EXHIBIT 99.1
COMMSCOPE, INC.
FORWARD-LOOKING INFORMATION
The Securities Exchange Act of 1934, the Private Securities Litigation
Reform Act of 1995 and other related laws provide a "safe harbor" for
forward-looking statements. Our Form 10-K for the year ended December 31,
2002, our Annual Report to Stockholders, any Form 10-Q or Form 8-K of ours,
or any other oral or written statements made by us or on our behalf, may
include forward-looking statements which reflect our current views with
respect to future events and financial performance. These forward-looking
statements are identified, including without limitation, by their use of
such terms and phrases as "intends," "intend," "intended," "goal,"
"estimate," "estimates," "expects," "expect," "expected," "project,"
"projects," "projected," "projections," "plans," "anticipates,"
"anticipated," "should," "think," "thinks," "designed to," "foreseeable
future," "believe," "believes" and "scheduled" and similar expressions.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made. We do
not intend, and are not undertaking any duty or obligation, to update any
forward-looking statements to reflect developments or information obtained
after the date of this Exhibit 99.1.
Our actual results may differ significantly from the results discussed
in forward-looking statements. Factors that might cause such a difference
include, but are not limited to, (a) the general political, military,
economic and competitive conditions in the United States and other markets
where we operate; (b) changes in capital availability or costs, such as
changes in interest rates, market perceptions of the industry in which we
operate, security ratings or general stock market fluctuations; (c)
employee workforce factors; (d) authoritative generally accepted accounting
principles or policy changes from such standard-setting bodies as the
Financial Accounting Standards Board and the Securities and Exchange
Commission; (e) the impact of corporate governance, accounting and
securities law reforms by the United States Congress, the Securities and
Exchange Commission and the New York Stock Exchange; (f) significant joint
ventures and acquisitions and the factors set forth below.
OUR SALES AND PROFITABILITY HAVE BEEN ADVERSELY AFFECTED BY A REDUCTION IN
SPENDING IN THE CABLE TELEVISION AND COMMUNICATIONS INDUSTRIES.
Most of our revenues come from sales to the cable television industry.
Demand for our products depends primarily on capital spending by cable
television operators for maintaining, constructing, rebuilding or upgrading
their systems. Capital spending in the cable television and communications
industries is cyclical. The amount of this capital spending, and,
therefore, our sales and profitability, will be affected by a variety of
factors, including, without limitation:
o general economic conditions;
o availability and cost of capital;
o changes in ownership of cable television operators;
o cable system consolidation within the industry;
o the financial condition of domestic and international cable
television operators and their access to financing;
o competition from satellite and wireless television providers and
telephone companies;
o technological developments;
o new legislation and regulation of cable television operators; and
o government investigations into industry practices.
During 2002, cable television capital spending decreased significantly
and we expect ongoing volatility in the near term. Our sales were
negatively impacted by a significant slowdown in spending by our
international customers, substantially lower sales of fiber optic cable and
a major slowdown in spending by Adelphia Communications Corporation,
referred to herein as Adelphia, primarily as a result of its Chapter 11
bankruptcy filing. We also experienced a significant slowdown in spending
by Charter Communications, Inc. in the second half of 2002. A shift away
from rebuilding or upgrading activities has negatively impacted our profit
margins. We cannot assure you that cable television capital spending will
not continue to decrease in the future or when, if at all, it will
increase. In addition, if we are unable to adequately manage our costs in
response to reduced demand for our products, there could be a material
adverse effect on our profitability.
THE INABILITY OF OUR CUSTOMERS TO OBTAIN ADEQUATE FINANCING TO FUND THEIR
INFRASTRUCTURE PROJECTS COULD MATERIALLY ADVERSELY AFFECT US.
Demand for our products depends primarily on cable system operators,
wireless service providers, alternate service providers, and other
customers and third parties continuing to construct, maintain, rebuild, and
upgrade their wired and wireless communication infrastructure. The current
global economic downturn and market volatility has limited our customers'
ability to access the capital markets. The inability of our customers to
obtain adequate financing to fund their infrastructure projects could have
a material adverse effect on our business and financial condition.
OUR CUSTOMERS ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION THAT COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
In recent years, cable television capital spending has been affected
by new legislation and regulation, on the federal, state and local level.
