CommScope, Inc. Q1 2008 Earnings Call Transcript

CommScope, Inc. (CTV)

Q1 FY08 Earnings Call

April 29, 2008, 5:00 PM ET

Executives

Philip Armstrong - VP of IR

Jearld L. Leonhardt - EVP and CFO

Frank M. Drendel - Chairman and CEO

Brian D. Garrett - President and COO

Analysts

Amir Rozwadowski - Lehman Brothers

Jeff Beach - Stifel Nicolaus

George Notter - Jefferies & Co. Inc.

Eric Buck - Brean Murray

Brian Coyne - FBR Capital Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CommScope First Quarter 2008 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 call is being recorded, April 29, 2008. I'd now like to turn the call over to VP of Investor Relations, Mr. Phil Armstrong; you may begin your conference, sir.

Philip Armstrong - Vice President of Investor Relations

Thank you. Good afternoon and thank you for joining us on this call. Frank Drendel, CommScope's Chairman and Chief Executive Officer, Brian Garret, CommScope's President and Chief Operating Officer, and Jearld Leonhardt, CommScope's Chief Financial Officer, join me on the call.

During the conference call today, we may make forward-looking statements regarding our financial position, plans, the Andrew 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 more detailed description of factors that could cause such a difference, please see the press release issued today and CommScope's filings with the Securities and Exchange Commission. In providing forward-looking statements, the company does not intend and is not undertaking 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. After we review first quarter results and Frank makes some closing comments, we'll open the lines for questions. Jearld?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Thank you, Phil. This afternoon I will review our first quarter results and before turning the call over to Frank, I will also cover our current outlook for the second quarter of 2008, as well as full year.

Today CommScope announced first quarter results for the period ended March 31, 2008. This is our first quarterly conference call after making the transformational acquisition of Andrew Corporation, which we acquired in late December of last year.

We reported first quarter sales of $1 billion and a net loss of $11 million or $0.16 per diluted share. Reported net loss includes after-tax charges of $34 million for inventory-related purchase accounting adjustments, $19 million for the amortization of purchased intangibles, $3 million of costs related to debt reduction, and $2 million for acquisition and restructuring costs. Excluding these items, adjusted first quarter 2008 earnings were $47 million or $0.59 per diluted share.

Sales more than doubled on a year-over-year basis, primarily as a result of the Andrew acquisition. On a combined basis, that includes Andrew's actual sales for the first quarter of 2007, sales increased 7.1%. This sales growth was primarily driven by increased spending by wireless operators and changes in foreign exchange rates of $31 million, somewhat offset by lower broadband sales. Excluding the impact of the changes in foreign exchange rates and after adjusting for the January 2008, divesture of Satellite Communications or the SatCom product line and other items, sales growth was approximately 5% year-over-year.

For the Antenna, Cable and Cabinets Group, or ACCG, sales increased 19% year-over-year to $479 million on a combined basis as wireless operators continued to invest in expanding and upgrading their wireless networks. Base station antenna growth was especially robust in the first quarter. Sales growth was strong in essentially all regions, including North America and especially the Asia-Pacific region.

We expect continued growth and build out in emerging markets as wireless carriers expand their networks. In more mature markets such as North America and Western Europe, mobile data services are driving the deployment of 3G and 4G networks. We believe data services will continue to drive network expansion as wireless customers expect more coverage and bandwidth of existing networks.

Regarding major wireless operators, sales to Sprint/Nextel were down on a year-over-year basis, although more than offset by strong sales to T- Mobile, AT&T Wireless, and Verizon, among others. As stated in our last call, we are also excited about the long-term opportunity of selling cabinets through Andrew sales channel. We expect to see initial sales in 2008 and more extensive growth in 2009 as we combine leading cabinet technology with the global wireless channel.

We have expanded our cabinet portfolio with the addition of the new ecopower fuel cell cabinet. This environmentally-friendly cabinet solution for standby power is the most compact, integrated fuel cell system available. It provides up to 16 KW in a single cabinet, while protecting sensitive equipments at a cell site or remote location.

Enterprise segment sales rose 5% year-over-year to $212 million. Sales growth was primarily driven by higher international sales volumes. The Enterprise segment continues to experience profitable year-over-year growth as businesses migrate towards our premium enterprise infrastructure solutions.

Enterprises continue to invest in higher bandwidth solutions as employees work more collaboratively, data centers expand, legacy security networks migrate to IT-based platforms and buildings are configured with intelligent infrastructure. We expect to see ongoing demand for our industry-leading SYSTIMAX Gigaspeed Extend 10 gigabits per second copper solutions, as a result of the recent ratification of the category 6A and class EA standards.

