<PAGE> 1
EXHIBIT 99.2
ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,816 $ 31,372
Marketable securities 908,597 700,750
Accounts receivable, net 63,192 60,768
Inventories, net 44,074 37,946
Other current assets 7,721 6,736
----------- -----------
Total current assets 1,054,400 837,572
Property and equipment, net 59,236 56,914
Other assets 9,227 7,289
----------- -----------
TOTAL ASSETS $ 1,122,863 $ 901,775
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,193 $ 19,868
Accrued liabilities 30,805 28,818
Deferred tax liabilities 278,206 205,529
----------- -----------
Total current liabilities 331,204 254,215
Long-term liabilities 2,453 2,496
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $0.01 par value; 200,000,000 shares authorized
in 2000 and 1999; 79,926,717 and 77,107,834 shares
issued and outstanding in 2000 and 1999, respectively 799 790
Deferred stock compensation (96) (96)
Additional paid-in capital 253,362 238,074
Notes receivable from stockholders (97) (241)
Accumulated other comprehensive income 201,298 100,968
Retained earnings 333,940 305,569
----------- -----------
Total stockholders' equity 789,206 645,064
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,122,863 $ 901,775
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE> 2
ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues $85,419 $67,600
Cost of revenues 45,904 37,213
------- -------
Gross profit 39,515 30,387
------- -------
Operating expenses:
Research and development 14,672 11,813
Selling, general, and administrative 16,806 16,103
------- -------
Total operating expenses 31,478 27,916
------- -------
Operating income 8,037 2,471
Other income, net 34,950 1,468
------- -------
Income before income taxes 42,987 3,939
Income taxes 14,616 1,484
------- -------
Net income $28,371 $ 2,455
======= =======
Basic net income per share $ 0.36 $ 0.03
======= =======
Shares used in basic per share computations 79,624 76,615
======= =======
Diluted net income per share $ 0.33 $ 0.03
======= =======
Shares used in diluted per share computations 84,968 79,729
======= =======
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 3
ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,371 $ 2,455
Adjustments to reconcile net income to net cash provided by
operating activities:
Tax benefit from option exercises 9,390 1,916
Depreciation and amortization 3,025 2,783
Allowance for uncollectible accounts and returns (469) 92
Deferred income taxes 5,861 333
Changes in operating assets and liabilities:
Accounts receivable (1,955) 10,030
Inventories (6,128) 5,811
Other assets 2,783 807
Accounts payable 2,325 622
Other liabilities 1,933 3,117
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 45,136 27,966
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (144,305) (69,838)
Maturities of marketable securities 76,189 50,912
Sales of marketable securities 27,130 17,578
Purchase of property and equipment (5,289) (5,900)
Investment in development-stage company (5,468) --
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (51,743) (7,248)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options and warrants 6,051 1,829
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,051 1,829
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (556) 22,547
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,372 20,782
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,816 $ 43,329
========= ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
ADVANCED FIBRE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. While these financial statements reflect all
adjustments of a normal and recurring nature which are, in the opinion of
management, necessary to present fairly the results of the interim period, they
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements and notes should be read in conjunction with the supplemental
consolidated financial statements and notes thereto contained in this Current
Report on Form 8-K for the year ended December 31, 1999.
The unaudited condensed consolidated financial statements include Advanced Fibre
Communications, Inc., and its subsidiaries (AFC). Significant intercompany
transactions and accounts have been eliminated. Certain prior period amounts
have been reclassified to conform with the current period presentation.
We generally operate on 13-week fiscal quarters ending on the last Saturday of
each fiscal period. For presentation purposes only, the fiscal periods are shown
as ending on the last day of the month of the respective fiscal period. The
results of operations for the three month period ended March 31, 2000 are not
necessarily indicative of the operating results for the full year.
