Executives
Phil Armstrong - VP of IR and Corporate Communications
Jearld L. Leonhardt - CFO and EVP
Frank M. Drendel - Chairman of the Board, CEO
Brian D. Garrett - President and COO
Analysts
Celeste Santangelo - Merrill Lynch
Jeff Beach - Stifel Nicolaus
George Notter - Jefferies & Co.
Simon M. Leopold - Morgan Keegan
Brian Coyne - FBR Capital Markets
Glen Anderson - Oppenheimer & Co.
Amir Rozwadowski - Lehman Brothers
CommScope, Inc. (CTV) Q4 FY07 Earnings Conference Call February 28, 2008 5:00 AM ET
Operator
: Ladies and gentleman, thank you for standing by. Welcome to the Fourth Quarter 2007 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. [Operator Instructions]. As a reminder this conference is being recorded Thursday February 28, 2008.
I would now like to turn the conference over to Phil Armstrong, VP of Investor Relations. Please go ahead sir.
Phil Armstrong - Vice President of Investor Relations and Corporate Communications
Thank you. Good afternoon and thank you for joining us on this call. Frank Drendel, CommScope's Chairman and Chief Executive Officer, Brian Garrett, CommScope's President and Chief Operating Officer and Jearld Leonhardt CommScope's Chief Financial Officer join me on the call.
During this conference call we may make forward-looking statements regarding our financial position, plans and new acquisition and outlook that are based on information currently available to management, management's beliefs and a number of assumptions concerning future events. Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors which could cause the actual results to differ materially from those currently expected. For a more detailed description of factors that could cause such a difference. Please see our press release we issued today, in CommScope's filings with the Securities and Exchange Commission. And providing forward-looking statements, the company does not intend and does not undertake any duty or obligation to update these statements as a result of new information, future events or otherwise. Also, please note that all dollar figures and percentages are approximations. Jearld.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Thank you Phil. This afternoon I will review our fourth quarter and full year CommScope results which do not include any of the operating results for Andrew. I will then give a brief summary of Andrews December quarter results prior to the acquisition. And before turning the call over to Frank I will also cover our current outlook for 2008 in the first quarter as well.
Earlier today CommScope announced fourth quarter results for the period ended December 31, 2007. The company reported record fourth quarter sales of $463 million and net income of $38 million or $0.51 per diluted share. The reported net income includes after tax charges of approximately $3 million for interest on the new term loans write-off the deferred financing fees related to our old financing arrangements and acquisition expenses related to the Andrew acquisition.
Excluding these special items adjusted fourth quarter earnings were $41 million or $0.55 per diluted share. Sales for the fourth quarter of 2007 increased 17% year-over-year driven by increased volume in all three segment. Enterprise segment sales rose 17% year-over-year to $219 million primarily due to higher sales volumes and growth across all regions with particular strength in the North American region.
For calendar year 2007 Enterprise sales rose 12% to $899 million as we achieved growth in all our major regions. We continue to invest in emerging markets as we build our global brand. As a result of our growing international focus nearly one half of our enterprise revenue is now being generated outside the United States.
The enterprise segment continues to experience year-over-year growth as businesses invest in an intelligent building deploy and consolidate data centers and the increasing bandwidth as employees utilize new technologies such as collaborative software and video conferencing.
We believe the enterprise segment continues to experience a multi-year upgrade cycle with recent ratification of the Category 6A and class EA standards, we should see increased demand for 10 Gigabits per second copper solution such as CommScope's industry leading SYSTIMAX giga speed extend product.
Now despite here the economic uncertainty we continue to see a strong global project pipeline that gives us confidence about 2008. Large enterprises are now looking at their local area networks as key strategic investments and functions [Technical Difficulty] surveillance and building controls and moving to IP base platforms as well.
We are also very excited about the long-term prospect of building upon our enterprise self channeled Andrew's industry leading in building wireless solution. We currently have teams developing and in building wireless market strategy and believe we will begin to see results towards the end of 2008 with more significant growth in calendar year 2009.
Both down [ph] segment sales rose 6% year-over-year to a $153 million primarily due to higher international sales volumes and the positive impact of the signal vision and corporate acquisition which close on May 1, 2007. For calendar year 2007 broadband sales rose approximately 14% to $625 million were they particularly strengthened the Latin American and Asia Pacific regions.
In calendar year 2008, we expect modest broadband growth. While North American residential construction is expected to be weak, competition between MSOs and Telco should continue to drive maintenance spending and investment by MSOs in their hybrid fiber collection networks.
Customers continue to demand new service offerings such as greater selections of high definition on-demand video and higher speeds of broadband capable of handling next generation technologies such as peer-to-peer activities. Carriers increased 46% to $91 million in the fourth quarter. Sales grow significantly in all major carrier product areas. Carrier segment experienced particularly strong international wireless sales for its extreme-plex smooth wall aluminum cables for mobile cellular towers in the quarter.
