Exhibit 99.2
OFS BRIGHTWAVE, LLC
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND FOR THE
PERIOD FROM INCEPTION (NOVEMBER 17, 2001)
TO DECEMBER 31, 2001
OFS BRIGHTWAVE, LLC
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS: PAGE(S)
Report of Independent Accountants 1
Consolidated Statement of Financial Position
as of December 31, 2001 2
Consolidated Statement of Operations and Comprehensive Income
for the period from inception (November 17, 2001) to
December 31, 2001 3
Consolidated Statement of Changes in Members' Interest
for the period from inception (November 17, 2001) to
December 31, 2001 4
Consolidated Statement of Cash Flows
for the period from inception (November 17, 2001) to
December 31, 2001 5
Notes to the Consolidated Financial Statements 6-19
FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts
For the period from inception (November 17, 2001) to
December 31, 2001 20
All other schedules are omitted as they are not applicable or the required
information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers of
OFS BrightWave, LLC:
In our opinion, the accompanying consolidated statement of financial
position and the related consolidated statement of operations and
comprehensive income, of changes in members' interest, and of cash flows
present fairly, in all material respects, the financial position of OFS
BrightWave, LLC ("the Company") at December 31, 2001, and the results of
its operations and its cash flows for the period from inception (November
17, 2001) to December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and the financial statement schedule
are the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements and the financial
statement schedule based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
As described in Note 1 and Note 3, the Company is a majority owned
subsidiary of Fitel USA. Fitel USA also owns OFS Fitel and the two
enterprises (the Company and OFS Fitel) have a supply agreement and
contract manufacturing agreement with each other. The results of operations
or financial position of the Company could differ from those that would
have been obtained if the enterprises were autonomous.
/s/ PricewaterhouseCoopers LLP
March 11, 2002
Atlanta, Georgia
OFS BRIGHTWAVE, LLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
ASSETS DECEMBER 31,
2001
Current assets
Cash and cash equivalents $ 171,421
Accounts receivables 39,770
Receivable from affiliates 25,506
Inventories 61,354
Other receivable 7,508
Other current assets 10,067
----------------
Total current assets 315,626
Property, plant and equipment, net 618,424
Amounts due from affiliates related to pension and
other postretirement benefits 3,497
Identified intangible assets, net 170,855
Goodwill 128,833
Other assets 38
----------------
Total assets $ 1,237,273
================
LIABILITIES, MINORITY INTEREST AND MEMBERS' INTEREST
Current liabilities
Accounts payable $ 22,589
Payable to affiliates 24,191
Payroll and benefits liabilities 5,715
Acquisition related reimbursements to members 22,954
Acquisition related liabilities 25,938
Obligations under capital leases, current 1,481
Other current liabilities and accrued expenses 11,451
----------------
Total current liabilities 114,319
Notes payable to members 150,000
Pension obligation and other postretirement benefits 3,791
Obligations under capital lease 4,163
Deferred income taxes 32,058
Other liabilities 3,599
Minority interest in equity of affiliates 52,400
----------------
360,330
----------------
Members' interest 876,943
----------------
Total liabilities, minority interest
and members' interest $ 1,237,273
================
The accompanying notes are an integral part of these financial statements.
OFS BRIGHTWAVE, LLC
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
FOR THE PERIOD FROM
INCEPTION
(NOVEMBER 17, 2001)
TO
DECEMBER 31, 2001
Revenues $ 29,340
Cost of revenues 65,951
-----------------
Gross margin (36,61l)
-----------------
Operating expenses
Research and development 794
In process research and development 13,000
Marketing and sales 3,823
General and administrative 7,004
Amortization of intangible assets 2,145
-----------------
Total operating expenses 26,766
-----------------
Operating loss (63,377)
Interest expense, net (622)
Other income from affiliates 1,431
Minority interest 1,315
-----------------
Loss before income taxes (61,253)
Provision for income taxes ------------------
Net loss (61,253)
Other comprehensive loss
Foreign currency translation adjustments 2
-----------------
Comprehensive loss $ (61,251)
==================
The accompanying notes are an integral part of these financial statements.
OFS BRIGHTWAVE, LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' INTEREST
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
Balance at November 17, 2001 $ 938,194
Net loss for the period from inception (November 17, 2001) (61,253)
to December 31, 2001
Effect of foreign currency translation 2
--------------
Balance at December 31, 2001 $ 876,943
==============
The accompanying notes are an integral part of these financial statements.