Many aspects of government regulation are currently the subject of judicial
proceedings and administrative or legislative proposals. The Federal
Communications Commission is continuing its implementation of the
Telecommunications Act of 1996, referred to herein as the "Telecom Act"
which, when fully implemented, may significantly impact the communications
industry and alter federal, state and local laws and regulations regarding
the provision of cable, internet and telephony services. The Telecom Act
eliminates substantially all restrictions on the entry of telephone
companies and certain public utilities into the cable television business.
Telephone companies may now enter the cable television business as
traditional cable operators, as common carrier conduits for programming
supplied by others, as operators of wireless distribution systems, or as
hybrid common carrier/cable operator providers of programming on so-called
"open video systems." The economic impact of the Telecom Act, ongoing
litigation in this regard, other recent federal legislation, and the rules
implementing these laws on the cable television industry and our business
is still uncertain.
THE LOSS OF ONE OR MORE OF OUR PRINCIPAL CUSTOMERS COULD MATERIALLY
ADVERSELY AFFECT US.
Although the domestic cable television industry is comprised of
thousands of cable systems, a small number of cable television operators
own a majority of cable television systems and account for a majority of
the capital expenditures made by cable television operators. Although we
sell to a wide variety of customers dispersed across many different
geographic areas, sales to the five largest domestic broadband service
providers represented approximately 48% of our net sales during 2002. In
addition, our products are sold and used in a wide variety of applications.
Our products primarily are sold directly to cable system operators,
telecommunications companies, original equipment manufacturers and
indirectly through distributors. Accordingly, the loss of one or more of
our principal customers could have a material adverse effect on our
business and financial condition.
CONSOLIDATION AMONG OUR MAJOR CUSTOMERS COULD MATERIALLY ADVERSELY AFFECT
OUR BUSINESS.
The telecommunications industry has experienced the consolidation of
many industry participants and this trend is expected to continue. We and
one or more of our competitors may each supply product to businesses that
have merged or will merge in the future. Consolidations could result in
delays in purchasing decisions by the merged businesses, and we could play
either a greater or lesser role in supplying products to the merged entity.
These purchasing decisions of the merged companies could have a material
adverse effect on our business. In November 2002, AT&T Broadband, the
largest domestic multiple system operator and one of our significant
customers, merged with Comcast Corporation to form a new company named
Comcast Corporation, referred to herein as Comcast, creating a significant
concentration of credit risk in the new merged entity. During the year
ended December 31, 2002, Comcast, as if combined with AT&T Broadband for
the full year, represented approximately 20% of our net sales, compared to
approximately 10% of our net sales as if they were combined for the full
year ended December 31, 2001. We cannot determine whether the AT&T
Broadband-Comcast merger, or subsequent potential regional clustering of
cable systems and subscriber trades, will delay expected cable spending or
negatively impact our sales volumes or profits.
THE FINANCIAL CONDITION OF SOME OF OUR MAJOR CUSTOMERS HAS WORSENED, WHICH
HAS RESULTED IN WRITE-OFFS AND INCREASED OUR CREDIT RISK.
One of our significant customers, Adelphia, filed for Chapter 11
debtor-in-possession reorganization on June 25, 2002. During 2002, we
wrote-off $21.4 million of Adelphia receivables. We have reached an
agreement with Adelphia on the terms under which we will continue to do
business with Adelphia during its Chapter 11 reorganization but we do not
expect a significant recovery of business with Adelphia in the near term.
Other customers of ours are or may become subject to government
investigation, file with the courts seeking protection under the applicable
bankruptcy or reorganization laws or experience financial difficulties.
Upon the financial failure of a customer, we may experience losses as a
result of our inability to collect, in a timely manner or at all, the
accounts receivable outstanding to such customer, as well as the loss of
such customer's ongoing business. If our customers fail to meet their
payment obligations to us, we could experience reduced cash flows and
losses in excess of amounts reserved.
Accounts receivable from Comcast, combined with AT&T Broadband,
comprised approximately 19% of our gross accounts receivable as of December
31, 2002. Accounts receivable from another customer comprised approximately
12% of our gross accounts receivable as of December 31, 2002. An adverse
change in the financial condition of a significant customer or group of
customers could result in increased credit risk. If we are unable to
collect the related accounts receivable, it could have a materially adverse
impact on our results of operations and financial condition.
THOUGH OFS BRIGHTWAVE, LLC'S PERFORMANCE HAS IMPROVED, WE EXPECT IT TO
CONTINUE TO INCUR LOSSES THAT COULD MATERIALLY ADVERSELY AFFECT OUR
RESULTS.