Integrated cabinet solutions or ICS, revenue increased as large domestic wire line carriers continue to deploy electronics deeper into their networks to offer higher bandwidth in broadband and video services. Fourth quarter ICS sales reflect than less favorable product mix than previous quarters.
For calendar year 2007 carrier sales grew an impressive 9% and we remained very excited about what we believe is a multi-year opportunity for ICS product line. In 2008 we expect higher volumes of cabinets but a less favorable mix of new generation cabinets as AT&T expense light speed deployments.
While we expect on-going competition, we believe we are uniquely positioned to serve the customer's needs with innovative cabinet designs, strong customer service and approved record of quality and reliability. In our ICS business, we are also excited about the long-term opportunity of selling cabinets through the Andrew sales channel.
We expect to see initial sales in 2008 and more extensive growth in 2009 as we combine leading cabinet technology with a global wireless channel. Overall for CommScope fourth quarter international sales increased 17% year-over-year to $165 million or 36% of total revenue.
Calendar year 2007 international sales grew 20% year-over-year to $629 million. We achieved double-digit growth in all international regions with particularly strong growth in the Latin America and Asia Pacific regions. External customer orders booked in the fourth quarter of 07 were $420 million up 19% from the year ago quarter.
Gross margin for the fourth quarter was 29% or 200 [ph] basis points year-over-year. The gross margin improvement was primarily due to higher sales levels in more favorable product mix and the benefits of on-going cost reduction activities.
Our SG&A for the fourth quarter was $71 million or 15% of sales that included approximately $600,000 of expenses related to the Andrew acquisition. The $71 million compares to $65 million or 16% of sales in the year ago quarter. SG&A expenses grew primarily due to a higher sales levels and spending to support and expand global sales initiatives.
Research and development for the period was approximately $10 million in the fourth quarter or 2% of sales. Excluding special items, operating income for the fourth quarter increased 44% year-over-year to $55 million to 12% of sales. For calendar year 2007 excluding special items in both periods operating income grew more than 65% to $287 million and operating margin increased more than 400 basis points to nearly 15%.
We reached an important goal of bringing all of our business groups to double-digit operating margins for the year with significant improvements in all groups. However raw materials costs continue to rise and we are monitoring these calls closely as commodities are a key input particularly in our broadband and enterprise business.
Now I'll turn to cash flow and balance sheet items. We achieved an all time record of quarterly cash flow in the fourth quarter by generating over $100 million of net cash flow from operating activities, bringing this to a total of $239 million for the full year. We are very proud of these results and the discipline our entire team demonstrated to deliver both the profitability and effective working capital management for this level of cash flow from operations.
Total depreciation and amortization expense was $12 million for fourth quarter while capital spending was approximately $10 million in the fourth quarter. While our results from operations reflect almost no impact of the December 27th Andrew acquisition, our balance sheet fully reflects it.
Total assets as of December 31, 2007 we're more than $5.1 billion and includes our allocation of the approximate $2.6 billion purchase price to the consolidated balance sheet. The purchase price was funded by approximately $2.1 billion of new long-term debt and using our existing cash as well as the issuance of approximately $5.1 million new CommScope shares.
At December 31, 2007 long-term debt including current maturities was approximately $2.6 million. CommScope also ended the year with $649 million of cash and cash equivalents. Please note that the year-end balance sheet reflected a number of items remaining to be sold related to the acquisition including cash payments to retain the Andrew 3.25% so a new subordinated convertible debentures and the remaining amounts to be paid to some Andrew stockholders.
CommScope's tender for the outstanding Andrew debentures in January and as of February 15, essentially all Andrew debentures had been exchanged for merger consideration which totaled $208 million in cash and approximately $500,000 CommScope's shares.
Both our total debt in cash were reduced from the year-end levels as a result of the subsequent conversion of the Andrew bonds.
Now let me briefly turn to Andrew's December quarter results.
In the December quarter prior to the acquisition by CommScope, Andrew's un-audited results included revenues of $546 million and an operating loss of $25 million. Andrew's operating loss reflected merger cost of $34 million, asset impairment of $12 million restructuring of $5 million and then intangible amortization of $2 million.
Please note that CommScope's 2007 statements of operations and cash borrows do not include any operating results for Andrew which were immaterial for the four day period between closing in December 31. Also note that we recently completed the divesture of the satellite communications product line for $8.5 million in cash, $2.5 million in the note receivable during 2010 and 18% ownership interest in the new entity and the potential for up to an additional $25 million in cash is certain financial targets are met over a three year period.
As we look ahead in the wireless market we remain excited about its potential. Wireless subscriber grow particularly in emerging markets increasing minutes of use, new smart phones and handsets, multimedia functionality and robust data applications are all expected [Technical Difficulty] the demand for wireless infrastructure.
In the near term while we expect to grow where the overall wireless market we believe we will not create the most value by executing on our integration plan creating synergies and focusing on cost reduction. So overall we are pleased to deliver another record quarter in year.
We are excited about the acquisition and the significant task of integrating these two strong companies is well under way. So far this year we have created and implemented a new overall organizational structure. We've begun implementation of the integration plans developed by more than 50 transition teams who created a consolidate balance... business plan for 2008 and started to process of the evaluating global manufacturing and distribution facilities. We understand the challenges ahead.