NOTE 2 INVENTORIES
Inventories are valued at the lower of first-in, first-out cost or market and
consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials $ 9,456 $ 7,706
Work-in-progress 1,049 1,113
Finished goods 33,569 29,127
------- -------
Inventories, net $44,074 $37,946
======= =======
</TABLE>
NOTE 3 COMPREHENSIVE INCOME
Accumulated other comprehensive income, in the equity section of our balance
sheet, is composed primarily of unrealized gains and losses on marketable
securities. We recorded an unrealized gain, net of taxes, of approximately
$110.1 million for the change in value between December 31, 1999 and March 31,
2000 in the Cisco shares we hold. We recorded an unrealized loss, net of taxes,
of approximately $5,900 for the change in value in the remainder of our
marketable securities portfolio during this same time period. Our foreign
currency translation adjustments were not significant as of March 31, 2000 or
1999. The following table presents the components of comprehensive income (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
--------- -------
<S> <C> <C>
Net income $ 28,371 $2,455
Other comprehensive income, net of tax:
Change in unrealized gain on investments, net 100,330 --
-------- ------
Total comprehensive income $128,701 $2,455
======== ======
</TABLE>
4
<PAGE> 5
NOTE 4 COMMITMENTS AND CONTINGENCIES
STOCKHOLDER LITIGATION - AFC and various of its current and former officers and
directors are defendants in a consolidated lawsuit which purports to be a class
action filed on behalf of certain of our stockholders. The lawsuit alleges that
the defendants violated certain federal securities laws. The plaintiffs filed a
consolidated Amended Complaint on or about January 27, 1999. Defendants' motion
to dismiss the complaint was granted by the Court on March 24, 2000. Plaintiffs
were given leave to file an amended complaint, which they filed on June 2, 2000.
Defendants moved again to dismiss this complaint. Limited discovery has
occurred, and only limited discovery is expected to occur pending ruling on the
motion to dismiss the most recent complaint. Based on current information, we
believe the suit to be without merit and intend to defend AFC and its officers
and directors vigorously. Although it is reasonably possible we may incur a loss
upon the conclusion of this claim, an estimate of any loss or range of loss
cannot be made. No provision for any liability that may result upon adjudication
has been made in the consolidated financial statements. In the opinion of
management, resolution of this matter is not expected to have a material adverse
effect on our financial position. However, depending on the amount and timing,
an unfavorable resolution of this matter could materially affect our future
results of operations or cash flows in a particular period. In connection with
these legal proceedings, we expect to incur substantial legal and other
expenses. Stockholder suits of this kind are highly complex and can extend for a
protracted period of time, which can substantially increase the cost of such
litigation and divert the attention of management from the operations of AFC.
NOTE 5 OTHER INCOME
Included in other income is $32.75 million in cash that Marconi Communications
Inc. (Marconi) paid to us related to the settlement of litigation in February
2000.
NOTE 6 SEGMENT REPORTING
We derive substantially all of our revenues from sales of the OmniMAX(TM) global
family, and our company is not organized by multiple operating segments for the
purpose of making operating decisions or assessing performance. Accordingly, we
have a single reportable segment and report only certain enterprise-wide
disclosures.
For the first quarter of 2000, revenues from sales to customers, excluding
royalties, were $85.2 million, compared with $67.5 million in the same period of
1999. We have a single reportable segment; thus, there is no difference between
reportable income and consolidated income. Long-lived assets, excluding deferred
tax assets, located in the U.S. increased to $67.5 million as of March 31, 2000
from $63.2 million as of December 31, 1999. Long-lived assets, excluding
deferred tax assets, located in foreign countries decreased to $0.9 million as
of March 31, 2000 from $1.0 million as of December 31, 1999.
NOTE 7 SUBSEQUENT EVENT - POOLING OF INTERESTS COMBINATION
In April 2000, we announced a definitive agreement to acquire privately-held GVN
Technologies, Inc. (GVN), a developer of integrated access device equipment for
the service provider market. On May 16, 2000, we acquired GVN in an acquisition
accounted for as a pooling of interests. Under terms of the agreement,
approximately 1.1 million shares and options to purchase AFC common stock were
issued in exchange for all outstanding shares and options of GVN. All historical
financial information contained herein has been restated to include the combined
operating results, financial position and cash flows of AFC and GVN.
5
<PAGE> 6
The following information presents certain income statement data of the separate
companies for the periods preceding the merger (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
-------- --------
<S> <C> <C>
Net revenues
AFC $ 85,079 $ 67,590
GVN 340 10
-------- --------
$ 85,419 $ 67,600
======== ========
Net Income (loss)
AFC $ 28,944 $ 3,012
GVN (573) (557)
-------- --------
$ 28,371 $ 2,455
======== ========
</TABLE>
There were no material transactions between AFC and GVN prior to the merger. The
effects of conforming GVN's accounting policies to those of AFC were not
material.
NOTE 8 NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed using the weighted average number of shares of
common stock on an as-if converted basis, and common equivalent shares from
options and warrants to purchase common stock using the treasury stock method,
when dilutive.
