EXHIBIT 99.1
COMMSCOPE, INC.
EXHIBIT 99.1 - 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, 2001,
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 are not undertaking any duty 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, 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, 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 MAY BE ADVERSELY AFFECTED BY CHANGES IN CABLE
TELEVISION CAPITAL SPENDING.
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 telecommunications industry 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 acquisitions of cable television operators by non-cable television
operators;
o cable system consolidation within the industry;
o the financial condition of domestic cable television operators and their
access to financing;
o competition from satellite and wireless television providers and
telephone companies;
o technological developments; and
o new legislation and regulation of cable television operators.
During the first half of 2002 cable television capital spending decreased
significantly from recent historical levels. Our sales were negatively impacted
by a significant slowdown in spending by Adelphia as well as a slowdown in
spending by our alternate service provider customers and our international
customers. A shift away from rebuilding or upgrading activities could also have
a negative impact on 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.
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 (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 federal legislation, and the rules implementing
these laws on the cable television industry and our business is still uncertain.
THE LOSS OF SOME OF OUR PRINCIPAL CABLE TELEVISION 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. The loss of some or all of our principal
cable television customers could have a material adverse effect on our business
and financial condition.
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.
AT&T's cable division, AT&T Broadband, is the largest domestic multiple system
operator and is one of our significant customers. AT&T and Comcast have
announced a merger of AT&T Broadband and Comcast into a new company to be called
AT&T Comcast Corporation. We cannot assure you that the pending AT&T Broadband
- -- Comcast merger, or subsequent potential regional clustering of cable systems
and subscriber trades will not delay expected cable spending or impact our sales
volumes or profits.
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 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.
IF THE FINANCIAL CONDITION OF OUR CUSTOMERS DECLINES, OUR CREDIT RISKS COULD
INCREASE.
One of our significant customers, Adelphia Communications Corporation,
filed ("Adelphia") for chapter 11 debtor-in-possession reorganization on June
25, 2002. In the quarter ended June 30, 2002, we took an after-tax charge of
$13.5 million related to the write-off of Adelphia receivables. Adelphia
receivables were 17% of our total receivables as of June 30, 2002 prior to this
write-off. 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 may 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
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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.
OUR FAILURE TO INTRODUCE NEW PRODUCTS SUCCESSFULLY, AND CHANGES IN TECHNOLOGY,
COULD 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 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. While we are a fiber optic cable manufacturer and supplier to a portion
of the cable television market and certain specialty markets, a significant
decrease in the cost of fiber optic systems would likely have an 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 and new entrants may have an
adverse impact on our sales and profitability. We believe that we enjoy a strong
competitive position in the coaxial cable market because of our position as a
low-cost, high-volume coaxial cable producer and our reputation as a
high-quality provider of state-of-the-art cables, along with our strong
orientation toward customer service. However, 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 significant adverse impact to our sales and
profitability.
OUR DEPENDENCE ON COMMODITIES SUBJECTS US TO PRICE FLUCTUATIONS WHICH COULD
ADVERSELY AFFECT US.
The principal raw materials we purchase are fabricated aluminum, plastics,
bimetals, copper and optical fiber. Our profitability may be affected by changes
in the market price of these materials, 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 negative
effect on demand for our products.
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DIFFICULTIES WITH OUR KEY SUPPLIERS COULD ADVERSELY AFFECT US.
A portion of our raw material purchases are bimetallic center conductors
for coaxial cables. Management believes that our internal production of certain
bimetallic center conductors, together with our current supply arrangement with
Copperweld, addresses concerns regarding the continuing availability of these
key materials and enhances our ability to support the demand for broadband
cable. If we are unable to continue to purchase the necessary quantities of
bimetallic center conductors from Copperweld, we may be unable to obtain these
raw materials on commercially acceptable terms from another source. There are
few, and limited, alternative sources of supply for these raw materials. We
produce a substantial portion of our bimetallic center conductor requirements.
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. However, the loss of Copperweld as a supplier of
bimetallic center conductors, Copperweld's inability to supply, and/or our
failure to manufacture or adequately expand our internal production of these
products, could have a material adverse effect on our business and financial
condition.
In addition, we purchase fine aluminum wire from a limited number of
suppliers. Fine aluminum wire is a smaller raw material purchase than bimetallic
center conductors and we produce a significant portion of our demand internally.
However, neither of these major raw materials could be readily replaced in
sufficient quantities if all supplies from the respective primary sources were
disrupted for an extended period and we were unable to continue to vertically
integrate the production of these products. In such event, there could be a
materially adverse impact on our financial results.
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.
While currently there is adequate supply of optical fiber, there are few
worldwide suppliers of optical fiber and market supplies have been tight in the
past. Availability of adequate supplies of optical fiber will be critical to
future fiber optic cable sales growth.
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 affect our ability to manufacture products in a
cost-effective or timely manner.
