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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 29, 2001
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 0-10726
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C-COR.net Corp.
(Exact name of Registrant as specified in its charter)
Pennsylvania 24-0811591
(I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
60 Decibel Road
State College, Pennsylvania 16801
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (814) 238-2461
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
Series A Junior Participating Preferred Stock Purchase Rights
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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 ((S)229.405 of this chapter) 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 August 31, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $272,468,127.
As of August 31, 2001, the Registrant had 32,538,980 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
1)Proxy Statement dated September 14, 2001 (Part III)
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PART I
Item 1. Business
Some of the information presented in this report contains forward-looking
statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include, among others, statements regarding the ability of C-COR.net Corp. (C-
COR, the Company, or we) to provide complete network solutions, the demand for
network integrity, the trend toward more fiber in the network, the Company's
ability to develop new and enhanced products, global demand for the Company's
products and services and statements relating to the Company's business
strategy. Forward-looking statements represent the Company's judgment regarding
future events. Although the Company believes it has a reasonable basis for
these forward-looking statements, the Company cannot guarantee their accuracy
and actual results may differ materially from those the Company anticipated due
to a number of uncertainties, many of which we are not aware. Factors which
could cause actual results to differ from expectations include, among others,
capital spending patterns of the communications industry, the Company's ability
to develop new and enhanced products, continued industry consolidation, the
development of competing technology, the Company's ability to successfully
implement three new business divisions, to integrate acquisitions and to
achieve its strategic objectives. For additional information concerning these
and other important factors that may cause the Company's actual results to
differ materially from expectations and underlying assumptions, please refer to
the reports filed by the Company with the Securities and Exchange Commission.
Introduction
C-COR, headquartered in State College, Pennsylvania, provides technology and
services to the global market for the full network life cycle of two-way HFC
(hybrid fiber coax) broadband networks. Our core strategy is to leverage our
48-year reputation for quality and service, our strong customer relationships
and our extensive installed base of transmission equipment to provide a broad
line of flexible, reliable and cost-effective network products and service
solutions. To meet the strategic objective of delivering both a comprehensive
line of telecommunications equipment and broadband management services that our
customers require across the HFC network, we have made eight acquisitions since
1999, two of which were completed in the first quarter of our fiscal year 2002.
On April 27, 2001, we acquired MobileForce Technologies, Inc. (MobileForce).
This acquisition has enabled us to expand our suite of broadband management
services to include workforce management and wireless mobile computing
solutions for the cable and other large field service industries.
On July 3, 2001, we acquired Aerotec Communications, Inc. (Aerotec). This
acquisition has enabled us to strengthen our position as a nationwide provider
of comprehensive technical services by expanding our presence in the Western
United States and enhancing our network construction capabilities.
On August 4, 2001, we acquired certain assets and liabilities of the Broadband
Communications Division of ADC Telecommunications, Inc. (ADC). This acquisition
has expanded our product capabilities, particularly in digital video transport;
our customer and geographic reach, especially overseas; our installed equipment
base and our employee resources.
Following the acquisition from ADC in August 2001, we realigned our business
into three divisions to reflect our growing market position in delivering a
broad complement of advanced network products and services to the broadband
market. Each of these divisions focuses on a market segment that is key to
network integrity.
The Broadband Communications Division, headquartered in Meriden, Connecticut,
with supporting facilities in the U.S., Mexico, Austria and Argentina, is
responsible for development, management, production, support and sale of our
advanced fiber optic, digital video transport and RF (radio frequency)
equipment.
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The Broadband Management Solutions Division, headquartered in Pleasanton,
California, with an engineering facility in State College, Pennsylvania, is
responsible for development, integration, management, implementation, support
and sale of our solutions to operate and manage reliable, high-quality multi-
service networks. The division's flagship products include COR-Convergence(TM),
an integrated service management platform that takes the best in standards-
based network management technology and integrates it with customer care and
billing data sources to provide a real-time view of network, customer and
service status, and Nvision(TM), a suite of field service management tools that
combines browser-based business applications with real-time connectivity to the
mobile workforce through wireless data connections and mobile computing
devices.
The Technical Services Division, headquartered in Lakewood, Colorado, with
satellite offices in the Northeast, Midwest, Southeast and Western regions of
the U.S., provides outsourced technical field services, including broadband
network engineering and design, construction, activation, optimization,
certification, maintenance and operations.
Our principal customers are the largest cable operators in the United States,
such as Adelphia Communications, Cox Communications, AOL Time Warner, Charter
Communications, AT&T Broadband and Comcast; many smaller domestic cable
operators and several international cable operators. These customers primarily
operate HFC networks for delivering video, voice and data services to homes and
businesses. With the acquisition of cable assets from ADC, our customer base
has expanded in the U.S. and abroad, not only among cable operators, but also
among telephone companies and broadcasters who purchase digital video transport
equipment such as the DV6000 series that we acquired.
Industry Overview
HFC networks consist of a headend where information is received from a
satellite, Internet gateway or telephony network, a transmission infrastructure
that distributes the signal throughout the network, and connections from the
transmission network to the subscribers. Historically, these systems offered
one-way only video service. Over the last several years, the cable industry,
like other segments of the communications industry, has been undergoing
substantial change as a result of:
. deregulation that allows competition among communications companies,
including both wireline and wireless telephone companies as well as
cable operators, for communications services;
. demand by consumers for two-way, high-speed broadband communications to
accommodate Internet, telephony and other new information services; and
. the need to customize services for specific customers, thereby requiring
flexible and easy-to-configure networks.
For the cable television industry, these factors are resulting in:
. upgrades to existing cable networks to provide two-way, interactive
broadband services that will allow cable operators to compete against
other broadband communications technologies, including digital
subscriber line (DSL), local multichannel distribution service (LMDS)
and direct broadcast satellite (DBS);
. greater utilization of fiber optic technology, such as dense wave
division multiplexing (DWDM), in the cable network;
. consolidation among cable operators driven by the increased capital
requirements to implement system upgrades;
. investments in cable operations by non-cable operators in an effort to
compete for both new and existing services and to provide a full range
of communication services;
. increased demand for more flexible and reliable cable networks to
support the new services being offered;
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. demand for more sophisticated network management products to address
quality of service requirements and to support access by multiple
information service providers; and
. demand for more sophisticated technical field services to support the
increased complexity of broadband networks.
In addition to changes relating to regulation, technology and market demand,
the broadband communications industry has also been significantly impacted by
the general economic downturn of 2001. During this period, cable operators have
reduced spending, resulting in a decrease in demand for products and services
offered by us and other broadband market providers. We responded to this
economic environment by implementing a reduction in force and consolidation of
facilities beginning in January 2001.
Strategy Overview
Our strategic goal is to balance our business base across three distinct market
segments: advanced telecommunications products, operations management solutions
and technical field services. We are seeking to implement this strategy through
both internal development of new products and services as well as acquisitions.
Specific aspects of our strategy include:
Providing a Comprehensive HFC Network Product Line. We offer a full range of RF
and fiber optic transmission products to transmit signals in both directions
over HFC networks from "the headend to the curb." As part of our purchase of
certain cable assets from ADC, we acquired the DV6000 line of high-quality,
uncompressed digital video products with a primary customer base among
telephone and broadcast companies.
In addition, over the past year we have incorporated new technologies within
our product lines, including TL (Transfer Linearization) Technology(TM), our
proprietary circuit technique that enhances product performance using standard
silicon-based technology, and two unique digital return solutions for home and
business applications.
Leveraging an Extensive Installed Base of Equipment for Upgrade and Rebuild
Sales. We are leveraging our large installed base of transmission equipment in
our customers' networks through upgrades, rebuilds and node size reductions. We
provide a cost-effective path for our customers to upgrade existing components
of installed products rather than purchasing all new equipment.
Providing Broadband Management Services to Enhance Network Integrity. The
requirement for HFC network integrity and reliability has become much greater
as network traffic and complexity have grown and as networks have become
increasingly used by multiple service providers. Current approaches to managing
HFC networks, however, focus on monitoring limited, individual elements of the
network, such as cable modems or power supplies. In contrast, our COR-
Convergence system is a network, rather than element, management platform that
provides a comprehensive, real-time view of customer, service and network
status from set-top box and/or modem to the headend. With the acquisition of
MobileForce, we have expanded our broadband management services to the cable
operators' mobile workforce with wireless and handheld automation solutions
particularly for routing and dispatching functions.
Delivering Total Network Solutions to Meet the Emerging Broadband Needs of HFC
Network Operators. We are able to offer a broad network solution to HFC network
operators by delivering both a comprehensive line of equipment and the network
services that they require across the HFC network. We design the network to
enhance reliability, deliver the infrastructure equipment and management
software, furnish installation and activation services, and provide ongoing
network management and support services.
Increasing International Sales. We are currently supplying products and
services to a number of international customers, including cable operators in
Canada, Europe and Asia. In addition, our recent acquisition of certain cable
assets of ADC has expanded our customer base, particularly in Europe and Latin
America. With our
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broad product and services offerings, we are supplying comprehensive network
solutions to network operators in various international markets who generally
prefer to purchase products and services from suppliers offering a more
complete product line.
Products and Services
We provide telecommunications equipment and broadband management services to
support primarily cable operators as they plan, design, build and maintain
complex broadband communications networks. As of August 2001, these two major
market areas of equipment and services were formally realigned into three
business divisions.
The Broadband Communications Division provides our advanced fiber optic,
digital video transport and RF telecommunications equipment.
The Broadband Management Solutions Division provides our array of solutions to
operate and manage reliable, high-quality, multi-service networks.
The Technical Services Division provides technical field services, covering
broadband network engineering and design, construction, installation,
optimization, certification, maintenance and operations.
See Note T to the consolidated financial statements for financial information
relating to each of the segments for fiscal years 2001, 2000 and 1999.
Telecommunications Equipment
An HFC network connects a central information source, typically referred to as
the headend, to individual residential users through a physical plant of fiber
optic and coaxial cables and a variety of electrical and fiber optic devices
that transmit, receive, modulate and amplify the signals as they move through
the network. A typical HFC network consists of three major segments: the
headend and hubs, nodes and the RF plant. We offer a comprehensive range of
products for each of these segments.
lumaCOR(TM) Line of Headend and Hub Products
The headend receives information from a satellite transmission, Internet
gateway, telephony network or other source and converts this information to
laser modulated optical signals for transmission across the network. Larger
networks feature both primary headends and a series of secondary headends or
hubs. We offer a broad range of headend and hub equipment under our lumaCOR
family of products that feature advanced technology, such as DWDM allowing
multiple signal wavelengths to be transmitted on one fiber across the network.
