Net income for the first quarter was $149,951,000 or $1.80 earnings per share (diluted). Net income included $250,509,000 related to implementation of Statement of Financial Accounting Standards No. 133 (SFAS 133), and our decision to reclassify our investment in Cisco Systems and the related costless collar hedge as trading securities. Without this non-operating item and the associated tax effect, the net loss would have been $5,365,000 or $.06 loss per share.
In the first quarter of 2000, the Company recorded net income of $28,371,000 or $.33 earnings per share (diluted). This included a $32,750,000 cash payment from Marconi Communications Inc. as part of a settlement of outstanding litigation. Without this gain and the associated tax effect, net income in the first quarter of 2000 would have been $6,757,000 or $0.08 earnings per share (diluted).
There were several one-time adjustments that affected both revenues and earnings for the first quarter of 2001.
AFC was unable to recognize $11,923,000 of revenues during the quarter. Of these revenues, approximately $10,048,000 related to products and services provided to Winstar Communications Inc. (Winstar) and approximately $1,875,000 related to shipments made to a value-added reseller (VAR) through which AFC supplies product to a major incumbent local exchange carrier (ILEC). Winstar filed for Chapter 11 Bankruptcy Protection today and as such, it is very unlikely that AFC will be paid for product that was shipped in January 2001. For that reason, we did not recognize these revenues.
During the first quarter we experienced lower than expected shipments to Tellabs and some of our large ILEC customers, said John A. Schofield, president and chief executive officer for AFC. This resulted in an approximate $6 million revenue shortfall, compared with planned revenues. In addition, subsequent to the close of the quarter, we became concerned about our ability to collect payment in a timely manner from Winstar and the VAR.
Looking forward, Mr. Schofield continued, we project no future business this year with either Winstar or Tellabs and, therefore, we have taken an inventory charge associated with certain materials and products for these two accounts.
Inventory reserves associated with the loss of future business to Winstar and Tellabs and bad debt reserves for the VAR together resulted in a charge of $11,406,000.
To summarize, if we had been able to recognize the aforementioned revenues related to Winstar and the VAR, total revenues for the quarter would have been $94,134,000. Excluding the one-time effect of implementation of SFAS 133 and the aforementioned one-time charges, net income for the first quarter of 2001 would have been $10,126,000 or $0.12 per share (diluted). This compares to $.08 per share (diluted) recorded after adjustment for the Marconi credit in the first quarter of 2000.
The Company’s effective tax rate, including the effect of SFAS 133 implementation, is 38% compared to 34% for fiscal 2000.
Obviously we are not pleased with the results of the quarter, and in particular, with the rapid deterioration in the financial condition of Winstar, our largest customer in 2000, which had a material impact on our results, said Mr. Schofield. Though we remain concerned about the deteriorating economic environment, I feel that the long-term opportunity for broadband in the access networks of the world remains significant. Even though there is a substantial slowdown in capital spending in the telecom sector, AFC remains one of the leading companies in the broadband access arena. I firmly believe that our slowdown is not caused by losing business to competitors, but rather to the pressures impacting competitive local exchange carriers (CLECs) and large ILECs in the United States.
We have a strong balance sheet with approximately $874 million in cash and securities. At the same time, we are diligently managing expenses and taking a close look at all areas of our business to identify ways to cut costs, added Mr. Schofield. We are managing our company to cope with this rapidly changing environment while ensuring our products and technology remain capable of delivering the legacy voice services demanded by providers today, and a seamless, cost-effective transition to a packet-switched data network of the future.
