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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                   FORM 10-K
                             ---------------------

<Table>
<C>          <S>
    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934



             FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001



                                   OR




    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)



   OF THE
 SECURITIES
EXCHANGE ACT
  OF 1934



             FOR THE TRANSITION PERIOD FROM           TO
</Table>

                        COMMISSION FILE NUMBER: 0-28734

                      ADVANCED FIBRE COMMUNICATIONS, INC.

<Table>
<S>                                             <C>
           A DELAWARE CORPORATION                                68-0277743
                                                              (I.R.S. Employer
                                                             Identification No.)
</Table>

                         1465 NORTH MCDOWELL BOULEVARD
                           PETALUMA, CALIFORNIA 94954
                           TELEPHONE: (707) 794-7700

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01
                                   PAR VALUE

     Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]     No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     As of March 11, 2002, there were 82,405,362 shares of Advanced Fibre
Communications, Inc. common stock outstanding, and the aggregate market price of
shares held by non-affiliates was approximately $1,552,011,000. (Solely for the
purpose of calculating the preceding amount, all directors and officers of the
registrant are deemed to be affiliates.)

                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the Annual Report to Stockholders for the year ended
December 31, 2001 and the Definitive Proxy Statement issued in connection with
the 2002 Annual Meeting of Stockholders to be held on May 29, 2002, are
incorporated by reference in Parts II and III of this report.

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                      ADVANCED FIBRE COMMUNICATIONS, INC.

                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2001

                               TABLE OF CONTENTS

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<Caption>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                  PART I.
Item 1.   Business....................................................    1
Item 2.   Properties..................................................   16
Item 3.   Legal Proceedings...........................................   16
Item 4.   Submission of Matters to a Vote of Security Holders.........   17

                                  PART II.
Item 5.   Market for Registrant's Common Equity and Related
            Stockholder Matters.......................................   17
Item 6.   Selected Consolidated Financial Data........................   18
Item 7.   Management's Discussion and Analysis of Financial Condition
            and
            Results of Operations.....................................   18
Item 7A.  Quantitative and Qualitative Disclosures about Market
            Risk......................................................   18
Item 8.   Financial Statements and Supplementary Data.................   18
Item 9.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure..................................   18

                                 PART III.
Item 10.  Directors, Executive Officers and Key Employees of the
            Registrant................................................   19
Item 11.  Executive Compensation......................................   22
Item 12.  Security Ownership of Certain Beneficial Owners and
            Management................................................   22
Item 13.  Certain Relationships and Related Transactions..............   22

                                  PART IV.
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
            8-K.......................................................   22
</Table>
<PAGE>

                                    PART I.

     Except for the historical financial information contained herein, the
following discussion and analysis contains "forward-looking statements." In some
cases, you can identify forward-looking statements by terms such as "may,"
"intend," "might," "will," "should," "could," "would," "expect," "believe,"
"estimate," "predict," "potential," or the negative of these terms and similar
expressions intended to identify forward-looking statements. These statements
reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. We discuss many of these
risks and uncertainties in greater detail in Part I, Item 1 of this Annual
Report on Form 10-K under the heading "Risk Factors That Might Affect Future
Operating Results and Financial Condition." These risks and uncertainties may
cause our actual results, performance, or achievements to be materially
different from any future results, performance, or achievements expressed or
implied by the forward-looking statements. These factors are not intended to be
an all-encompassing list of risks and uncertainties that may affect the
operations, performance, development and results of our business. You should not
place undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and assumptions as of the
date of this report. We are under no duty to update any of the forward-looking
statements after the date of this report to conform such statements to actual
results or to changes in our expectations.

     The following discussion should be read in conjunction with our
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," financial statements and related notes beginning on page 19 of our
2001 Annual Report to Stockholders, which information is incorporated by
reference and filed as Exhibits 13.2 and 13.3.

ITEM 1.  BUSINESS

COMPANY BACKGROUND

     Advanced Fibre Communications(R), Inc., or AFC(R), (Nasdaq: AFCI) was
incorporated in California in May 1992 and reincorporated in Delaware in
September 1995. We completed an initial public offering on October 1, 1996. Our
principal executive offices are located at 1465 North McDowell Boulevard,
Petaluma, California, 94954 and the telephone number at that address is (707)
794-7700. We can also be reached through our Internet Web site at
http://www.afc.com. Information on our Web site is not part of this report.
Throughout this document, references to "we" and "our" indicate the same meaning
as "AFC" and "AFC's", respectively. We develop, manufacture, and support a
family of telecommunications access products and services that enable
telecommunications companies and other service providers to connect their
central office switches to end users for voice and high speed data
communications. Our products include integrated multiservice access platforms,
integrated access devices, optical network access concentrators, network
services, network element management systems, and indoor and environmentally
hardened outdoor cabinets and related service and transmission technologies for
the portion of the telecommunications network between the service provider's
central office and end user businesses and homes, often referred to as the
"local loop," or "last mile."

     Our OmniMAX(TM) product family is a multiservice broadband solution for
providing voice and data services for the telecommunications industry. We
released the AccessMAX(TM) System 8 in 2001, offering a migration strategy for
delivering packet-switched voice and broadband services. The AccessMAX System 8
allows service providers to increase service offerings from legacy time division
multiplex, or TDM, services to high speed next-generation broadband services.
AccessMAX System 8 also allows more efficient transmission applications such as
Voice over Packet, Voice over Digital Subscriber Line, or DSL, and Video over
Asymmetric Digital Subscriber Line, or ADSL, while preserving quality of
service. The term "broadband" refers to all transmission speeds of T1 and
higher. T1 is a digital transmission line or service capable of carrying 24
non-compressed voice calls, or 1.5 megabits per second of data transmissions.
"Packet-based" refers to a way voice or data is transmitted over a line.
Traditional circuit-based transmission utilizes bandwidth constantly, whether or
not voice or data is being transmitted; packet-based transmission occupies
bandwidth only when a packet of voice or data is sent, freeing up bandwidth for
other users.
<PAGE>

INDUSTRY BACKGROUND

     The Telecommunications Act of 1996 opened the telecommunications markets to
new entrants and created an environment in which service providers accelerated
the offering of expanded voice, data, and video services. Growth in the
Internet, electronic commerce, and telecommuting has increased pressure on
service providers to supply a broader range of voice and data services over
faster networks. Networks are required to transmit increasingly larger volumes
of data and video to communicate information, conduct business, and deliver
entertainment. Both public and private network customers are requesting the
convergence of voice, Internet, data, and video traffic into integrated
multimedia services transmitted over one network. These demands have prompted
the development and use of broadband networks that are capable of providing the
improved reliability and increased speed of transmission generally required for
better data and video service over the network. Growth in broadband network
applications has resulted in increased infrastructure investment by network
operators in order to expand their network capacity and provide new applications
and services to meet their customers' needs.

EXPANDING PRODUCT PORTFOLIO

     Our product portfolio is the OmniMAX product family, which consists of
products that provide remote broadband access solutions in the
telecommunications network. Following are the products and solutions we
currently offer:

  THE OMNIMAX PRODUCT FAMILY

     Our OmniMAX portfolio consists of integrated multiservice access platforms,
or IMAPs, integrated access devices, or IADs, optical network access
concentrators, network services, network element management systems,
environmentally hardened outside plant cabinets, indoor cabinets, and related
service and transmission technologies. The OmniMAX product family provides
narrowband, wideband, and broadband services to customers. Our OmniMAX products
can be deployed quickly and cost-effectively to build domestic and international
broadband packet-based networks, and to upgrade legacy access networks for
delivering broadband services to subscribers, regardless of their geographic
location. Our OmniMAX product family consists of AccessMAX, PremMAX(TM),
TransMAX(TM), ATLAS(TM), and Panorama(TM).

  ACCESSMAX

     AccessMAX is our product family of IMAPs and environmentally hardened
cabinets and technology for last mile voice, data, and broadband DSL solutions.
The AccessMAX group of products includes the UMC1000(R), DMAX(TM), AccessMAX
System 8, and our equipment upgrade products EMAX(TM), and EMAXplus(TM). In
1996, in anticipation of the predicted growth in demand for high speed Internet
access and other broadband services, we engineered a next-generation digital
loop carrier, or NGDLC, with a unique three-bus backplane architecture that
provides our products the built-in capability to accommodate future advancements
in telecommunications technology.

     AccessMAX products have a hybrid voice and data architecture enabling them
to operate within various types of networks. The systems are scalable to over
2,000 lines and can transition from a narrowband to a broadband access system.
Because of this flexibility, AccessMAX products offer cost-effective integrated
multiservice access solutions with a wide variety of features and advanced
services that can be added or altered as a customer's network changes and grows.

     We have invested substantial engineering resources in the development of
custom application specific integrated circuits, or ASICs, such as our
Narrowband Gate Array, Wideband Gate Array, and Cell Bus Gate Array. A gate
array is a custom design integrated circuit, or chip, that allows systems
designers to provide advanced processing functions targeted to the application,
typically at a lower cost or with higher functionality than off-the-shelf
solutions. Our Cellennia(TM) is a custom ASIC consisting of over 1.5 million
gates, with the ability to multiply the bandwidth capacity of our product
tenfold. Cellennia is the key technology that activates our high speed cell bus,
providing a fully distributed broadband architecture. This distributed

                                        2
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broadband architecture allows us to continue to offer our "pay as you grow"
philosophy in the deployment of broadband services.

     We have increased the number of DSL circuits on each ADSL card along with a
transition to asynchronous transfer mode, or ATM, a technology that involves
high speed switching capabilities. These cards, like their first generation
predecessors, contain plain old telephone service, or POTS, circuitry and
splitters to allow service providers the ability to offer POTS and DSL on the
same copper pair transport medium.

     Different versions of the AccessMAX platform shelves, or channel bank
assemblies, are uniquely suited to solve various service delivery needs. The
AccessMAX family incorporates both domestic (American National Standards
Institute, or ANSI) and international (European Telecommunications Standards
Institute, or ETSI) capabilities in a single platform to address the global
market for telecommunications equipment.

     The UMC1000 is our original narrowband to broadband service delivery
platform, and is capable of simultaneously providing traditional narrowband and
wideband services such as POTS, integrated services digital network, or ISDN,
and T1, along with a variety of DSL services over copper wire, fiber optic
cable, or wireless transport media. The UMC1000 product family consists of
48-line and 120-line units, which can be installed in a variety of network
configurations. These units can be linked together to form larger line systems
of over 2,000 lines. In addition, our DMAX1120 provides the capability and power
to accommodate 100% DSL deployment from the UMC1000. This new platform leverages
all of the existing capabilities of the UMC1000 while giving service providers
more choices as they build out and optimize their networks for the high speed
services of the future.