This increases the volume of information that can be conveyed over the network.
It also allows network operators flexibility in tailoring content for
individual subscribers by dedicating certain wavelengths to that content, such
as video-on-demand. In addition, our lumaCOR products support node-to-headend
digital return technology that enhances the return path capacity of a network
for multiple two-way service applications used by homes and businesses.
naviCOR(TM) Line of Nodes
The general function of the node in the HFC network is to convert information
from optical signals to RF signals for distribution to the home. We offer the
naviCOR family of node products that are upgradeable, scalable, modular and
fully integrated with our RF amplifiers. These features allow RF amplifiers to
be upgraded to nodes and simple nodes to be upgraded to telecommunication nodes
with narrowcasting and redundant configurations. Narrowcasting refers to
customizing content for certain subscribers by dedicating fibers or wavelengths
to that content. We have designed the optical components of the nodes to fit
into the lid, or cover, of the amplifier housing so that upgrades from
amplifiers to nodes are easily accomplished by replacing the lid.
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FlexNet(R) Line of RF Plant Equipment
The RF plant comprises products that transmit information between the nodes and
subscribers. These products are essentially RF amplifiers that come in various
configurations such as trunks, bridgers and line extenders. A trunk amplifier
handles a large amount of information in a network when the node size is
greater than 500 homes. A bridger splits the signal to send it to a greater
number of destinations. Line extenders move the information to the home.
I-Flex(R) Line of Node and RF Plant Equipment
The I-Flex line is an 862 MHz global product family for fiber intensive
architectures that require cabinet and pedestal mount housings. It includes
nodes, bridgers and line extenders that have been developed, designed and
produced to meet the distinct specifications of the international market.
The following table summarizes our major products and their primary functions
and features:
Network
Segment Products Functions and Features
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lumaCOR Universal Chassis . Houses components of the headend
equipment.
Headend and . Features modular one and three RU
design.
Hubs . Compact design maximizes limited
headend rack space.
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Optical Forward . Converts RF signals to laser modulated
Path Transmitters optical signals.
. Includes both 1310 nm and 1550 nm
wavelength versions.
. Used for standard and DWDM
applications.
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Optical Return . Conveys digital and video return path
signals.
Path Transmitters . Used for data monitoring and other
interactive applications.
. Includes both 1310 nm and 1550 nm
wavelength versions.
. Used for standard and DWDM
applications.
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Erbium Doped Fiber . Amplifies optical signals.
Amplifiers (EDFAs) . Used for both analog and digital
applications.
. Superior noise figure and gain flatness
response over a wide range of optical
wavelengths and optical input power.
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Optical Forward . Converts optical signals to RF signals.
Path Receivers . Provides high gain output and
redundancy capabilities to maximize
network performance and reliability.
. Supports both 1310 nm and 1550 nm
wavelengths.
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Optical Dual Return . Receives digital and video return path
signals.
Path Receivers . Supports both 1310 nm and 1550 nm
wavelengths.
. Has two return path receivers for a
maximum density of 20 receivers in one
chassis.
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Network
Segment Products Functions and Features
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Passive Equipment . Coarse Wavelength Division Multiplexer
(CWDM) allows more than one optical
signal (up to two frequencies), each
having different wavelengths, to be
transferred simultaneously over one
fiber; thereby increasing bandwidth
while decreasing the amount of fiber
needed.
. Optical Coupler is a compact, low-loss
fused component that is bi-directional
and provides a means of splitting or
combining optical signals.
. DWDM Optical Multiplexer/Demultiplexer
combines many wavelengths of light at a
variety of bit rates onto a single
optical fiber, offering more targeted
services to more subscribers.
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naviCOR Nodes Quadrant II Nodes . Scalable, strandmount optical node with
four active outputs and forward and
reverse segmentation.
. Offers an RF bridger amplifier option
that can be upgraded to the optical
node simply by adding a modular optical
lid package.
. Features optional TL Technology.
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FlexNet Nodes . Offered as complete nodes or as optical
upgrades to existing FlexNet
amplifiers, thereby providing a cost-
effective means of increasing fiber
optic penetration in networks by
converting existing RF equipment to
nodes.
. Available in 750 and 862 MHz
bandwidths.
. Features optional TL Technology.
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miniFiber Nodes . Exhibits high RF output levels, and
thus ideally suited for passive optical
network architectures.
. Available in 862 MHz bandwidth.
. Offers Digital Return Technology for
advanced HFC architectures as they
evolve to serve 50-to-100 homes per
node.
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FlexNet Trunks and Bridgers . Available in 750 and 862 MHz
bandwidths.
RF Plant . Supports delivery of both analog and
digital channels.
. Features optional TL Technology.
. Can be converted to optical nodes with
naviCOR Fiber-in-the-lid upgrade.
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Line Extenders . Available in 750 and 862 MHz
bandwidths.
. Used with FlexNet Trunks and Bridgers.
. Features the latest in Power Hybrid
Doubling (PHD) technology for increased
output levels.
. Supports delivery of both analog and
digital channels.
. Features optional TL Technology.
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Network
Segment Products Functions and Features
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I-Flex Nodes I-Flex II Nodes . Fully modular fiber optic node with two
and RF Plant or three active outputs.
. Housing can be used in non-strandmount
applications for easy cabinet or
pedestal mounting.
. Supports PAL and CENELEC channel plans.
. Features single or dual forward path
receivers and flexible reverse path
transmitters.
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I-Flex II Bridgers . Modular RF bridgers that can be
upgraded to nodes.
. Cabinet or pedestal mounting.
. Two or three active outputs.
. Flexible reverse path capability.
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I-Flex Line Extenders . Cabinet mount, end-of-line amplifier
used with I-Flex II nodes and bridgers.
. Available in 862 MHz bandwidth.
. Features Power Hybrid Doubling (PHD)
technology for increased performance.
. Carries up to 60 PAL channels as well
as digitally compressed video signals.
New Product and/or Developments
New products and/or developments for our telecommunications equipment
introduced during fiscal year 2001 include:
Introduction of Two Digital Return Solutions for Home and Business
Applications. The first of the two digital return solutions we introduced
during fiscal year 2001 uses digital summing with our unique Digital Return
Transceiver (a receiver and transmitter combined in one module) to provide
digital daisy-chain summing of 5-45 MHz RF return paths and local full duplex
"Fast Ethernet" functionality. The Ethernet feature adds local node area, high-
speed data capacity to HFC networks and is particularly attractive to business
broadband networks, a growing market segment for broadband network operators.
The second digital return solution applies Time Division Multiplexing
technology to combine two independent digitized 5-42 MHz analog return path
links onto one 1310 nm or 1550 nm ITU grid using our cooled Digital Return
Transmit Laser Module. This doubles the return capacity per wavelength of each
transmitter by multiplexing the return path on a single fiber. At the return
end of the transmission is a Time Division Demultiplexing headend or hub
receiver decoder that demultiplexes the combined data and converts it back to
two independent analog streams. Our node and headend/hub equipment, upgraded to
support both solutions, are expected to be available in fiscal year 2002.
Introduction of New naviCOR Quadrant II NQ4 Series Node. In May 2001, we
introduced the naviCOR Quadrant II NQ4 Series Node with immediate shipment
availability. The key features of the node include full 4 X 4 forward and
reverse segmentation, modular optics for ease of upgrade, forward and reverse
redundancy capability, dual power supplies and redundant network powering. The
NQ4 Series Node offers the cable operator a high degree of flexibility by
accommodating a range of new services and providing the capability to handle
service penetration changes quickly and cost effectively.
Incorporation of TL (Transfer Linearization) Technology(TM) Into Node and
Amplifier Products. During fiscal year 2001, we made available to the
marketplace TL Technology in the naviCOR miniFiber, Quadrant and FlexNet Nodes,
as well as FlexNet Trunks, Bridgers and Line Extenders. TL Technology, our
proprietary circuit technique that enhances product performance capabilities,
offers several advantages to the broadband operator. It improves the linear
characteristics of standard silicon technology hybrids, resulting in higher
operating level capabilities and/or improved distortion performance and higher
channel capabilities. In addition,
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TL Technology also translates into fewer active devices required for the HFC
architecture, thus reducing maintenance, installation and powering costs.
Introduction of New lumaCOR Headend Product. In November 2000, we introduced
the T5QEA, a new line of forward path opto-electronic transmitters, designed to
transport digital information on multiple Quadrature Amplitude Modulated (QAM)
carriers. The new line of transmitters are designed to facilitate the addition
of digital video, Internet data, telephony, video-on-demand and pay-per-view
services over the broadband networks. Using our application of the Electro-
Absorption (EA) modulator, the T5QEA delivers the high performance level of
traditional external modulation at a cost comparable to that of direct
modulation, providing a cost-effective solution for forward path narrowcasting,
digital injection and transmission of ITU-grid wavelengths.
Introduction of New High-Split Capability. To meet the increased reverse
bandwidth demands of today's market, we introduced in May 2001 a 186/222 MHz
high-split capability into several product lines, including those grouped under
the naviCOR Quadrant Node, FlexNet Bridger and FlexNet Line Extender brands.
Although a high-split has traditionally been used for local area network
applications, our high-split capability is also well suited for HFC
architectures exclusively delivering digital signals, such as Internet
services, telephony and video-on-demand.
Acquisition of Certain Cable Product Lines from ADC. On August 4, 2001, we
acquired certain assets and liabilities of the Broadband Communications
Division of ADC. Among these assets are four primary product lines, as
summarized in the table below. We will review and rationalize these products as
part of their integration into the Company's telecommunications equipment
offering.
Product Line Description
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DV6000(TM) Universal A universal 2.4 Gbps, sixteen channel uncompressed digital
Digital fiber optic transmission system supporting symmetrical and
Transport System asymmetrical signals. It is the most widely installed
uncompressed digital transport system in the world. It is
used for a number of applications including digital
supertrunking, studio quality broadcast, distance learning
and centralized commercial insertion.
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Optiworx HFC Transport An 870 MHz product portfolio that includes 1310 nm DFB
Systems: Headend Transmitters for broadcast and targeted service delivery
Equipment applications; 1550 nm External Modulation Transmitters for
supertrunk, distribution and DWDM applications; 1550 nm
EDFAs; Forward Path Receivers; single, dual and quad
Return Path Receivers for high density applications; and
rack mount 1 RU 1310 and 1550 nm Transmitters and
Receivers for forward and return applications.
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Optiworx HFC Transport 870 MHz node family of products, supporting expanding
Systems: Outside Plant bandwidth and deep fiber applications. Includes status
(Nodes) monitoring options.