For perspective, more than three quarters of our enterprise copper solutions sales were category or higher in the quarter. In the first quarter, sales of SYSTIMAX Gigaspeed Extend doubled year-over-year to more than 10% of solution sales for the quarter. And in addition, nearly half of our Enterprise segment sales come from outside the United States. So, while North American sales were essentially unchanged year-over-year, we achieved double-digit sales growth in international markets.

We also continue to see a solid global project pipeline that keeps us optimistic about 2008. We are also excited about the long-term prospect of building upon enterprise sales channels with Andrew's industry-leading in- building wireless solution.

As stated in our last call, we have teams developing market strategies and a product roadmap we are already closed... as well as we are already closing on some current sales opportunities.

Broadband segment sales declined 9% year-over-year to $136 million, primarily due to the slowdown in outside plant construction in North America. Broadband performance was negatively affected by lower sales volumes, a less favorable product mix and higher raw material and another costs.

Our construction-related cable and conduit product line showed the biggest decline year-over-year. We are disappointed in our broadband operating results and are taking steps to improve its performance. We continue to believe that competition between domestic MSOs and domestic carriers should drive investment by the MSOs in their existing HSC networks.

Wireless Network Solutions or WNS decreased 4% year-over-year to $181 million. These results included sales related to SatCom product line, which was divested on January 31, 2008.

Excluding the impact of SatCom, WNS sales increased 9% year-over-year, primarily due to increased sales of filters and power amplifiers, as well as in-building wireless products, partially offset by decreased geo location sales due to the completion of a large Middle East geo location project in the March 2007 quarter.

Similar to ACCG, Wireless Network Solutions benefited from the build out of new networks in developing regions and the investment in an upgrade of existing wireless networks to more developed regions.

Overall for the company, customer orders booked in the first quarter of 2008 were $1.06 billion, up 10% from the year ago quarter on a combined basis. Our book-to-bill ratio was 1.06 times for the quarter. The book-to-bill was more than one in all segments.

Gross margin for the first quarter was 22% and includes the effect of $53 million of purchase accounting adjustments related to inventory as well as $4 million of intangible amortization reflected in cost of sales. Excluding these items, gross margin would have been 27%.

For period overhead, in order to provide additional clarity in our disclosures, we added a separate line item on the income statement for amortization of purchased intangible assets, which would otherwise be included in SG&A. This line item, which was $25 million in the quarter, represents the major portion of amortization of purchased intangible assets. As mentioned, an additional $4 million of amortization is included in cost of sales.

SG&A, excluding any amortization for the first quarter was $128 million or 13% of sales. Research and development was $36 million for the quarter or 4% of sales. Operating income in the first quarter was $28 million. Excluding purchase accounting adjustments, intangible amortizations, acquisition-related expenses and restructuring, first quarter adjusted operating income was $112 million.

Adjusted operating income on the comparative basis rose 24% year-over-year, primarily due to improved performance in the ACCG, Enterprise and WNS segments. As a result of higher raw material costs, we announced price increases on the selected cable and other products in the ACCG, Enterprise and Broadband segments. While we expect to see a modest positive impact of these price increases in the second quarter, we should see the majority of benefit in the second half of the year.

While material costs continue to be volatile and are expected to be higher in the second quarter as well, we are monitoring these costs closer. We are also pleased to announce that integration activities and synergies are ahead of schedule. We remain confident that we can achieve or exceed our merger-related cost reduction targets. As part of these initiatives, we recently announced that we intend to close the Jaguariuna, Brazil broadband facility, the facility which employees approximately 200 people and produces broadband cable products, is expected is close by the end of September, with most equipments redeployed to other CommScope facilities.

These changes do not affect the company's other Brazilian facility located in Sorocaba or the company's ongoing commitment to providing Latin America with high performance wireless, enterprise and broadband solutions.

Separately, the CommScope Europe SPRL has notified this Works [ph] Council of its intention to disclose or discontinue rather, production activities at its facility in the Sinnett [ph] Belgium. A final decision on the proposed restructuring will be made after a consultation period with Works Council.

The company also has notified affected employees of its intent to proceed with the closing of its Capriati, Italy facility acquired as the part of the Andrew acquisition. Some Capriati activities will be centralized in the company's other Agrate, Italy site. Discussions are ongoing to finalize these and other consolidation plan.

As previously discussed and excluding one-time transition items, we expect total merger-related savings of $90 million to $100 million during the calendar year 2009, of which $50 million to $60 million would be achieved in calendar year 2008. The total cost savings are expected to come from a combination of procurement savings, rationalization of duplicate locations, streamlining overhead and integration of infrastructure and building upon best practices in technology and manufacturing. Transaction or transition cash calls associated with these initiatives are expected to total $70 million to $80 million.

In a separate matter, CommScope has completed the previously announced divesture of its minority interest in Andes Industries, Inc.

Now I'll turn to cash flow and balance sheet items. Despite a significant increase in cash outlays for interest due to the acquisition financing, net cash provided by operating activities rose substantially year-over-year to $80 million. We also reduced debt by $291 million during the first quarter, which represented more than 10% of total debt outstanding.