We are building a broader foundation for the long-term success while we work to execute aggressive business plans and a potentially weakening economic environment. We also face the headwinds of volatile raw material costs. We have strong and experienced management which has been strengthened by the Andrew team.
We believe we have a leading competitive global position and we fundamentally believe that the ongoing global demand for bandwidth will continue to drive the need for communications infrastructure in both wired and wireless networks.
Now as we look ahead to calendar year 2008, we expect to have revenue of $4.1 billion to $4.3 billion. In a pro forma operating income target of $525 million to $575 million excluding restructuring and transition cost as well as purchase accounting adjustments related to the fair value write-up of inventory profit planning equipment and intangibles all of which results an increased charges for inventory depreciation and amortization.
This operating income target assumes that the company will be able to successfully recover our cost associated with the rising raw material cost we are experiencing. We expect an overall interest rate at around 6.75% for the term loans which have a beginning balance of $2.1 billion.
Our expected effective tax rate is in the range of 34% to 36% but with the lower cash tax rate anticipated from utilization of deferred tax assets, acquired in the acquisition. Approximately $81 million weighted average fully diluted shares were anticipated as outstanding and more than $500 million of cash flow from operations is expected.
We also expect capital expenditures of $80 million to $90 million and significant non-cash cost related to purchase accounting adjustments including more than $100 million of additional annual intangible amortization and more than $50 million of fair value inventory write-up that increases cost of sales primarily in the first quarter.
So from the first quarter of 2008, we expect revenue of $950 million to $970 million and pro forma operating income of $80 million to $90 million excluding restructuring and transition cost as well as purchase accounting adjustments which we previously mentioned.
Also note that the revenue includes approximately $7 million in satellite communication revenue and an operating loss of approximately $2 million for satellite prior to the January 31, 2008 sale of the business. Primarily due to significant non-cash purchase accounting adjustments as well as transition cost, we anticipate on a GAAP basis, at last for the quarter. Despite that we are very excited about CommScope's future opportunities as we integrate these two dynamic businesses.
I'd like to turn the call over now to Frank for his comments.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Thank you. Jerald and thank you for joining us on this call. By any measure this was the most successful year CommScope ever had. Sales rose nearly 19% across all segments, operating income increased substantially in all segments and we achieved 50% increase in both operating income and EPS.
And again, once again I want to welcome all the Andrew employees that are joining us. As I look forward I am very excited about the transition taking forward. What we see as a very exciting period in the last month in those wired and wireless.
If I look at the priorities for 2008 continue to execute our profitable growth, deliver in the $50 million to $60 million in synergies and continue to identify those non-core assets and non-performing assets for possible divesture. But in the end, so far everything we have seen in Andrew transaction is as good or better than we could have possibly expected. It started on a very positive note and we are very excited to have this new team.
So will turn it over operator to question and answers.
Question And Answer
Operator
Thank you. [Operator Instructions]. Your first question comes from Celeste Santangelo from Merrill Lynch. Please proceed with your question.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Celeste are you there.
Celeste Santangelo - Merrill Lynch
Yes, can you hear me?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Yes.
Unidentified Company Representative
Now we can.
Celeste Santangelo - Merrill Lynch
Okay, good afternoon. Based on your guidance it looks like for operating margin, they have to go from about 9% in Q1 and probably exit the year around 15% to get to your full year outlook. Is there something going on in Q1 and then can you talk about how we should think about the quarterly progression?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well I'll start Celeste and Jerald may have some more caller. I'd say first and foremost is the rate at which the synergies and cost reductions will happen, we will pick early fruit in the first quarter but its impact will be only for a small part of the quarter and then we'll continue to add into that pile over the course of the year and we should expect to expand margins of those activities get traction. And so it's for the end of the year we don't have the benefit of that in the back end of the year and we will. So in total we have a substantial impact on the quarterly performance.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Yes, the only additional thing I would mention is Celeste is clearly we see some horizon raw material cost so far this quarter. And as mentioned we'll have to make adjustments. So we expect are going forward to recover those assuming that they sustain and it will take us... that's basically a headwind if you will in the process of improving our operating results or delivering the results that we expect for the year. But we... as we said in the call we know what's ahead of us and that we have done it before.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
And Celeste it's Frank, overall we'll continue to work on the non-performing assets also.
Celeste Santangelo - Merrill Lynch
Okay. And looking at the full year outlook, can you talk about each business and what kind of top line growth assumptions you have both for CommScope's core business. I know you talked about broadband, just to be modest growth in 08, but could you talk about maybe enterprise carrier and then when you are assuming for Andrew?