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Optiworx HFC Transport Amplifiers and line extenders, developed for specific
Systems: Outside Plant markets (Europe and Latin America).
(RF Plant)
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Broadband Management Services
We offer the broadband network operator an array of products and services to
support the installation, operations management and maintenance of reliable,
multi-application networks with high integrity.
Specific products and services included under the Broadband Management Services
segment are:
Product/Service Description
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COR-Convergence(TM) Robust network management platform that takes the best in
standards-based network management technology and
integrates it with customer care and billing data sources
to provide a real-time view of network, customer and
services status. Through browser-based displays, the
system provides an integrated view of the entire broadband
network, including HFC plant and high-speed digital
network components. By correlating network status
information, COR-Convergence enables isolation of network
faults to specific root cause to determine services
affected by the outage. It then uses back-office
information to determine the customers affected. It also
enables identification of degrading elements before they
cause a failure.
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COR-Connect(TM) A gateway unit that provides software translation for
converting between network protocols, thereby allowing
standards-based or proprietary host systems to communicate
with various standards-based or proprietary network
elements. The use of modular software components allows
the COR-Connect to handle a variety of devices without
changing the base hardware.
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Nvision(TM) A suite of field service management tools to maximize the
potential of each customer contact, improve operational
efficiencies and improve customer service. This mobile
field service management solution utilizes the simplicity
and sophistication of browser-based business applications.
Combined with wireless data connectivity and mobile
computing devices, Nvision empowers field representatives
to more efficiently provision, maintain and sell
convergent broadband communications services.
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Outside Plant Technical Hands-on technical services performed in the customer's
Services plant. These are highly complex tasks largely centered on
the conversion of the cable operator's plant from a one-
way analog video medium to a two-way, fully interactive
broadband pipe, and the continuing operation of it as
such. Among the services provided are system sweep,
reverse path activation, ingress mitigation, node
certification, plant hardening, cable testing, cable
repair, system maintenance, contract service calls,
process design, personnel development and training,
project management, installation, coaxial and fiber
splicing, and aerial and underground construction.
- -------------------------------------------------------------------------------------
Network Integration Systems integration and installation services for data,
Technical Services telephony and digital video platforms for both network
operators and network equipment manufacturers. Consulting
services that include process design advisory services,
SPC (Statistical Process Control) system design, network
design and specification consulting are also provided.
Network Systems Integration technicians perform hands-on
services covering "rack and stack" final assembly and
deployment of Cable Modem Termination Systems, DWDM lasers
and HFC telephony systems, among others.
9
Product/Service Description
- -------------------------------------------------------------------------------------
Outsourced Operational Full outsourcing services in handling field operations,
Services including technical management, system maintenance,
customer service calls and installation activity. All
field operations are managed and performed to
predetermined standards and technical metrics.
- -------------------------------------------------------------------------------------
Network Design and Field Cost effective and efficient network design services that
Engineering Services include walkout, strand digitizing, RF design, electronics
network drafting, design QC, fiber design, fiber drafting
and documentation, engineering consultation, system data
archiving and project management.
Significant Customers
During the past fiscal year, our customers have included almost all of the
largest cable system operators in the United States. Our largest customers
during fiscal year 2001 were Adelphia Communications, Cox Communications, AOL
Time Warner and Charter Communications, accounting for 17%, 15%, 15% and 12%,
respectively, of net sales. Our largest customers during fiscal year 2000 were
AT&T Broadband, Time Warner Cable (now AOL Time Warner) and Adelphia
Communications, which accounted for 19%, 18% and 13%, respectively, of net
sales. Our largest customers during fiscal year 1999 were Time Warner Cable and
AT&T Broadband, which accounted for 27% and 15%, respectively, of net sales.
All of these principal customers purchase both products and services. With the
purchase of certain cable assets from ADC Telecommunications, we expect our
customer base to broaden both in the U.S. and abroad not only among cable
operators, but also to include telephone companies and broadcasters interested
in the digital video transport product line that was a part of our acquisition.
Sales and Distribution
Our sales and distribution function is organized into two major global regions:
the first covering the Americas, the second covering the EuroPacific area.
National account representatives focused on an overall business strategy for
specific large customers or groups of customers support our regional sales and
distribution efforts. As part of the realignment of the Company into three
business divisions, each division has been given responsibility for the sale of
their specific products or services on a regional level.
Sales efforts are conducted from our headquarters; from offices in the
Netherlands, Canada and Latin America; from regional sales offices located
throughout the United States; and through numerous distributors around the
world.
We sell our products and services in the United States and Canada through our
direct regional sales force, which is organized geographically and approaches
the customer at the system level, and by National Account Representatives,
working out of our headquarters and approaching the customer at the corporate
level. A highly qualified technical staff supports our sales force. They work
closely with customers to design systems, develop technical proposals and
assist with installation and post-sale support.
International sales in Europe, Asia and Latin America are made through our
direct sales force and through distributors. Overall sales management for the
EuroPacific area is located in the Netherlands office. Overall sales management
for Latin America is located at our headquarters in State College,
Pennsylvania. For fiscal year 2001, our international sales represented 13% of
net sales. In fiscal years 2000 and 1999, international sales were 11% and 9%,
respectively, of net sales.
Additionally, we provide 24x7 technical support, both directly and through
distributors, as well as training for customers and distributors, as required,
both in our facilities and at our customer's site.
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Our marketing function develops strategies for product lines and, in
conjunction with the sales force, identifies evolving technical and application
needs of customers. The marketing function is also responsible for demand
forecasting and general support of the sales force.
During fiscal year 2001, we began the implementation of a corporate wide ERP
(Enterprise Resource Planning) system, accessible by Company personnel
worldwide. The phased implementation, scheduled for completion in June 2002,
will automate and standardize key corporate functions in finance,
manufacturing, purchasing and customer service management.
Backlog
We schedule production of our telecommunications equipment based on our
backlog, informal commitments from customers and sales projections. Our backlog
consists of firm orders by customers for delivery within the next 12 months.
The majority of equipment backlog typically is shipped within one to two
quarters. In contrast, backlog in the services segment typically reflects
longer-term systems development and field service projects that convert into
revenue over a 12-month period.
At June 29, 2001, our backlog of orders was $52.3 million, including $15.4
million for the telecommunications equipment segment and $36.9 million for the
broadband management services segment. At June 30, 2000, our backlog of orders
was $89.3 million, including $61.3 million for the telecommunications equipment
segment and $28.0 million for the broadband management services segment. At
June 25, 1999, our backlog of orders was $73.0 million, including $57.2 million
for the telecommunications equipment segment and $15.8 million for the
broadband management services segment.
Anticipated orders from customers may fail to materialize and delivery
schedules may be deferred or canceled for a number of reasons, including
reductions in capital spending by network operators and construction delays. In
addition, due to weather-related seasonal factors and annual capital spending
budget cycles of many customers, our backlog may not necessarily be indicative
of actual sales for any succeeding period.
Research and Product Development
We operate in an industry that is subject to rapid changes in technology. Our
ability to compete successfully depends in large part upon anticipating such
changes. Accordingly, we engage in ongoing research and development activities
that are intended to advance existing product lines, provide custom-designed
variations of existing product lines and develop or evaluate new products. In
October 2000, we appointed Kenneth Wright as the Company's Chief Technology
Officer (CTO), reporting to Chairman and CEO, David Woodle. The CTO's primary
responsibility is to implement our technology strategy, with initial focus on
the new and expanding arenas of fiber optics and operational management
systems. As such, the CTO is actively involved in providing direction to and
prioritizing our research and development effort.
Our product planning teams, which take input from sales representatives and
research engineers, assign product development priorities and develop an
overall product plan. Cross-functional project teams, coordinated by a project
manager, then implement the product plan. With the realignment of the Company
into three business divisions, product development is now a divisional
responsibility.
During the past fiscal year, research and product development expenditures were
primarily directed at expanding our fiber optic technology and operational
management systems. We also continued with product development process
improvements to reduce cycle time to design, develop and deliver new products,
reduce manufacturing costs and improve design quality.
During fiscal years 2001, 2000 and 1999, we spent approximately $17.4 million,
$16.0 million and $11.8 million, respectively, on research and development.
Anticipated product development initiatives focused on fiber optics, network
management and other technology areas are expected to result in increased
research and
11
development expense in future years. No research and product development
expenditures mentioned above have been capitalized.
Competition
The broadband communications markets are dynamic and highly competitive,
requiring substantial resources of those companies that compete in these
markets, skilled and experienced personnel and a capability to anticipate and
capitalize on change. Our telecommunications equipment segment competes with
other companies including Motorola's Broadband Communications Sector (formerly
General Instrument Corporation), Scientific Atlanta, Inc., Arris Group, Inc.
(formerly known as Antec) and Harmonic, Inc., some of which are large publicly
traded companies that may have greater financial, technical and marketing
resources than we do.
Our telecommunications equipment is marketed with emphasis on quality and is
generally priced competitively with other manufacturers' product lines. Product
reliability and performance, technological innovation, responsive customer
service, breadth of product offering and pricing are several of the key
criteria for competition.
In the services segment, there are several competing vendors offering network
management and mobile workforce management systems as well as technical
services in the United States, some of which may currently have greater sales
in these areas than we do. However, we believe that we offer a more integrated
solution that is tailored to the requirements of HFC network operators.
Employees
We had approximately 1,890 employees as of August 2001.
Suppliers
We closely monitor supplier delivery performance and quality. We employ a
strategy of limiting the total number of global suppliers to those who are
quality leaders in their respective specialties and who will work with us as
partners in the supply chain. Typical items purchased are die cast aluminum
housings, RF hybrids, printed circuit boards, fiber optic lasers and standard
electronic components. Although a few of the components we use are single-
sourced, we have experienced no significant difficulties to date in obtaining
adequate quantities of raw materials and component parts.
We outsource the manufacture of certain assemblies and modules where it is
cost-effective to do so or where there are advantages with respect to delivery
times. Current outsourcing arrangements include power supplies, accessories,
optical modules and digital return modules.
Strategic Partnerships
We have entered into strategic agreements with various technology partners to
enhance our fiber optic capabilities and to further development of our network
management systems.
In the area of fiber optics, we have an agreement with Finisar Corporation, a
leading provider of optical and digital integration technology, to co-develop a
set of fiber optics-based products for two-way HFC networks that provide
digital return functionality to improve network performance, economics and
capacity. In addition, JDS Uniphase is working with us through an OEM agreement
to incorporate JDS fiber-optic lasers into our headend product line.