OFS BRIGHTWAVE, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
FOR THE PERIOD FROM
INCEPTION
(NOVEMBER 17, 2001)
TO
DECEMBER 31, 2001
Net cash provided (used) by operating activities
Net loss $ (61,253)
Adjustments to reconcile net income to net cash
used in operations
Depreciation of property, plant and equipment 7,542
Amortization and in-process research and
development charge 15,145
Minority interest in equity of affiliates (1,315)
Changes in assets and liabilities
Accounts receivable (21,755)
Receivable from affiliates (25,506)
Inventories 16,144
Accounts payable 14,751
Payable to affiliates 24,191
Payroll and benefits liabilities 4,963
Change in pension assets and liabilities 490
Acquisition related reimbursements to members 2,947
Acquisition related liabilities (459)
Other, net 5,551
-------------------
Net cash used in operating activities (18,564)
-------------------
Cash flow from investing activities
Cash expenditures for property and equipment (4,201)
-------------------
Net cash used in investing activities (4,201)
-------------------
Cash flow from financing activities
Issuance of debt to members 150,000
Repayment of obligations under capital leases (124)
-------------------
Net cash provided by financing activities 149,876
-------------------
Net (decrease) increase in cash 127,112
Cash and cash equivalents at beginning of period 44,309
-------------------
Cash and cash equivalents at end of period $ 171,421
===================
The accompanying notes are an integral part of these financial statements.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
1. BACKGROUND AND BASIS OF PRESENTATION
The accompanying consolidated financial statements present the
financial position, results of operations and cash flows of OFS
BrightWave, LLC, a Delaware limited liability company ("the Company"),
a majority owned subsidiary of Fitel USA Corporation, a Delaware
corporation ("Fitel USA"). Fitel USA's ultimate parent is The Furukawa
Electric Co., ltd. ("Furukawa") of Japan. The Company is a designer,
manufacturer and supplier of leading edge optical fiber cable for high
speed optical networks. The Company has facilities located in the
United States, Brazil and Germany. The Company also manufactures fiber
under a contract manufacturing agreement for OFS Fitel, LLC ("Fitel"),
a wholly owned subsidiary of Fitel USA.
These financial statements have been prepared in United States dollars
and in accordance with generally accepted accounting principles in the
United States of America ("GAAP"), using the push down accounting
basis to record the acquisition described in Note 2.
As described in Note 2, BrightWave is owned 81.6% by Fitel USA and
18.4% by CommScope Optical Technologies, Inc., a wholly-owned
subsidiary of CommScope Inc. ("CommScope"). In addition, income and
loss is allocated to the members proportionately according to their
respective ownership interest in the Company. Fitel and Fitel USA are
considered affiliates of the Company.
2. FORMATION OF COMPANY
On November 17, 2001, the inception of the Company, Furukawa purchased
Lucent Technologies' optical fiber solutions business for $2,300
million. The business operations were separated into two entities,
Fitel and BrightWave. Fitel is comprised of the Optical Components
Business ("Components"), the Specialty Photonics Business
("Specialty") and Optical Fiber ("Fiber"). BrightWave is comprised of
the Fiber Optic Cable Business ("FOC") assets that provide contract-
manufacturing services to Fiber and the manufacturing of fiber optic
cable. CommScope, Inc. ("CommScope"), purchased an 18.4% interest in
BrightWave for approximately $173 million at the time of Fitel USA's
purchase of BrightWave. Approximately $1,359 million of the $2,300
million purchase price was allocated to Fitel and the balance, $941
million to BrightWave based on the relative fair value of the
businesses. Certain joint ventures included in the purchase and valued
at $7,000 are subject to the approval of the other partners in the
respective joint ventures. Amounts to be paid for these joint ventures
have not been paid by the members.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
The purchase price allocated to the Company was allocated to the
tangible and intangible assets and liabilities and in-process research
and development ("IPR&D") based upon their fair values at the date of
the acquisition. The excess of the purchase price allocated to the
Company over the fair value of the net assets and in-process research
and development has been recorded as goodwill. The amount of the
purchase price allocated to BrightWave was allocated as follows:
Consideration paid by members $ 940,677
Less: Joint venture companies not included at closing and
certain foreign representative offices (7,076)
Costs incurred by members in formation
of the Company, net of reimbursements 4,593
-------------
938,194
Fair value of tangible assets at inception
Cash 44,309
Trade receivables 18,015
Receivable due from Lucent 7,508
Inventory 77,497
Amounts due from affiliates related to pension and
other postretirement benefits 3,733
Fixed assets 621,765
Other assets 10.233
-------------
783,060
-------------
Fair value of liabilities at inception
Acquisition related reimbursements to members (20,007)
Acquisition related liabilities (26,397)
Deferred tax liability (32,058)
Other liabilities (23,986)
Pension obligations (3,536)
Minority interest (53,715)
-------------
(159,699)
-------------
Identifiable specified intangible assets 173,000
In process research and development 13,000
Goodwill 128,833
-------------
Total $ 938,194
=============
Acquisition reimbursements to members represents legal and severance
benefit costs incurred by the respective members on behalf of the
Company. Through a Memorandum of Understanding, the members agreed on
amounts to be reimbursed upon formation of the Company.