     We released the AccessMAX System 8 in 2001, offering a migration strategy
for delivering packet-switched voice and broadband services. The AccessMAX
System 8 allows service providers to expand access network capacity and service
offerings from legacy TDM services to high speed next-generation broadband
services to emerging applications such as Voice over Packet, Voice over DSL, and
Video over ADSL, while preserving quality of service. The system allows
in-service upgrades activating the second ATM cell bus designed into our
original backplane architecture in 1996.

     EMAX and EMAXplus are our equipment maximization systems that provide rapid
and efficient retrofit of in-place third party cabinets. These systems increase
the capacity and density of the legacy infrastructure and fit into the space of
a typical non-AFC digital loop carrier channel bank, eliminating the need for
additional right of way and permits. The added density enables carriers to meet
demand for second and third line POTS or ADSL services in areas where standard
twisted copper pair phone lines are exhausted. Outside plant labor is minimized
by reusing the existing network infrastructure.

  OUTSIDE PLANT CABINETS

     For remote applications requiring outdoor housings, we market a variety of
cabinets to provide the most cost-effective solution for each application. From
48 to over 2,000 lines, our cabinets incorporate and integrate components to
save space and power. All outside cabinets are environmentally hardened to allow
operation over an extended range of temperatures.

  INDOOR CABINETS

     Internet service providers, business centers, universities, hospitals,
banks, small office and home office customers, require traditional telephone
service as well as high speed data services such as DSL and ISDN. Service
providers can deliver these services from low-cost, secure indoor cabinets that
can be installed in stairwells, closets, or basements, occupying minimal floor
space. Our indoor cabinets meet these needs with 48 to 480 lines, helping
service providers minimize their capital outlay while extending new and existing
fiber and copper plant.

                                        3
<PAGE>

  ATLAS

     ATLAS is our professional service organization made up of teams of
professionals, regionally located, who provide consulting and complete
end-to-end installation and operations, maintenance, and provisioning services
for voice, data, and video networks. ATLAS services include developing and
implementing network solutions for service providers, which maximize the use of
existing equipment, identify expansion capabilities, and include engineering
services, site surveys, implementation recommendations and strategies, project
management, and equipment installation for existing and next-generation access
networks. In addition, ATLAS offers customized service support agreements, as
well as technical training courses, which provide our customers with an
understanding of technological advancements and hands-on experience to operate
and maintain all AFC equipment and software.

  PANORAMA EMS

     Our Panorama element management system or EMS, is a software application
product providing a centralized graphic user interface for point and click
management of the OmniMAX network. The auto-detection functionality and
graphical mapping display allows network administrators to quickly locate and
check the status of all AFC equipment within their access network. Panorama's
flexible telecommunications management network architecture, centralized
management capabilities, and customized applications integrate with external
network management systems to enhance the service provider's ability to manage
OmniMAX networks.

  TRANSMAX

     TransMAX is our family of optical network access platforms and includes a
multiservice access concentrator allowing voice and data integration over
packet-aware optical networks, enhancing data handling efficiencies over
traditional non-packet-aware optical networks, saving bandwidth and money. A
packet-aware network is one that recognizes that data is being transmitted in
packets and ceases transmission once the data has been sent, resulting in more
efficient use of bandwidth. A non-packet-aware network can transmit data in
packets, but continues to occupy bandwidth by transmitting even after there is
no more data to send.

  PREMMAX

     Our PremMAX product line of IADs work with our AccessMAX product line to
simplify and lower the cost of delivering total business services to small and
medium-sized business customers. The PremMAX IAD aggregates voice and data
traffic at the customer premise onto the access loop. The PremMAX product is
managed through the Panorama EMS.

SUBSTANTIAL INSTALLED BASE

     In the U.S., major incumbents such as Sprint Corporation, Verizon
Communications Inc., and SBC Communications, Inc., as well as other incumbent
local exchange carriers, or ILECs, national local exchange carriers, or NLECs,
competitive local exchange carriers, or CLECs, and independent operating
companies, or IOCs, deploy the OmniMAX product family. We have also made inroads
into the international marketplace as a result of access network modernization
in the Caribbean and Latin America, Western Europe, Africa, and the Asia Pacific
region. The AccessMAX has received type approval for deployment by major
operators in over 23 countries.

     The OmniMAX product family is distributed and serviced worldwide through
our direct sales force and distributors. Our multiple-channel distribution
approach allows customers to select the channel that best addresses their
specific needs and provides us with broad coverage of global markets.

     Ryan, Hankin, Kent, Inc., or RHK, a telecommunications market research
firm, estimates there are between 75 - 80 million POTS lines and 4 - 4.5 million
ADSL lines currently deployed industry wide. Of that amount, on a cumulative
basis through December 31, 2001, we have shipped or deployed approximately 5.4
million POTS lines and approximately 105,000 ADSL lines.

                                        4
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MARKETS AND CUSTOMERS

     We continue to grow market share in our core NGDLC business, providing
products to many carriers including larger ILECs, NLECs, and over 800 IOCs in
North America. The key factors that create market demand for NGDLC business are
new housing and the replacement of obsolete and high-maintenance outside plant.
For carriers, fiber is a cost-effective alternative to building additional
copper (twisted pair) infrastructure to reach their customers who live or work
beyond three miles from the carrier's central office. NGDLC remote terminals
serve as connectors between the fiber feeder and copper distribution loops
providing those customers with both voice and DSL service connections.

     RHK predicts that the DSL market will grow to almost 16 million lines by
2005. Telechoice, publisher of xDSL and DSL industry analysis, estimates that
DSL will reach more than 11.5 million subscribers by the end of 2003, most of
which will be ADSL. Further, the majority of central office deployment of ADSL
has been completed, according to RHK, which could mean the additional deployment
of ADSL lines will be in remote terminals such as those offered through our
AccessMAX System 8.

     We have identified several areas we are targeting for future growth
opportunities:

     - Central office line termination for soft switching

     - Packet aggregation in the central office

     - Subscriber management functionality

     - Enhanced fiber capabilities

     - Enhanced network management and professional services

     Service providers are looking to suppliers to support them in the move to a
converged packet access network to provide expanded broadband services. Two
technical trends mark the broadband rollout: the transition from circuits to
packets, and the upgrade of the network infrastructure from copper to fiber.
Much of the service providers' network cores have been upgraded to packets and
fiber, but the access network still requires significant investment to be fully
converted. Access networks connect end users to the services available at the
network core, and provide end user revenue streams to service providers.
Conversion of the access network is stimulated by end user demand for broadband
services. Our AccessMAX system 8 allows service providers to utilize existing
fiber buildout to deploy broadband services and access connections to satisfy
end user demand.

     There is growth potential through next-generation switching in the access
market. Our AccessMAX System 8 addresses the issue of integrated line
termination capabilities. Next-generation multiservice packet switches, or soft
switches, do not have integrated line termination capabilities, and require
packet terminations from the voice side at the central office. AccessMAX System
8 already serves this function at remote terminals with integrated switch
interface protocols and full broadband capabilities. As service providers deploy
the new soft switches, we plan to continue to develop enhancements to AccessMAX
System 8 to continue to support central office line termination systems.

     As service providers migrate their network to a converged all packet
architecture, efficient packet aggregation in front of high cost switching ports
will be a critical step in cost effectively passing traffic between end users
and core network elements. The AccessMAX System 8 aggregates voice and data
packets at remote terminals, increasing the efficiency of copper and fiber links
to the central office. This capability reduces the costs of operating a large
packet network. We plan to continue to develop products that will provide
central office-based edge switching and aggregation capabilities coupled with
service management to assist the migration of service providers to Internet
protocol, or IP, networks.

     Subscriber management functionality and packet aggregation equipment are
necessary to gaining revenue from end user packet terminations. We plan to
expand our product family to combine this functionality in a single platform to
streamline operations.

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<PAGE>

     Deploying new broadband services into the access network increases the
transport needs of the access network. We have integrated fiber transport
capabilities into the AccessMAX family of products and we are evaluating
technologies that lower the cost of deploying fiber in the access network.

     We plan to continue to expand our ATLAS network management and professional
services solutions around the AccessMAX product family to help our customers
design, install, operate, and manage their complex networks.

     Our OmniMAX products are sold in the U.S. and international marketplaces to
a customer base that includes NLECs, CLECs, IOCs, ILECs, international
telecommunications companies, alternative carriers, system integrators and
original equipment manufacturers, or OEMs. Historically, the largest revenue-
producing markets of our customer base have been the NLECs, IOCs, CLECs, and
international telecommunications companies.

     In 2001, we sold our products to a wide variety of customer types, as
discussed previously, and we plan to continue to diversify our customer base.
During 2001, we derived slightly lower revenues from international markets
compared with 2000. We are continuing to expand our presence in international
markets and we are focusing our efforts on operators who are making investments
in broadband access infrastructures. The migration to broadband and
privatization of international incumbent telecommunications companies are
prompting service providers to upgrade and expand existing facilities to improve
their positions in an increasingly competitive marketplace. Simultaneously,
these telecommunications companies are installing technology to enable future
advanced services.

     For the year 2001, sales to North Supply Company, a subsidiary of Sprint
(Sprint), accounted for 10% or more of total revenues. In 2000, Winstar
Communications, Inc., (Winstar) and Sprint each accounted for 10% or more of
total revenues. Winstar and Sprint each accounted for 10% or more of total
revenues in 1999. No other customer accounted for 10% or more of total revenues
in any of these periods.

     Financial information relating to geographic areas for 1999-2001 is
included in Note 11 of "Notes to Consolidated Financial Statements" of our
Annual Report to Stockholders which information is incorporated by reference and
filed as Exhibit 13.3.

BACKLOG

     Our backlog primarily consists of purchase orders for services, and
products and software to ship within the next year. At December 31, 2001, 2000,
and 1999, backlogs were approximately $25.5 million, $40.8 million, and $35.4
million, respectively. Included in the 2000 backlog was $11.9 million of
shipments made to Winstar and a value-added reseller, or VAR, that was not
recognized in 2001 due to non-collectibility. We consider backlog to be an
indicator, but not the sole predictor, of future sales because our customers may
cancel or defer orders without penalty. Cancelation or reduction of pending
purchase orders could seriously harm our future revenues.