The computation of shares and net income used in the calculation of basic and
diluted net income per share for the three month periods ended March 31, 2000
and 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
------- -------
<S> <C> <C>
Net income $28,371 $ 2,455
======= =======
Shares used in basic per share calculations,
actual weighted average common shares
outstanding for the period 79,624 76,615
Weighted average number of shares upon
exercise of dilutive options and warrants 5,344 3,114
------- -------
Shares used in diluted per share calculations 84,968 79,729
======= =======
Basic net income per share $ 0.36 $ 0.03
======= =======
Diluted net income per share $ 0.33 $ 0.03
======= =======
</TABLE>
NOTE 9 CERTAIN ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133 in June 1998, Accounting for Derivative
Instruments and Hedging Activities. The effective date has been deferred to
fiscal years beginning after June 15, 2000. The statement will be effective for
us beginning in the first quarter of 2001. This standard requires that we
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The treatment of gains or losses
resulting from changes in the derivative will be determined depending on the
type and use of the derivative and whether it qualifies for hedge accounting. We
are currently evaluating the requirements and the impact of SFAS No. 133.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical financial information contained herein, the following
discussion and analysis may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements include
declarations regarding our intent, belief, estimates, current plans, or
expectations. Current and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties. Actual results could differ materially from
those indicated by such forward-looking statements.
Among the important factors that could cause actual results to differ materially
from those indicated by our forward-looking statements, as set forth below in
"Certain Factors That Might Affect Future Operating Results" in our Quarterly
Report on Form 10-Q for the period ended June 30, 2000, as filed with the
Securities and Exchange Commission (SEC), are:
- Our operating results will likely continue to fluctuate due to
seasonality and other factors.
- Because a limited number of customers account for a substantial portion
of our total revenues, the loss of a single customer could have
significantly adverse impact on our business.
- We may continue to experience delays and defects in product development
and product feature releases.
- We conduct business internationally and face several risks associated
with international markets.
- We face intense competition, and the competitive landscape in our
industry changes rapidly.
- Our business and operating results will be harmed if we fail to manage
recent and potential growth.
- Our product line is concentrated within a single family of products, and
our ability to introduce new product features and to respond to rapid
technological change is subject to significant uncertainty.
- Our ability to protect our proprietary technology is limited, and we
expect to continue to be subject to third-party claims of intellectual
property infringement.
- Our customers are concentrated in a single industry which expose us to
fluctuations in capital spending pattern and other factors affecting
demand for our products in this industry.
- We may be unable to secure necessary components and support because we
depend upon a limited number of third-party manufacturers and support
organizations, over which we have no control, and in some cases rely
upon sole source suppliers.
- We must attract, retain, and motivate key technical and management
personnel in a competitive market.
- Recent and future acquisitions may adversely affect our operations and
financial results.
- We are party to costly and disruptive legal proceedings, the outcome of
which is unpredictable.
- Our business will suffer if our products do not comply with numerous
regulations and industry standards, which are subject to change.
- There may be other risks identified from time to time in our reports and
registration statements filed with the SEC.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto, on pages 1 through 6 of
this Form 8-K.
OVERVIEW
We design and manufacture worldwide broadband access solutions for the portion
of the telecommunications network between the carrier's central office and its
subscribers, often referred to as the "last mile". Our OmniMAX(TM) is a global
product family consisting of multi-service access platforms with integrated
optics and intelligent customer premises equipment. Our OmniMAX products can
quickly and cost-effectively upgrade legacy networks ubiquitously delivering
narrowband, wideband, and broadband services to subscribers regardless of their
geographic proximity to a carrier's central office.
Our OmniMAX product portfolio consists of: AccessMAX(TM), a variety of broadband
multi-service access platforms including our flagship product, the UMC1000(TM),
that provide local loop voice, data, and broadband solutions; PremMAX(TM), a
series of integrated access devices that provide integrated voice and data at
the customer premises; and TransMAX(TM), a Sonet/SDH optical transport system
for metro ring solutions. We
7
<PAGE> 8
also design and manufacture environmentally hardened outside plant cabinets and
technology ranging from 48 to 2,048 lines, as well as indoor cabinets ranging
from 48 to 480 lines.
On May 16, 2000, we completed the acquisition of GVN Technologies, Inc. (GVN),
of Largo, Florida, a leading developer of integrated access device equipment for
the service provider market. In the acquisition, the former stockholders of GVN
received shares of our common stock in exchange for their shares of GVN at the
rate of .088 shares of our common stock for each share of GVN common stock and
preferred stock. The acquisition was accounted for as a pooling of interests. An
aggregate of 894,306 shares of our common stock was issued pursuant to the
acquisition, and an aggregate of 209,794 options to purchase GVN common stock
was assumed by us.