As anticipated, substantially all of the Andrews 3 [ph] in the quarter percent convertible senior subordinate notes were converted and holders received merger consideration, primarily cash in the quarter. We also agreed to the conversion into CommScope stock of $51 million of our $250 million aggregate principal amount of 1% convertible senior subordinating notes. As a result of this conversion activity, we recorded a special $3 million non-tax deductible charge in other expense.

Total depreciation and amortization expense was $ 57 million for the first quarter, while capital spending was approximately $12 million.

We are particularly proud of our execution in the first quarter for our managing the significant task of integrating CommScope and Andrew. We achieved key integration milestones and delivered solid financial performance, top line growth and cash flow. Looking ahead, North American economic conditions remain uncertain and volatile raw material costs remain a challenge.

However, we expect to see positive seasonal trends in the second quarter and believe that our geographic diversity combined with a breadth of our industry-leading product portfolio should help us deliver good results in the second quarter.

For the second quarter, we expect sales to rise to $1.05 billion to $1.09 billion, up modestly year-over-year on a combined basis and adjusted operating income to rise to $135 million to $145 million, excluding restructuring and transition costs, as well as purchase accounting adjustments related to the fair value write-off of inventory and intangibles, which results in increased charges for inventory and amortization.

The suggested operating income range represents a 15% to 25% increase from the combined basis year-over-year. For the full year we have reaffirmed our previous guidance. We expect revenue of $4.1 billion to $4.3 billion and adjusted operating income of $525 million to $575 million, excluding restructuring and transition costs, as well as purchase accounting adjustments related to inventory and intangibles.

This operating income target assumes the company will be able to successfully recover costs associated with rising material cost. The tax rate of 34% to 36% on adjusted pretax income is expected. $81 million weighted average fully diluted shares outstanding are anticipated, more than $500 million of cash flow from operation is still expected. Capital expenditures of $80 million to $90 million were forecast and significant cash restructuring costs and other non-cash costs related to the purchase accounting adjustments are expected.

Overall, we are very pleased with first quarter performance and believe we are in good position to achieve these 2008 targets. We have a strong global portfolio and continue to expect the ongoing global demand for bandwidth to drive the need for infrastructure solutions. We look forward to another successful year.

Now I will turn the call over to Frank for closing comments.

Frank M. Drendel - Chairman and Chief Executive Officer

Thank you, Jearld. And first of all I want to thank all of the CommScope current employees and the historical CommScope employees and the new Andrew CommScope employees for an outstanding first quarter. The effort put by all of our employees shows in these results. We had adjusted operating income rose 24% year-over-year. We had strong cash flow from all the operations, we retired 10% of our debt outstanding and we continue to believe that we can deliver the synergies and cost reductions we promised.

This has turned out to be a great team of employees. I am more pleased now than I ever believed that would be with this acquisition. The more I look into it, this is a justifiably great company and a great future, and I want to specifically thank Brian and his operational team for all the good workmanship that went forward in this quarter.

With that, Phil we'll turn it over to TK and some outside questions.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of Lehman Brothers.

Amir Rozwadowski - Lehman Brothers

Good afternoon, folks thank you very much for taking my question that's Amir Rozwadowski from Lehman.

Unidentified Company Representative

Yes, good afternoon.

Amir Rozwadowski - Lehman Brothers

I was wondering if you could touch upon the strength in the North American wireless business, it seems that there are other wireless OEMs have experienced similar trends. But I was wondering if you can give us a little bit of color as to what's been driving there strength and how sustainable you think that is?

Brian D. Garrett - President and Chief Operating Officer

This is Brian Garrett, good afternoon and thank you for the question. Much of the strength that we experience in the quarter was carry over form the fourth quarter. I think we've reported that we've seen good recovery in the AT&T account in particular. On a year-over-year basis as it relates to... I'll say its specifically tower products within Andrew... legacy Andrew. Sales into that account have nearly doubled. So we are seeing strength in a number of accounts, we are seeing visibly weakness in others but in balance of much stronger North America than others have anticipated.

Amir Rozwadowski - Lehman Brothers

And then do you think that that is sustainable over the near term given 700 megahertz auction or however the pipeline looks for you folks?

Brian D. Garrett - President and Chief Operating Officer

700 is clearly a big part of the outlook going forward. The deployment of 4G will play a part in our future may be not most immediately but certainly in '09 and going forward. We've got topics with Sprint Nextel I think later in this year that may create strength in the business as well.

Amir Rozwadowski - Lehman Brothers

Great and then lastly we have talked about some of the price increases in the marketplace RF cable side and potentially in other areas. Now we've seen across several vendors in the space and I was just wondering if you can give us any color in terms of the reception by your customers in terms of how they viewed some of the pricing increases?