OFS BrightWave, LLC, referred to herein as OFS BrightWave, incurred
substantial losses for the year ended December 31, 2002 primarily due to
the weak demand for optical fiber and fiber optic cable and the impact of
significant charges primarily related to the write-off of goodwill and
certain fixed assets, restructuring and employee separation costs and other
cost reduction activities. Due primarily to the difficult market
environment for certain telecommunications products and challenging global
economic conditions, we expect ongoing pricing pressure and weak demand
industry wide for fiber optic cable products during 2003. While we believe
that OFS BrightWave has taken significant steps to reduce their cost
structure, we believe that OFS BrightWave will continue to incur losses in
the near term. As a result, we expect to recognize noncash equity method
losses through 2003 from our investment in OFS BrightWave, which could
materially adversely affect our results of operations. At December 31,
2002, OFS BrightWave owed $30 million to us under a $30 million revolving
note agreement. We are not required to make any additional investments in
the form of loans or capital contributions to OFS BrightWave; however, our
failure to do so could result in the dilution of our ownership percentage.
OUR OWNERSHIP OF A MINORITY EQUITY INTEREST IN OFS BRIGHTWAVE EXPOSES US TO
RISKS OF LIMITED CONTROL AS WELL AS OTHER RISKS WHICH, AMONG OTHER THINGS,
MAY MATERIALLY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our ownership of a minority equity interest in OFS BrightWave exposes
us to risks of limited control. Additional potential risks and
uncertainties include, but are not limited to, the ability of OFS
BrightWave to successfully manage its operations and related technologies
effectively, the ability of OFS BrightWave to maintain Lucent's customer
base, the ability of OFS BrightWave to recruit and retain qualified
employees, pricing and acceptance of OFS BrightWave's products, OFS
BrightWave intellectual property rights and telecommunications industry
capital spending. The inability of OFS BrightWave to operate successfully
in the current difficult global business environment may materially
adversely affect our results of operations. OFS BrightWave is party to
manufacturing and supply agreements with OFS Fitel, LLC, which is wholly
owned indirectly by The Furukawa Electric Co., Ltd., referred to herein as
Furukawa. As a result of Furukawa's controlling interest in both ventures,
it has significant influence over the structure and pricing of these
agreements. Future changes in these terms, over which we have limited
influence, could have a material impact on the profitability of OFS
BrightWave and ultimately on our results of operations. On October 9, 2002,
in conjunction with Furukawa's purchase of 7.7 million shares of our common
stock, we and Furukawa agreed to change from 2004 to 2006 the date when we
could first exercise our contractual right to sell our ownership interest
in OFS BrightWave to Furukawa for a cash payment equal to our original
investment in and advances to OFS BrightWave. The inability to exercise our
contractual right to sell to Furukawa, or to monetize, our ownership
interest in OFS BrightWave could negatively impact the value of our
investment in and advances to OFS BrightWave, which could materially
adversely affect our results of operations and financial condition.
THE RESTRICTIONS IMPOSED BY OUR NEW SENIOR SECURED REVOLVING CREDIT
FACILITY COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS AND OUR FAILURE TO
COMPLY WITH THESE RESTRICTIONS COULD RESULT IN A DEFAULT.
Our new $100 million senior secured revolving credit facility contains
covenants that restrict our ability and our subsidiaries' ability to:
o dispose of assets;
o incur additional indebtedness;
o incur liens on property or assets;
o repay other indebtedness;
o pay dividends;
o enter into certain investments or transactions;
o repurchase or redeem capital stock;
o engage in mergers or consolidations;
o engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities;
o guarantee the obligations of others; or
o make additional investments in or loans to OFS BrightWave.
Our compliance with our covenants in the future may be affected by
events beyond our control. Our noncompliance with these covenants could
create a default under our new senior secured revolving credit facility.
Moreover, this credit facility is secured by substantially all of our
assets. Accordingly, in the event of a default by us under this facility,
the lenders would have a first priority secured claim on our assets. This
may limit our ability to obtain additional financing from other sources in
the future.
ALTHOUGH WE BELIEVE THAT OUR EXISTING GOODWILL AND OTHER INTANGIBLE ASSETS
ARE NOT CURRENTLY IMPAIRED, WE MAY INCUR IMPAIRMENT CHARGES RELATED TO
THESE ASSETS IN THE FUTURE.