All of our financial data presented in the condensed consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations included within this Current Report on Form 8-K have been
restated to include the historical financial information of GVN in accordance
with generally accepted accounting principles applicable after financial
statements are issued for a period which includes the date of consummation of a
business combination and pursuant to regulation S-X. Our statement of income for
the three-month period ended March 30, 2000 has been combined with the GVN
statement of income for the three-month period ended March 30, 2000. Our
statement of income for the three-month period ended March 30, 1999 has been
combined with the GVN statement of income for the three-month period ended March
31, 1999. This presentation is in accordance with the rules and regulations of
the SEC which require that the comparable fiscal periods be combined in the
condensed consolidated financial statements. The condensed consolidated balance
sheets at March 31, 2000 and December 31, 1999 combine the balance sheets of GVN
as of March 31, 2000 and December 31, 1999, respectively.
RESULTS OF OPERATIONS
REVENUES. In the first quarter ended March 31, 2000, our revenues increased
$17.8 million, or 26.3%, to $85.4 million as compared with $67.6 million for the
same period in 1999.
The increase in revenues was primarily due to higher U.S. revenues. U.S.
revenues in the first quarter of 2000 were $76.4 million compared with $58.9
million in the first quarter of 1999, an increase of 29.7%. The increase in U.S.
revenues for the period was mainly due to increased sales to competitive local
exchange carriers, regional Bell operating companies, and Tellabs, Inc.
International revenues totaled $9.0 million in the first quarter of 2000,
compared with $8.7 million for the comparable period in 1999. The increase in
international revenues was primarily due to higher sales to customers in France,
the Caribbean, and Japan. International revenues represented 10.6% and 12.8% of
total consolidated revenues, respectively.
In the first quarter of 2000, WinStar Communications, Inc. (WinStar) accounted
for 24.8% of total revenues and Sprint North Supply, a subsidiary of Sprint
(Sprint), accounted for 11.3%. For the quarter ended March 31, 1999, WinStar
accounted for 13.6% of total revenues, and Sprint accounted for 13.0%. No other
customer accounted for 10% or more of total revenues in any of these periods.
Although our largest customers have varied from period to period, we anticipate
that results of operations in any given period will continue to depend to a
significant extent upon sales to a small number of customers. This dependence
may increase due to our strategy of focusing on securing large accounts. There
can be no assurance that our principal customers will continue to purchase
product from us at current levels, if at all. Marconi is our only customer who
has entered into an agreement requiring it to purchase a minimum amount of
product from us. The loss of one or more principal customers may result in lower
revenues and decreased net income.
GROSS PROFIT. In the first quarter of 2000, gross profit as a percentage of
revenues grew to 46.3 % from 45.0% in the same period in 1999.
The increase in gross profit in the first quarter of 2000 as compared with 1999
was primarily due to the gross profit associated with the product mix sold to
particular customers and the higher proportion of sales to U.S. customers, which
tend to have higher gross profit margins.
8
<PAGE> 9
In the future, gross profit may fluctuate due to a wide variety of factors,
including: our ability to introduce new products and technologies on a timely
basis, the timing of new product introductions or announcements by us or our
competitors, the mix between U.S. and international sales, the customer mix, the
product feature mix, the timing and size of orders which are received and can be
shipped in a quarter, the availability of adequate supplies of key components
and assemblies, component pricing due to vendor allocation, engineering and
manufacturing efficiencies, the extent of global sourcing of our products, price
competition, unit volume, royalty revenues, excess or obsolete inventory, and
changes in warranty coverage.
RESEARCH AND DEVELOPMENT. In the first quarter of 2000, research and development
expenses increased $2.9 million to $14.7 million compared with $11.8 million for
the same period in 1999 and represented 17.2% and 17.5% of total revenues,
respectively.
The increase in research and development expenses for the first three months of
2000, as compared with the same period in 1999, was primarily due to increased
usage of outside services for testing and product development, hiring and
relocation costs, and depreciation on test equipment used to develop and test
new products and features. We believe that rapidly evolving technology and
competition in our industry necessitate the continued commitment of resources to
our product development in order to remain competitive. We plan to continue to
support the development of new products and features as well as product cost
reductions, while seeking to carefully manage the rate of increase of such
expenses through expense controls. All research and development costs to date
have been expensed as incurred.
SELLING, GENERAL, AND ADMINISTRATIVE. For the first quarter of 2000, selling,
general, and administrative expenses increased $0.7 million to $16.8 million
compared with $16.1 million for the same period in 1999 and represented 19.7%
and 23.8% of total revenues, respectively.
