including data networking, Internet access, wireless communications, and telephony. The company also specializes in making products that bridge the gap between older analog cabling that still dominates the world's communications infrastructure with newer digital networks, thus becoming a specialist in what is called the "last mile," the direct link to the customer, who gains a powerful digital connection to a predominantly analog world. CommScope products are covered by more than 1,100 global patents and patent applications. The company maintains a dozen manufacturing facilities around the world, including four plants in North Carolina as well as domestic plants in Alabama, Nebraska, and Nevada. International production facilities are located in Belgium, Ireland, Brazil, Australia, and the People's Republic of China. CommScope is a public company listed on the New York Stock Exchange.

BEGINNINGS DATING TO THE 1950S

The origins of CommScope date to 1953 and the start of Superior Cable Corporation in Hickory, North Carolina. The man behind the founding of Superior was Harry G. Burd, who had spent his career in the wire and cable business. After he retired as the vice-president of sales for Anaconda Wire and Cable in the early 1950s, he served as a consultant for Ansonia Electrical Company, a leader in the development of plastic-covered telephone wire, which was on the cutting edge of technology compared with the lead-sheathed, paper-insulated cable that was in use. Burd conducted a market study to determine the demand for plastic-covered telephone cable, but Ansonia ignored his advice to build a cable plant in the Southeast, at a time when the southernmost cable plant was located in Trenton, New Jersey.

Burd decided to build a southern cable plant himself and took on a partner and chief engineer named Jim Robb, whom he met when Robb worked for the Rural Electrification Administration, the federal program to wire rural America. Because they did not want to be too far removed from the major markets of Pennsylvania, Ohio, and New York, they agreed on a general location of a cable plant in Virginia or the Carolinas. Because textile work was similar in nature to cable making, involving winding and unwinding processes and an emphasis on tension, they began looking to North Carolina. After considering several towns in the state, they settled on Hickory, primarily because the town was eager to attract new industry and offered financial assistance in buying the land and building the plant. Thus Superior Cable Corporation was incorporated in 1953 and in July 1954 it began producing the new plastic-covered telephone wire.

Very soon after its launch, Superior began its own research and development efforts. By mid–1955 it was producing Super Splice sleeves, developed by Robb, that facilitated the joining of plastic-sheathed wires. The product was quickly accepted by the industry and opened the door for Superior to sell its wire to companies such as Southern Bell Company in Atlanta. Superior also found an innovative way to help in determining the length of buried telephone cable, critical because the cable had to be connected to devices called loading coils at precise intervals in order to improve transmission. Superior marked the footage on the outside of its cable, starting at zero. A simple calculation was now all that was required to determine cabling distances and marked cable quickly became a standard. Superior was over-whelmed with orders.

It was also in the 1950s that Superior began to produce Community Antenna Television (CATV) coaxial cable that would find an increasing market as the cable television industry began to take shape. In 1961 Superior created a separate division called Communications Systems Construction Planning Engineering, which it wanted to market as Comm/Tech, but a Chicago company had already trademarked the name. Taking the suggestion of Superior's advertising manager, the unit took the name of Comm/Scope. It developed complete CATV systems and in 1964 the CommScope name was applied to Superior's new coaxial cable.

CHANGES IN OWNERSHIP: 1960S–90S

In the mid-1960s Superior caught the attention of Continental Telephone Company, a rising force in telecommunications that had started out by combining a number of small independent midwestern telephone companies. After acquiring a large California company, Continental contacted Robb, who by this time was serving as Superior's president, and proposed that Continental, which was by far Superior's largest customer, should acquire Superior, making it the core of its manufacturing operation. It was an arrangement that served the interest of both parties, and so in March 1967 Continental acquired Superior, and CommScope became a Continental division.

CommScope remained part of Continental for nearly a decade, and then in 1975 Continental put Superior on the block. It was sold piecemeal, with Alcatel and Corning ultimately ending up with two of the pieces. A management team led by Frank Drendel acquired CommScope. Drendel grew up in the Midwest where he became familiar with coaxial cable by installing television cable for a Continental cable subsidiary, DeKalb-Ogle, while attending Northern Illinois University. His education was interrupted by a stint in the Army during the Vietnam War, and after finishing his degree in 1970 he went to work for Continental's cable subsidiary, Continental Transmission, one of the top cable TV operators in the country. He quickly made chief executive officer but the Federal Communications Commission soon required telephone companies to divest their co-located cable properties and Time Warner bought the property. Drendel went to work as a vice-president of operations for another cable operator, Cypress Communications, only to have Time Warner buy that business as well. He next took an assignment with Continental and moved to Hickory to lead Superior's Comm/Scope unit. When Superior began selling off units shortly after he arrived, he decided to buy the CommScope product line, engineering the first leveraged buyout in the cable business.

COMPANY PERSPECTIVES

CommScope combines technical expertise and proprietary technology with global manufacturing capability to provide customers with high-performance wired or wireless cabling solutions.

Under Continental, CommScope had lost its edge competing in a crowded field of suppliers, doing just $10 million in annual sales. Moreover, cable system construction had fallen off dramatically. Drendel told CED in a 2002 profile, "There were 15 companies in our business and we were ranked 15th, but I was young, and I was sure you couldn't keep cable down." He explained there was an additional factor: "I needed a damn job!" Drendel and Jerald Leonhardt, who became CommScope's chief financial officer, along with a group of Hickory-area investors, acquired CommScope in 1976. Four years later Drendel hired another key member of his management team: Brian Garrett, CommScope's president and chief operating officer.