SALES, MARKETING, AND CUSTOMER SUPPORT

     Our products are marketed worldwide directly to telecommunications
companies and indirectly through OEMs, distributors, and sales representatives.

     Our U.S. sales, marketing, and customer service groups conduct activities
from our corporate headquarters in California, and regional offices in Kansas,
Illinois, Connecticut, Florida, Texas, and Virginia. Our U.S. sales personnel
are dedicated to specific customer accounts across our U.S. customer base. In
addition to direct calls to service providers, sales to customers often involve
marketing through consulting engineers who are retained by independent
telecommunications companies for engineering, specifications, and installation
services.

     Our international sales channels include both direct sales to end users and
indirect sales through global, regional and country OEMs, integrators,
distributors and agents. Our international sales group consists of

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direct salespeople and technical, engineering, and support personnel located in
the U.S., Canada, Mexico, Switzerland, France, and Australia.

     The U.S. and international sales organizations receive support from our
product marketing organization for product commercialization, advertising, and
marketing communications. Our product marketing organization is closely aligned
with our customer market base to assess, capture, and deliver technical value
propositions, product strategy applications, and technical marketing collateral.

     We maintain a customer support organization that provides our customers
with high quality technical and administrative product support. We provide
warranty service, as well as post-sales technical support, technical and
operational training to customers, and technical pre-sales assistance to our
sales representatives and distributors. In addition to our field technical
service engineers, we also rely on various third party organizations to provide
post-sales support to North American customers. We provide international
customer support directly or through our authorized distributors. Training
courses and materials are made available to customers either through student
training or train-the-trainer programs.

RESEARCH AND DEVELOPMENT

     Our research and development efforts are focused on developing local loop
products with advanced features for global telecommunications markets. The
OmniMAX product family is designed as a modular firmware and hardware platform
that can be configured and adapted to particular customer requirements.
Development efforts include extensive attention to ease of installation and use
by the customer. Research and development personnel work closely with sales and
marketing personnel to ensure development efforts are targeted to customer
needs. Recent development efforts have focused on enhancements to the OmniMAX
product family, such as fiber-to-the-curb capability, DSL service cards, ATM
broadband infrastructure, soft switch interfaces and larger line size products.
For international markets, efforts have been focused on an international
standard for switch interfaces known as V5, ATM broadband infrastructure, and
numerous country-specific customizations.

     Our industry is characterized by rapidly changing technological and market
conditions which may shorten product life cycles. Our future competitive
position depends partly on our ability to generate and introduce new technology
and features to existing and new products for the OmniMAX product family. We are
engaged in developing new features for the OmniMAX product family. During the
product development process, we invest substantial resources in products that
often require extensive field testing and evaluation before their introduction
to the market. We have invested substantial engineering resources in the
development of custom ASICs which we believe provide feature and price
advantages for our products. These ASICs and the software that manages them
create a core capability set that would require considerable effort to
replicate.

     Research and development costs charged to expense were $61.4 million in
2001, $58.8 million in 2000, and $48.3 million in 1999. As a percentage of total
revenues, research and development costs represented 19% in 2001, 14% in 2000,
and 16% in 1999. The increase in 2001 research and development costs as a
percentage of total revenues was largely the result of the decline in total
revenues from 2000 to 2001. We consider our research and development efforts
vital to our future success, and we plan to continue to support the development
of new products, features and product cost reductions. We have research and
development offices in California, Illinois, Florida, and Texas.

MANUFACTURING

     Manufacturing, system integration, and testing operations are performed at
our manufacturing facility in Petaluma, California. Manufacturing operations
consist primarily of final product assembly and testing. We rely on a number of
vendors to manufacture subassemblies to strict specifications for use in our
products. Quality is monitored at each stage of the production and supply
process, including the selection of component vendors, receiving, assembly,
final testing, packaging, and shipping. Functional, environmental, and systems
testing and other quality assurance-related activities are performed on the
subassemblies incorporated into the OmniMAX product family.

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     Certain components used in our products are only available from a single
source or limited number of vendors. Some of our sole-source vendors are
companies which, from time to time, allocate parts to telecommunications
equipment manufacturers due to market demand for components and equipment. These
vendors supply a number of our competitors as well as us.

COMPETITION

     Our competitors range from small companies, both U.S. and international, to
large multinational corporations. Principal competitors include: Compagnie
Financiere Alcatel, Lucent Technologies Inc., and Marconi Communications Inc.
Some of these competitors have more extensive financial, marketing, and
technical resources than we do and enjoy superior name recognition in the
market.

     Pursuant to a settlement agreement and related agreements entered into with
the Industrial Technology Research Institute, an entity of the Republic of
China, certain of its member companies have been granted specific rights to
manufacture and sell the ETSI version of the narrowband UMC1000 outside of North
America. These companies currently compete with us in international markets,
primarily in China. In January 2005, upon termination of certain restrictions
set forth in the agreements, these companies will have a worldwide,
non-exclusive, royalty-free, irrevocable license to use a certain older version
of narrowband UMC1000 technology and will be able to compete with us worldwide.

     We believe rapid technological change, continuing regulatory change, and
industry consolidation will continue to cause rapid evolution in the competitive
environment of the telecommunications equipment market, the full scope and
nature of which is difficult to predict. Moreover, we believe that technological
and regulatory change will continue to attract new entrants to the market in
which we compete.

TELECOMMUNICATIONS AND TECHNOLOGY INVESTMENTS

     Over the past several years, we have made investments in several start-up
ventures specializing in telecommunications technologies. In 1999, our
investment in Cerent Corporation (Cerent) was converted into approximately 10.6
million shares of Cisco Systems, Inc. (Cisco) common stock, adjusted for a
2-for-1 stock split, as a result of Cisco acquiring Cerent. Upon the conversion,
we recognized a non-operating gain of approximately $379.3 million. In February
and May 2000, we entered into hedging transactions structured as costless collar
agreements, or collars, to minimize the impact of potential adverse market risk
on the Cisco stock we own. The collars provide us with a floor value of
approximately $690.0 million for the shares if held to maturity. We are able to
borrow up to the full present value of the floor value of the collars. In 2001,
we implemented Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities, resulting in the
reclassification and recognition of gains in the Cisco shares and the related
collars from accumulated other comprehensive income to non-operating income. As
a result of the reclassification, we recognized $285.7 million in unrealized
gains during 2001. See Note 2 of "Notes to Consolidated Financial Statements" in
our 2001 Annual Report to Stockholders, which information is incorporated by
reference and filed as Exhibit 13.3.

     During the fourth quarter of 2001, we recorded a $2.3 million impairment in
our investment in a development-stage company. Our net investment in this
company totaled $4.3 million as of March 11, 2002. We believe macroeconomic
conditions and an industry capital spending slowdown adversely affected the
valuation of the company and led to the impairment.

     In the latter half of 2001, we entered into an OEM agreement with a
privately held development stage company, (company) and made an investment in
the company. Under the terms of the OEM agreement, we are authorized to use,
promote, market and distribute the company's products in development of end to
end solutions utilizing the products. Our investment includes an equity
investment in the company's preferred stock and an option to acquire the
company. We carry the investment at cost as we hold less than 20% ownership in
the company and do not have the ability to exercise significant influence over
the company's operations. Under the terms of the purchase option agreement, we
may, at our sole discretion, elect at any time through April 2, 2002 to acquire
for cash or stock, all of the outstanding shares of the company. Our
determination as to whether to exercise the option will be based upon our
assessment of the company's

                                        8
<PAGE>

product development efforts and business prospects, as well as market conditions
and other factors relevant to the company's business. If we do not exercise the
option to acquire the company, and the company has achieved specified
engineering and product development milestones, certain shareholders of the
company hold a put option giving them the right to require us to purchase from
them a specified series of the company's outstanding preferred stock for
approximately $6.0 million. The put option becomes exercisable for 90 days after
the expiration of our purchase option.

COMPLIANCE WITH REGULATORY AND INDUSTRY STANDARDS

     Our products must comply with a significant number of voice and data
regulations and standards which vary between U.S. and international markets, and
vary by specific international markets. Standards for new services continue to
evolve, and we will need to modify our products or develop new versions to meet
these standards. Standards setting and compliance verification in the U.S. are
determined by the Federal Communications Commission, or FCC, Underwriters
Laboratories, Quality Management Institute, Telcordia Technologies, Inc., other
independent third party testing organizations, and by independent
telecommunications companies. In international markets, our products must comply
with standards and recommendations issued by the Consultative Committee on
International Telegraph and Telephony, Industry Canada, and individual regional
carriers' network operating system requirements and specifications. Our products
must comply with standards issued by ETSI and implemented and enforced by the
telecommunications regulatory authorities of each nation.

     In addition to maintaining our ISO 9001 certification since 1997, we have
also been certified compliant with TL9000 since 2000. TL 9000 is a set of
quality system standards based on best practice and business excellence models,
specifically created by and for the telecommunications industry. TL 9000
includes all of the elements of the ISO 9001 Quality System Standard, plus a
number of other requirements specific to the telecommunications industry. It
adds additional focus on customer needs, strategic planning, and accountability.
In addition to the TL 9000 Quality System Requirements, there are sets of
measurements that TL 9000 registered companies must report. These measurements
are based on customer satisfaction, and the quality of the hardware and software
developed by the supplier. Included in our certification are products and
services in the three classifications of TL 9000: hardware, software, and
services.

ENVIRONMENTAL MATTERS

     Our operations and manufacturing processes are subject to federal, state,
local, and foreign environmental protection laws and regulations. These laws and
regulations relate to the use, handling, storage, discharge and disposal of
certain hazardous materials and wastes, the pre-treatment and discharge of
process waste waters and the control of process air pollutants. We believe that
we are in compliance in all material respects with applicable environmental
regulations.

PROPRIETARY RIGHTS AND LICENSES

     We attempt to protect our technology through a combination of copyrights,
trade secret laws, contractual obligations, and patents. No patents are
currently held for the OmniMAX product family, but six patent applications are
pending. There can be no assurance that our intellectual property protection
measures will be sufficient to prevent misappropriation of our technology. See
Part I, Item 1 "Risk Factors That Might Affect Future Operating Results and
Financial Condition" as it pertains to this matter in this Annual Report on Form
10-K. The laws of many foreign countries do not protect our intellectual
property rights to the same extent as the laws of the U.S.