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Well, we've got a whole spectrum. And though if I'll cover all the pieces with the granularity that you'd like but, in our traditional digital broadband space, I think we will have very low growth in that business segment or that business product in that... enterprise, again speaking from a traditional perspective we should have good growth. Potentially double-digit growth 8% to 10% type of top line growth, what we would expect again profitability to exceed the revenue growth in that segment. In carrier, the story is and we saw a little bit of that we'll see a little bit of that in the fourth quarter of 07 and more than in the first quarter of 08, volumes will be up but we will be transitioning the product line to next generation product which will be at a lower price point and certainly early in the year at a lower gross margin. So we... in our traditional cabinet space or carrier space I would say a down return in revenue and a upward move in units sold. In the Andrew segments both in the tower space and in the OEM space which we call ACCP and WNS, we'd expect growth in both of those businesses in the mid single-digit range.
Celeste Santangelo - Merrill Lynch
Great thank you.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Thank you.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Thank you Celeste.
Operator
Your next question comes from Jeff Beach with Stifel Nicholas.
Jeff Beach - Stifel Nicolaus
Good afternoon and congratulations on another good quarter.
Unidentified Company Representative
Thank you Jeff.
Unidentified Company Representative
Thank you Jeff.
Jeff Beach - Stifel Nicolaus
To start with as you exit 2008 to go from $50 million to $60 million of cost and synergies towards the $90 million to $100 million. Where do you think just to gauge the progress where do you think you will be when you end this year going into next year and I've a reason for asking that because I want to talk a little bit about actions beyond procurement cutting some of the easy staff up-front?
Unidentified Company Representative
Well, I Don't tell my people with any of these... the estimate. No, by the end of the year we need to be at that a year two run rate basically and [Multiple Speakers] I mean we as said in the first 100 days we've great organization which we have done and we'd assembled these plans, these transition teams get them engaged that will happen.
Unidentified Company Representative
And what we've got to do right now is detail the plan for global manufacturing and distribution consolidation and those plans will be largely completed by the end of the first quarter with implementations starting in the second quarter. So by the end of the year a vast majority of these projects will be engaged in under way. The other thing I'll say Jeff is that, the more we get these teams together the more opportunity we see. And I am not putting anything more on the table but I would say that if we get all of this thing... all of these launched in underway year one as I've outlined there is potential to add further opportunities to the pile in the year or two.
Jeff Beach - Stifel Nicolaus
All right. So you've already answered. I was going to get that the time from for consolidation, you are not wasting any time moving, heavily into that in the next couple of months.
Unidentified Company Representative
Absolutely not.
Jeff Beach - Stifel Nicolaus
That process. Another thing a little surprised at the high tax rate now is this something that the company is working on is tax planning to try to knock that number down if not this year, next year?
Brian D. Garrett - President and Chief Operating Officer
That is for sure Jeff we are engaged in tax planning currently, one the effective tax rate I think in part is due you to the fact that we had to include in our opening balance sheet deferred tax assets related to some of the tax credits in NOLs and that sort of thing that we fully expect to utilize or take some benefit from in 2008. So, the effective book rate is going to be in this mid 30 sort of number we think now while the effective cash rate should be towards the lower end of the 30's. I would say more in the range where you think where CommScope has been
Unidentified Company Representative
And Jeff its right. In addition what Brian said about pure cost the outcome as we've seen in synergies the interesting point for me has been unique additional marketing opportunities. And we've always believed this combination of these two companies would offer new markets and new business opportunities clearly the conversion of copper to aluminum having disciplined across all the markets to be able to get the products and pricing and distribution channels. But that has been substantially endorsed and accepted by both Andrew [ph] and CommScope teams are working very well at the senior management level on these opportunities.
Jeff Beach - Stifel Nicolaus
Okay and this final question on that last comment about moving from copper towards aluminum is... is a large amount or a full impact of that in your synergies that you talk about, because it doesn't sound like you'll be there, largely before the end of 2008.
Unidentified Company Representative
No, I think we will be there largely by the end of 2008. In the legacy Commscope business, by year end, 75% to 80% of our production had converted to aluminum and the fourth quarter was an extraordinary period for us in the wireless space on the legacy side. Andrew's percentage of aluminum was a much, much smaller number, but they were in a different market position and where the teams are is obviously because it creates a strategy of how me move forward and advance aluminum. I will tell you that over the last 30 days probably one of the largest OEMs in the world in terms of wireless infrastructure has adopted smooth aluminum cables as their design of choice globally. And that will substantially move activities in parts of the world that CommScope would have spent a long period of time in transition, since most of our business was domestic. So you couple that with the strength of the Andrew sales and marketing channel, I think its going to be quite a transformation year-over-year as it relates to aluminum.
Jeff Beach - Stifel Nicolaus
Thanks a lot.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Thank you
Operator
Your next question comes from George Notter with Jefferies.
George Notter - Jefferies & Co.
Guys can you hear me.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Yes, how are you George?
George Notter - Jefferies & Co.
Great so, hey, I wanted to just clarify, on the top line guidance in the operating income guidance, going forward have you seen that does include any anticipated divestitures and what is the assumption there as to regarding cross selling?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well I... as far as divestitures, it does not include any further divestitures but we have said George that there are businesses that we are continuing to evaluate and so that potentially could change. Second part of your question related to...