As Drendel had foreseen, the cable industry could not be kept down, and he and his team began to build CommScope into a major cable suppler. Drendel also anticipated the future importance of fiber optics to the cable industry, and in 1977 merged CommScope with Valtec, Inc., a leader in fiber optic technology. Drendel's foresight would also be evident in the role he played in the creation of C-SPAN, the cable channel devoted to televising Congress, as well as the later movement to make television a digital medium.

In 1980 Valtec sold out to M/A-Com Inc. in order to strengthen both of its units, and CommScope now became part of M/A-Com's Cable Home Group and Drendel became a vice-chairman of the parent company while continuing to head CommScope. In 1983 CommScope established its Network Cable division to become involved in making cable for computer networks and other specialized wire markets. CommScope swapped corporate parents in 1986 when the Cable Home Group was sold to General Instrument Corporation. Now a General Instrument division, CommScope continued to be led by Drendel, who became chairman and CEO of the subsidiary. Two years later, in 1988, Drendel bought back a significant interest in CommScope once again, leading another group of investors, but its independence would last just two years. In 1990, General Instrument, which itself was being bought by New York's Forstmann, Little & Co., reacquired CommScope.

1997 SPINOFF AND POSITIONING FOR A NEW CENTURY

In the mid-1990s CommScope enjoyed a major growth spurt, gaining a global market share for coaxial cable of more than 50 percent, and building annual sales to $572.2 million in 1996. To meet rising demand it acquired plants in Elm City, North Carolina, and Scottsboro, Alabama. Fortunately, CommScope was not wholly dependent on the cable television industry, which was struggling in the mid-1990s. In 1997 General Instrument decided to split into three separate, publicly traded companies, a move intended, according to the New York Times, "to distance itself from the stumbling cable industry." The largest of the three companies, accounting for two-thirds of General Instrument's revenues, would be NextLevel Systems, supplier of settop boxes, cable modems, and other products for voice, data, and video networks. Its creation was intended to sever General Instrument's association with the cable industry, which had proven to be a damper on growth. The second spinoff was General Semiconductor, maker of electronic components, and the third was CommScope, which would once again attempt to fly solo.

The CommScope spinoff was completed in July 1997. Its shares were distributed to General Instrument shareholders and then listed on the New York Stock Exchange. The company got off to a modest start. Sales improved to $599 million in 1997 but tailed off to $572 million in 1998 due to a drop in international sales caused by an economic crisis in Asia. Nevertheless, CommScope expanded its operations in 1998 by acquiring a coaxial cable manufacturing plant in Seneffe, Belgium. Then, in 1999, the company launched a five-year, $135 million expansion in the Hickory area to beef up its fiber optic and wireless manufacturing and research and development capabilities. The first step was the $7 million purchase of a former printing plant in Newton, North Carolina. Business also improved dramatically in 1999. Sales surged to $749 million, and operating income increased from $72.8 million in 1998 to $117.5 million, as gains were made by all three of CommScope's principal product categories: CATV/Video, wireless and other telecom, and local area networks (LANs).

KEY DATES

1953:: Superior Cable Corporation is founded in Hickory, North Carolina.
1964:: Superior begins marketing coaxial cable under the CommScope name.
1967:: Continental Telephone acquires Superior and CommScope becomes a division.
1976:: CommScope is bought by a management-led investor group.
1977:: CommScope is merged with Valtec.
1980:: Valtec is acquired by M/A-COM.
1986:: CommScope is sold to General Instrument Corporation.
1988:: CommScope is taken private.
1990:: General Instrument again acquires the company.
1997:: General Instrument spins off CommScope as an independent, public company.
2004:: Connectivity Solutions is acquired.

CommScope appeared well positioned for the new century, but it would have to contend with a severe downturn in the telecommunications industry and a recession. The year 2000 started out well and resulted in CommScope realizing record results by year's end. Sales increased 27 percent to $950 million and earnings improved by 22 percent. The company also bought a coaxial cable plant in Brazil, which would allow it to begin supplying the South American market in 2001. It expanded its business in the western portion of the United States by opening a manufacturing and distribution facility in Nevada, as well as beginning construction on a new corporate headquarters in Hickory. But amid these positive developments uncertainty was brewing in the telecommunications industry, which would suffer through a very difficult 2001. CommScope experienced a 22 percent drop in sales and earnings were cut by more than two-thirds, but it still fared better than most companies in the industry and took advantage of the situation to buy Lucent Technologies' fiber optic cable unit in a joint venture with Japan's Furukawa Electric Co.

CommScope hoped to be ready to benefit from an expected rebound in telecommunications, but conditions only grew worse with the meltdown of the dotcom sector, and this time even CommScope was not left unscathed. Sales fell below $600 million and the company lost $67.2 million, its first losing year; the price of its stock plummeted as well. In order to cut costs, CommScope was forced to slash its workforce at the end of the year. Tough times persisted in 2003, as sales slipped further, totaling $573 million for the year, and the company lost another $71 million.

CommScope had always taken a long-term approach and just as Drendel had believed cable TV could not be kept down in the 1970s, the company was now confident that the widespread demand for broadband communications would bode well for its strategy of producing the products to achieve the "last mile" connections to customers. That belief would begin to be borne out in 2004 when CommScope rebounded with a record year. A major factor was the acquisition of Connectivity Solutions from Avaya, Inc. for $250 million in cash plus stock and the assumption of liabilities. Connectivity Solutions was a major brand in structured cabling for LAN solutions and greatly enhanced CommScope's global position in the enterprise LAN business. CommScope finished 2004 with sales of $1.15 billion and net income of nearly $75.8 million. The company had to contend with rising costs of materials and continued to maintain a short leash on costs, but enjoyed another strong year in 2005. The company also opened its first broadband cable manufacturing facility, located in the People's Republic of China, the first step in a new global manufacturing initiative that would cut costs and solidify CommScope's position in the world market.