Acquisition related liabilities represents involuntary employee
termination benefits and other costs that qualify for recognition
under EITF 95-3, Recognition of Liabilities in Connection with a
Purchase Business Combination.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
A charge of $13 million for IPR&D was recorded in the results from
operations for the period ended December 31, 2001. The IPR&D product
process technology includes proprietary technology that is currently
under development to support future products. Specifically, projects
to develop next generation optical fiber and cable designs were
assessed in this analysis.
An independent appraisal firm employed the royalty savings method to
identify the fair value of the IPR&D and other identifiable
intangibles. Discounted cash flow methods were employed to evaluate
existing product process technology and incomplete technology. Future
revenue projections were allocated for all existing technology and
current IPR&D projects. All current IPR&D projects are expected to be
released by late 2003. For both existing product process technology
and IPR&D product process technology, initially allocated percentages
of revenue are reduced over time. The pattern of reduction is intended
to reflect the anticipated life cycle of the assets and the
re-engineering of the assets over that life cycle. A discount rate of
15%, representing the required rate of return for the asset, was used
in the determination of the fair value of the IPR&D process
technology.
3. RELATED PARTY TRANSACTIONS INCLUDING DEBT DUE TO MEMBERS
CONTRACT MANUFACTURING AND FIBER SUPPLY AGREEMENTS WITH OFS FITEL, LLC
The Company entered into a 3-year renewable manufacturing agreement
with Fitel. OFS BrightWave earns gross margin on the production and
sale of fiber to Fitel as a contract manufacturer. The sales price of
fiber to Fitel is based upon transfer prices established by the Board
of Managers of the Company and Fitel. Under the agreement, the Company
agrees to purchase all raw materials for fiber production from Fitel
or a supplier designated by Fitel and be Fitel's contract manufacturer
in conjunction with Fitel's own fiber making capacity. There were no
purchases of raw materials from Fitel during the period from inception
(November 17, 2001) to December 31, 2001. Concurrently, the Company
entered into a 3-year renewable sale supply agreement with Fitel to
purchase all of the necessary fiber used in the manufacturing of the
Company's cable products. Fitel earns gross margin on the sale of
fiber to the Company based upon transfer prices established by the
Board of Managers of the Company and Fitel. For financial reporting
purposes, no revenues are recognized on the sale of fiber to Fitel.
The revenues and gross margin earned on the revenues is deferred until
the fiber is sold to an external third party of Fitel or is sold as
fiber optic cable to an external third party customer by the Company.
Under the supply agreement, Fitel sold $12,590 of fiber to the Company
during the period from inception (November 17, 2001) to December 31,
2001. The Board of Managers of the Company and Fitel are controlled by
Fitel USA.
NOTES PAYABLE TO MEMBERS
On November 16, 2001 and in connection with CommScope's acquisition of
an 18.4% interest in the Company, the Company entered into a credit
facility with CommScope. The Agreement provides for a $30 million
revolving credit facility maturing on November 16, 2006. The Company
has drawn the full amount under the credit agreement as of December
31, 2001. Accrued interest is payable in quarterly installments. The
revolving credit facility bears an interest rate determined by the
3-month London Interbank Offered Rate ("LIBOR") plus an applicable
margin of 1.75%. The LIBOR rate was 1.82% at December 31, 2001. In
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
addition, the credit agreement contains certain covenants and
restrictions that restrict or limit the incurrence of indebtedness. As
of December 31, 2001, the Company is in compliance with these
covenants and restrictions.