In the area of network management, our alliances with Micromuse and Interactive
Enterprise Ltd. have significantly enhanced our COR-Convergence product
offering. We use Micromuse software to collect
12
information from various management systems and network devices, and process
fault data to build service availability views in real time. Interactive
Enterprise provides a software-based mediation platform that enables, among
other network management functions, the auto-provisioning of cable modems. Both
address key network management concerns of our customer base of network
operators.
Intellectual Property
We hold 14 United States patents for various inventions relating to fiber optic
and RF transmission equipment and technology, and network management techniques
and services. As a result of the purchase of certain cable assets from ADC, we
also have exclusive licenses for use in our field on 30 ADC patents. Ownership
of one additional ADC patent was also transferred to us as part of the
purchase. We attempt to protect our intellectual property through patents,
trademarks, copyrights and a program of maintaining certain technology as trade
secrets.
Item 2. Properties
We operate the following principal facilities:
Segment
--------------------------------
(1) Telecommunications Equipment Approximate (O)Owned
Location Principal Use (2) BMS Square Feet (L)Leased
- -------- ------------- -------------------------------- ----------- ---------
State College,
Pennsylvania........... Administrative Offices and Engineering (1) and (2) 133,000 O
Tipton, Pennsylvania.... Manufacturing (1) 45,000 O
Tijuana, Mexico......... Manufacturing (1) 89,400 L
Santa Clara,
California............. Development Engineering and Assembly (1) 24,500 L
Pleasanton, California.. Development and Administrative Offices (2) 18,729 L
Lakewood, Colorado...... Administrative Offices (2) 4,510 L
Almere, The
Netherlands............ Administrative Offices (1) 5,100 L
On March 30, 2001, we announced the planned closing of our manufacturing plant
located in Tipton, Pennsylvania, in response to a downturn in demand for our
products. We anticipate that the planned shutdown of the facility will be
completed by the end of calendar year 2001. The facility is currently being
marketed for sale.
As a result of our purchase of certain assets and liabilities of the Broadband
Communications Division of ADC, we assumed the following leased administrative,
engineering and manufacturing space: 83,600 square feet in Meriden,
Connecticut, 21,670 square feet in Klagenfurt, Austria, and 29,000 square feet
in Buenos Aires, Argentina.
We are approved for ISO 9001 registration at our Pennsylvania and Tijuana
manufacturing facilities. ISO 9001 is the most comprehensive of all ISO 9000
series requirements and includes quality assurance in design, development,
production, installation and servicing. Criteria for registration are set by
the International Organization for Standardization, whose function is to
develop global standards in an effort to improve the exchange of goods and
services internationally. This designation builds on our reputation as a high-
quality, global provider of transmission electronics.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Securities Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 29, 2001.
13
Executive Officers of the Registrant
All executive officers of the company are elected annually by the Board of
Directors to serve in their offices for the next succeeding year and until
their successors are duly elected and qualified. The listing immediately
following this paragraph gives certain information about our executive
officers, including the age, present position and business experience during
the past five years.
Name Age Position/Experience
---- --- -------------------
David A. Woodle...... 45 Chairman since October 2000; Chief Executive Officer
since July 1998; Vice President and General Manager-
Strategic Systems of Raytheon Systems Company, a
company providing computer systems integration
services to government and commercial customers,
from January 1998 to July 1998; Vice President and
General Manager, Raytheon E-Systems, HRB Systems
from June 1996 to January 1998.
Mary G. Beahm........ 41 Corporate Vice President, Human Resources since
August 2001; Vice President, Human Resources from
November 1998 to August 2001; Human Resources
Consultant, Westinghouse Electric Corporation, a
company providing products and services to
government and commercial industries, from August
1987 to November 1998. Trustee, Board of Trustees,
The Pennsylvania State University since 1990.
John O. Caezza....... 43 President, Broadband Communications Division since
August 2001; Vice President and General Manager,
Broadband Communications Division of ADC
Telecommunications, Inc. a major manufacturer of
uncompressed digital transport, opto-electronic and
radio frequency products for the broadband
communications market from May 2000 to August 2001;
Vice President, Engineering, Philips Broadband
Networks, Inc., a major international manufacturer
of opto-electronic and radio frequency products for
the broadband communications market, from June 1996
to May 2000.
David J. Eng......... 48 Corporate Vice President, Americas Business since
August 2001; Sr. Vice President, Sales, Americas
Business, from February 2000 to August 2001; Sr.
Vice President--Worldwide Sales from March 1997 to
February 2000; Vice President--Sales, North, Central
and South America from August 1996 to March 1997.
Douglas W. Engerman.. 45 President, Broadband Management Solutions Division
since August 2001; Vice President and General
Manager, Broadband Management Services from June
2001 to August 2001; Senior Vice President for
Project Implementation and Customer Support at
Mobile Data Solutions, Inc., (MDSI), a provider of
wireless software application solutions to the
energy, utility, telecommunications, cable and
insurance industries worldwide, from November 1999
to June 2001; Senior Vice President, Utilities
Business Unit at MDSI from November 1998 to November
1999; Vice President of Sales, Utilities Business
Unit at MDSI from July 1997 to November 1998;
Executive Vice President, Alliance Systems, Inc., a
provider of wireless software solutions for mobile
workforce automation, from August 1993 to July 1997.
William T. Hanelly... 45 Chief Financial Officer, Secretary and Treasurer
since August 2001; Vice President, Finance,
Secretary and Treasurer from October 1998 to August
2001; Regional Controller, Raytheon, a company
providing computer systems integration services to
government and commercial customers, from May 1998
to October 1998; Vice President--Finance, HRB
Systems from June 1994 to May 1998.
14
Name Age Position/Experience
---- --- -------------------
Paul Janson.......... 42 President, Technical Services Division since August
2001; President and Chief Executive Officer of
Worldbridge Broadband Services from October 2000 to
August 2001; Vice President, Technical Services of
Worldbridge Broadband Services, a business unit of
C-COR, from February 2000 to October 2000; Chief
Operating Officer, Worldbridge Broadband Services,
Inc., a provider of technical field services to
broadband network operators, from October 1998 to
February 2000; Regional Director of Operations and
Marketing for InterMedia Partners (Tennessee
Holdings), a multiple system, broadband network
services provider, from June 1996 to August 1998.
Gerhard B. Nederlof.. 53 Corporate Vice President, EuroPacific Business since
August 2001; Sr. Vice President--EuroPacific
Business from February 2000 to August 2001; Sr. Vice
President--Broadband Management Services from July
1999 to February 2000; Sr. Vice President--Marketing
from September 1998 to July 1999; Sr. Vice
President--Marketing, Business Development and
Services from March 1997 to September 1998; Vice
President--Sales, Europe and Pacific Rim from August
1996 to March 1997.
Ken Wright........... 45 Chief Technology Officer since October 2000; Chief
Technology Officer, 21e.net from October 1999 to
October 2000; Chief Technical Officer for InterMedia
Partners, a multiple cable system operator (MSO)
from February 1995 to September 1999.
15
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's common stock is traded on The Nasdaq Stock Market's. The Nasdaq
symbol is CCBL. The range of high and low price information as reported by
Nasdaq follows:
High Low
------ ------
2000
Quarter ended
September 30, 1999........................................... $18.13 $10.81
December 31, 1999............................................ $41.64 $14.13
March 31, 2000............................................... $51.63 $21.38
June 30, 2000................................................ $48.50 $19.50
2001
Quarter ended
September 30, 2000........................................... $33.00 $12.50
December 31, 2000............................................ $16.63 $ 9.00
March 31, 2001............................................... $13.38 $ 6.69
June 30, 2001................................................ $13.45 $ 5.00
We have never paid a dividend. As of June 29, 2001, there were 687 shareholders
of record of common stock.
16
Item 6. Selected Financial Data
Selected Financial Data
(in thousands except per share data)
June 29, June 30, June 25, June 26, June 27,
Fiscal Year Ended 2001 2000 1999 1998 1997
- ----------------- -------- -------- -------- -------- --------
Statement of operations data:
Net sales..................... $223,295 $283,262 $203,851 $171,522 $146,054
Income (loss) from continuing
operations--pro forma(/1/)... 2,758 18,101 (597) 434 1,298
Income (loss) from continuing
operations................... (7,827) 14,461 (704) 40 1,284
Loss from discontinued
operations................... -- -- -- -- (6,605)
Gain (loss) from disposal of
discontinued operations...... 177 1,063 397 928 (3,830)
Net income (loss)............. (7,650) 15,524 (307) 968 (9,151)
Net income (loss) per share--
basic(/2/)
Continuing operations--pro
forma...................... $ 0.08 $ 0.60 $ (0.05) $ 0.01 $ 0.05
Continuing operations....... (0.24) 0.48 (0.06) -- 0.05
Discontinued operations..... -- -- -- -- (0.28)
Disposal of discontinued
operations................. 0.01 0.04 0.02 0.04 (0.17)
Net income (loss) per share--
basic........................ (0.23) 0.52 (0.04) 0.04 (0.40)
Net income (loss) per share--
diluted(/2/)
Continuing operations--pro
forma...................... $ 0.08 $ 0.53 $ (0.05) $ 0.01 $ 0.05
Continuing operations....... (0.24) 0.43 (0.06) -- 0.05
Discontinued operations..... -- -- -- -- (0.25)
Disposal of discontinued
operations................. 0.01 0.03 0.02 0.04 (0.15)
Net income (loss) per share--
diluted...................... (0.23) 0.46 (0.04) 0.04 (0.35)
Weighted average common shares
and common share
equivalents(/2/)
Basic....................... 32,905 30,039 22,483 22,503 23,197
Diluted..................... 32,905 33,968 22,483 22,503 25,929
Balance sheet data (at period
end):
Working capital(/3/).......... $ 59,108 $ 69,451 $ 36,082 $ 31,696 $ 35,591
Total assets.................. 238,705 273,039 109,180 90,160 88,721
Total long-term debt
obligations.................. 1,765 1,752 7,992 9,348 8,532
Shareholders' equity.......... 203,909 227,658 61,265 60,933 55,976
- --------
(/1/)Income (loss) from continuing operations--pro forma excludes merger and
restructuring charges, amortization of goodwill and other intangibles
resulting from acquisitions for all periods presented, and for fiscal year
2001 excludes an acquired in-process technology charge of $1.5 million and
a write-off of a long-term investment in the amount of $3.5 million.
(/2/)Net income (loss) per share amounts and weighted average common shares and
common share equivalents have been adjusted to reflect a 2-for-1 stock
split effective December 22, 1999.
(/3/)Working capital for fiscal years 2001 and 2000 exclude cash equivalents
and marketable securities related to the Company's follow-on public
offering.