EMPLOYEES

     As of December 31, 2001, we had 843 employees. None of our employees are
covered by collective bargaining agreements, and we have never experienced a
work stoppage, strike, or labor dispute. We believe relations with our employees
are good.

                                        9
<PAGE>

RISK FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS AND FINANCIAL CONDITION

     In addition to the other information in this Annual Report on Form 10-K,
the following are risk factors that should be considered in evaluating AFC and
an investment in our common stock. The trading price of our common stock could
decline due to any of these risks, and investors in our common stock could lose
all or part of their investment.

  A NUMBER OF FACTORS COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE
  SIGNIFICANTLY AND CAUSE VOLATILITY IN OUR STOCK PRICE.

     Our operations have been, and will continue to be, affected by a wide
variety of factors, many of which are outside our control. These factors
include, but are not limited to, the level of capital spending and financial
strength of our customers, changes in our U.S. and international sales and
distribution mix, our product feature component mix and our ability to introduce
new technologies and features ahead of our competitors, introductions or
announcements of new products by our competitors, the timing and size of the
orders we receive, adequacy of supplies for key components and assemblies, our
ability to efficiently produce and ship orders promptly on a price-competitive
basis, and our ability to integrate and operate acquired businesses and
technologies.

     We sell our OmniMAX product family primarily to telecommunications
companies installing our equipment as part of their access networks. Additions
to those networks represent complex and lengthy engineering projects, with our
equipment typically representing only a portion of a given project. As a result,
the timing of product shipment is often difficult to forecast. A portion of our
equipment is usually installed in outdoor locations, so shipments of the system
can be subject to the effects of seasonality, with fewer installation projects
scheduled for the winter months. Many of our customers spend greater amounts of
their calendar-year capital budgets during our fourth quarter and utilize the
inventory build-up in the following first quarter. These factors may cause
revenues in the quarter ended March 31 to be lower than revenues in the
preceding quarter ended December 31. Sales in developing countries can be
affected by delays and reductions in planned project deployment, currency
fluctuations, reductions in capital availability, priority changes in government
budgets, delays in receiving government approvals, and the political
environment.

     Expenditures for research and development, sales and marketing, and general
and administrative functions are based in part on future growth projections and
are relatively fixed for the near-term. We may be unable to adjust spending in a
timely manner in response to any unanticipated failure to meet these growth
projections. There can be no assurance that we will not have excess
manufacturing capacity or that further utilization of our manufacturing and
distribution facility will continue without interruption, which could result in,
among other things, higher operating expenses and lower net income.

     Fluctuations in our operating results, such as revenues or operating
results not meeting the expectations of the investment community, may cause
volatility in the price of our common stock. In such event, the market price of
our common stock could decline significantly. A significant decline in the
market price of our common stock could result in litigation, which could also
result in increased costs and diversion of management's attention and resources
from our operations. For a description of this type of litigation currently
pending against us, see Part I, Item 3 "Legal Proceedings" in this Annual Report
on Form 10-K.

  WE OPERATE IN A RAPIDLY CHANGING COMPETITIVE AND ECONOMIC ENVIRONMENT. IF WE
  ARE UNABLE TO ADAPT QUICKLY TO THESE CHANGES, OUR BUSINESS AND RESULTS OF
  OPERATIONS COULD BE SERIOUSLY HARMED.

     The telecommunications equipment market is undergoing rapid competitive and
economic changes, the full scope and nature of which are difficult to predict.
We believe that technological and regulatory change will continue to attract new
entrants to the market in which we compete. Industry consolidation among our
competitors may increase their financial resources, enabling them to reduce
their prices. This would require that we reduce the prices of our products or
risk losing market share. A competitor's customer may acquire one of our
customers and shift all capital spending to our competitor, possibly resulting
in material reductions to our revenues and net income.

                                        10
<PAGE>

     Many of our competitors are in a better position to withstand reductions in
customers' capital spending. These competitors often have broader product
portfolios and market share and may not be as susceptible to downturns in the
telecommunications industry. These competitors offer products directly competing
with our product portfolio and also provide comprehensive ranges of other access
systems. A customer may elect to consolidate its supplier base for the
advantages of one-stop shopping solutions for all its product needs. Reductions
in our customers' capital spending could materially reduce our revenues and net
income.

     Our principal competitors include:Compagnie Financiere Alcatel, Lucent
Technologies Inc., and Marconi Communications Inc. Some of our competitors have
more extensive financial, marketing, and technical resources than we do and
enjoy superior name recognition in the market.

     Various member companies of the Industrial Technology Research Institute,
with whom we currently compete in international markets, primarily in China,
have been granted specific rights to manufacture and sell the ETSI version of
our narrowband UMC1000 product outside of North America. Upon termination of
certain restrictions in January 2005, these member companies will gain a
worldwide, non-exclusive, royalty-free, irrevocable license to use an older
version of narrowband UMC1000 technology and will be able to compete with us
worldwide.

     Continued growth in the broadband access market is highly dependent on a
vibrant economy, a strong level of capital expenditures for broadband access
solutions products, a positive regulatory environment for larger ILEC customers,
and the continued funding of emerging local service carriers by large
communications equipment providers. The compounding effect of the current
economic contraction, current regulatory action or inaction, and high debt
levels may result in further reductions in capital expenditures by companies in
the telecommunications industry, including some of our customers, and this could
seriously harm our revenues and net income.

  WE RELY ON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR
  REVENUES. IF WE LOSE ONE OR MORE OF OUR SIGNIFICANT CUSTOMERS OR EXPERIENCE A
  DECREASE IN THE LEVEL OF SALES TO ANY OF THESE CUSTOMERS, OUR REVENUES AND NET
  INCOME COULD DECLINE.

     Sprint accounted for 10% or more of total revenues in 2001, and Winstar and
Sprint each accounted for 10% or more of total revenues in both 2000 and 1999.
No other single customer accounted for 10% or more of total revenues in any of
these periods. Our five largest customers accounted for 44%, 49%, and 47% of
total revenues in 2001, 2000, and 1999, respectively. 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 several large accounts rather than many
small accounts. There can be no assurance that significant existing customers
will continue to purchase products from us at current levels, if at all. For
example, sales to Winstar decreased in 2001 as a result of their deteriorated
financial condition and filing for protection under bankruptcy laws. In the
event that a significant existing customer merges with another company, there
can be no assurance that such customer will continue to purchase our products.
The loss of one or more significant existing customers or a decrease in the
level of purchases from these customers could, among other things, result in a
decrease in revenues and net income, excess and obsolete inventory, and increase
our dependency on our remaining significant customers.

  OUR REVENUES DEPEND ON THE CAPITAL SPENDING PROGRAMS AND FINANCIAL
  CAPABILITIES OF OUR SERVICE PROVIDER CUSTOMERS AND ULTIMATELY ON THE DEMAND
  FOR NEW TELECOMMUNICATIONS SERVICES FROM END USERS.

     Our customers are concentrated in the public carrier telecommunications
industry and, in the U.S., include ILECs, NLECs, IOCs, and CLECs. Our historical
markets have been the U.S. and international small to mid-line size markets, and
we are attempting to expand into larger-line size markets both in the U.S. and
internationally. Our ability to generate future revenues depends upon the
capital spending patterns and financial capabilities of our customers, continued
demand by our customers for our products and services, and end user demand for
advanced telecommunications services. Recent severe financial problems affecting
the telecommunications industry in general could continue to cause a slowdown in
our sales, and result in slower

                                        11
<PAGE>

payments or defaults on account. CLECs in particular have experienced
difficulties in raising capital to build out their networks, which, along with
the scale and complexity of providing DSL service, has contributed to a
substantial slowdown in their capital spending. For example, the financial
distress of Winstar and a VAR resulted in our non-recognition of approximately
$11.9 million of revenues in the first quarter of 2001, and an increase in our
allowance for doubtful accounts of approximately $9.3 million with respect to
the VAR. Also, there can be no assurance that telecommunications companies,
foreign governments, or other customers will pursue infrastructure upgrades that
will necessitate the implementation of advanced products such as ours.
Infrastructure improvements may be delayed or prevented by a variety of factors
including cost, regulatory obstacles, the lack of consumer demand for advanced
telecommunications services and alternative approaches to service delivery.

  WE MAY BE UNABLE TO SELL CUSTOMER-SPECIFIC INVENTORY WHICH COULD RESULT IN
  LOWER GROSS PROFIT MARGINS AND NET INCOME.

     Some of our customers have order specifications requiring us to design,
purchase parts, and build systems that are unique to a customer. In many cases,
we forecast and purchase components in advance and allocate resources to design
and manufacture the systems. If our customers' requirements change, or we
experience delays or cancelation of orders, we may be unable to cost-effectively
rework the system configurations and return the parts to inventory as available
for sale. In the fourth quarter of 2001, we recorded an $18.0 million write-down
to cost of revenues for excess and obsolete inventory, much of which was
customer-specific inventory. We also recognized a $12.0 million accrual to cost
of revenues in the fourth quarter of 2001 for long-term purchase agreements with
contract manufacturers, much of which was incurred for specific customers. In
the first quarter of 2001, we increased our inventory reserves by approximately
$2.2 million for inventories designed in accordance with the specifications of
Winstar and Tellabs. Write-downs and accruals for unrealizable inventory
negatively impacts our gross profit margins and net income.

  WE MUST ATTRACT, RETAIN, AND MOTIVATE KEY TECHNICAL AND MANAGEMENT PERSONNEL
  IN A COMPETITIVE MARKET IN ORDER TO SUSTAIN OR GROW OUR BUSINESS.

     Our success depends to a significant extent upon key technical and
management employees. Competition for highly qualified employees is intense and
the process of locating key technical and management personnel with the required
combination of skills and attributes is often lengthy and expensive. This
competition is particularly intense in Northern California, where there is a
concentration of established and emerging technology companies. In general, we
do not have employment agreements with our employees, or carry key person life
insurance. There can be no assurance that we will be successful in retaining our
existing key personnel or in attracting and retaining the additional employees
we may require. We must continue to recruit, train, assimilate, motivate, and
retain qualified managers and employees to manage our operations effectively.
Otherwise, we may be unable to execute our business plan effectively and our
results of operations could be significantly adversely affected.

  RECENT AND FUTURE ACQUISITIONS MAY COMPROMISE OUR OPERATIONS AND FINANCIAL
  RESULTS.