On November 19, 2001, the Company entered into a revolving credit
facility with Fitel USA. The agreement provides a $120 million
revolving credit facility to the Company maturing on November 16,
2006. The Company has drawn the full amount under the credit agreement
as of December 31, 2001. Accrued interest is payable in quarterly
installments. The revolving credit facility bears an interest rate
determined by the 3-month London Interbank Offered Rate ("LIBOR") plus
an applicable margin of 1.75%. The LIBOR was 1.82% at December 31,
2001. In addition, the credit agreement contains certain covenants and
restrictions, which restrict or limit the incurrence of indebtedness.
As of December 31, 2001, the Company is in compliance with these
covenants and indebtedness. Accrued interest payable at December 31,
2001 was approximately $49.
SUPPORT FROM FURUKAWA
Furukawa will provide the necessary funds to allow the Company to
continue its operations through March 31, 2003. Hence, the Company's
financial statements have been presented on a going concern basis,
which contemplates the realization of assets and liabilities in the
normal course of business.
OTHER
The Company paid management fees to Fitel USA in the amount of $135
for the period from November 17 to December 31, 2001. The fee
represents reimbursable costs incurred by Fitel USA for operating
costs of the holding company.
The Company recorded rental income in other income of $1.4 million
from Fitel for its use of space at the Company's Norcross, Georgia
facility.
Transition from Lucent required the Company and Fitel to enter into
certain transition service agreements with Lucent. Lucent charges the
Company and Fitel for specific usage of their services including
certain electronic data interfacing, payroll and benefits processing
and information systems resources. The charges are allocated between
the Company and Fitel based on headcount and percentage of revenue.
For the period from inception (November 17, 2001) to December 31,
2001, the results from operations include $5.3 million for transition
service agreements.
The Company shares certain management and overhead services with
Fitel, a wholly owned subsidiary of Fitel USA. These shared services
consist of managerial resources, information technology, risk
management, and human resources functions. The costs for these shared
services are allocated between the Company and Fitel based on expected
usage for these services. Management believes this provides a
reasonable allocation of the charges. For the period from inception
(November 17, 2001) to December 31, 2001, the results from operation
include $4.5 million of allocated shared services charges.
As part of the purchase of the interest in BrightWave, Furukawa
granted CommScope a put for the amount of their investment interest in
the Company of approximately $173 million. The put gives CommScope the
right to sell to Furukawa all of the membership interest owned by
CommScope and its Affiliates. The put is exercisable by CommScope
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
on the earlier of May 1, 2004 or the date BrightWave delivers audited
financial statements for the fiscal year ended December 31, 2003 and
ending on the date that is three months after such date. The put is an
obligation of Furukawa and does not represent a liability of
BrightWave.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Company consolidates companies in which it exercises control. The
results of subsidiaries are included in the consolidated financial
statements from the effective date of acquisition. The Company
eliminates all significant intercompany balances and transactions in
consolidation.
USE OF ESTIMATES
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the period
reported. Significant estimates include the allowance for doubtful
accounts, useful lives of fixed assets and identifiable intangible
assets, and inventory reserves. Actual results could differ from those
estimates.
FOREIGN CURRENCY
For operations outside of the United States that prepare financial
statements in currencies other than the U.S. dollar, results of
operations and cash flows are translated at average exchange rates
during the period, and assets and liabilities are translated at end of
period exchange rates. Gains and losses resulting from foreign
currency transactions (transactions denominated in a currency other
than the entity's functional currency) are included in the
consolidated statement of operations and comprehensive income.
REVENUE RECOGNITION
Revenue is generally recognized when all significant contractual
obligations have been satisfied, collection of the fixed and
determinable receivable is reasonably assured, and the product is
delivered to a non-related third party customer.
SHIPPING AND HANDLING COSTS
Shipping and handling fees related to sales transactions are billed to
customers and recorded as revenue. Shipping and handling costs
incurred are recorded in cost of revenues.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent bank deposits and certain
short-term investments. All highly liquid investments with maturities
of three months or less are considered to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (determined principally on
a first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
determined using a straight-line method over the estimated useful
lives of the various asset classes. Estimated lives range from three
to twelve years for machinery, electronic and other equipment, and
twenty-five years for buildings.
Major renewals and improvements are capitalized and minor
replacements, maintenance and repairs are charged to operations as
incurred. Upon retirement or disposal of assets, the cost and related
accumulated depreciation are removed from the consolidated balance
sheets and any gain or loss is reflected in the consolidated
statements of operations.