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We design, manufacture and market network distribution and transmission
products and provide services and operational support systems to operators of
advanced hybrid fiber coax (HFC) broadband networks. We operate in two industry
segments; the Telecommunications Equipment segment, which includes our
Broadband Communications Division and the Broadband Management Services (BMS)
segment, which includes both our Broadband Management Solutions Division and
our Technical Services Division. Our Broadband Communications Division is
responsible for research, development, management, production, support and
sales of advanced fiber optic and RF (radio frequency) equipment. A digital
video transport product line was added to this division with the acquisition of
certain operations from ADC Telecommunications, Inc. (ADC), effective August 4,
2001. Our Broadband Management Solutions Division is responsible for the
development, integration, management, implementation, support and sales of
operational support systems that focus on network management and mobile
workforce management solutions. Our Technical Services Division provides
outsourced technical services, including network engineering and design,
construction, activation, optimization, certification, maintenance and
operations.
Business Combinations
On April 27, 2001, we acquired MobileForce Technologies Inc. (MobileForce). The
consideration for the acquisition was $9.1 million, consisting of a cash
payment of $5.0 million, direct transaction costs and expenses of $738,000, and
the assumption of MobileForce stock options to purchase 500,000 shares of the
Company's common stock having a fair market value of $3.4 million. As part of
the acquisition, we also assumed $15.2 million of MobileForce debt. We used our
available cash to fund the cash portion of the consideration. The resulting
goodwill of $7.0 million is being amortized on a straight-line method over the
estimated useful life of three years. The acquisition agreement provides for
additional consideration to be paid to MobileForce stockholders, in an amount
not to exceed $13.5 million, if MobileForce achieves certain performance
objectives through April 2002.
Subsequent Events
On July 3, 2001, a wholly owned subsidiary of the Company acquired Aerotec
Communications Inc. (Aerotec) for $2.25 million. Additional cash payments of up
to $3.75 million may be made to Aerotec shareholders if certain performance
targets are met. Any excess of the purchase price and related costs over the
fair value of the acquired net assets of the business will be recorded as
goodwill.
On August 4, 2001, the Company completed its purchase of certain assets and
liabilities of ADC's cable product portfolio. The assets purchased include the
Optiworx(TM) and DV6000 series product lines, as well as other related cable
infrastructure products from ADC's Broadband Communications Division, located
in Meriden, Connecticut; Buenos Aires, Argentina; and Klagenfurt, Austria.
These facilities and their assets will become part of the Broadband
Communications Division of our Telecommunications Equipment segment. We
acquired the assets for approximately $25.0 million in cash and the assumption
of approximately $400,000 of debt, together with certain other liabilities. The
acquisition is being accounted for as a purchase. Any excess of the purchase
price and related costs over the fair value of the acquired net assets of the
business will be recorded as goodwill.
18
Results of Operations
The Company's consolidated statements of operations from continuing operations
for fiscal years 2001, 2000 and 1999 as a percentage of net sales, are as
follows:
Year Ended
---------------------------
June 29, June 30, June 25,
2001 2000 1999
-------- -------- --------
Net sales...................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 79.6 73.6 74.6
----- ----- -----
Gross margin................................... 20.4 26.4 25.4
Operating expenses:
Selling and administrative................... 13.9 11.8 16.7
Research and product development............. 7.8 5.6 5.8
Amortization of goodwill and other
intangibles................................. .7 .1 .1
Acquired in-process technology charge........ .7 -- --
Merger and restructuring costs............... 4.9 3.2 --
----- ----- -----
Total operating expenses................... 28.0 20.7 22.6
----- ----- -----
Income (loss) from continuing operations....... (7.6) 5.7 2.8
Interest and other income (expense), net..... 1.8 1.4 (0.7)
----- ----- -----
Income (loss) from continuing operations before
income taxes.................................. (5.8) 7.1 2.1
Income tax expense (benefit)................... (2.3) 2.0 2.4
----- ----- -----
Income (loss) from continuing operations....... (3.5)% 5.1% (0.3)%
===== ===== =====
Net Sales. Net sales decreased by 21% to $223.3 million in fiscal year 2001
from $283.3 million in fiscal year 2000. Telecommunications Equipment segment
sales decreased by 25% to $181.9 million in fiscal year 2001 from $241.4
million in fiscal year 2000. The decline in telecommunications equipment sales
reflects the sharp slowdown of capital spending in the telecommunications
industry that began in the latter part of calendar year 2000. We believe the
sudden slowdown that has affected our telecommunications equipment sales has
resulted from several factors, including high customer on-hand inventory
levels, delays in construction schedules for HFC network system build-outs,
continued customer consolidation and lack of access to financing. We expect
network system upgrade activity for current build-outs to continue and believe
as network operators evaluate new build requirements, we will see a shift in
product requirements from RF amplifiers to more fiber optics products,
including digital technology, for transporting voice, video and data. In the
long-term, we believe the requirements for reliable, two-way capable networks
will compel network operators to increase spending for telecommunications
equipment from current levels, but we have no visibility into when such an
increase might occur. BMS segment sales remained relatively flat at $41.4
million in fiscal year 2001 compared to $41.9 million in fiscal year 2000. BMS
sales were primarily attributable to technical services performed in our
customers' plants, including system sweep, reverse path activation, ingress
mitigation, node certification and system maintenance. Net sales increased by
39% to $283.3 million in fiscal year 2000 from $203.9 million in fiscal year
1999. Telecommunications Equipment segment sales increased by 35% to $241.4
million in fiscal year 2000 from $178.5 million in fiscal year 1999. The
increase was attributable to sales growth in RF and fiber optics products as we
expanded our product offering through development of new products, acquisitions
and strategic partnerships to meet domestic and international customer demands.
BMS segment sales increased by 65% to $41.9 million in fiscal year 2000 from
$25.4 million in fiscal year 1999. The increase in fiscal year 2000 over 1999
was also primarily attributable to technical services activities.
Domestic sales decreased by 23% to $194.7 million in fiscal year 2001 from
$252.3 million in fiscal year 2000. This decline resulted primarily from a
decrease in Telecommunications Equipment segment sales, due to the slowdown in
capital spending by certain domestic multiple system operators (MSOs). Domestic
sales increased
19
by 37% to $252.3 million in fiscal year 2000 from $184.6 million in fiscal year
1999. This growth occurred in both Telecommunication Equipment and BMS segment
sales as consolidation and system swaps occurred among our domestic customer
base. Following that activity, several of the resulting large MSOs began
upgrading the properties they had acquired, translating into increased demand
for our products and services. Total domestic sales were 87% of net sales for
fiscal year 2001, as compared to 89% and 91% for fiscal years 2000 and 1999,
respectively.
International sales decreased by 8% to $28.6 million in fiscal year 2001 from
$31.0 million in fiscal year 2000. This decrease was principally caused by a
decline in Telecommunications Equipment segment sales to a major customer in
Canada. International sales increased by 61% to $31.0 million in fiscal year
2000 from $19.3 million in fiscal year 1999. This growth was principally in
sales in the Telecommunications Equipment segment and reflected the beginning
of a network upgrade program by a major customer in Canada and increased demand
from customers in the EuroPacific region. We expect international markets will
continue to represent a substantial portion of our sales base, but believe
demand will continue to be highly variable. The international markets represent
distinct markets in which capital spending decisions for HFC network
distribution equipment can be impacted by a variety of factors, including
access to financing and general economic conditions. Our total international
sales were 13% of consolidated net sales in fiscal year 2001, as compared to
11% and 9% for fiscal years 2000 and 1999, respectively.
We are subject to certain risks as a result of market and customer
concentration. For additional information regarding risks, reference Note Q of
the consolidated financial statements.
Gross Margin. Gross margin was 20.4% in fiscal year 2001, 26.4% in fiscal year
2000 and 25.4% in fiscal year 1999. For the Telecommunications Equipment
segment, gross margin was 19.8% in fiscal year 2001, 28.0% in fiscal year 2000
and 26.1% in fiscal year 1999. In fiscal year 2001, gross margins were
negatively impacted from under-absorbed manufacturing overhead resulting from
lower production volumes and increases to operating reserves for excess and
obsolete inventories and warranty costs for equipment upgrades and
replacements. Additions to the inventory reserve were $10.6 million in fiscal
year 2001, compared to $2.2 million in fiscal year 2000. The increase was
necessary due to the slowdown in spending in the telecommunications industry.
During the fiscal year we took steps to mitigate the impact of volume
reductions by beginning to consolidate our manufacturing operations in State
College and Tipton, Pennsylvania, to our Tijuana, Mexico, facility. This
consolidation is scheduled to be completed by the end of calendar year 2001. In
fiscal year 2000, efficiencies resulting from higher production volumes enabled
us to improve our absorption of fixed manufacturing overhead costs and realize
greater material cost reductions, as compared to fiscal year 1999. In addition,
changes in product mix and ongoing efforts to improve manufacturing automation
initiatives also contributed to the increase in gross margin percentage in
fiscal year 2000, relative to fiscal year 1999. For the BMS segment, gross
margin was 23.4% in fiscal year 2001, 17.6% in fiscal year 2000 and 19.9% in
fiscal year 1999. In fiscal year 2001, increased gross margin resulted from
service mix and volume changes. In fiscal year 2000, gross margin for the BMS
segment declined relative to fiscal year 1999 due to increased costs associated
with a ramp-up of personnel and other infrastructure costs as the Company
expanded its technical services group.
Selling and Administrative. Selling and administrative expenses were $31.0
million (13.9% of net sales) in fiscal year 2001, $33.5 million (11.8% of net
sales) in fiscal year 2000 and $34.1 million (16.7% of net sales) in fiscal
year 1999. The decrease in fiscal year 2001 was primarily due to steps taken to
reduce selling and administrative expenses, including personnel and other
operating costs, to obtain a more favorable cost structure. We do anticipate
increased selling and administrative expense in future periods, related to the
acquisition of MobileForce and certain assets and operations of ADC, although
selling and administrative expenses are expected to vary as a percentage of net
sales. The decrease in selling and administrative expenses in fiscal year 2000
was primarily due to the consolidation of certain positions and administrative
functions, as a result of the mergers with Convergence.com Corporation
(Convergence) and Silicon Valley Communications, Inc. (SVCI).
Research and Product Development. Research and product development expenses
were $17.4 million (7.8% of net sales) in fiscal year 2001, $16.0 million (5.6%
of net sales) in fiscal year 2000 and $11.8 million (5.8%
20
of net sales) in fiscal year 1999. The increase in fiscal year 2001 derives
from higher personnel costs and additional expenses primarily for development
of fiber optic transmission products and the continued development of network
management products and capabilities. We anticipate continuing increases in
research and product development expenses in future periods, related to ongoing
initiatives in the development of fiber optic products and network management
products and capabilities, as well as the acquisitions of MobileForce and
certain assets and operations of ADC, although research and product development
expenses are expected to vary as a percentage of net sales. The increase in
research and product development expenditures in fiscal year 2000 resulted from
higher personnel costs and additional expenses primarily for development of
fiber optic transmission products, including transmitters, receivers, Erbium
Doped Fiber Amplifiers and development of network management products and
capabilities.