Effective January 1, 2002, we adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires the use of a nonamortization approach to
account for purchased goodwill and certain intangible assets with
indefinite lives and also requires at least an annual assessment for
impairment by applying a fair-value-based test. We do not currently have
any intangible assets, other than goodwill, with indefinite lives.
We completed the process of performing the transitional goodwill
impairment test, as prescribed by SFAS No. 142, as of January 1, 2002. As a
result of the test performed, we believe that goodwill was not impaired as
of January 1, 2002.
SFAS No.142 also requires that goodwill be tested for impairment
annually at the same time each year and on an interim basis when events or
circumstances change. We elected to perform our annual goodwill impairment
test as of August 31. We completed the annual goodwill impairment test as
of August 31, 2002 and believe that goodwill was not impaired as of this
date.
Existing goodwill, which totaled $151 million as of December 31, 2002,
arose from previous acquisitions accounted for under the purchase method of
accounting. If the current weakness in the telecommunications industry is
prolonged or further deteriorates, we cannot assure you that future tests
will not result in impairment of existing goodwill and that potential
future goodwill impairment will not materially adversely affect our results
of operations.
WE HAVE RECOGNIZED IMPAIRMENT CHARGES FOR FIXED ASSETS AND MAY NEED TO DO
SO AGAIN IN THE FUTURE.
Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No.
121, "Accounting for the Impairment or Disposal of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," but retains many of its
fundamental provisions. Long-lived assets must be tested for impairment in
accordance with SFAS No. 144 whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. Due to the
difficult business environment in telecommunications and the continuing
decline in demand for our products, we recognized impairment charges of
$25.1 million during the three months ended September 30, 2002 primarily
related to fixed assets used in the manufacture of our wireless, fiber
optic cable and other telecom products. These impairment charges
represented approximately 10% of our total net property, plant and
equipment as of September 30, 2002. While we currently have excess
manufacturing capacity in our facilities, utilization is subject to change
based on customer demand. Although we have no current plans to
significantly reduce capacity in our facilities, we can give no assurances
that we will not continue to have excess manufacturing capacity over the
long-term. If the current weakness in the telecommunications industry is
prolonged or further deteriorates, we cannot assure you that future tests
will not result in additional impairment of long-lived assets and that
potential future impairment of long-lived assets will not materially
adversely affect our results of operations.
OUR FAILURE TO INTRODUCE NEW PRODUCTS SUCCESSFULLY, AND CHANGES IN
TECHNOLOGY, COULD MATERIALLY ADVERSELY AFFECT US.
Many of our markets are characterized by advances in information
processing and communications capabilities which require increased
transmission speeds and greater capacity, or "bandwidth," for carrying
information. These advances require ongoing improvements in the
capabilities of wire and cable products. We believe that our future success
will depend in part upon our ability to enhance existing products and to
develop and manufacture new products that meet or anticipate these changes.
The failure to introduce successful new or enhanced products on a timely
and cost-competitive basis or the inability to continue to market existing
products on a cost-competitive basis could materially adversely affect our
business and financial condition.
Fiber optic technology presents a potential substitute for the
products that comprise most of our sales. Fiber optic cables have
penetrated the cable television and local area network markets we serve in
high-bandwidth point-to-point and trunking applications. Fiber optic cables
have not significantly penetrated the local distribution and residential
application markets we serve because of the high relative cost of
electro-optic interfaces and the high cost of fiber termination and
connection. At the same time, advances in data transmission equipment and
copper cable technologies have increased the relative performance of
copper-based cables which are our principal products. However, a
significant decrease in the cost of fiber optic systems could make these
systems superior on a price/performance basis to copper systems. A
significant decrease in the cost of fiber optic systems would likely have a
materially adverse effect on our coaxial cable sales.
OUR INDUSTRY IS HIGHLY COMPETITIVE GLOBALLY AND RAPID TECHNOLOGICAL CHANGE
MAY LEAD TO FURTHER COMPETITION.
Our coaxial, fiber optic and electronic cable products compete with
those of a substantial number of foreign and domestic companies, some of
which have greater resources, financial or otherwise, than we have. The
rapid technological changes occurring in the telecommunications industry
could lead to the entry of new competitors. Existing competitors' actions,
such as price reductions or introduction of new innovative products, and
new entrants may have a materially adverse impact on our sales and
profitability. We cannot assure you that we will continue to compete
successfully with our existing competitors or that we will be able to
compete successfully with new competitors.