Brian D. Garrett - President and Chief Operating Officer

Good is not the right word I would say that I would say that they are that being largely accepted. One of the key advantages in the CommScope proposition as you know is for those who find that the copper price increases overly troublesome for them. They have the election to move to aluminum solutions in the cell reach product line and it continues to be adopted in North America. It's been broadly adopted particularly in the Asia Pac region and it is all part of the high growth period, high growth story for the cable business particularly on cable business in the first quarter.

Amir Rozwadowski - Lehman Brothers

Great well thank you very much for taking my question.

Brian D. Garrett - President and Chief Operating Officer

Yes, sir thank you.

Operator

Our next question comes from the line of Jeff Beach with Stifel Nicolaus.

Jeff Beach - Stifel Nicolaus

Good afternoon. Congratulations on another good quarter.

Frank M. Drendel - Chairman and Chief Executive Officer

Thank you Jeff. Thank you for the support.

Jeff Beach - Stifel Nicolaus

I noticed their your commentary about increasing prices this quarter but it would primarily benefit the second half of the year. Can you talk about the... a little bit more about the timing of implementation of pricing, its sounds like there may be some... you might not totally recoup higher cost in the second quarter by the time you have your pricing in place, is that fair and can you expand a little bit on some of the different product lines and the success of getting the price increases in place?

Brian D. Garrett - President and Chief Operating Officer

Jeff I think that's a fair statement and accurate representation. I mean a good example would be our broadband business and probably one noteworthy based upon the Q, performance in the Q. For the major MSOs for some people price increases have already happened in North America in the broadband space. The major MSOs in North America, their price increases are essentially this week, early next week. So here we are at approaching the midpoint of the quarter and the largest customers will just start seeing their price increases.

It would be fair to say that in selected international markets, there may even be delays. So we see a broad acceptance of the price increasing... increase, I think its going to be a third quarter event.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yes, there obviously there is definitely some lag effect as Brian was describing, certainly a long-term cost ended the quarter at higher levels, then they started the quarter. So that movement is still ahead, if you will as we move into this quarter, but we are attacking if you will and moving on to increase prices in quarter but there is going to be some like.

Unidentified Company Representative

Aluminum prices had slowed down, crude oil has not slowed down from the time that we first contemplated the launches of these price increases. So there is still caution in the wind.

Jeff Beach - Stifel Nicolaus

Hey, just a follow up question. I was listening that the comments about cabinets but I wondered if you could address on specifically even tough its part of the larger segment now the performance of your legacy cabinets to the domestic carriers?

Brian D. Garrett - President and Chief Operating Officer

Let me speak... let me put it into bigger picture, remember cabinet serves a number of North American accounts in both wireline and wireless and often, Jeff, we focus on what's happening in white speed with AT&T because it is a large percentage of the total business at present. I will say that in the quarter light speed performed very well. Volumes were up year-over-year in terms of units, revenue is up year-over-year modestly and as we've spoken this time last year we had essentially 100% of that business. And so there is share loss recurring as it relates to that particular account.

But at the same time there is lots of other activities. We've made mention of the opportunities that we have in taking our wireless cabinets into the wireless space you know potentially as big or bigger than the business that we're conducting today with AT&T. Jearld in his commentary made mention of what we are doing and standby power particularly as it relates to fuel cell solutions and both of these I think are very promising relatively near term opportunities for us.

Jeff Beach - Stifel Nicolaus

And do you see similar demand trends remaining stable or similar throughout the rest of the year do you se any major change there?

Brian D. Garrett - President and Chief Operating Officer

I see no challenges, to it Jeff. I think we are in a very solid position. Our expectations in the wireless base are precisely that to the extent that we are broadly accepted we can create some upside.

Frank M. Drendel - Chairman and Chief Executive Officer

Jeff it's Frank you know that AT&T reported very strong success along with horizon on they are connectivity in light speed.

Jeff Beach - Stifel Nicolaus

Right I just wanted to check. Thank you.

Brian D. Garrett - President and Chief Operating Officer

Thank you Jeff.

Operator

Our next question comes of the line of George Notter with Jefferies.

George Notter - Jefferies & Co. Inc.

Hi thanks very much guys. I wanted to ask about the pricing increase just to follow on. You mentioned that you are raising pricing in some other areas of the business, you told us how much you are raising pricing by on RF cable like I was just trying to figure how big the pricing increases are in areas like enterprise and than broadband? And then as a follow up just to be clear I want to understand the full year guidance the 4.1 to 4.2 million does that include the impact increases or not? Thanks.

Brian D. Garrett - President and Chief Operating Officer

Sure George I would say broadly without getting down into a lot of details that I don't want to do is that from -- since most of these pricing, cost increases are commodity based, the price increases that we are asking for are largely in that 7% to 8% range and that would be true for wireless... cable within wireless, it will be true largely for the North American enterprise based and for broadband as well.