Operating Income (Loss) By Segment. Operating income (excluding non-recurring
merger and restructuring charges) for the Telecommunications Equipment segment
in fiscal years 2001, 2000 and 1999, was $595,000, $28.1 million and $8.2
million, respectively. The decrease in operating income for fiscal year 2001
was primarily attributable to decreased volume and reductions in gross margins.
Operating loss (excluding non-recurring merger and restructuring charges) for
the BMS segment in fiscal years 2001, 2000 and 1999, was $6.4 million, $2.9
million and $2.6 million, respectively. The loss for fiscal year 2001 derives
primarily from increased investment and development costs associated with our
network management products, as well as operating costs, including amortization
of acquired intangible assets and goodwill related to the MobileForce
acquisition.
Interest and Investment Income. Interest expense was $109,000 in fiscal year
2001, $814,000 in fiscal year 2000 and $1.4 million in fiscal year 1999. The
decrease in interest expense in fiscal years 2001 and 2000 resulted from
reductions of borrowings on short-term credit facilities and a decrease in the
amortization related to the fair market value of warrants issued in fiscal year
1999 in connection with certain debt financing arrangements by SVCI, acquired
by the Company in a pooling-of-interest transaction in September 1999.
Investment income was $7.4 million in fiscal year 2001, $4.9 million in fiscal
year 2000 and $318,000 in fiscal year 1999. The increase in investment income
in fiscal years 2001 and 2000 resulted from investing the net proceeds received
in our follow-on public offering completed on November 12, 1999, in short-term
investments.
Income Taxes. Our overall effective income tax rate was (39.7%) for fiscal year
2001, 27.6% for fiscal year 2000 and 117.0% for fiscal year 1999. The effective
income tax rate for fiscal year 2001 reflects the impact of federal and state
income taxes and changes in the valuation allowance for deferred taxes. The
lower effective income tax rate for fiscal year 2000 resulted primarily from an
adjustment to the valuation allowance on deferred tax assets related to certain
tax benefits from the acquisitions of Convergence and SVCI, and was offset
partially by permanent differences for non-deductible business combination
costs incurred with the mergers with Convergence, SVCI and Worldbridge
Broadband Services, Inc. (Worldbridge). The higher effective income tax rate in
fiscal year 1999 resulted primarily from limited tax benefit from the operating
losses at SVCI and Convergence, reduced tax benefits from our Foreign Sales
Corporation and higher state income taxes. In addition, fluctuations in the
effective income tax rate from period to period reflect other changes in
permanent, non-deductible amounts, the relative profitability related to both
U.S. and non-U.S. operations and differences in statutory rates. We expect to
have an effective annual tax rate that approximates statutory rates in the
future.
Liquidity and Capital Resources
As of June 29, 2001, cash and cash equivalents and short-term investments
totaled $100.9 million, down from $137.5 million at June 30, 2000. In November
1999, we completed a follow-on public offering of our common stock, resulting
in net proceeds (after deducting issuance costs) of $133.3 million.
Net cash and cash equivalents provided by operating activities were $9.1
million in fiscal year 2001, compared to $10.8 million in fiscal year 2000 and
$4.6 million in fiscal year 1999. The decrease in cash and cash
21
equivalents provided by operating activities in fiscal year 2001 was primarily
due to the net loss recorded for fiscal year 2001, which includes the effect of
$4.0 million of cash paid associated with restructuring charges. Also
contributing to the decrease in cash provided by operations for the period were
higher inventories and lower accounts payable and accrued liabilities, which
was partially offset by lower accounts receivable. The $10.8 million of cash
provided by operations in fiscal year 2000 includes the effect of $9.0 million
of nonrecurring costs associated with the mergers completed during the year.
Excluding these costs, the operations generated $18.4 million in cash in fiscal
year 2000. The increase in cash and cash equivalents provided by operating
activities in fiscal year 2000 was primarily due to the increase in net income
for fiscal year 2000, compared to a net loss in fiscal year 1999, and higher
accounts payable and accrued liabilities, which was partially offset by
increases in accounts receivable and inventory.
Net cash and cash equivalents provided by investing activities were $19.8
million in fiscal year 2001, compared to cash and cash equivalents used in
investing activities of $56.3 million in fiscal year 2000 and $6.6 million in
fiscal year 1999. The increase in cash and cash equivalents provided by
investing activities in fiscal year 2001 was primarily due to proceeds from the
sale of marketable securities and other short-term investments. Other investing
activities included purchases of property, plant and equipment for $3.6
million, as well as cash consideration for the purchase of MobileForce of $5.8
million. The increase in cash and cash equivalents used in investing activities
in fiscal year 2000 was primarily due to purchases of marketable securities and
other short-term investments. Other investing activities included purchases of
property, plant and equipment for $7.9 million, as well as our purchase of
substantially all the assets of Advanced Communications Services, Inc. (ACSI)
for $3.6 million, of which $3.2 million was disbursed during the fiscal year,
with the remaining balance subject to certain escrow requirements. In addition,
we invested $3.5 million in Fortress Technologies.
Net cash and cash equivalents used in financing activities were $36.4 million
in fiscal year 2001, compared to cash and cash equivalents provided by
financing activities of $135.1 million in fiscal year 2000 and $3.4 million in
fiscal year 1999. The decrease in cash provided by financing activities for
fiscal year 2001 resulted primarily from the purchase of treasury stock during
the period. On September 25, 2000, we announced a stock repurchase program,
effective September 22, 2000. The program allowed us to repurchase up to
2,000,000 shares of our common stock. On April 6, 2001, we raised the ceiling
of this stock repurchase program to allow the buy back of an additional
2,000,000 shares, bringing the total to 4,000,000 shares authorized under this
program. The shares may be purchased from time to time in the open market
through block or privately negotiated transactions, or otherwise. We intend to
use our currently available capital resources to fund the purchases. The
repurchased stock is being held by us as treasury stock to be used to meet our
obligations under our present and future stock option plans and for other
corporate purposes. As of June 29, 2001, 1,934,590 shares have been repurchased
under this stock repurchase program. Our other financing activities consisted
primarily of payments on long-term debt, primarily resulting from retirement of
outstanding debt assumed in the MobileForce acquisition and proceeds from the
exercise of employee stock options and warrants. The increase in cash provided
by financing activities for fiscal year 2000 resulted primarily from net
proceeds received through a follow-on public offering of our common stock. Our
other financing activities consisted primarily of payments on short-term and
long-term debt and proceeds from the exercise of employee stock options and
warrants.
In June 2001, we amended our existing credit agreement with three banks under
which we may borrow up to $70.0 million. Under the credit agreement, $20.0
million is available as a revolving line-of-credit, subject to an aggregate
sub-limit of $2.0 million for issuance of letters of credit, which is committed
through November 30, 2001. The credit agreement also permits us to borrow up to
$50.0 million for strategic acquisitions and/or investments, which is also
committed through November 30, 2001. Credit pricing on these facilities is a
function of our total funded indebtedness to earnings before interest, taxes,
depreciation and amortization (EBITDA) ratio, adjusted for certain non-
recurring charges. Borrowings under the credit agreement bear interest at
various rates, at our option, and are limited to two and a quarter (2.25) times
adjusted EBITDA. Borrowings on these facilities are unsecured, subject to a
negative pledge on all business assets, and we are required to maintain certain
financial ratios and comply with indebtedness tests. As of June 29, 2001, we
had
22
no borrowings outstanding under the credit agreement and, based on fiscal year
2001 adjusted EBITDA, approximately $30.6 million of the facility was
available. Based upon the current slowdown in business, we anticipate a reduced
borrowing capacity under the current credit agreement. We are in the process of
soliciting proposals for renewal of the credit agreement at the end of the
current commitment period.
Management believes that operating cash flow, proceeds received from the
follow-on public offering, as well as the aforementioned credit agreement, will
be adequate to provide for all cash requirements for the foreseeable future,
subject to requirements that strategic developments might dictate.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations"
(Statement 141) which supersedes APB Opinion No. 16, "Business Combinations"
and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." Statement 141 addresses financial accounting and reporting for
business combinations and requires that all business combinations within the
scope of Statement 141 be accounted for using only the purchase method.
Statement 141 is required to be adopted for all business combinations initiated
after June 30, 2001.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" (Statement 142) which supercedes APB Opinion No. 17, "Intangible
Assets." Statement 142 addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon
their acquisition. Statement 142 also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. Statement 142 requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 also requires that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The provisions of
Statement 142 are required to be applied starting with fiscal years beginning
after December 15, 2001. Statement 142, which is required to be applied at the
beginning of an entity's fiscal year, is to be applied to all goodwill and
other intangible assets recognized in the financial statements at that date.
Because of the effort needed to comply with adopting Statements 141 and 142, it
is not currently practicable to reasonably estimate the impact of adopting
these Statements on the Company's consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flow of the Company due to adverse changes in
market prices and rates. The Company is exposed to market risk because of
changes in interest rates and the fair market value of its marketable
securities portfolios. The Company does not use derivative instruments in its
marketable securities portfolios. The Company classifies its marketable
securities portfolios as either available-for-sale or trading, and records them
at fair value. For the Company's available-for-sale securities, unrealized
holding gains and losses are excluded from income and are recorded directly to
shareholders' equity in accumulated other comprehensive income (loss), net of
related deferred income taxes. For the Company's trading securities, unrealized
holding gains and losses are included in the statement of operations in the
period they arise.
23
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of C-COR.net Corp. meeting the requirements
of Regulation S-X are filed on the following pages of this Item 8 of this
Annual Report on Form 10-K, as listed below:
Page
-----
Independent Auditors' Report............................................ 25
Consolidated Balance Sheets as of June 29, 2001 and June 30, 2000....... 26
Consolidated Statements of Operations for the Years Ended June 29, 2001,
June 30, 2000 and June 25, 1999........................................ 27
Consolidated Statements of Cash Flows for the Years Ended June 29, 2001,
June 30, 2000 and June 25, 1999........................................ 28
Consolidated Statements of Shareholders' Equity for the Years Ended June
29, 2001, June 30, 2000 and June 25, 1999.............................. 29
Notes to Consolidated Financial Statements.............................. 30-56
24
Independent Auditors' Report
The Board of Directors
C-COR.net Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of C-COR.net Corp.
and subsidiaries as of June 29, 2001 and June 30, 2000, and the related
consolidated statements of operations, cash flows, and shareholders' equity for
each of the years in the three-year period ended June 29, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of C-COR.net Corp. and
subsidiaries as of June 29, 2001 and June 30, 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 29, 2001, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
State College, Pennsylvania
August 10, 2001
25
C-COR.net Corp.