DECLINES IN THE FINANCIAL CONDITION OF OUR KEY SUPPLIERS, OR DISRUPTIONS AT OUR
MANUFACTURING FACILITIES, COULD MATERIALLY 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 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 could materially 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 aluminum
fine wire, at certain of our manufacturing facilities. Disruption at these
facilities due to failure of our technology, fire, electrical outage, natural
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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, any significant or systemic product failure could 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 usual 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 U.S. affecting trade, foreign
investment and loans, foreign tax laws and compliance with local laws and
regulations.
POTENTIAL ENVIRONMENTAL LIABILITIES MAY ARISE IN THE FUTURE AND 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.
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;
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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.
THE RESTRICTIONS IMPOSED BY OUR EXISTING DEBT AND AN OPERATING LEASE COULD
NEGATIVELY AFFECT OUR BUSINESS AND OUR FAILURE TO COMPLY WITH THESE RESTRICTIONS
COULD RESULT IN A DEFAULT UNDER OUR DEBT INSTRUMENTS AND THE OPERATING LEASE.
Our existing debt agreements and the operating lease for our corporate
office building contain 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, LLC ("OFS
BrightWave").
In addition, our existing debt agreements and the operating lease contain
financial covenants, including:
o a total debt to EBITDA ratio;
o a net worth maintenance; and
o an interest expense coverage ratio.
Our compliance with our covenants in the future may be affected by events
beyond our control. Our performance under these covenants could impact our cost
of funds and limit the funds available under the revolving credit agreement. In
addition, our noncompliance with these covenants could create a default under
these agreements, resulting in potential acceleration of repayment of our
obligations and inability to borrow under the revolving credit agreement.
Based on our current forecasted operating results, we believe it is likely
that we may not be in compliance with the amended total debt to EBITDA covenant
at the end of the third quarter of 2002. If we do not comply with the amended
total debt to EBITDA covenant at the end of the third quarter, we intend to
either further amend both the eurodollar credit agreement and the operating
lease agreement or to repay our obligations under these agreements using current
cash balances. In addition, we currently expect to replace our revolving credit
agreement, under which we currently have no outstanding borrowings, during the
fourth quarter of 2002. We do not currently anticipate future borrowings under
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this existing revolving credit facility as we believe that cash provided by our
operations will be sufficient to meet our anticipated working capital
requirements during the remaining term of this facility, which expires in
December 2002. However, given the current credit environment and our recent
operating results, it is likely that the terms under which all three of these
existing agreements can be further amended or replaced, if at all, may be less
favorable to us than the current terms of these agreements.
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.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." This statement was effective for us on January 1, 2002. 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 with indefinite lives, other than
goodwill.
We have 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. Goodwill will be tested annually at the same time each year,
and on an interim basis when events or changes in circumstances require.
Existing goodwill, which totaled $151 million as of the balance sheet
date, net of accumulated amortization through December 31, 2001, arose from
previous acquisitions accounted for under the purchase method of accounting.
Although we are not currently aware of events or changes in circumstances
requiring an assessment of goodwill impairment as of the balance sheet date, the
current business environment in telecommunications is challenging. If this
environment 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.
ALTHOUGH WE BELIEVE CASH FROM OPERATIONS PROVIDES 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 provides 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 debt capital markets. In
addition, the market price of our common stock may limit 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.
A SIGNIFICANT UNINSURED LOSS OR A LOSS IN EXCESS OF OUR INSURANCE COVERAGE COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We maintain insurance covering normal business operations, including fire,
property and casualty protection that we believe are adequate. We do not
generally carry insurance covering wars, acts of terrorism, earthquakes or other
similar catastrophic events, but such depends on the circumstances. 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 adversely
affect our financial condition.
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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 to successfully manage OFS
BrightWave's 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. OFS BrightWave is a party to
manufacturing and supply agreements with OFS Fitel, LLC, which is wholly owned
indirectly by The Furukawa Electric Co., Ltd. of Japan ("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. A decline in Furukawa's financial condition could negatively impact
the value of our investment in OFS BrightWave which could materially adversely
affect our financial condition. Actions by Furukawa or OFS BrightWave, or the
inability of OFS BrightWave to operate according to its business plans, may
adversely affect our results of operations.
OFS BRIGHTWAVE MAY CONTINUE TO INCUR SUBSTANTIAL LOSSES THAT COULD ADVERSELY
AFFECT OUR RESULTS.
OFS BrightWave has incurred substantial losses for the first half of 2002
primarily due to the weak demand for optical fiber and fiber optic cable and the
impact of significant charges related to the write-off of goodwill and certain
fixed assets and restructuring and cost reduction efforts. We expect that OFS
BrightWave will incur losses during the remainder of 2002. If OFS BrightWave
continues to incur losses, we will continue to recognize non-cash equity losses
from our investment in OFS BrightWave which will adversely affect our results of
operations. At June 30, 2002, we are committed to advance an additional $13
million, as reasonably requested by OFS BrightWave, under a $30 million
revolving note agreement. Beyond this, 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.
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