Unidentified Company Representative

As it relates to cable.

Unidentified Company Representative

As it relates to cable, that's correct Jearld.

George Notter - Jefferies & Co. Inc.

And then the guidance?

Unidentified Company Representative

Well, I think the guidance is... we have got to wait and see. I mean there is... there remains a lot of uncertainty in this environment, to the extent that things continue to look good throughout the second quarter and we are pleased with the acceptance of these price increases. Its kind a push us towards the top side of the existing guidance and we'll have a chance at the end of Q to recalibrate that whole process but there are a lot variables in the equation today.

Unidentified Company Representative

And we did give a pretty broad range also.

George Notter - Jefferies & Co. Inc.

Okay. And just to be... one last one, does the Q2 guidance contemplate pricing increases here as well or no?

Unidentified Company Representative

It does and there is obviously a factoring in there in terms of the rate at which it would implemented over the course of the quarter.

Unidentified Company Representative

And some higher cost as well.

George Notter - Jefferies & Co. Inc.

Okay, great. Thanks very much.

Operator

Our next question comes from the line of Celesta Saint Angelo [ph] with Merrill Lynch.

Unidentified Company Representative

Celesta, how are you?

Unidentified Analyst

Good afternoon guys.

Unidentified Company Representative

Good afternoon.

Unidentified Analyst

So, just expanding on that question regarding the outlook, I mean given the better top line and operating income than you were expecting in Q1, how should we look at an unchanged full year outlook? I mean aside from what's going on with raw materials and I know it assumes that you are going to get the price increases. How should we talk about you a little more cautious now about some market? You could just talk about with that?

Unidentified Company Representative

Celesta, thanks. I would say that we are cautious in all regards. I mean, I think everyone speaks what's happening in the macro economy and it will be foolish not to be cautious in such an environment. But that being said in the enterprise space, we talk about our pipeline and the visibility that we have. There is nothing there is a consensus; there is an attractive rate of new projects coming into that pipeline, it will give us a lot of confidence and when we look throughout all of these business units, we like our competitive position and it's not just North America, we are seeing very broad support in Asia Pac that gives us confidence. So, we have a mix of upside and downside in the forecast to the remainder of the year.

Unidentified Analyst

Okay. And then just regarding the enterprise base, I think on the last call you talked about annual sales growth of 8% to 10%. Are you still comfortable with that kind of growth for '08?

Unidentified Company Representative

Yeah, yeah I think so and there is nothing we saw in the first quarter... substantially change our outlook.

Unidentified Analyst

Okay. And then pricing for those products especially in North America, are you seeing anything competitive nature or pressures that were not expected in the quarter?

Unidentified Company Representative

We obviously have competitive pressures but no, nothing extraordinary. I mean we really are advantage to last. Our proposition is truly a solution and I think you know that it's copper, it's fiber. Out of this whole market I mean we are the only one who has an intelligent patching solution, there is proprietary. It's a proposition that's truly differentiated globally. So, if we are in that five east base, I think we would be hammered right now but with the current product offering and market proposition outlook for the rest of the year looks consistent.

Unidentified Company Representative

Celesta, it's frankly. When you look at guidance of the other competitors depends... you would raise reason to have some concern. We are executing well, retaining some market share but obviously our competitors are having some problems. So, we are going to take a very conservative view as this is it about.

Unidentified Analyst

Okay, great. Thank you.

Unidentified Company Representative

Thank you Celesta.

Operator

Our next question comes from the line of Spimino Lipode [ph] with Morgan Keegan.

Unidentified Analyst

Hey, thank you very much. Of course it's a house keeping questions, first what was the share count you used in the product forma EPS?

Unidentified Company Representative

For about $80 million shares for the quarter.

Unidentified Analyst

Okay. And any 10% customers in the quarter?

Unidentified Company Representative

We had two 10% customers thanks to communications as about 12% and Alcatel Lucent was about 10%.

Unidentified Analyst

Could you be honest there was 12?

Unidentified Company Representative

Yes sir.

Unidentified Analyst

And in terms of synergies achieved this quarter, could you detail what level of synergies you were able to deliver in the quarter?

Unidentified Company Representative

Yeah. And I would just... Simon I'd say broadly we were very happy with what the teams delivered in the period. They are ahead of our expectations. The announcements that we've made in terms our intentions in Brazil and our plans moving forward. Our... get it backwards there, plans in Brazil and intentions in Belgium are all part of what happened. We have not talked about consolidating logistics and warehousing locations that will happen over the course of those announcements will happen over the course of the quarter.

But in terms of P&L impact something in the neighborhood of $9 plus million dollars, landed in the quarter, and we will build upon that number throughout the year.