The global market for fiber optic cable products continues to be
affected by weak demand and significant pricing pressure, which has had an
impact on our sales and profitability. Ongoing weak demand and pricing
pressure for fiber optic cable products could have a materially adverse
impact on our sales and profitability.
OUR DEPENDENCE ON COMMODITIES SUBJECTS US TO PRICE FLUCTUATIONS WHICH COULD
MATERIALLY ADVERSELY AFFECT US.
The principal raw materials we purchase are fabricated aluminum,
plastics and polymers, bimetals, optical fiber and copper. Our
profitability may be affected by changes in the market price of these
materials, most of which are linked to the commodity markets. Although we
have generally been able to pass on increases in the price of these
materials to our customers, we cannot assure you that we will be able to do
so in the future. Additionally, significant increases in the price of our
products due to increases in the cost of raw materials could have a
materially adverse effect on demand for our products.
THE LIMITATION OR INTERRUPTION OF SUPPLY AND THE INABILITY TO RECOVER
RISING COSTS OF PLASTICS AND POLYMERS COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS.
Plastics and polymers, which are used to insulate and protect cables,
accounted for roughly 25% of our raw material purchases during 2002.
Certain polymers such as polyethylene are derived from oil and natural gas
and have been under significant pricing pressure as a result of the
political and economic instability in the Middle East and South America.
The limitation or interruption in supply of these materials could have a
material adverse effect on our operations and financial condition. In
addition, while we generally have been able to pass along certain cost
increases to customers, we cannot assure you that we will be able to pass
along increases in the cost of plastics and polymers. Our inability to pass
along cost increases to our customers could materially adversely affect our
results of operations.
DIFFICULTIES WITH OUR KEY SUPPLIERS COULD MATERIALLY ADVERSELY AFFECT US.
A portion of our raw material purchases are bimetallic center
conductors for coaxial cables. During 2002, we produced some of our
requirements internally and purchased the remaining amount from Copperweld
Corporation, referred to herein as Copperweld. Purchases from Copperweld
totaled less than 5% of our total raw material purchases for the year. We
are currently capable of internally producing essentially all of our
requirements for bimetallic center conductors. Management believes that our
internal production of these products will be sufficient to meet nearly all
of our requirements for 2003. However, the loss of our ability to produce
bimetallic center conductors would likely require the purchase of
bimetallic center conductors from Copperweld or other sources, which are
limited. Although the parent of Copperweld has filed for Chapter 11
debtor-in-possession reorganization, management does not believe this will
affect our supply arrangement with Copperweld. Copperweld's inability to
supply, and/or our failure to manufacture or adequately expand our internal
production of these products, could have a materially adverse effect on our
business and financial condition.
In addition, we internally produce a significant portion of our
requirements for fine aluminum wire, which is available externally from
only a limited number of suppliers. Although this is a smaller raw material
purchase than bimetallic center conductors, our failure to manufacture or
adequately expand our internal production of fine aluminum wire, and/or our
inability to obtain these materials from other sources in adequate
quantities on acceptable terms, could have a materially adverse effect on
our business and financial condition.
Additionally, fluorinated ethylene propylene (FEP) is the primary raw
material used throughout the industry for producing flame retarding cables
for local area network applications. There are few worldwide producers of
FEP and market supplies have been periodically limited over the past
several years. Availability of adequate supplies of FEP will be critical to
future local area network cable sales growth.
Optical fiber is a primary material used for making fiber optic
cables. Optical fibers that are capable of transmitting light over a wide
spectrum (e.g., greater bandwidth) are becoming increasingly important to
the cable television and other local access telecommunication markets.
There are few worldwide suppliers of these premium optical fibers.
Availability of adequate supplies of premium optical fibers will be
critical to future fiber optic cable sales growth. We believe that our
equity investment in OFS BrightWave and our optical fiber supply
arrangement (which does not contain minimum volume requirements or specific
pricing) with an OFS BrightWave affiliate address concerns about the
continuing availability of these materials to us, although there can be no
assurance of this.
At certain of our facilities, we are also a large consumer of
electricity, water, gas and other resources. Unforeseen increases in the
cost of these resources or interruptions or reductions in our current
supply of these resources could materially adversely affect our ability to
manufacture products in a cost-effective or timely manner.
CHANGES IN OUR KEY SUPPLIERS COULD MATERIALLY ADVERSELY AFFECT OUR ABILITY
TO MANUFACTURE PRODUCTS IN A COST-EFFECTIVE OR TIMELY MANNER.