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
George you broke up on that second question was...
George Notter - Jefferies & Co.
Yes it had do it with cross-selling opportunities, I mean would that be built in, in terms of guidance for cross-selling, for example you have cross selling cabinets through the Andrew channels, cross selling in buildings through the Enterprise channels that you have etcetera?
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Yes I know that the two that we are focused on and the teams are just coming together. It would be a small number, something in the neighborhood of 25 million in the first year.
George Notter - Jefferies & Co.
Got it, okay, and then just as a second question I want to ask about can you just talk about the process of moving higher raw materials cost onto your customers and how quickly do you think you can implement pricing changes, maybe you could kind of talk about some of the sensitivities in terms of customers and contracts and how does that follow through going forward, thanks.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Well probably the best way to answer would be to say, look what's was happened over the last two years. I mean we've through this precise environment at least twice over last couple of years, and I say we've managed the process very well. I mean we have expanded margins through these periods but for both Enterprise and for Wireless, its not a step function. We moved pricing by account, there are contracts and projects in both of those business segments that prohibit price increases over certain period of times. So it will be a mix. In the Enterprise space, we did start moving pricing in the fourth quarter of last year. It had little impact on the quarter, it should begin to help us a little bit in the first quarter of this year
George Notter - Jefferies & Co.
And a little bit international?
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Yes, it was largely international an Enterprise and I suspect there will be further price increases announced in the quarter for Enterprise in the carrier space on like scenario, there has been price increases and selected accounts were permitted. We are likely to change pricing again during the quarter and move pricing in the second step. We are practical. So the whole process end-to-end and may take care of the entirety of the quarter to yield a large percentage of the opportunity. So it's not never as fast as we would like to.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
George, it's Frank and from the operational team, Brain put together and procurement teams have done an excellent job. If you look at the history of CommScope over the last three years and in fact the last five years, our total history, the scale that this company now has gives us a unique opportunity to work this issue as well or better than anyone because everyone faces the same basic raw material issue. The advantage we have is the scaled up and worldwide positioning and procurement. We have to modulate this as best as anyone can and to work through it and to get the price increases on an orderly schedule as well as anyone. So I feel comfortable that we are not going to be disadvantaged in this environment. And I think you should concentrate on the operating income as much as you are on the sales part, because we probably will let some junk business go in order to improve the margin, improve our stature with the worlds leading customers.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
And I would wrap by saying, I didn't comment on our broadband business. Clearly we've got material price increases in aluminum as well as in plastics, largely polyethylene, and if the current pricing of aluminum. There is expectation for price increases in that business segment as well.
George Notter - Jefferies & Co.
Right, thanks very much.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Yes sir.
Operator
Your next question is from Simon Leopold with Morgan Keegan.
Simon M. Leopold - Morgan Keegan
Thank you, I wanted to ask a couple of clarifications and then some questions. First going back to I think one of the answers to the first set of questions around the carrier growth. I understand the declining ASP rising volume aspect, but I wanted to see if you could give us a little bit more color in terms of what you are expecting either for the full year, for the quarter within the carrier space in terms of the revenue trend?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Yes Simon, in both the quarter the quarter and I infer you are referring in the first quarter of '08.
Simon M. Leopold - Morgan Keegan
Yes.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Year-over-year, we'll see a modest decline in revenue and for the full year we are projecting again a modest decline in revenue. Increases in unit sold and lower ASP's as mentioned before
Simon M. Leopold - Morgan Keegan
And is there a assumption in there about any kind of market share shifts?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Yes, I... we have been very vocal for some period of time. Our expectation is... particularly as it relates to the AT&T business but we will continue to share more of that business with competitors. So there won't be declines in account share and as well as unit pricing.
Simon M. Leopold - Morgan Keegan
Okay and then also just wanted to double check that the forecast for sales that you have given us excludes the NSN filters business and the Satcomm business that you have said you are getting rid of already.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
That's correct, yes but the balance will be attractive.
Simon M. Leopold - Morgan Keegan
Ok and next one is, I want to just verify some quick math, the interest expenses look like they are going to run about 35 million a quarter on the new debt.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
That's a pretty good number I would say for right now. Keep in mind we do have, starting with some pretty significant cash balances. We are not going to we are in hurry to draw down our cash positions today as well as mentioned we were did pay about 200 million of the Andrew convertible debt since the end of the year. So... but so there will be some income coming in from those cash balances as well
Simon M. Leopold - Morgan Keegan
Okay, now in terms of trying to do some modeling, I would like to try to get a sense of what the operating expense base line is so that it helps us measure the synergy progress through the year on at least that line item. Is there a metric you can give us so that we can watch your progress.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Certainly not prepared today to do that Simon, we actually can combine the Andrew and the Commscope business last year, think about some of our synergies that we have talked about as a reduction and reflect some cost of living inflation type adjustment there as well and start from there.
Simon M. Leopold - Morgan Keegan
All right I guess what we are missing here is the explicit operating expenses for Andrew for the fourth quarter. That's probably the missing element?