Unidentified Analyst

And then just you gave us a break up on operating income and the WNS business on a GAAP basis was pretty losses [ph]. Obviously that's an area that you guys were working. May be if we could talk a little bit about if there is some way to break out what's the pro forma operating margin was for WNS?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yes I think we can help you little bit there. Go ahead Phil. Phil's got some information.

Philip Armstrong - Vice President of Investor Relations

Yes don't forget we did have those WNS and ACCG had significant FAS 141 adjustments as well as intangible amortization. So for WNS you back there things out you are around the break even level so there were significant improvement year-over-year.

Unidentified Analyst

And just the last question is if we think about some of the trends, that's implying your forecast for sales of 1.05 to 1.09 billion for 2Q typically wireless market is a little bit flatter and other markets like the enterprise and broadband usually have a better sequential pop, what kind of trend are you thinking in terms of seasonality and the mix of the next quarter?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

I think you really just described our expectations that there is probably not quite as much seasonality in wireless business as we typically see in enterprise and the broadband businesses. But if there is still seasonal trend there with the second and third quarter should say the June and September quarters being strongest and wireless typically is the September quarter and but differentials are... but the wireless business is much more dependent or functions more of backlog and that is going to have an impact quarter-to-quarter as we saw did in first quarter which was probably a little stronger than in typically would be on seasonal basis.

Unidentified Analyst

And when we talk about enterprise being better its safe to say a double digit sequential move is very reasonable, correct?

Brian D. Garrett - President and Chief Operating Officer

Sequentially, this time we are really not getting into the segment forecasting by quarter.

Unidentified Analyst

Okay if I though I could give it a shot, all right thank you.

Operator

Our next question comes from the line of Amitabh Passi [ph] with UBS.

Unidentified Analyst

We have questions, first I think you talked about a 31 million FX benefit to sales in the quarter, I was just wondering if you saw any benefit on the gross margin or the operating income line from foreign exchange improvements?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Well we had some puts and takes and I would not describe that as overall been official. I think what you saw in terms of the benefit on the sales line things like that the COGS are being pretty significant to get there because we are most of our foreign sourced revenues are actually produced outside the US and for that matter would have a negative foreign exchange impact from our cost of operations, in the current environment.

Unidentified Analyst

Got it. And I was just curious what currencies are you most sensitive to?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Outside the US it would be certainly the euro the next most significant currency that would be influenced by.

Unidentified Analyst

Got it and then in your commentary you talked about the enterprise trends in North America I was wondering what are you seeing in Europe we've seen sort of mixed data points coming from companies in the sort of supply chain. I am just wondering what sorts of trends you are seeing in Europe with respect to your enterprise business?

Brian D. Garrett - President and Chief Operating Officer

Well I am looking here real quick Amitabh for my stats. If I look in growth in enterprise space and EMEA 6% or 7% in the quarter we had good growth in enterprise. Clearly the weaker dollar is helping us in that market as a number of other markets. Asia Pac strength for the enterprise was up 15% or 16% in part because of our presence in that region, two, clearly the dollars got to be helping as there as well.

Unidentified Analyst

Got it. And then just curious if you can give us any sense of what the expected savings are from the closure of the plants you've announced the three, Jaguariuna, Seneffe and Capriati?

Brian D. Garrett - President and Chief Operating Officer

We've not provided the detail.

Unidentified Analyst

Okay that was asked. And then just one final question the little surprise with just the magnitude of the drop in your operating margins in the broadband segment given that sales were down only whatever 8.5% or so year-over-year. Just wondering maybe if you can just shed a little more light in terms of the puts and takes that sort of drove the dramatic droop and then how should we think about where you think operating margins for that market as we exit the year?

Brian D. Garrett - President and Chief Operating Officer

Well three things happened in the quarter and the train rack in Q1 really started in the fourth quarter to go back and look at our book to bill it was 0.86 which was rather extraordinary force and I think in another conversations we've had we said January was just a very, very tough month starting the year. Not just for broadband but for a number of our business segments. So the result of that was a big volume impact which had its damages on absorption and margin.

I guess the good news is and the continuation of that theme is throughout the quarter we saw growing response in orders and ended up the quarter with a book to bill of nearly 1.2... 1.9 which sets itself well for Q2 recovery in volume. Now the other thing that's happening is a mix shift and in the quarter, in the current environment, particularly as it relates to America, there is less new build activity. We've characterized that largely is maintenance and Frank often talks about the defensive nature between the competition of broadband and the traditional wireline carriers.

The result of that is a higher mix of drop wire and a lower mix of higher margin trunk and distribution. That had an impact in the quarter, and then the other piece of course it was cost, commodities ran strongly in the quarter, did not have benefit of recovering any costs in the quarter when you put the three of them together for broadband in the Q, it was a tough period for us, but I will say all three of those change in nature and I'll say positive over the course of the second quarter.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Right. Volume certainly will help that operating performance as well. The operating leverage on the less than expected revenue was negative to operating income and some improvement there will obviously be positive.