     As part of our efforts to enhance our existing products, introduce new
products, and fulfill changing customer requirements, we may pursue acquisitions
of complementary companies, products, and technologies. Acquisitions could
adversely affect our operating results in the short term as a result of dilutive
issuances of equity securities and the incurrence of additional debt costs. The
purchase price for an acquired company may exceed its book value, creating
goodwill, possibly resulting in significant impairment write-downs charged to
our operating results in one or more periods. We have limited experience in
acquiring and integrating outside companies. In the process of making an
acquisition, we may suffer disruption to our business, become exposed to unknown
liabilities of acquired companies, or fail to successfully integrate another
company, its products and technologies, or its personnel. The effects of these
events could harm our business, financial condition, and results of operations.

                                        12
<PAGE>

  WE ARE SUBJECT TO NUMEROUS AND CHANGING REGULATIONS AND INDUSTRY STANDARDS. IF
  OUR PRODUCTS DO NOT MEET THESE REGULATIONS OR ARE NOT COMPATIBLE WITH THESE
  STANDARDS, OUR ABILITY TO SELL OUR PRODUCTS COULD BE SERIOUSLY HARMED.

     Our products must comply with a significant number of voice and data
regulations and standards, which vary between U.S. and international markets,
and may vary within specific international markets. Standards for new services
continue to evolve, and we will need to modify our products or develop new
versions to meet these standards. Standards setting and compliance verification
in the U.S. are determined by the FCC, Underwriters Laboratories, Quality
Management Institute, Telcordia Technologies, Inc., other independent third
party testing organizations, and by independent telecommunications companies. In
international markets, our products must comply with recommendations issued by
the Consultative Committee on International Telegraph and Telephony, Industry
Canada, and individual regional carriers' network operating system requirements
and specifications. Our products must also comply with standards issued by the
ETSI and implemented and enforced by the telecommunications regulatory
authorities of each nation.

     We need to continue to ensure that our products are easily integrated with
various telecommunications systems. Telcordia testing on our products is often
required to ensure interoperability with various standards of operations,
administration, maintenance, and provisioning systems. Telcordia testing also
requires significant investments in time and money to achieve compliance. If our
systems fail to comply with evolving standards in U.S. and international markets
on a timely basis, or if we fail to obtain compliance on new features, our
ability to sell our products would be impaired, and we could experience, among
other things, delayed or lost customer orders, decreased revenues, and lower net
income.

     We have maintained compliance with ISO 9001 since we were first certified
in 1997. The ISO standard consists of all elements defining a quality system,
aimed primarily at achieving customer satisfaction by preventing non-conformity
at all stages, from design through servicing. We have maintained compliance with
TL9000 since we were first certified for hardware, software and services in
2000. TL9000 certification is a quality standard designed specifically for the
telecommunications industry. There can be no assurance that we will maintain
these certifications. The failure to maintain any such certification or to
maintain interoperability with other companies may negatively affect our ability
to compete with other telecommunications equipment vendors and may preclude
selling certain of our products in certain markets.

     In 1996, the U.S. Congress passed regulations that affect
telecommunications services, including changes to pricing, access by competitive
vendors and many other broad changes to the data and telecommunications networks
and services. These changes have had a major impact on the pricing of existing
services, and may affect the deployment of future services. These changes have
caused greater consolidation in the telecommunications industry, which in turn
could disrupt existing customer relationships, and could result in, among other
things, delays or loss of customer orders, decreased revenues, and lower net
income. Regulatory issues stemming from the 1996 Telecommunications Act include
conflicting state and federal regulations for DSL deployment, and it is unclear
when resolution will take place. There can be no assurance that any future
legislative and regulatory changes will not have a material adverse effect on
the demand for our products. Uncertainty regarding future legislation and
governmental policies combined with emerging new competition may also affect the
demand for our products.

  WE FACE RISKS ASSOCIATED WITH INTERNATIONAL MARKETS AND DISTRIBUTION CHANNELS.

     International sales constituted 14% of our total revenues in 2001, 11% in
2000, and 11% in 1999. International sales have fluctuated in absolute dollars
and as a percentage of revenues and are expected to continue to fluctuate in
future periods.

     We have had limited success in entering new international markets. Many
international telecommunications companies are owned or strictly regulated by
local authorities. Access to international markets is often difficult to achieve
due to trade barriers and established relationships between government-owned or
controlled telecommunications companies and traditional local equipment vendors.
Successful expansion of international operations and sales in some of these
markets may depend on our ability to establish and maintain productive strategic
relationships with established telecommunications companies, local equipment

                                        13
<PAGE>

vendors, or entities successful at penetrating international markets. In the
fourth quarter of 2001, we closed our sales and representative offices in Hong
Kong, Shanghai, and London. We rely on a number of third party distributors and
sales representatives to market and sell our products outside of the U.S., and
there can be no assurance that such distributors or sales representatives will
provide the support and effort necessary to service international markets
effectively. In addition, in the past our gross profit margins, in some cases,
have been lower for products sold through some of our third party and indirect
distribution channels than for products sold through our direct sales efforts.
Increased sales through our third party and indirect distribution channels may
reduce our overall gross profit margins and net income.

     Sales activities in foreign countries may subject us to taxation in those
countries. Although we have attempted to minimize our exposure to taxation in
foreign countries, any income or other taxes imposed may increase our overall
effective tax rate and adversely impact our competitiveness in those countries.
In addition, we currently intend that the earnings of our foreign subsidiaries
remain permanently invested in these entities in order to facilitate the
potential expansion of our business. To the extent that these earnings are
actually or deemed repatriated, U.S. federal and state income taxes would be
imposed, and this could adversely impact our cash flows.

     We must comply with various country-specific standards and regulations to
compete in certain markets. Some international network standards vary from those
of the U.S., and our product family may be incompatible with the legacy
infrastructure. This could hamper our ability to sell our product family into
certain countries. If our existing international customers adopt
non-U.S.-compliant network standards, we could experience a loss of revenues and
lowered net income. Any inability to obtain or maintain local regulatory
approval could delay or prevent entrance into certain markets, which could
result in, among other things, delays or loss of customer orders, decreased
revenues, and lower net income.

  WE MAY BE UNABLE TO SECURE NECESSARY COMPONENTS AND SUPPORT BECAUSE WE DEPEND
  UPON A LIMITED NUMBER OF THIRD PARTY MANUFACTURERS AND SUPPORT ORGANIZATIONS,
  AND IN SOME CASES WE RELY UPON SOLE SOURCE SUPPLIERS.

     Certain components used in our products, including our proprietary ASICs,
codec components, certain surface mount technology components, and other
components, are only available from a single source or limited number of
vendors. A limited number of vendors manufacture the subassemblies to our
specifications for use in our systems. We purchase most components on a purchase
order basis, and we do not have guaranteed supply arrangements with many of our
key suppliers. Some of the sole source and limited source vendors are companies
who, from time to time, allocate parts to telecommunications equipment
manufacturers due to market demand for components and equipment. During the
worldwide telecommunications market expansion in the late 1990's, many component
suppliers placed critical components on worldwide allocation. During 2000 we
experienced shortages of certain optical components, laser diodes, which are
used in our products. Many of our competitors are much larger and may be able to
obtain priority allocations from these shared vendors, thereby limiting or
making unreliable our sources of supply for these components. If we are unable
to obtain sufficient supply from alternative sources, reduced supplies and
higher prices of components could significantly limit our ability to meet
scheduled product deliveries to our customers and increase our expenses, which
would seriously harm our business and results of operations.

  OUR FAILURE TO DEVELOP AND INTRODUCE NEW PRODUCTS THAT MEET CHANGING CUSTOMER
  REQUIREMENTS AND ADDRESS TECHNOLOGICAL ADVANCES WOULD LIMIT OUR FUTURE
  REVENUES.

     New product development often requires long-term forecasting of market
trends, and development and implementation of new technologies. If we fail or
are late to respond to new technological developments, or if we experience
delays in product development, market acceptance of our products may be
significantly reduced or delayed. The telecommunications equipment market is
characterized by rapidly changing technology, evolving industry standards,
changes in end user requirements, and frequent new product introductions and
enhancements. The introduction of products embodying new technologies or the
emergence of new industry standards can render existing products obsolete or
unmarketable.

                                        14
<PAGE>

     Our success will depend upon our ability to enhance the OmniMAX product
family through the development of new technology and to develop and introduce,
on a timely basis, new products or new product feature enhancements. From time
to time, we or our competitors may announce new products or product
enhancements, services, or technologies that have the potential to replace or
shorten the life cycle of the OmniMAX product family causing customers to defer
purchases of our equipment. If we fail to respond on a cost-effective and timely
basis to technological advances in the telecommunications industry, we may
experience diminished market acceptance and reduced sales of our products, and
our business would be seriously harmed.

  OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED ERRORS WHICH COULD RESULT
  IN SIGNIFICANT UNEXPECTED EXPENSE.

     Our products contain a significant amount of complex hardware, firmware,
and software that may contain undetected errors that may become apparent as
product features are introduced, or as new versions are released. It is possible
that, despite significant testing, hardware, firmware, or software errors will
be found in our products after commencement of shipments resulting in delays or
cancelation of customer orders, payment of contract penalties to customers,
warranty costs or the loss of market acceptance and revenues.

  OUR PRODUCT LINE IS CONCENTRATED IN A SINGLE FAMILY OF PRODUCTS AND A DECLINE
  IN DEMAND FOR THESE PRODUCTS WOULD RESULT IN DECREASED REVENUES AND NET
  INCOME.

     Substantially all of our revenues are derived from the OmniMAX product
family, and we expect this concentration will continue in the foreseeable
future. Any decrease in prices or sales levels could result in decreased
revenues and lower net income. Factors potentially affecting sales prices and
demand for our products include price competition, new product introductions or
announcements by competitors, or product obsolescence, among others.

  FAILURE OR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY WILL ADVERSELY
  AFFECT OUR ABILITY TO COMPETE, WHICH COULD RESULT IN DECREASED REVENUES.

     We attempt to protect our technology through a combination of copyrights,
trade secret laws, contractual obligations, and patents. We do not presently
hold any patents for the OmniMAX product family, and although six patent
applications are pending, they may not result in any issued patents. These
intellectual property protection measures may not be sufficient to prevent
wrongful misappropriation of our technology nor will they prevent competitors
from independently developing technologies that are substantially equivalent or
superior to our technology. The laws of many foreign countries do not protect
our intellectual property rights to the same extent as the laws of the U.S.
Failure or inability to protect proprietary information could result in loss of
our competitive advantage, loss of customer orders and decreased revenues.
Furthermore, policing the unauthorized use of our products is difficult.
Litigation may be necessary in the future to enforce our intellectual property
rights. This litigation could result in substantial costs and diversion of
resources and may not ultimately be successful.

  WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT ARE COSTLY
  TO DEFEND AND COULD LIMIT OUR ABILITY TO USE SOME TECHNOLOGIES IN THE FUTURE.

     Like other participants in our industry, we expect that we will continue to
be subject to infringement claims and other intellectual property disputes as
competition in our market continues to intensify. We have been subject to
several intellectual property disputes in the past. In the future, we may be
subject to additional litigation and may be required to defend against claimed
infringements of the rights of others or to determine the scope and validity of
the proprietary rights of others. Any such litigation could be costly and divert
management's attention from our operations. Adverse determinations in such
litigation could result in the loss of our proprietary rights, subject us to
significant liabilities, require us to seek licenses from third parties, or
prevent us from manufacturing or selling our products. Furthermore, there can be
no assurance that any necessary licenses will be available on reasonable terms.
Any one of these results could seriously harm our business and results of
operations.

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<PAGE>

ITEM 2.  PROPERTIES

     We lease five buildings in Petaluma, California Two of these buildings are
subleased; the other three, a total of approximately 374,000 square feet, house
the principal executive offices, as well as administrative, sales, marketing,
product development, manufacturing, and distribution functions. In addition to
our Petaluma facilities, we lease domestic properties in Miramar, Florida
(research and development), Richardson, Texas (sales, and research and
development), Buffalo Grove, Illinois (research and development, and technical
assistance), Largo, Florida, and several other locations for sales and technical
assistance. As of January 1, 2002, we have sublet the Largo facility.
Internationally, we occupy leased offices for sales and sales support functions
in: Paris, France; Fribourg, Switzerland; Mexico City, Mexico; and Sydney,
Australia.

     We utilized approximately 68% of our total available space as of March 11,
2002. We believe that the facilities used in our operations are suitable for
their respective uses and adequate to meet our level of operations anticipated
in 2002. In addition, we believe that appropriate additional facilities will be
available to accommodate growth as needed.

ITEM 3.  LEGAL PROCEEDINGS

     Securities Litigation.  Various class action lawsuits were filed in the
U.S. District Court for the Northern District of California against AFC and
certain of our current and former officers and directors between July 2, 1998
and August 17, 1998. On November 2, 1998, these lawsuits were consolidated by
the court, and a Consolidated Amended Class Action Complaint (CAC) was served on
January 27, 1999. In addition, on November 2, 1998, this consolidated class
action was coordinated with two individual actions filed by the State Board of
Administration of Florida, and by an individual, John Earnest. These three
complaints allege various federal and state securities law violations for the
period March 25, 1997 through and including June 30, 1998, and seek an
unspecified amount of damages.

     Defendants filed motions to dismiss the CAC and the two individual
complaints. On March 24, 2000, the court granted defendants' motions to dismiss
with leave to amend. On June 2, 2000, plaintiffs in the consolidated class
action served their Second Amended Class Action Complaint (SAC). On June 14,
2000, the individual plaintiffs each respectively filed second amended
complaints. On June 30, 2000, defendants moved to dismiss the SAC. By stipulated
order, the filing of motions was stayed in the two individual cases pending
resolution of the defendants' motion to dismiss. On February 15, 2001, the court
granted the motion to dismiss the SAC with leave to amend. On March 19, 2001,
plaintiffs in the consolidated class action served their Third Amended Class
Action Complaint (TAC). Defendants moved to dismiss the TAC, and, on May 29,
2001, the court granted in part and denied in part this motion with leave to
amend. On July 2, 2001, plaintiffs in the consolidated class action served their
Fourth Amended Class Action Complaint (FAC). In addition, on July 12, 2001, the
individual plaintiffs each respectively served third amended complaints.
Defendants moved to dismiss the FAC, and, on August 21, 2001, the court granted
in part and denied in part this motion. On September 13, 2001, defendants filed
an answer to the remaining allegations in the FAC. On October 15, 2001,
defendants filed motions to dismiss the individual third amended complaints,
and, on December 19, 2001, the court granted defendants' motions to dismiss with
leave to amend. On or about January 17, 2002, the individual plaintiffs each
respectively filed and served fourth amended complaints. On February 15, 2002,
defendants filed motions to dismiss these fourth amended complaints. Limited
discovery has occurred.

     Based on current information, we believe the lawsuits are without merit and
that we have meritorious defenses to the actions. Accordingly, we are vigorously
defending the litigation. 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 addition, 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 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.

                                        16
<PAGE>

     Statements contained herein that are forward-looking, including statements
regarding the potential impact of pending litigation, reflect our current view
with respect to future events and involve risks and uncertainties. These risks
and uncertainties may cause actual results to be materially different from any
future result that may be suggested, expressed or implied by these
forward-looking statements. Such risks and uncertainties include, but are not
limited to, a change in relevant and applicable law which can affect the outcome
of this litigation, newly discovered information which may support some or all
of the plaintiffs' allegations, and the general risks and uncertainties that
accompany any litigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                    PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock is traded on the Nasdaq National Market, or Nasdaq, using
the symbol AFCI. Our common stock price is listed daily in "The Wall Street
Journal" and other publications by the abbreviation AdvFibComm.

     The following table lists the high and low closing sales prices of our
common stock as reported by Nasdaq for each full quarterly period of the two
most recent fiscal years:

<Table>
<Caption>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
FISCAL 2001:
First Quarter (through March 31)............................  $24.94   $14.31
Second Quarter (through June 30)............................   24.04    11.94
Third Quarter (through September 29)........................   27.90    14.58
Fourth Quarter (through December 29)........................   22.47    14.26
</Table>

<Table>
<Caption>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
FISCAL 2000:
First Quarter (through March 25)............................  $85.00   $34.88
Second Quarter (through June 24)............................   81.31    39.44
Third Quarter (through September 30)........................   58.75    34.00
Fourth Quarter (through December 30)........................   39.38    15.63
</Table>

     On March 11, 2002, the last reported sale price of our common stock on the
Nasdaq National Market was $19.10 per share. As of March 11, 2002, there were
approximately 411 record holders, or brokerage firms, holding our common stock.

DIVIDEND POLICY

     We have never declared or paid cash dividends on our capital stock. We
currently intend to utilize all of our earnings, if any, in our operations, and
we do not anticipate the payment of cash dividends in the foreseeable future.

ISSUANCE OF UNREGISTERED SECURITIES

     None.

OTHER INFORMATION

     None.

                                        17
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The information required by this item is set forth on page 18 of our 2001
Annual Report to Stockholders, which information is incorporated by reference
and filed as Exhibit 13.1.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The information required by this item is set forth on pages 19 - 29 of our
2001 Annual Report to Stockholders, which information is incorporated by
reference and filed as Exhibit 13.2.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information required by this item is set forth on pages 29-30 of our
2001 Annual Report to Stockholders, which information is incorporated by
reference and filed as Exhibit 13.2.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item is set forth on pages 31 - 48 of our
2001 Annual Report to Stockholders, which information is incorporated by
reference and filed as Exhibit 13.3.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                        18
<PAGE>

                                   PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT

     Executive officers are selected by, and serve at the discretion of, the
board of directors. No family relationships exist between any of the executive
officers or directors. The following table sets forth certain information with
respect to each person who is an executive officer, key employee, or director.

<Table>
<Caption>
NAME                                      AGE                     POSITION
----                                      ---                     --------
<S>                                       <C>   <C>
EXECUTIVE OFFICERS
John A. Schofield......................   53    Chairman of the Board, President, and Chief
                                                Executive Officer
Keith E. Pratt.........................   39    Senior Vice President, Chief Financial
                                                Officer, and Assistant Secretary
Mehmet N. Balos........................   46    Senior Vice President, Global Sales,
                                                Marketing, and Customer Service
R. Leon Blackburn......................   56    Vice President, Corporate Controller
KEY EMPLOYEES
Charles C. Geiger......................   37    Vice President, Operations and Quality
Donald B. McCullough...................   42    Vice President, Product Planning and
                                                Management
Amy M. Paul............................   33    Vice President, General Counsel and
                                                Corporate Secretary
Victoria L. Perrault...................   48    Vice President, Administrative Services
Jeffrey S. Rosen.......................   38    Vice President, Operations
E. James Sackman.......................   41    Vice President, Chief Technology Officer
Doak K. Smailer........................   44    Vice President, Quality
Jorge A. Valdes........................   40    Vice President, Engineering
Robert G. Yates........................   59    Vice President, International Sales
OUTSIDE DIRECTORS
Donald Green(3)........................   70    Director
Ruann F. Ernst(1)(3)(4)................   55    Director
Clifford H. Higgerson(2)...............   62    Director
William L. Keever(2)(4)................   56    Director
Martin R. Klitten(1)...................   57    Director
Dan Rasdal(1)(3).......................   68    Director
Alex Sozonoff(1)(2)(3).................   63    Director
</Table>

---------------

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

(3) Member of the Nominating Committee

(4) Member of the Governance Committee

     John A. Schofield was elected to serve as Chairman of the Board in October
2001. Mr. Schofield joined AFC in March 1999 as President and Chief Executive
Officer, and was appointed to the board of directors in May 1999. From 1995 to
1999, Mr. Schofield held several senior management positions with ADC
Telecommunications, Inc. including Senior Vice President, President of the
Integrated Solutions Group, and Managing Director of Asia Pacific/Latin America.
Mr. Schofield is also a director of Integrated Device Technology, Inc.

                                        19
<PAGE>

     Keith E. Pratt was promoted to Vice President, Chief Financial Officer, and
Assistant Secretary in December 1999, and was promoted to Senior Vice President
in December 2000. Mr. Pratt joined AFC in September 1997 as Director of
Corporate Development and served in this position until his promotion in 1999.
Prior to joining AFC, Mr. Pratt was Director of the Corporate Strategy and
Business Development Group with Pacific Telesis from 1995 to 1997. Mr. Pratt is
a director of one private company.