INTERNAL USE SOFTWARE
Certain costs of computer software developed or obtained for internal
use are capitalized and amortized on a straight-line basis over three
years. Costs for general and administrative overhead, maintenance and
training, as well as the cost of software that does not add
functionality to the existing system, are expensed as incurred.
GOODWILL AND OTHER ACQUIRED INTANGIBLES
In accordance with SFAS 142, `Goodwill and Other Intangible Assets,"
goodwill is no longer amortized. Other intangible assets are amortized
on a straight-line basis over the useful life of the asset, which is
the period the asset is expected to contribute directly or indirectly
to future cash flows. A range of 7 to 17 years has been used for
amortization of specific intangible assets.
IMPAIRMENT OF GOODWILL AND OTHER LONG-LIVED ASSETS
In accordance with SFAS 142, "Goodwill and Other Intangible Assets",
goodwill will be reviewed for impairment on an annual basis. In
accordance with SFAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets, other long-lived assets will be reviewed for
impairment when factors indicate that a potential impairment may have
occurred. Impairment occurs when the carrying amount of the asset
exceeds its implied fair value. When the carrying amount of the asset
exceeds the fair value, the Company recognizes an impairment loss in
an amount equal to that excess. After an impairment loss is
recognized, the adjusted carrying amount of the asset becomes its new
accounting basis.
ACCRUED PRODUCT WARRANTY COSTS
The Company offers a wide variety of warranty terms for its products.
Warranty accruals are determined based on historical results of the
previous owner. All warranty obligations anticipated to be fulfilled
beyond one year are classified as noncurrent liabilities.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
PENSION ASSETS AND BENEFIT OBLIGATION
The pension and benefits asset information represents the Company's
sponsored plans and its allocated share of Fitel's non-contributory
pensions, health and welfare and life plan in which the Company
participates. The allocation from plans participated in by the Company
is based on the headcount and salary levels associated with the
Company's employees for the period presented. Benefit obligations
primarily consist of the Company's post retirement plan liability and
are not based on allocation.
INCOME TAXES
The Company is organized as a limited liability company and is treated
as a partnership for income tax purposes. Fitel USA and CommScope are
responsible for the payment of taxes due on the earnings of the
Company. The consolidated financial statements of the Company include
wholly-owned corporations that are responsible for paying taxes as a
corporation. For these corporations, the asset and liability approach
is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Valuation allowances are recorded when necessary to reduce deferred
tax assets to the realizable amounts.
CONCENTRATION OF CREDIT RISK
The Company expects a significant portion of its future revenues to
continue to be generated by a limited number of customers. The loss of
any of these customers or any substantial reduction in orders by any
of these customers could materially and adversely affect the Company's
operating results.
RISKS AND UNCERTAINTIES
The Company operates in several foreign jurisdictions, which present
certain macroeconomic and regulatory risks and uncertainties. Areas of
uncertainty include the likely future direction of economic and
regulatory policy, as well as political developments. In certain
instances, commercial and tax legislation contains provisions allowing
for more than one interpretation. Accordingly, management's judgement
concerning certain business transactions may not coincide with the
interpretation of the same activities by the tax authorities.