Unidentified Analyst

All right another question, Phil for you. What was the pro forma operating income figure for ACCG?

Philip Armstrong - Vice President of Investor Relations

It is around $72 million.

Unidentified Analyst

Okay. Thank you. I'll leave you there.

Operator

Thank you. Our next question comes form the line of Brian Coyne with FBR Capital Markets.

Brian D. Garrett - President and Chief Operating Officer

Brian good afternoon. If you are with us?

Operator

Okay, Mr. Brian. Your line is open. Okay, we will go to the next question, it comes from Eric Buck with Brean Murray.

Unidentified Company Representative

Eric, hi Eric.

Eric Buck - Brean Murray

Couple of niches here or just filling [ph], what was the assumed tax rate on your pro forma EPS number?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yeah 35%, Eric.

Eric Buck - Brean Murray

Okay and then you had $6.7 million in other expenses, I assume this $3 million debt conversion expenses in there with the rest of that.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

The other large piece would be the foreign exchange negative impact on cash and intracompany debt.

Eric Buck - Brean Murray

I am sorry.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

About 3 million as well.

Eric Buck - Brean Murray

Okay and then the $2.9 million of the acquisitions and other expense that you called out, where in the income... the GAAP income statement, does that fall?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

I believe its all in SG&A. Majority of it has been SG&A.

Eric Buck - Brean Murray

Okay, great. And then with affect [ph] to the WNS businesses, with that now running at break even, has that crossed the hurdle where you definitely said that, that makes the cut and we keep the business or is that still we need to fix it more before we make a decision on it?

Brian D. Garrett - President and Chief Operating Officer

Eric all of the issues we had two or three months ago, still exists and they performed very, very well. The filter team was profitable in the quarter or which was a big part of it, our wireless innovations team, a great story there year-over-year revenue growth one of the more profitable businesses we have corporately. Tell you there is a lot of good things going on there. But we've got work to do and filters to reassure all of our shareholders that that performance can be sustainable if not grow on the bottom line and we still have a lot of big issues in power ramps. I think the strategy is right the technology is right, there are lot of things the positioning, there are lot of things that are right about that business, but it was not a good quarter for them and we have got a lot of work to do. So may be I'll even say more specifically it relates to any or all of them. We've made no decisions to divest any further and certainly filters and power amps which are on lot of people's radars. And we're sorting through where we can take those businesses longer terms.

Eric Buck - Brean Murray

Okay, and then in terms of the Brazil, Belgium and Italy, I know you don't want to put in dollars, terms on those but can you size it relative to your synergy just targeted, is this a major chunk of the synergies that will be generated that will be generated the rest of the year.

Brian D. Garrett - President and Chief Operating Officer

Pretty small part, in total magnitude its not number 1 or 2 at the category. The other thing is that it relates to people and factories and assets. They take longer to materialize, they will have a short tenure over the course of '08 financials.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

And we will have some large... larger restructuring costs than we experienced in the first quarter coming in later quarters like when the second quarter concerning those active reach.

Eric Buck - Brean Murray

Yeah I would like to ask you more about the synergy savings that side as opposed but.

Unidentified Company Representative

Yeah the impact in 2008 is relatively small.

Eric Buck - Brean Murray

Okay, bye thanks.

Unidentified Company Representative

TK, I think we have time for about two more questions.

Operator

Okay, our next question comes from the line of Brian Coyne with FBR Capital Markets.

Brian Coyne - FBR Capital Markets

Hi did not get one of these times. I wish I could blame the mute button, but any way I am so lot of question so I will keep it to the couple here if you press-- spend a little time on the Asia Pacific wireless growth drivers you might see may be you could just take a second to review your competitive position in China and also over there and if you sort of seeing any signs of lending the long promise next Gen roll out.

Unidentified Company Representative

Well I would ...I would say our position in China and credit to the Andrew team there they are advantaged in their presence in China is being lengthy in excessive 10 years which is very helpful to the business on a year-over-year basis they did fairly well I think we have got work to do in China but in the region the real story is all about India and we are doing very well in all aspects of the tower space in India that's inclusive of cable but most particularly in the antenna space we do very well in terms of the share with essentially all other major carriers and it's been a big- big part of the success and story for ATCP in the quarter.

Brian Coyne - FBR Capital Markets

Great, that's good. And then also on broadband, I know you touched on it little bit, but if you could maybe just spend a little more time, obviously was pretty weak, we all know about Comcast [ph] lagging early this year, but incase you haven't' said anything about it, to what degree did you see any meaningful impact form sort of flak housing [ph] demand, and sort of how do you see that looking ahead?

Unidentified Company Representative

Well I missed the question.

Unidentified Company Representative

[indiscernible].