     Mehmet N. Balos was appointed Senior Vice President Global Sales,
Marketing, and Customer Service in June 2001. Mr. Balos joined AFC in July 1999
as Vice President, Global Marketing and was appointed to Vice President, North
American Sales in addition to his marketing responsibilities in October 1999.
Mr. Balos was promoted to Senior Vice President, Global Marketing and North
American Sales in July 2000. Prior to joining AFC, Mr. Balos served as Vice
President of Access Marketing, Sales and Services worldwide with Ericsson LM
Telephone Company from 1997 to 1999 and General Manager for Pirelli Telecom
Systems Group from 1995 to 1997.

     R. Leon Blackburn joined AFC in September 2000 as Vice President and
Corporate Controller. From 1993 to 2000, Mr. Blackburn served as Assistant
Controller at AirTouch Communications, Inc. a wireless communications company,
which was acquired by United Kingdom-based Vodafone in 1999.

     Charles C. Geiger was promoted to Vice President, Operations and Quality in
June 2001. Mr. Geiger joined AFC in November 1998 as Regional Vice President,
International Operations, and was promoted to Vice President, Global Customer
Service in July 1999. Prior to joining AFC, Mr. Geiger was employed with DSC
Communications Corporation (DSC) from 1996 through 1998 where he held several
senior marketing and sales positions and was based out of DSC's Denmark and UK
facilities.

     Donald B. McCullough joined AFC in December of 2000 as Vice President,
Product Planning and Management. Prior to AFC, Mr. McCullough served as Director
of Product Marketing at Westwave Communications from 1999 to December 2000. He
also previously served as Director of Product Management for PairGain
Technologies from 1998 to 1999 and held various management positions with
BroadBand Technologies from 1989 to 1998.

     Amy M. Paul was promoted to Vice President and General Counsel in February
1999 and appointed Corporate Secretary in May 1999. Ms. Paul joined AFC in 1995
as Director, Contracts and Legal Affairs.

     Victoria L. Perrault was promoted to Vice President, Administrative
Services in December 1999. Ms. Perrault joined AFC in March 1996 as the Human
Resource Manager, and was promoted to Director of Human Resources in August
1996.

     Jeffrey S. Rosen joined AFC in March 2000 as Vice President, Operations.
Prior to joining AFC, Mr. Rosen served as a Director at Solectron Corporation in
various operations and supply chain management roles from 1996 to 2000. Mr.
Rosen was a Senior Associate with Booz, Allen & Hamilton from 1993 to 1996.

     E. James Sackman was promoted to Vice President and Chief Technology
Officer in June 2000. Mr. Sackman joined AFC in April 1997 as Director of
Hardware Engineering. He also held the position of Chief Technologist from 1999
until 2000. Prior to joining AFC, Mr. Sackman spent 12 years at Racal-Datacom in
various positions, including Engineering Director for Remote Access Server
products and ATM Systems Architect.

     Doak K. Smailer was promoted to Vice President, Quality in February 2000.
Mr. Smailer joined AFC in November 1998 as Director, Domestic Quality and was
promoted to Director, Quality in May 1999. Prior to joining AFC, Mr. Smailer was
employed with DSC Communications Corporation from 1990 through 1998, where he
held the positions of Manager of Corporate Quality and Director of Corporate
Quality.

     Jorge A. Valdes has served as Vice President, Engineering since July 1999.
Mr. Valdes joined AFC in March 1998 and served as Director of Engineering in the
Florida development office through July 1999. Prior to joining AFC, Mr. Valdes
served in various management positions with Racal-Datacom from 1990 through
1998, including Engineering Director of Bandwidth Engineering and Access
Engineering as well as Senior Product Marketing Manager.

                                        20
<PAGE>

     Robert G. Yates joined AFC in May 1999 as Vice President, International
Sales. Prior to joining AFC, Mr. Yates was employed with ADC Telecommunications,
Inc., from 1992 through 1999, where he held various positions including Vice
President, Asia Pacific, International Business Development Director and
Managing Director Australia and New Zealand.

     Donald Green is a co-founder of AFC and served as Chairman of the Board
from 1992 to October 2001. Donald Green has reached the board's retirement age
of 70 and will officially announce his retirement at the 2002 Annual Meeting of
Stockholders. Mr. Green will continue to serve on the board until that time. Mr.
Green served as Chief Executive Officer from June 1998 to March 1999 and from
May 1992 to June 1997. Mr. Green is also a director of TCSI Corporation, CoSine
Communications, and four private companies.

     Ruann F. Ernst has served as a Director since 1998.  From June 1998 through
January 2002, Dr. Ernst served as Chief Executive Officer of an e-business
delivery network, Digital Island, Inc., a Cable & Wireless company. Dr. Ernst
was Chairperson of the Board of Digital Island from December 1999 through July
2001 when the company was acquired by Cable & Wireless Plc. Dr. Ernst served as
President of Digital Island from June 1998 through December 1999. From June 1994
through 1998, Dr. Ernst served as General Manager, Financial Services Business
Unit, for Hewlett-Packard Company, an electronics equipment and computer
company. Dr. Ernst is also a director of Sphinx International Inc., one private
organization, and three non-profit boards.

     Clifford H. Higgerson has served as a Director since 1993. Mr. Higgerson
has served as a general partner of ComVentures, a venture capital firm, since
1987 and as a general partner of Vanguard Venture Partners, a venture capital
firm since July 1991. Mr. Higgerson is also a director of Tut Systems, Inc. and
seven private companies.

     William L. Keever was elected to our board in June 2001. Mr. Keever is the
Chief Executive Officer of Vodafone Asia, a wireless telecommunications company.
Mr. Keever was President of Vodafone Americas Asia from 2000 until January 2002
when he was promoted to Chief Executive Officer. From 1999 to 2000, Mr. Keever
was Executive Vice President, Network and Systems Operations for AirTouch
Cellular. From 1998 to 1999, Mr. Keever was President of AirTouch International
and from 1997 to 1998 he was Executive Vice President, German Operations for
AirTouch Communications, Inc. Mr. Keever is also a director of Iusacell, Japan
Telecom, and one private company.

     Martin R. Klitten was elected to our board in October 2001. Mr. Klitten was
Executive Vice President for Chevron Corporation from August 2000 to September
2001, when he retired. From 1989 through August 2000, Mr. Klitten served as
Chevron's Vice President of Finance, and Chief Financial Officer.

     Dan Rasdal has served as a Director since 1993.  Mr. Rasdal served as a
director of Symmetricom, Inc., a telecommunications company, from 1985 to 2000.
From 1985 to July 1998, Mr. Rasdal was Chairman of the Board, President, and
Chief Executive Officer of Symmetricom. Mr. Rasdal is also a director of
Celeritek, Inc.

     Alex Sozonoff has served as a Director since October 1997. Mr. Sozonoff
currently provides consulting services as a senior advisor to Hewlett-Packard
Company, an electronics equipment and computer company. Mr. Sozonoff served as
Vice President of Customer Advocacy for Hewlett-Packard from 1998 to February
2002, when he retired. From 1994 to 1998, he was Vice President of Marketing for
Hewlett-Packard.

     Our bylaws call for a board of directors composed of a minimum of seven
directors and a maximum of nine; the number currently authorized is eight. The
terms of office of the board of directors are divided into three classes:

     - Clifford H. Higgerson, William L. Keever, and Alex Sozonoff are Class I
       Directors, and their terms will expire at the annual meeting of the
       stockholders in 2003.

     - Ruann F. Ernst and John A. Schofield are Class II Directors, and their
       terms will expire at the annual meeting of the stockholders to be held in
       2004.

                                        21
<PAGE>

     - Donald Green, Martin R. Klitten, and Dan Rasdal are Class III Directors,
       and their terms will expire at the annual meeting of the stockholders to
       be held in 2002.

     At each annual meeting of stockholders, the newly elected directors' terms
begin on the date of election and qualification, and continue for three years
through the third annual meeting following election. Terms may differ in the
case where a director resigns, is removed from office, or until the time when a
successor director is elected and qualified.

     Directorships are distributed equally among the three classes so that, as
nearly as possible, each class is equally weighted and represented.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Directors, executive officers, and individuals owning more than 10 percent
of our common stock are required to file initial reports of ownership and
changes in ownership with the SEC under Section 16(a) of the Securities Exchange
Act of 1934, as amended. The SEC regulations also require those persons to
provide copies of all filed Section 16(a) reports to us. We have reviewed the
report copies filed in 2001, and based also on written representations from
those persons, we believe that there was compliance with Section 16(a) filing
requirements for 2001.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is set forth in our 2002 Definitive
Proxy Statement to be filed within 120 days from our fiscal year end.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is set forth in our 2002 Definitive
Proxy Statement to be filed within 120 days from our fiscal year end.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is set forth in our 2002 Definitive
Proxy Statement to be filed within 120 days from our fiscal year end.

                                    PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     The following is a list of the consolidated financial statements and the
financial statement schedules which are included in this Annual Report on Form
10-K or which are incorporated herein by reference:

     1.  Financial Statements:

     As of December 31, 2001 and 2000:
          - Consolidated Balance Sheets

     For the Years Ended December 31, 2001, 2000, and 1999:
        - Consolidated Statements of Income
        - Consolidated Statements of Stockholders' Equity and Comprehensive
          Income
        - Consolidated Statements of Cash Flows

     Notes to Consolidated Financial Statements

     Independent Auditors' Report

     Quarterly Results of Operations (Unaudited)

     2.  Financial Statement Schedule:

        - Schedule II -- Valuation and Qualifying Accounts

                                        22
<PAGE>

     All other financial statements and financial statement schedules have been
omitted because they are not applicable, or the required information is included
in the consolidated financial statements or notes thereto.