Additionally, the telecommunications industry remains highly regulated
and restrictions in certain foreign countries may limit the degree in
which foreign-owned entities may operate. Management of BrightWave is
unable to predict what changes in conditions may occur and what the
effects of such changes may have on the financial position and results
of operations of the Company.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
5. INTANGIBLE ASSETS
AS OF DECEMBER 31. 2001
------------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
---------------- ----------------
Amortized intangible assets
Trademark $ 21,000 $ (328)
Existing Core Process Technology 57,000 (509)
Existing Product Process Technology 58,000 (1,036)
Customer Relationships 37,000 (272)
---------------- ----------------
Total $ 173,000 $ (2,145)
================ ================
Unamortized intangible assets
Goodwill $ 128,833
---------------
Aggreoate Amortization Expense
- -------------------------------
For period from inception (November 17, 2001) to
December 31, 2001 including IPR&D charge $ 15,145
Estimated Amortization Expense
For year ended 12/31/02 $ 17,159
For year ended 12/31/03 $ 17,159
For year ended 12/31/04 $ 17,159
For year ended 12/31/05 $ 17,159
For year ended 12/31/06 $ 17,159
The fair values of the acquired intangible assets were estimated using
the expected present value of future cash flows. Amortization expense
is calculated on a straight-line basis over a period ranging from 7 to
17 years. Trademarks are deemed to have a useful life of 8 years and
will cease amortizing on November 17, 2009. Existing core process
technology has a useful life of 14 years and will cease amortizing on
November 17, 2015. The existing product process technology has a
useful life of 7 years and will cease amortization on November 17,
2008. Customer relationships are amortized over a 17-year period.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
6. SUPPLEMENTAL INFORMATION
DECEMBER 31,
2001
Inventories
Raw materials $ 22,906
Work-in-process 29,936
Finished goods 8,512
-----------------
Total inventories $ 61,354
================
Property, plant and equipment, net
Land and improvements $ 29,351
Buildings and improvements 197,105
Machinery, electronic and other equipment 338,400
Construction-in-progress 61,110
----------------
Total property, plant and equipment 625,966
Less: accumulated depreciation (7,542)
----------------
Property, plant and equipment, net $ 618,424
================
DECEMBER 31,
2001
Depreciation of property, plant
and equipment $ 7,542
7. COMMITMENTS AND CONTINGENCIES
The Company has from time to time been involved in legal proceedings
and litigation arising in the ordinary course of business. In the
opinion of management, the outcome of all current proceedings, claims
and litigation will not materially affect the Company's combined
financial position.
The Company has five supply agreements in place with key suppliers
that extend beyond fiscal 2001. The agreements commit the Company to
purchases of $150 million and are effective through 2005. Penalty
clauses are also included in the agreements and are based on the
failure of the Company to purchase agreed upon volumes.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
8. LEASES
The Company leases land, building and equipment under agreements that
expire in various years. Rental expense under operating leases was
$1,491 for the period from November 17 to December 31, 2001. The table
below shows the future minimum lease payments due under non-cancelable
operating leases at December 31, 2001:
CAPITAL OPERATING
LEASES LEASE
2002 $ 1,790 $ 10,712
2003 1,790 8,733
2004 1,790 7,846
2005 895 7,464
2006 - 6,239
Thereafter - 61,622
----------- -------------
Total minimum obligations $ 6,265 $ 102,616
============
Less interest on capital leases 621
-----------
Present value of net minimum obligation 5,644
Less: current portion 1,481
-----------
Long-term obligations at December 31, 2001 $ 4,163
===========
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
9. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
OFS BrightWave sponsors a defined benefit pension plan, and a retiree
healthcare plan and participates in a defined benefit pension a
retiree healthcare plan and a retiree life insurance plan.
Substantially all of the hourly employees are covered by these plans.
The amounts shown in the following tables include an allocation of the
components of net periodic benefit cost for the plans in which OFS
Brightwave participates. The value of plan assets for the pension and
other benefits include amounts that are anticipated to be transferred
from Lucent's pension and other trusts to trusts established to pay
these benefits. The following tables summarize benefit costs, as well
as the assumptions, benefit obligations, changes in plan assets and
funded status at or for the period from inception (November 17, 2001)
through December 31.
PENSION OTHER
BENEFITS BENEFITS
2001 2001 TOTAL
------------- --------------- ------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 76,056 $ 30,869
Service cost 424 140
Interest cost 634 256
Actuarial (gain) or loss (3) -
Benefits paid (156) (29)
----------- -------------
Benefit obligation at end of year 76,955 31,236
=========== =============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 91,189 15,297
Actual return on plan assets 942 159
Employer contribution 495 2
Benefits paid (156) (29)
----------- -------------
Fair value of plan assets at end of year 92,470 15,429
----------- -------------
Funded status 15,516 (15,807)
Unamorized net (gain) or loss (3) -
----------- -------------
Prepaid (accrued) benefit cost $ 15,513 $ (15,807)
=========== =============
Amounts recognized in the statement of
financial position consist of:
Prepaid benefit cost $ 17,265 $ -
Accrued benefit cost (1,752) (15,807)
----------- -------------
Net amount recognized $ 15,513 $ (15,807)
----------- -------------
Amounts due from (owed to) Fitel for plans which
Brightwave participates $ 17,242 $ (13,745) $ 3,497
----------- ------------- ------------
Pension obligations for plans which Brightwave
sponsors $ (1,729) $ (2,062) $ (3,791)
=========== ============= ============
WEIGHTED-AVERAGE ASSUMPTIONS AS
DECEMBER 31
Discount rate 7.25% 7.25%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 4.50% N/A
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
For measurement purposes, a 10 percent annual rate of increase in the
per capita cost of covered health care benefits for participants under
age 65 was assumed for 2002. The rate was assumed to decrease
gradually to 5 percent for 2009 and remain at that level thereafter. A
12 percent annual rate of increase in the per capita cost of covered
health care benefits for participants age 65 and over was assumed for
2002. The rate was assumed to decrease gradually to 5 percent for 2012
and remain at that level thereafter.