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Well I think we can provide those to you, if not now at a different time, do you have those know Phil.
Unidentified Company Representative
Yes Symond, I think we gave that actually for the December quarter, they had a GAAP loss of 24.7 million and then I think listed all the adjustment that gets you to Pro forma operating income around 26.8 million. And I think Jearld mentioned... actually mentioned those in his comments that we can take that offline but I think [Indiscernible].
Simon M. Leopold - Morgan Keegan
Okay and just to sort of close up my question want to see if we could get a sense of trending in the first quarter looking it at a on a sequential basis, I guess you have got normal seasonality leading down but just wanted to see if you could give us a little bit a color about how the different business segment might behave sequentially in the March quarter, including the new wireless segment.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well I... in the new wireless segment they are going to do very well and the tower space ACCP business, well into the double digits and the teams, in terms of growth and in terms of the WNS part of the business, it's probably going to be mid-single digits in terms of growth. Our enterprise business in the first quarter, our expectations are to be flat in the first quarter of last year we --
Simon M. Leopold - Morgan Keegan
You said year-over-year or sequential?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Year-over-year.
Simon M. Leopold - Morgan Keegan
Okay
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
All of these comments are year-over-year and Enterprise flat net and that's not a reflection of the market so much that it is in the first quarter of last year we are in the midst of the largest project in our history. It was an enormous quarter for us and its more reflective of last year than it is the strength of Q1 '08 if you follow me. Tell you I think I had already commented on the expectations is that it will be down slightly year-over-year as well as our digital broad band business. Now that the housing market in North America is clearly affecting that business unit and sales in North America would be down
Simon M. Leopold - Morgan Keegan
Well thank you for the answers.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
You helped your self.
Operator
Your next question comes from Ken Muth with Robert W Baird.
Unidentified Analyst
Hi this is James [indiscernible] on for Ken can you hear me?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Sure we can hear you?
Unidentified Analyst
Okay great so first quickly just on a cash flow guidance you have given. What was the expected depreciation and the amortization and then what assumptions are you making for the changes in working capital.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well we think... that will be a difficult question the answer here and we'll take that as your Phil's looking at some information. Its difficult because of the intangible amortization and that will be occurring as we said there is over a $100 million of new intangible and amortization coming in and so but in total we think above 210 to 220 somewhere in that for a total for the year. And what we have just reported in our K Ken, was about... I am sorry James was about 205 million for calendar year 2007 and Jearld's point will be some movement we intended in '08.
Unidentified Analyst
: How about working capital, your expectations there?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well we do expect to see working capital improvement, our benefit largely coming from the year through the year and typically the first quarters of the year are weakest in terms of cash flow and then the last quarter of the year is our strongest as it was this year. So we would expect to see some of those trends again this year.
Unidentified Analyst
: Okay thanks that's helpful, thanks. I guess my question...
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Did you ask on capital expenditure also James?
Unidentified Analyst
: I believe that was given actually in the...
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Yes we did 80 to 90 million.
Unidentified Analyst
: Yes, so I guess my next question on... can you give us an update on sort of the level of visibility that you have and any of your segments that's kind of improved or worsened or unchanged?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well don't think visibility has changed substantially, I really can't comment on a year-over-basis in terms of the visibility within the Andrew businesses, but clearly from the legacy side James, I don't think our visibility has changed substantially.
Unidentified Analyst
It's great.
Operator
Your next question comes from Brian Coyne with FBR Capital Markets.
Brian Coyne - FBR Capital Markets
Hey guys good afternoon.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Good afternoon Brian.
Brian Coyne - FBR Capital Markets
A couple of just a small philosophical questions that related to your call. The first one really is what are sort of your alternatives to divestiture if you are in fact thinking about any of those path. I mean if you would have to start to undertake a consideration of a sale of any of the following Andrew businesses or assets, you start going down that way. Better than you taking a little bit longer that you might expect mean. What other options do you think you might have to address some of the non-performing businesses.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well, I think first of all that they may not be underperforming, but I will start with the assumption that these are good businesses with unique models and their opportunity, very unique technology covered by all kinds of intellectual properties, so at the beginning we will hope that we can turn a lot of these in to successful businesses, a lot like what happened to Cabinets, you can follow this for a long time, if we had divestited in Cabinets we would miss one great rung, so I don't want start up in the assumption that these all have to be divestited, that's just imagination.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
And that process really got started Brain because with the extended review period by the justice department, Andrew was able to complete their sale of their Nokia related silver business and completed that last year and then the satellite business was announced at the end of the year and closed in January. So that was the two most offending areas I would say in terms of performance. In the historical Andrew results and they have been largely addressed already.
Brian Coyne - FBR Capital Markets
Guys great. Second question really is about I guess pulling back a little bit too on the price and you know besides responding to raw material price fluctuations, do you guys think you have any opportunity to take a another look at prices perhaps in certain markets where you and Andrew had some historical overlap now that you are joined together?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
I would say that help it.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Yes actually on the whole price subject in that space is being evaluated and then the biggest variable is not so much for the competitive relationship that existed between Andrew and Commscope, I mean there, there are other providers of cable in the world I mean, the issue here as it relates to pricing, is really about the transition of copper design and into high performing aluminum designs and expanding margins.