The current industry and economic downturn could cause our key
suppliers to experience financial difficulties including bankruptcy,
reorganization or insolvency. Upon the financial failure or consolidation
of a key supplier, our business may be disrupted as we find alternative
sources of supply. Interruption of supplies from our key suppliers could
disrupt production or impact our ability to increase production and sales.
Our inability to quickly find alternative sources of supply on reasonable
terms or to successfully transition from one supplier to another could
materially adversely affect our ability to manufacture products in a
cost-effective and timely manner.
BECAUSE OF OUR VERTICAL INTEGRATION OF SUPPLY AND PRODUCTION OF SOME
PRODUCTS, A DISRUPTION OR FAILURE AT ONE OF OUR MANUFACTURING FACILITIES
COULD MATERIALLY ADVERSELY AFFECT OUR ABILITY TO MANUFACTURE PRODUCTS AT
OTHER MANUFACTURING FACILITIES IN A COST-EFFECTIVE AND TIMELY MANNER.
We internally produce a significant portion of some of the components
used in our finished products, including bimetallic center conductors and
fine aluminum wire, at certain of our manufacturing facilities. Disruption
at these facilities due to failure of our technology, fire, electrical
outage, natural disaster, acts of terrorism or some other catastrophic
event could materially adversely affect our ability to manufacture products
at our other manufacturing facilities in a cost-effective and timely
manner.
IF OUR PRODUCTS OR COMPONENTS PURCHASED FROM OUR SUPPLIERS EXPERIENCE
PERFORMANCE ISSUES, OUR BUSINESS WILL SUFFER.
Our business depends on our producing excellent products of
consistently high quality. To this end, our products, including components
purchased from our suppliers, are rigorously tested for quality both by us
and our customers. Nevertheless, our products are highly complex and our
customers' testing procedures are limited to evaluating our products under
likely and foreseeable failure scenarios. For various reasons (including,
among others, the occurrence of performance problems unforeseeable in
testing), our products and components purchased from our suppliers may fail
to perform as expected. Performance issues could result from faulty design
or problems in manufacturing. We have experienced such performance issues
in the past and remain exposed to such performance issues. In some cases,
recall of some or all affected products, product redesigns or additional
capital equipment may be required to correct a defect. In addition, we
warrant or indemnify certain products over varying periods of time.
Although historical warranty and indemnity claims have not been
significant, we cannot assure you that future claims will not have a
materially adverse affect on our results of operations. Any significant or
systemic product failure could also result in lost future sales of the
affected product and other products, as well as result in customer
relations problems.
OUR BUSINESS IS SUBJECT TO THE ECONOMIC UNCERTAINTIES AND POLITICAL RISKS
OF MAKING AND SELLING OUR PRODUCTS IN FOREIGN COUNTRIES.
We believe that growth in international markets, including the
developing markets in Asia, the Middle East and Latin America, and the
expected privatization of the telecommunications structure in many European
countries, represents significant future opportunities for us. However, we
cannot predict with certainty the outlook for international sales in the
short-term due to political and economic uncertainties.
We have increased our international manufacturing capabilities. Our
international operations are subject to the risks inherent in operating
abroad, including risks with respect to currency exchange rates, economic
and political destabilization, restrictive actions by foreign governments,
nationalizations, the laws and policies of the United States affecting
trade, foreign investment and loans, foreign tax laws, compliance with
local laws and regulations, armed conflict, war and terrorism.
POTENTIAL ENVIRONMENTAL LIABILITIES MAY ARISE IN THE FUTURE AND MATERIALLY
ADVERSELY IMPACT OUR FINANCIAL POSITION.
We are subject to various federal, state, local and foreign laws and
regulations governing the use, discharge and disposal of hazardous
materials. We believe that our manufacturing facilities are in substantial
compliance with current laws and regulations. Compliance with current laws
and regulations has not had and is not expected to have a material adverse
effect on our financial condition.
Our present and past facilities have been in operation for many years,
and over that time in the course of those operations, these facilities have
used substances which are or might be considered hazardous, and we have
generated and disposed of wastes which are or might be considered
hazardous. Therefore, it is possible that environmental issues may arise in
the future which we cannot now predict.