Unidentified Company Representative

One of our biggest products has suffered the downturn was a product as wreck reference to new housing stocks, so that was clearly an indication of what happened there, so cable, cabinet business

Brian Coyne - FBR Capital Markets

Got it, great. And then real quickly just to fun finish up, again sorry if I'm turning over old stuff, but it was with cable formally, now exiting the the pivot relationship, not that it surprised anybody obviously. Maybe for Frank, if you haven't touched on it, could you talk about it if it's a sort of a positive or negative further potential for the cable operators to build up their own wireless networks?

Unidentified Company Representative

Well I've said this time and time again, I don't believe long term cable operators will need a wireless solution, whether they do it on their own, or do it with MVNO, or do it with some other combination, I do believe that they'll be in the wireless business at some point in the future. They certainly have enough frequencies on their own to get started. Cox was very aggressive in 700 megahertz, and areas and stuff, so I believe that you'll see some transactions happening, going forward and don't leave to wireless penetration by cable operators.

Brian Coyne - FBR Capital Markets

And for you business, assuming it happens, I mean is that ...could that be incremental to your business, or is it sort of...

Unidentified Company Representative

Well, it certainly will be incremental. Any new network that's going to be built will be incremental. As same with 700 megahertz or whatever [indiscernible] what everybody does and what everyone call LTE 4G in the next generation all of that requires incremental capital to incremental products that we sell to the industry. Those are different frequencies they take different antennas they take different nomenclature and so all the positives for us.

Brian Coyne - FBR Capital Markets

Great, thanks guy.

Operator

Our next question comes from the line of Leveon Voridden with Hocky Capital [ph].

Unidentified Analyst

I am just onto the wire. In terms of enterprise could you please give me a little bit more granularity in terms of percentage of sales from a geographic perspective.

Unidentified Company Representative

I don't know if I have it I will say in big pieces maybe some one can fish around speaking here. Big pieces slightly less or roughly half of the sales or North American the next largest region would benefit Asiapac. Actually not Asia-Pac, it's not Asia-Pac, but EMEA and I don't know if anyone has that percentage in year and I am going to get where in the neighborhood of 20% and the remainder would be in Asia-Pac and calla [ph].

Unidentified Analyst

There was stronger growth internationally then certainly in the U.S it's a little stronger mix international to U.S in the quarter income this and set.

Unidentified Company Representative

it was an excellent quarter for them it was not only the strength that they had in revenue from an international perspective year-over-year the real story like so many of these business is about what they were able to do in the operating income line. The enterprise group grew 22% year-over-year in operating income and not unlike a lot of the legacy Andrew business it was good performance year-over-year and operating income.

Unidentified Analyst

I want to follow-up in terms of cabinets and then closures, obviously you are looking to put some meaningful resources behind that initiative because you grow there, could you give me better sense for who you are coming up against from a company stand point and kind of may be are we going to be looking for announcements from you as you get more of this business?

Unidentified Company Representative

Announcement, I think clearly as we are just starting in the fuel spelt, excuse me fuel sales base and I think as those markets and businesses mature, we will clearly be keeping you current and what's happening there. Our entry into at least from a CommScope perspective into the wireless space with cabinets is largely a new offering, I mean we have had sales in that space for at least a couple of years, but its been minimal compared to the larger wire line business and absolutely we'll keep all investors advised of our progress in the wireless space.

Unidentified Analyst

Who are the companies [ph] that up are coming up against in the wireless area?

Unidentified Company Representative

Well I think on the wireless side I would say for sales a large incumbents, certainly within North America, the other cash that we have of course relates to international deployment of these products, I mean they are broadly accepted in North America, we have got excellent design in R&D teams, the task we have now is taking these products into the broader international wireless channels provided by the Andrew business.

Unidentified Analyst

What it relates to just trying to put your pricing and initiatives into context. Are we pricing to recruit hard raw materials, or are we pricing to try to get ahead of the curve? Just a [indiscernible]

Unidentified Company Representative

Well we don't get ...we don't necessarily anticipate further commodities costs, but what we do attempt to do is to recover margin. And so we make our best estimate of what our current cost and near term cost will be, and to the extent to that's the premium, we'll try and recover that cost, and associated margin with announced price increases.

Unidentified Analyst

Thank you.

Unidentified Company Representative

Operator, I think that closes it, I would again thank all of the Andrew consequent [ph] team for an outstanding first quarter, considering we just closed on this business at the end of December, these results I think are outstanding testament to what this company can do together, and we are far better together as a combined company. And Jerald and your team, congratulations on the financing, everything that I've done is for. Look forward to talking to all of you next quarter. And TK [ph], I think that's done

Operator

Yes, Sir. That concludes today's conference call. Again that does conclude today's conference call. You may now disconnect.

Unidentified Company Representative

Thank you TK.

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