Brian Coyne - FBR Capital Markets
Okay. Got it, one quick one an Andrew. And perhaps maybe you gave it and I just missed it Jearld, how much unallocated OpEx is contemplated in the results that you gave?
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
In their end of fourth quarter?
Brian Coyne - FBR Capital Markets
Right in the end of fourth quarter
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
What we in the operating income that we gave that includes the full allocation sets the question of all Andrew expenses it with GAAP based operating income, if you will.
Brian Coyne - FBR Capital Markets
Okay. I was just thinking back historically how Andrews sort of talked about cost?
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Right now then there was fully, fully absorbed all in the SG&A cost.
Brian Coyne - FBR Capital Markets
Okay great and as you allocated that where did you see the biggest portion going, I mean wasn't it that base stations or one of the other businesses.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Well I think it's probably across the businesses, Andrew had one philosophy when it came to those allocations, we have got another and we are applying our philosophy to how we allocate these expenses.
Brian Coyne - FBR Capital Markets
Got it, Okay and then just finally maybe I missed this also, did you have any update on the total level cost synergies or perhaps the split of the totaling amount between '08 and '09.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
I did not make a revision in terms of '08 and '09 Brian. Only to say the only comment that we did make was to say that we are very pleased at where we are and we like our projections, and I think there is clearly potential to meets us and not exceed those objectives and all of us are in the water.
Brian Coyne - FBR Capital Markets
Okay sounds good, next quarter again. Thanks guys.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Thank You.
Operator
Your next question comes from Glen Anderson with Oppenheimer.
Glen Anderson - Oppenheimer & Co.
Hi guys, thanks for taking my call
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Yes, sir.
Glen Anderson - Oppenheimer & Co.
Jearld, Congratulations on a great quarter. Couple of things in terms of the carrier business first off my checks are indicating that lot of the build out in terms of cabinet deployment has already happened in the Midwest and a lot of that work is shifting itself. Can we put that together with the fact that AT&T says they are accelerating that project the [indiscernible] project they announced yesterday. Putting the two data points together, where should we expect unit volumes to be going have they already begun to come down or as we expect that as the year goes on and then the second thing is with the aggressive increase with the aggressive rollouts of fiber by competitors and the likely competitive reaction by cable guys why don't we see that translate into the broadband business for in terms of your 08 prospects is that simply housing construction is impacting that number
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Alright let me talk about the units on the closure business. The number of units that will be consumed in '08 by AT&T will be up year-over-year and so most of my comments were that we would expect to actually loose a small amount of account share during the year has found our goal and we are going to work to do otherwise but in our guidance for the year, we anticipate share loss and unit growth. So you put those together and it's a AT&T must be buying more unites in '08 than in '07. As it relates to fiber I mean it's not likely that AT&T will alter their strategy in terms of taking five as the node where they already have... excuse me taking fiber to home in areas where they already have distribution plan and their deployments of fiber to home are really in new build areas or unserved areas. The cable television people are clearly in the midst of a competitive battle and they are going to invest more to stay in a competitive space because the question is what will be the impact in terms of largely collateral cable sales they have tremendous bandwidths with their HSC architecture. What they have got to do is convert more of that into digital programming for more channel capacity. That activity doesn't necessitate the departure to a fiber to the node strategy. So much of what we see in North America in terms of spending by the cable television industry is the continuation of their maintenance and upkeep that activity and to the extent that it's a competitive environment that maintenance level has to be maintained at a very high level. So the numbers aren't going to go away but they are not going to grow substantially as you might expect because of increased channel capacity.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
Like maintenance on your house for instance you can delay it a season and throughout the spending or a year or may be even longer but hopefully you don't need maintenance and so this has been largely a maintenance business and our broadband business for the last few years domestically certainly.
Glen Anderson - Oppenheimer & Co.
Got it and one quick follow up if I could you would... in terms of your enterprise business, in terms of the outlook where are you expecting what's the catalyst for growth in that business is it sales into data centers or is it upgrades, where is that upside coming from.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
All of the above and we are seeing growth in if you wanted to into those two segments or piles we are seeing large growth in both of those areas. Data centers for a reason is that you largely know broadly so much of the horizontal infrastructure world wide is still a 100 mega bits, which from a technology prospective and a application prospective is obsolete and so people will out of necessity are going to continue to upgrade to 1 gigabit and 10 gigabit. We are allowing.
Glen Anderson - Oppenheimer & Co.
got it. Thanks guys.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Thank you. Operator, I think we have time for about two more questions.
Operator
: Okay, your next question comes from Amir Rozwadowski with Lehman Brothers.
Amir Rozwadowski - Lehman Brothers
Thank you very much for taking my question gentlemen.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Don't forget we only followed you when you followed in here.