PENSION OTHER
BENEFITS BENEFITS
2001 2001
------------- --------------
COMPONENT OF NET PERIODIC BENEFIT COST
Service cost $ 424 $ 140
Interest cost 634 256
Expected return on plan asset (944) (159)
------------- ---------------
Total net periodic benefit cost $ 114 $ 237
============= ===============
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plan with accumulated
benefit obligation in excess of plan assets were $2,288, $1,519, and
$561, respectively as of December 31, 2001.
The Company has multiple non-pension postretirement benefit plans. The
health care plans are contributory, with participants' contributions
adjusted annually; the life insurance plan is noncontributory. The
accounting for the health care plans anticipates future cost-sharing
changes to the written plan that are consistent with the Company's
expressed intent to cap its portion of the cost.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point
change in the health care cost trend rates would have the following
effects:
1% 1%
INCREASE DECREASE
Effect on total of service and interest cost
components $ 16 $ (12)
Effect on postretirement benefit obligation $ 632 $ (528)
10. INCOME TAXES
The Company is a partnership for federal and state income tax
purposes. Any taxes of the Company are the responsibility of the
partners. The Company's foreign and domestic corporate subsidiaries
file separate tax returns. The Company has not recorded an income tax
provision as there was no material income subject to tax in its
corporate subsidiaries.
As of December 31, 2001, BrightWave's corporate subsidiaries have U.S.
and Non-U.S. net operating loss carryforwards of approximately $7,400,
which begin expiring at varying times.
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
The components of deferred tax assets and liabilities at December 31,
2001, for BrightWave's corporate subsidiaries subject to income tax,
as are follows:
DECEMBER 31,
2001
Deferred income tax assets
Reserves and allowances $ 18
Net operating loss/credit carryforwards 2,769
------------
Total deferred tax assets 2,787
Valuation allowance 740
------------
Net deferred tax assets 2,047
Deferred income tax liabilities
Property, plant and equipments (34,077)
Intangibles (28)
-------------
(34,105)
-------------
Net deferred tax liability $ (32,058)
=============
11. SEGMENT REPORTING
The Company has identified the following geographic reportable
segments: North America, Europe/Middle East/Africa, and Other. Other
includes Central America, Latin America, China, and Asia Pacific. The
chief operating decision-makers of the Company evaluate the business
on a global basis with consideration of resource allocation on a
geographic basis. The accounting policies of the segments are the same
as described in the summary of significant accounting policies. The
Company evaluates segment performance based on operating income.
Revenues for each segment are based on the location of the third-party
customer. All intercompany transactions between segments have been
eliminated. Segment results for the period from November 17 to
December 31, 2001 as follows:
EUROPE/
MIDDLE
NORTH EAST/ COMBINED
AMERICA AFRICA OTHER TOTAL
------------- ------------- ----------- ---------------
FOR THE PERIOD FROM NOVEMBER 17 TO
DECEMBER 31, 2001
Total revenues $ 25,377 $ 3,906 $ 57 $ 29,340
Depreciation and amortization 22,502 110 75 22,687
operating loss (60,892) (1,644) (841) (63,377)
Long-lived assets 603,286 8,259 6,879 618,424
Capital expenditures 3,621 12 568 4,201
OFS BRIGHTWAVE, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
12. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligation." SFAS No. 143 addresses accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This
statement is effective for fiscal years beginning after June 15, 2002.
OFS BRIGHTWAVE, LLC
VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II
(U.S. DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
ADDITIONS
BEGINNING ------------------------------ BALANCE
OF PERIOD CHARGED CHARGE TO AS OF
(NOVEMBER 17, TO OTHER DECEMBER 31,
DESCRIPTION 2001) EXPENSES ACCOUNTS DEDUCTIONS 2001
----------- -------------- ------------ ------------- -------------- ----------------
Allowance for uncollectible
accounts $ - $ - $ - $ - $ -
Allowance for deferred tax assets - - 740 - 740