The increase in selling, general, and administrative expenses in the first
quarter of 2000, as compared with 1999, is primarily due to higher compensation
and benefits, donations for educational purposes, increased travel-related
expenses, and higher usage of outside services, partially offset by decreases in
litigation and legal costs. We plan to continue to allocate resources to our
sales, marketing, and administrative functions to remain competitive in our
industry and to support our research and development functions. We recognize the
need to balance these costs with expense controls to carefully manage the
increase of such expenses.
OTHER INCOME. In the first quarter of 2000, other income increased $33.5 million
from $1.5 million in the first quarter of 1999 to $35.0 million. The increase
was primarily a result of $32.75 million in cash received in conjunction with
the litigation settlement with Marconi in February 2000.
INCOME TAXES. For the first quarter of 2000 and 1999, we recorded income taxes
at an effective rate that approximated the combined federal and state statutory
rates. Our effective tax rate in 2000 is 34.0%. In the first quarter of 1999,
our effective tax rate was 38%, and it was not until the second quarter of 1999
that a change in the tax law enabled us to utilize the net operating loss
carry-forward of GVN to reduce our effective tax rate. The effective rate for
the entire year of 1999 was 39.0%. The increase in the tax rate during 1999 was
primarily due to the gain arising from the conversion of our investment in
Cerent Corporation, Inc. into Cisco Systems, Inc. (Cisco) common stock in
November 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, cash and cash equivalents were $30.8 million, compared
with $31.4 million as of December 31, 1999. Marketable securities totaled $908.6
million as of March 31, 2000, compared with $700.8 million as of December 31,
1999. The $207.8 million increase between periods was primarily a result of the
$166.9 million unrealized gain, before taxes, for the change in value of the
Cisco shares we hold.
Operating activities for the first three months of 2000 generated net cash of
$45.1 million. This was primarily the result of net income, which included a
$32.75 million litigation settlement, and adjustments for non-cash activities
such as tax benefits from option exercises. Net cash of $51.7 million was used
in investing activities in the first three months of 2000, primarily as a result
of purchases of marketable securities.
We have a $30.0 million unsecured bank line with two banks, which expires in
July 2000. The bank line carries interest of LIBOR plus 1.50%. Under the bank
line, the banks may issue letters of credit up to
9
<PAGE> 10
$10.0 million on our behalf. As of March 31, 2000, $2.7 million in letters of
credit were outstanding, of which $1.0 million was issued as a short-term
deposit on one of our leased facilities and another $1.0 million was issued as a
five-year deposit on the same building. The bank line requires us to comply with
certain financial covenants. As of March 31, 2000, no borrowings were
outstanding under the bank line, and we were in compliance with the covenants.
We also maintain bank agreements with two banks under which we may enter into
foreign exchange contracts up to $40.0 million. There are no borrowing
provisions or financial covenants associated with these facilities. As of March
31, 2000, there were approximately $3.1 million in foreign exchange contracts
outstanding.
In February 2000, we entered into a hedging transaction structured as a costless
collar agreement, with a term of approximately three years, to minimize the
potential market risk on approximately 10 million (post-split) shares of Cisco
stock we own. We have the ability to borrow against the value of a portion of
the shares hedged, which we have pledged to secure our obligations under the
collar agreement. We plan to hedge approximately 530,000 (post-split) additional
shares of Cisco common stock expected to be received in our second quarter 2000.
For additional information with respect to the potential impact of adverse
market price volatility on the Cisco stock we own, refer to Part I, Item 3 -
"Quantitative and Qualitative Disclosures About Market Risk on page 20 of our
Quarterly Report for the period ended June 30, 2000 as filed with the SEC.
We have lease lines totaling $4.6 million that were used for equipment and
furniture purchases.
We believe that our existing cash and short-term investments, available credit
facilities and cash flows from operating and financing activities will be
adequate to support our financial resource needs, including working capital
requirements, capital expenditures, and operating lease obligations, for the
next twelve months.
SEASONALITY
Many of our customers install a portion of the OmniMAX system in outdoor
locations. Because of this, shipments of the OmniMAX global product family are
subject to the effects of seasonality, with fewer installation projects
scheduled for the winter months. The majority of our sales are to companies in
the U.S., and, accordingly, we believe the effect of seasonality will generally
cause our revenues in the quarter ended March 31 to be lower than revenues in
the preceding quarter ended December 31. Revenues in the first quarter of 2000
were higher than the preceding quarter due, in part, to higher international
revenue levels.
10