Amir Rozwadowski - Lehman Brothers
Thank you. Sort of help on the question of your ability to recover rising material cost, you have factored into your guidance but if we were to look at sort of a two factors between the ships to Aluminum and versus your customer's ability to absorb more flexible pricing, which is the primary factor that give you conformability that you can sort of recover these types of costs?
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
We don't have the precise answer to this question right now. The roll out for the entire strategy of how and to who and when this transition happens, has not been finalized but it doesn't change at all in the... we have got to get on with price increases for copper based products and those transitions again as I said before, don't happen square away but substantially they should happen over the course of the quarter.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
I think I will add a little flavor to that. For the first time we will have a portfolio of products that allow us to price corporate and the corporate customers and desire and want it, largest copper producer in the world in these 50 home products and to the cost conscious lower value higher performance people will have a limited portfolio, no other company worldwide has a portfolio based products to manage both pricings and both distribution and value. So I think you have to look at is we will not abandon copper by any stretch of imagination, and we will be able to offer a value proposition and channel proposition we need to just cover it.
Jearld L. Leonhardt - Chief Financial Officer and Executive Vice President
The internal monitor here is I think we are the only ones with Coke and Pepsi both,
Amir Rozwadowski - Lehman Brothers
Well great that's great color and terms of the Andrew business it seems that those some of the larger wireless infrastructure OEMs have been offering some what tempered outlook for growth in 2008 and beyond. What gives you sort of the confidence in terms of the growth profile from that business and has that at all shifted since the acquisition has completed.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well one we don't have big expectation in our top line and a lot of the growth that we do have in the plan comes from the Asia Pacific area which has been strong through out '07. And the real story for the wireless segment, not unlike the entirety on Commscope, it isn't focused on the top line. Our a personal perspective in net and wireless managers here is it could be a flat year. The story for '08 is internal to Commscope largely and its delivering on cost reduction as well as Synergies. There, there is a tremendous opportunity and that's a large part of what you see in our guidance, modest top line growth relative to our prior years performance and in order to focus on delivering value out of this merger and so we talk about big numbers in synergy 50 and 60 million in year there is also some big goals internally in terms of cost reduction that relates to productivity and technology. So I don't want everyone to be... I don't want to say that we are not focused on the top line, but we don't want to overly focus on that subject. It's really about the bottom line in '08.
Amir Rozwadowski - Lehman Brothers
Great well thank you very much for taking my questions.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Look forward to meeting and working with you.
Operator
Your last question comes from Matt Kellogg [ph] with Next Generation.
Unidentified Analyst
Hi guys, great quarter. Just a couple of quick questions to wrap up. Can you, I mean obviously you guys are going to be generating a fair amount of free cash flow this year. I was just wondering as to what your priorities are far as use of that cash flow whether it's contingent to pay down debt, or whether you would just like to build up the cash in the balance sheet to give you fire power for things down the road or what your sort of looking at?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Matt I would not expect us to build cash from the levels that we have currently and through the year we do expect to generate it. We've talked about relatively modest capital spending compared to our total corporate revenue size now 4 billion plus of $80 million to $90 million obviously that's where we will spend some money in our transition. The expenses, some out of pocket costs, some sort of thing that relate to the transition and certainly we will fund that. We view that largely as an investment although it will be accounted for differently. And then obviously debt also is really made and we have no pre-payment penalties in pre-paying any of our debt and so in fact if we generate excess cash flow we will need to use that excess cash flow to pay down some debt. So that's part of our lending arrangements. So, we don't expect to increase any cash in the balance sheet. Now that we have also talked about drive power we do have a revolving credit facility of $400 million. That was not drawn at closing, hasn't been down since and our the forecast that we gave you really doesn't anticipate drawing so we have very good liquidity sources all the way around.
Unidentified Analyst
That's great and then just lastly if I obviously Andrew sort of managed their balance sheet the way they did when there were as a company, but as you guys look at it and obviously the next couple of quarters, things are going to be bumpy but as we sort of get to the end of the year and you guys have got things what you want, is there any reason to think that DSO inventory returns, working capital returns will look materially different once you guys get your businesses integrated versus historically? I mean is relatively longer terms in any of sort of Andrew's business or where were inventory returns and that kind of things?
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Well we clearly have some goals to make some improvements in both inventory and accounts receivable. I will say accounts receivables that kind of a challenging environment now and I would say in our goals in that area are relatively modest today but we do have do have goals to see if we can improve the approximately 90 days that Andrew AR was running, they are substantially more international and that's clearly where the majority of these extended term arrangements are so, it'll take us some time, we do hope to improve upon that and inventory management is a very high focus in our business discipline here and we are already incorporating that into our business plan.
Unidentified Analyst
Okay great, nice quarter guys and I appreciate the comments.
Frank M. Drendel - Chairman of the Board, Chief Executive Officer
Matt, we are, we know you are new to the company and welcome aboard, we look forward to working with you and meeting you soon and with that ladies and gentleman we will conclude the call. Thank you very much everyone.
Operator
Ladies and gentleman that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.
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