ALTHOUGH WE BELIEVE CASH FROM OPERATIONS AND AVAILABILITY UNDER OUR NEW
SENIOR SECURED REVOLVING CREDIT FACILITY PROVIDE ADEQUATE RESOURCES TO FUND
ONGOING OPERATING REQUIREMENTS, WE MAY BE LIMITED IN OUR ABILITY TO OBTAIN
ADDITIONAL CAPITAL ON COMMERCIALLY REASONABLE TERMS.
Although we believe cash from operations and availability under our
new senior secured revolving credit facility provide adequate resources to
fund ongoing operating requirements, we may need to seek additional
financing to compete effectively. Our public debt ratings affect our
ability to raise capital and the cost of that capital. Downgrades of our
debt ratings may increase our borrowing costs and affect our ability to
access the equity capital markets on terms and in amounts that would be
satisfactory to us.
WE MAY EXPERIENCE DIFFICULTIES IN OBTAINING OR PROTECTING INTELLECTUAL
PROPERTY.
We may encounter difficulties, costs or risks in protecting our
intellectual property rights or obtaining rights to additional intellectual
property to permit us to continue or expand our business. Other companies,
including some of our largest competitors, hold intellectual property
rights in our industry and the intellectual property rights of others could
inhibit our ability to introduce new products in our field of operations
unless we secure licenses on commercially reasonable terms, as such is
needed.
OUR INDEBTEDNESS COULD RESTRICT OUR OPERATIONS, MAKE US MORE VULNERABLE TO
ADVERSE ECONOMIC CONDITIONS AND MAKE IT MORE DIFFICULT FOR US TO MAKE
PAYMENTS ON OUR EXISTING DEBT.
Our current and future indebtedness could have important consequences
to you. For example, it could:
o impair our ability to obtain additional financing in the future;
o reduce funds available to us for other purposes, including
working capital, capital expenditures, research and development,
strategic acquisitions and other general corporate purposes;
o restrict our ability to introduce new products or exploit
business opportunities;
o increase our vulnerability to economic downturns and competitive
pressures in the industry we operate in;
o increase our vulnerability to interest rate increases to the
extent variable-rate debt is not effectively hedged;
o limit, along with the financial and other restrictive covenants
in our indebtedness, our ability to dispose of assets or borrow
additional funds;
o make it more difficult for us to satisfy our obligations with
respect to our existing debt; and
o place us at a competitive disadvantage.
A SIGNIFICANT UNINSURED LOSS OR A LOSS IN EXCESS OF OUR INSURANCE COVERAGE
COULD MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We maintain insurance covering normal business operations, including
fire, property and casualty protection that we believe is adequate. We do
not generally carry insurance covering wars, acts of terrorism, earthquakes
or other similar catastrophic events. Because insurance has generally
become more expensive, we may not be able to obtain adequate insurance
coverage on financially reasonable terms. A significant uninsured loss or a
loss in excess of our insurance coverage could materially adversely affect
our financial condition.
WE HAVE REDUCED THE SIZE OF OUR WORKFORCE AND MAY NEED TO DO SO AGAIN IN
THE FUTURE.
Primarily in response to our current level of business and outlook for
future business, we have been reducing the size of our workforce. During
the third quarter of 2002, we reduced our workforce by approximately 200
employees and incurred pretax charges for employee termination benefits of
$1.3 million in connection with this reduction. Since the beginning of
2001, our number of employees has declined from approximately 4,000 to
approximately 2,800 as of December 31, 2002. In December 2002, we announced
an additional reduction of our workforce of approximately 150 employees
that was effective in January 2003. If we reduce our expectations for
future business we may further reduce our workforce and incur restructuring
costs or impairment charges if we adopt a restructuring plan in response to
changing business conditions.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE MATERIALLY ADVERSELY AFFECTED
BY MARKET VOLATILITY.
The market price of our common stock has been, and is expected to
continue to be, highly volatile, both because of actual and perceived
changes in our financial results and prospects and because of general
volatility in the stock market. The factors that could cause fluctuations
in our stock price may include, among other factors discussed in this
section, the following:
o actual or anticipated variations in sales or quarterly operating
results;
o changes in financial estimates by research analysts;
o actual or anticipated changes in the United States economy;
o armed conflict, war or terrorism;
o a prolonged downturn in the telecommunications industry;
o changes in the market valuations of other cable manufacturers;
o announcements by us or our competitors of significant
acquisitions, strategic partnerships, divestitures, joint
ventures or other strategic initiatives; and
o actual or anticipated sales of common stock by existing
stockholders, whether in the market or in subsequent public
offerings.