Consolidated Balance Sheets
(In thousands, except share and per share data)
June 29, June 30,
2001 2000
-------- --------
ASSETS
Current assets
Cash and cash equivalents.................................. $ 87,891 $ 95,379
Marketable securities...................................... 13,002 42,154
Interest receivable........................................ 426 1,007
Accounts and notes receivables, less allowance of $1,565 in
2001 and $1,148 in 2000................................... 26,167 49,325
Inventories................................................ 34,809 31,760
Deferred taxes............................................. 12,250 7,470
Other current assets....................................... 9,490 3,447
Net assets of discontinued operations...................... 250 379
-------- --------
Total current assets................................... 184,285 230,921
Property, plant and equipment, net......................... 21,609 28,322
Intangible assets, net..................................... 22,994 2,477
Deferred taxes............................................. 6,851 4,909
Other long-term assets..................................... 2,966 6,410
-------- --------
Total assets........................................... $238,705 $273,039
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................... $ 12,723 $ 21,341
Accrued liabilities........................................ 18,297 20,056
Current portion of long-term debt.......................... 264 225
-------- --------
Total current liabilities.............................. 31,284 41,622
Long-term debt, less current portion....................... 1,501 1,527
Other long-term liabilities................................ 2,011 2,232
-------- --------
Total liabilities...................................... 34,796 45,381
-------- --------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, no par; authorized shares of 2,000,000;
none issued............................................... -- --
Common stock, $.05 par; authorized shares of 100,000,000;
issued shares of 35,629,737 in 2001 and 35,219,825 in
2000...................................................... 1,781 1,761
Additional paid-in capital................................. 205,154 197,240
Accumulated other comprehensive loss....................... (131) (30)
Unearned compensation...................................... -- (8)
Retained earnings.......................................... 28,302 35,952
Treasury stock at cost, 3,160,516 shares in 2001 and
1,224,941 shares in 2000.................................. (31,197) (7,257)
-------- --------
Net shareholders' equity............................... 203,909 227,658
-------- --------
Total liabilities and shareholders' equity............. $238,705 $273,039
======== ========
See accompanying notes to consolidated financial statements.
26
C-COR.net Corp.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended
----------------------------
June 29, June 30, June 25,
2001 2000 1999
-------- -------- --------
Net sales........................................ $223,295 $283,262 $203,851
Cost of sales.................................... 177,668 208,376 152,143
-------- -------- --------
Gross margin..................................... 45,627 74,886 51,708
Operating expenses:
Selling and administrative..................... 31,011 33,477 34,113
Research and product development............... 17,399 16,003 11,833
Amortization of goodwill and other
intangibles................................... 1,536 273 172
Acquired in-process technology charge.......... 1,500 -- --
Merger and restructuring costs................. 11,031 9,045 --
-------- -------- --------
Total operating expenses..................... 62,477 58,798 46,118
Income (loss) from operations.................... (16,850) 16,088 5,590
Interest expense................................. (109) (814) (1,396)
Investment income................................ 7,374 4,901 318
Other expense, net............................... (3,406) (202) (377)
-------- -------- --------
Income (loss) before income taxes................ (12,991) 19,973 4,135
Income tax expense (benefit)..................... (5,164) 5,512 4,839
-------- -------- --------
Income (loss) from continuing operations......... (7,827) 14,461 (704)
-------- -------- --------
Discontinued operations:
Gain on disposal of discontinued business
segment, net of tax........................... 177 1,063 397
-------- -------- --------
Net income (loss)................................ (7,650) 15,524 (307)
Dividend requirements on preferred stocks........ -- -- (613)
-------- -------- --------
Net income (loss) available to common
shareholders.................................... $ (7,650) $ 15,524 $ (920)
======== ======== ========
Net income (loss) per share--basic:
Continuing operations.......................... $ (0.24) $ 0.48 $ (0.06)
Gain on disposal of discontinued operations.... 0.01 0.04 0.02
-------- -------- --------
Net income (loss)............................ $ (0.23) $ 0.52 $ (0.04)
======== ======== ========
Net income (loss) per share--diluted:
Continuing operations.......................... $ (0.24) $ 0.43 $ (0.06)
Gain on disposal of discontinued operations.... 0.01 0.03 0.02
-------- -------- --------
Net income (loss)............................ $ (0.23) $ 0.46 $ (0.04)
======== ======== ========
Weighted average common shares and common share
equivalents
Basic.......................................... 32,905 30,039 22,483
Diluted........................................ 32,905 33,968 22,483
See accompanying notes to consolidated financial statements.
27
C-COR.net Corp.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended
----------------------------
June 29, June 30, June 25,
2001 2000 1999
-------- -------- --------
Operating Activities:
Net income (loss)................................ $(7,650) $15,524 $ (307)
Adjustments to reconcile net income (loss) to net
cash and cash equivalents provided by operating
activities:
Depreciation and amortization.................... 10,116 8,891 9,199
Amortization of debt discount.................... -- 381 911
Amortization of unearned compensation............ 8 14 --
Write-off of long-term investment................ 3,501 -- --
Write-off of intangibles and long-lived assets... 6,023 -- --
Gain on disposal of discontinued operations, net
of tax.......................................... (177) (1,063) (397)
Provision for deferred retirement salary plan.... 4 309 204
Loss on sale of property, plant and equipment.... 244 331 235
Incentive plan compensation expense.............. -- 369 --
Tax benefit deriving from exercise and sale of
stock option shares............................. 2,207 3,859 94
Changes in operating assets and liabilities, net
of acquisitions:
Interest receivable............................. 581 (1,006) --
Accounts receivable............................. 23,294 (13,188) (12,294)
Inventories..................................... (3,049) (8,195) (5,756)
Other assets.................................... (6,199) 468 (58)
Accounts payable................................ (9,571) 4,920 9,540
Accrued liabilities............................. (4,035) 2,983 6,084
Deferred income taxes........................... (6,465) (4,917) (2,303)
Discontinued operations--working capital changes
and noncash charges............................ 306 1,117 (553)
------- ------- -------
Net cash and cash equivalents provided by
operating activities............................ 9,138 10,797 4,599
------- ------- -------
Investing Activities:
Purchase of property, plant and equipment........ (3,638) (7,891) (8,669)
Proceeds from (purchase of) marketable securities
and other short-term investments, net........... 29,152 (41,709) (84)
Investment in equity securities.................. -- (3,501) --
Payments received on notes receivable............ -- -- 1,972
Acquisitions of MobileForce and ACSI............. (5,767) (3,185) --
Other............................................ 54 8 142
------- ------- -------
Net cash and cash equivalents provided by (used
in) investing activities........................ 19,801 (56,278) (6,639)
------- ------- -------
Financing Activities:
Payment of debt and capital lease obligations.... (14,843) (2,847) (5,107)
Proceeds from long-term debt borrowing........... -- -- 3,097
Proceeds from (payments on) short-term credit
facilities, net................................. -- (5,019) 5,019
Proceeds from issuance of convertible preferred
stock........................................... -- -- 1,355
Proceeds from issuance of common stock to
employee stock purchase plan.................... 143 130 76
Proceeds from exercise of stock options and stock
warants......................................... 2,213 9,757 1,202
Proceeds from issuance of common stock, net...... -- 133,311 --
Purchase and retirement of convertible preferred
stock........................................... -- -- (1,000)
Purchase of treasury stock....................... (23,940) (277) (1,265)
------- ------- -------
Net cash and cash equivalents provided by (used
in) financing activities........................ (36,427) 135,055 3,377
------- ------- -------
Increase (decrease) in cash and cash
equivalents..................................... (7,488) 89,574 1,337
Elimination of duplicated activity............... -- -- 1,014
Cash and cash equivalents at beginning of year... 95,379 5,805 3,454
------- ------- -------
Cash and cash equivalents at end of year......... $87,891 $95,379 $ 5,805
======= ======= =======
Supplemental cash flow information:
Non-cash investing and financing activities
Fair value adjustment of available-for-sale
securities..................................... $ (73) $ 75 --
Conversion of convertible preferred stock....... -- 27,697 --
Exercise of warrants............................ -- 247 --
Retirement of treasury stock.................... -- 181 --
See accompanying notes to consolidated financial statements.
28
C-COR.net Corp.