     3(a).  Exhibits:

<Table>
<Caption>
EXHIBIT
NUMBER                         DOCUMENT DESCRIPTION
-------                        --------------------
<C>        <S>
 3.3.1     Fifth Amended and Restated Certificate of Incorporation of
           the Registrant.(2)
 3.3.2     Certificate of Designation of Series A Junior Participating
           Preferred Stock.(4)
 3.5       Amended and Restated Bylaws of the Registrant.
 4.1       Specimen Certificate of Common Stock.(1)
 4.3       Certificate of Incorporation of the Registrant (included in
           Exhibit 3.3.1).
 4.4       Rights Agreement dated as of May 13, 1998 between the
           Registrant and BankBoston, N.A.(4)
 4.5       Amendment to Rights Agreement dated as of October 19, 1998
           between the Registrant and BankBoston, N.A.(5)
10.10      Compensation Agreement, dated March 23, 1999 between the
           Registrant and John A. Schofield.(6)
10.11      Hangzhou Aftek Communication Registrant Ltd. Contract, dated
           June 18, 1994 between Advanced Fibre Technology
           Communication (Hong Kong) Limited and Hangzhou Communication
           Equipment Factory of the MPT., HuaTong Branch.(1)+
10.15      Redwood Business Park Net Lease, dated June 3, 1996 between
           the Registrant and G & W/ Redwood Associates Joint Venture,
           for the premises located at Buildings 1 & 9 of Willow Brook
           Court.(1)
10.17      Form of Indemnification Agreement for Executive Officers and
           Directors of the Registrant.(1)
10.18      The Registrant's 1993 Stock Option/Stock Issuance Plan, as
           amended (1993 Plan).(1)
10.19      Form of Stock Option Agreement pertaining to the 1993
           Plan.(1)
10.20      Form of Notice of Grant of Stock Option pertaining to the
           1993 Plan.(1)
10.21      Form of Stock Purchase Agreement pertaining to the 1993
           Plan.(1)
10.22      The Registrant's 1996 Stock Incentive Plan (1996 Plan).(1)
10.23      Form of Stock Option Agreement pertaining to the 1996
           Plan.(1)
10.23.1    Form of Automatic Stock Option Agreement pertaining to the
           1996 Plan.(1)
10.24      Form of Notice of Grant of Stock Option pertaining to the
           1996 Plan.(1)
10.24.1    Form of Notice of Grant of Non-Employee Director Automatic
           Stock Option pertaining to the 1996 Plan.(1)
10.25      Form of Stock Issuance Agreement pertaining to the 1996
           Plan.(1)
10.26      The Registrant's Employee Stock Purchase Plan.(1)
10.31      Cypress Center Net Lease, dated October 9, 1997 between the
           Registrant and RNM Lakeville L.P., for the premises located
           at 2210 South McDowell Boulevard.(3)
10.33      Redwood Business Park Net Lease, dated September 22, 1999
           between the Registrant and 99 AF Petaluma, L.L.C., for the
           premises located at 1465 McDowell Boulevard North.(7)
10.35      Master Stock Purchase Agreement and Pledge Agreement
           Specialized Term Appreciation Retention Sale (STARS) dated
           February 9, 2000 between the Registrant and Bank of America,
           N.A.(8)
13.1       Selected Consolidated Financial Data from the 2001 Annual
           Report to Stockholders.
13.2       Management's Discussion and Analysis of Financial Condition
           and Results of Operations from the 2001 Annual Report to
           Stockholders.
13.3       Financial Statements and Supplementary Data from the 2001
           Annual Report to Stockholders.
21.1       Subsidiaries of the Registrant.(1)
23.1       Report on Schedule and Consent of KPMG LLP.
24.1       Power of Attorney.
</Table>

                                        23
<PAGE>

---------------

(1) Incorporated by reference from the Registrant's Registration Statement on
    Form S-1 (File No. 333-8921) filed with the Securities and Exchange
    Commission on July 26, 1996, as amended, and declared effective September
    30, 1996.

(2) Incorporated by reference from the Registrant's Quarterly Report on Form
    10-Q for the quarterly period ended September 30, 1997, filed with the
    Securities and Exchange Commission on November 7, 1997.

(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K
    for the year ended December 31, 1997, filed with the Securities and Exchange
    Commission on March 23, 1998.

(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
    filed with the Securities and Exchange Commission on May 19, 1998.

(5) Incorporated by reference from the Registrant's Current Report on Form 8-K
    filed with the Securities and Exchange Commission on October 29, 1998.

(6) Incorporated by reference from the Registrant's Quarterly Report on Form
    10-Q for the quarterly period ended March 31, 1999, filed with the
    Securities and Exchange Commission on May 7, 1999.

(7) Incorporated by reference from the Registrant's Quarterly Report on Form
    10-Q for the quarterly period ended September 31, 1999, filed with the
    Securities and Exchange Commission on November 8, 1999.

(8) Incorporated by reference from the Registrant's Annual Report on Form 10-K
    for the year ended December 31, 1999, filed with the Securities and Exchange
    Commission on March 21, 2000.

 +  Portions of this Exhibit have been granted Confidential Treatment.

     3(b).  Reports on Form 8-K:
     None.

                                        24
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          ADVANCED FIBRE COMMUNICATIONS, INC.
                                          (Registrant)

                                          By:     /s/ JOHN A. SCHOFIELD
                                            ------------------------------------
                                                     John A. Schofield
                                               President and Chief Executive
                                                           Officer

March 20, 2002

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
              SIGNATURE AND TITLE                                     DATE
              -------------------                                     ----
<S>                                                <C>



             /s/ JOHN A. SCHOFIELD                               March 20, 2002
------------------------------------------------
               John A. Schofield
             Chairman of the Board




                /s/ DONALD GREEN                                 March 20, 2002
------------------------------------------------
                  Donald Green
                    Director




               /s/ RUANN F. ERNST                                March 20, 2002
------------------------------------------------
                 Ruann F. Ernst
                    Director




           /s/ CLIFFORD H. HIGGERSON                             March 20, 2002
------------------------------------------------
             Clifford H. Higgerson
                    Director




             /s/ WILLIAM L. KEEVER                               March 20, 2002
------------------------------------------------
               William L. Keever
                    Director




             /s/ MARTIN R. KLITTEN                               March 20, 2002
------------------------------------------------
               Martin R. Klitten
                    Director




                 /s/ DAN RASDAL                                  March 20, 2002
------------------------------------------------
                   Dan Rasdal
                    Director




               /s/ ALEX SOZONOFF                                 March 20, 2002
------------------------------------------------
                 Alex Sozonoff
                    Director
</Table>

                                        25
<PAGE>

<Table>
<Caption>
              SIGNATURE AND TITLE                                     DATE
              -------------------                                     ----

<S>                                                <C>




               /s/ KEITH E. PRATT                                March 20, 2002
------------------------------------------------
                 Keith E. Pratt
Senior Vice President, Chief Financial Officer,
            and Assistant Secretary
         (Duly Authorized Signatory and
          Principal Financial Officer)




             /s/ R. LEON BLACKBURN                               March 20, 2002
------------------------------------------------
               R. Leon Blackburn
      Vice President, Corporate Controller
         (Duly Authorized Signatory and
         Principal Accounting Officer)
</Table>

                                        26
<PAGE>

                      ADVANCED FIBRE COMMUNICATIONS, INC.
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                ADDITIONS
                                                          ---------------------
                                             BALANCE AT   CHARGED TO   CHARGED    DEDUCTIONS    BALANCE
ALLOWANCE FOR                                BEGINNING    COSTS AND    TO OTHER      FROM      AT END OF
DOUBTFUL ACCOUNTS                            OF PERIOD     EXPENSES    ACCOUNTS   ALLOWANCE     PERIOD
-----------------                            ----------   ----------   --------   ----------   ---------
<S>                                          <C>          <C>          <C>        <C>          <C>
Year ending December 31, 1999..............   $ 1,136        1,050          --        (304)     $ 1,882
Year ending December 31, 2000..............     1,882          600          --        (534)       1,948
Year ending December 31, 2001..............     1,948       10,261          58     (11,315)         952
</Table>

<Table>
<Caption>
                                                               ADDITIONS
                                                         ---------------------
RESERVE FOR                                 BALANCE AT   CHARGED TO   CHARGED    DEDUCTIONS    BALANCE
INVENTORIES AND                             BEGINNING    COSTS AND    TO OTHER      FROM      AT END OF
PURCHASE COMMITMENTS                        OF PERIOD     EXPENSES    ACCOUNTS    RESERVE      PERIOD
--------------------                        ----------   ----------   --------   ----------   ---------
<S>                                         <C>          <C>          <C>        <C>          <C>
Year ending December 31, 1999.............   $ 4,951        7,221        (113)     (4,051)     $ 8,008
Year ending December 31, 2000.............     8,008       10,150         635      (2,905)      15,888
Year ending December 31, 2001.............    15,888       38,906        (329)     (4,616)      49,849
</Table>

<Table>
<Caption>
                                                               ADDITIONS
                                                         ---------------------
                                            BALANCE AT   CHARGED TO   CHARGED    DEDUCTIONS    BALANCE
ALLOWANCE FOR                               BEGINNING    COSTS AND    TO OTHER      FROM      AT END OF
CUSTOMER RETURNS                            OF PERIOD     EXPENSES    ACCOUNTS    RESERVE      PERIOD
----------------                            ----------   ----------   --------   ----------   ---------
<S>                                         <C>          <C>          <C>        <C>          <C>
Year ending December 31, 1999.............   $ 1,953       (1,176)         --          --      $   777
Year ending December 31, 2000.............       777          945          --          --        1,722
Year ending December 31, 2001.............     1,722       (1,171)         --          --          551
</Table>

<Table>
<Caption>
                                                               ADDITIONS
                                                         ---------------------
                                            BALANCE AT   CHARGED TO   CHARGED    DEDUCTIONS    BALANCE
                                            BEGINNING    COSTS AND    TO OTHER      FROM      AT END OF
WARRANTY RESERVE                            OF PERIOD     EXPENSES    ACCOUNTS    RESERVE      PERIOD
----------------                            ----------   ----------   --------   ----------   ---------
<S>                                         <C>          <C>          <C>        <C>          <C>
Year ending December 31, 1999.............   $ 6,563        8,910          --      (6,575)     $ 8,898
Year ending December 31, 2000.............     8,898       10,100      (1,111)     (6,290)      11,597
Year ending December 31, 2001.............    11,597        9,307          --      (8,265)      12,639
</Table>

                                        27
<PAGE>

                      ADVANCED FIBRE COMMUNICATIONS, INC.

INDEX TO EXHIBITS FILED WITH THIS ANNUAL REPORT ON FORM 10-K:

<Table>
<Caption>
EXHIBIT
NUMBER                        DOCUMENT DESCRIPTION
-------                       --------------------
<C>       <S>
   3.5    Amended and Restated Bylaws of the Registrant
  13.1    Selected Consolidated Financial Data from the 2001 Annual
          Report to Stockholders.
  13.2    Management's Discussion and Analysis of Financial Condition
          and Results of Operations from the 2001 Annual Report to
          Stockholders.
  13.3    Financial Statements and Supplementary Data from the 2001
          Annual Report to Stockholders.
  23.1    Report on Schedule and Consent of KPMG LLP.
  24.1    Power of Attorney.
</Table>