Consolidated Statements of Shareholders' Equity
(In thousands)
Accumulated
Additional Other
Comprehensive Preferred Common Paid-in Comprehensive Unearned Retained Treasury
Income Stock Stock Capital Income (Loss) Compensation Earnings Stock
------------- --------- ------ ---------- ------------- ------------ -------- --------
Balance, June 26, 1998.. $24,010 $1,183 $ 21,103 $ (99) $ -- $20,813 $ (6,077)
Net loss................ $ (307) -- -- -- -- -- (307) --
Other comprehensive
income:
Net unrealized holding
gains on marketable
securities............. 4
Foreign currency
translation loss....... (1)
-------
Other comprehensive
income................. 3 -- -- -- 3 -- -- --
-------
Comprehensive loss...... $ (304)
=======
Adjustment related to
merger (Note B)........ -- -- -- -- -- 712 --
Shares adjustment....... -- -- (45) -- -- -- --
Issuance of stock
warrants............... 1,294 -- -- -- -- -- --
Accretion of discount on
convertible preferred
stock.................. -- -- -- -- -- (613) --
Exercise of stock
options................ -- 13 1,189 -- -- -- --
Tax benefit deriving
from exercise and sale
of stock option
shares................. -- -- 94 -- -- -- --
Issue shares to employee
stock purchase plan.... -- 1 75 -- -- -- --
Purchase and retirement
of preferred stock..... (1,000) -- -- -- -- -- --
Purchase of treasury
stock.................. -- -- -- -- -- -- (1,084)
------- ------ -------- ----- ----- ------- --------
Balance, June 25, 1999.. 24,304 1,197 22,416 (96) -- 20,605 (7,161)
Net income.............. $15,524 -- -- -- -- -- 15,524 --
Other comprehensive
income:
Net unrealized holding
gains on marketable
securities............. 75
Foreign currency
translation loss....... (9)
-------
Other comprehensive
income................. 66 -- -- -- 66 -- -- --
-------
Comprehensive income.... $15,590
=======
Shares issued for
secondary public
offering............... -- 322 132,989 -- -- -- --
Conversion of preferred
stock and retirement of
treasury shares........ (24,304) 161 27,532 -- -- (177) 181
Exercise of stock
options................ -- 45 6,227 -- -- -- --
Exercise of stock
warrants............... -- 35 3,697 -- -- -- --
Tax benefit deriving
from exercise and sale
of stock option
shares................. -- -- 3,859 -- -- -- --
Issue shares to employee
stock purchase plan.... -- -- 130 -- -- -- --
Issue performance
shares................. -- 1 368 -- -- -- --
Issue restricted stock.. -- -- 22 -- (22) -- --
Purchase of treasury
stock for deferred
compensation plan...... -- -- -- -- -- -- (277)
Amortization of unearned
compensation expense... -- -- -- -- 14 -- --
------- ------ -------- ----- ----- ------- --------
Balance, June 30, 2000.. -- 1,761 197,240 (30) (8) 35,952 (7,257)
Net loss................ $(7,650) -- -- -- -- -- (7,650) --
Other comprehensive
loss:
Net unrealized holding
loss on marketable
securities............. (73)
Foreign currency
translation loss....... (28)
-------
Other comprehensive
loss................... (101) -- -- -- (101) -- -- --
-------
Comprehensive loss...... $(7,751)
=======
Fair value of stock
options assumed in
acquisition............ -- -- 3,371 -- -- -- --
Exercise of stock
options................ -- 17 1,637 -- -- -- --
Exercise of stock
warrants............... -- 2 557 -- -- -- --
Tax benefit deriving
from exercise and sale
of stock option
shares................. -- -- 2,207 -- -- -- --
Issue shares to employee
stock purchase plan.... -- 1 142 -- -- -- --
Purchase of treasury
stock.................. -- -- -- -- -- -- (23,919)
Purchase of treasury
stock for deferred
compensation plan...... -- -- -- -- -- -- (21)
Amortization of unearned
compensation expense... -- -- -- -- 8 -- --
------- ------ -------- ----- ----- ------- --------
Balance, June 29, 2001.. $ -- $1,781 $205,154 $(131) $ -- $28,302 $(31,197)
======= ====== ======== ===== ===== ======= ========
See accompanying notes to consolidated financial statements.
29
C-COR.net Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
For the three fiscal years ended June 29, 2001
Description of Business and Basis of Presentation
C-COR.net Corp. (the Company) designs, manufactures and markets network
distribution and transmission products and provides services and operational
support systems to operators of advanced hybrid fiber coax (HFC) broadband
networks. The Company operates in two industry segments; the Telecommunications
Equipment segment, which includes our Broadband Communications Division and the
Broadband Management Services segment, which includes both our Broadband
Management Solutions Division and our Technical Services Division. Our
Broadband Communications Division is responsible for research, development,
management, production, support and sales of advanced fiber optic and RF (radio
frequency) equipment. A digital video transport product line was added to this
Division with the acquisition of certain operations from ADC
Telecommunications, Inc. (ADC), effective August 4, 2001. Our Broadband
Management Solutions Division is responsible for the development, integration,
management, implementation, support and sales of operational support systems
that focus on network management and mobile workforce management solutions. Our
Technical Services Division provides outsourced technical services, including
network engineering and design, construction, activation, optimization,
certification, maintenance and operations.
A. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its foreign and domestic subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.
Reporting Periods
Management has adopted a fiscal year that ends on the last Friday in June. For
reporting periods presented herein, the periods ended on June 29, 2001, June
30, 2000 and June 25, 1999. These years contained 52, 53 and 52 weeks,
respectively (see Note B).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the consolidated financial statements and related notes have
been reclassified to conform to the fiscal year 2001 classifications.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the sale price is
fixed and determinable and collectibility is reasonably assured. The Company's
revenues derive principally from equipment sales, which are generally
recognized when the
30
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
equipment has been shipped. Service revenues, consisting of system design,
field services and other consulting engagements, are generally recognized as
services are rendered in accordance with the terms of contracts.
The Company applies the revenue recognition guidance of AICPA Statement of
Position 97-2, "Software Revenue Recognition" (SOP 97-2), as amended, to its
software licensing arrangements. SOP 97-2 requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on vendor specific objective evidence of fair values of the elements. License
revenue allocated to software products is generally recognized upon the
delivery of the software products. For certain of its software license
arrangements where professional services that are being provided are deemed to
be essential to the functionality or are for significant production,
modification or customization of the software product, both the software
product revenue and the professional service revenue are recognized in
accordance with the provisions of Accounting Research Bulletin No. 45, "Long-
Term Construction-Type Contracts" using the relevant guidance in AICPA
Statement of Position 81-1, "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts." These software license arrangements are
being recognized on the completed-contract method as the arrangements represent
the Company's initial installations, and the Company did not have the ability
to reasonably estimate contract costs at the inception of the contracts. Under
the completed-contract method, revenue is recognized when the contract is
complete, and all direct costs and related revenues are deferred until that
time. Deferred revenue under these contracts represents only amounts billed,
and totaled $3,002 at June 29, 2001. Contract costs consist primarily of direct
labor and applicable benefits, travel and other direct costs, and equipment
costs. The entire amount of an estimated loss on a contract is accrued at the
time a loss on a contract is projected. Actual losses may differ from these
estimates. As of June 29, 2001, the Company had two such software license
arrangements that are being accounted for under the completed-contract method.
Fair Value of Financial Instruments
The carrying value of the Company's long-term borrowings approximates fair
value, after taking into consideration current rates offered to the Company for
similar debt instruments of comparable maturities. The fair values of financial
instruments have been determined through information obtained from quoted
market sources and management estimates.
Cash Equivalents
The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. Cash equivalents are
reflected at the lower of cost or market.
Marketable Securities
Marketable securities at June 29, 2001 consisted of municipal bonds, U.S.
government obligations, mutual funds, corporate obligations, equity securities
and certificates of deposit. The Company follows the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115), in accounting for
marketable securities. Under Statement 115, the Company classifies its
marketable securities portfolios as either available-for-sale or trading, and
records them at fair value. For the Company's available-for-sale securities,
unrealized holding gains and losses are excluded from income and are recorded
directly to shareholders' equity in accumulated other comprehensive loss, net
of related deferred income taxes. For the Company's trading securities,
unrealized holding gains and losses are included in the statement of operations
in the period they arise.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
31
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
Property, Plant and Equipment
Property, plant and equipment, which includes leased property under capital
leases, is stated at cost. Depreciation or amortization is calculated on the
straight-line method for financial statement purposes based upon the following
estimated useful lives:
Building and improvements under capital lease................. 15 years
Buildings..................................................... 15 to 25 years
Machinery and equipment under capital lease................... 5 years
Machinery and equipment....................................... 2 to 10 years
Leasehold improvements........................................ 6 to 15 years
Computer Software
Under SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," the Company capitalizes certain internal and
purchased software development and production costs once technological
feasibility has been achieved. The Company did not capitalize any software
development costs during fiscal years 2001 and 2000. In fiscal year 2001, the
Company wrote off $441 of capitalized software costs, due to exiting certain
business activities, which is included as part of restructuring charges in the
consolidated statements of operations. Amortization expense for fiscal years
2001, 2000 and 1999 was $265, $353 and $0, respectively.
Goodwill and Intangible Assets
Goodwill acquired in connection with the acquisitions of MobileForce
Technologies Inc. (MobileForce) in April 2001 and the asset purchase of
Advanced Communications Services, Inc. (ACSI) in January 2000 is being
amortized on a straight-line basis over their estimated useful lives of three
and ten years, respectively. The cost of other acquired intangibles related to
the acquisition of MobileForce include purchased technology, assembled
workforce and trademarks, and are being amortized on a straight-line basis over
their estimated useful lives of three years. Patent, trademark and license
costs related to purchased and internally developed product lines are being
amortized on a straight-line basis over their estimated useful lives of three
years. Amortization expense for fiscal years 2001, 2000 and 1999 was $1,536,
$273 and $172, respectively.
The Company periodically determines whether events or changes in circumstances
indicate that the value of goodwill and other intangible assets may not be
recoverable. Such assessment is performed using the guidance in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (Statement 121). During fiscal year 2001, the Company
recorded an impairment charge of $49, which represents the unamortized balance
of a license, as a result of exiting certain business activities. The
impairment charge was included as part of restructuring charges in the
consolidated statements of operations.
Investment
On October 6, 1999, the Company invested $501 in Fortress Technologies, Inc.
(Fortress), a security networking company and, subsequently on January 11,
2000, increased its investment to $3,501. The investment in Fortress
represented approximately a 5 percent ownership interest, and was being carried
at cost, since the Company did not exert significant influence over Fortress.
The Company periodically evaluates the recoverability of its investment, and if
circumstances arise where a loss in value is considered to be other than
temporary, the Company will write the investment down to fair value. As a
result of the Company's recoverability analysis of the Fortress investment
during the fourth quarter of fiscal year 2001, the Company wrote off the
balance of the investment resulting in an impairment charge of $3,501. The
write-off is included in the consolidated statements of operations as a
component of other expense, net.
32
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
Income Taxes
Under SFAS No. 109, "Accounting for Income Taxes" (Statement 109), deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Shareholders' Equity
On October 19, 1999, the shareholders of the Company approved a proposal to
amend the Amended and Restated Articles of Incorporation to increase the number
of shares of common stock authorized from 24,000,000 to 50,000,000.
On November 12, 1999, the Company completed a follow-on public offering of its
common stock, whereby 6,440,000 shares of common stock were issued and sold at
a price of $22.00 per share. This offering resulted in net proceeds (after
deducting issuance costs) to the Company of $133,311. The proceeds of the
offering were used for repayment of debt and will also be used for strategic
investments, capital expenditures, working capital and other general corporate
purposes.
On December 7, 1999, the Company's Board of Directors declared a two-for-one
stock split of the Company's common stock. The stock split was effective for
all shares of record as of the close of business on December 22, 1999. The
additional shares were distributed on January 6, 2000. In connection with the
stock split, the par value per share of common stock was reduced from $.10 to
$.05, and the authorized number of shares of common stock was proportionately
increased from 50,000,000 to 100,000,000. All share and per share amounts have
been adjusted for the two-for-one stock split effective December 22, 1999, for
all periods presented.
At June 29, 2001 and June 30, 2000, treasury stock consisted of 3,160,516 and
1,224,941 shares of common stock, respectively. In fiscal year 2001, the
Company repurchased 1,934,590 shares of its common stock for $23,919, under a
stock repurchase program allowing for the purchase of up to 4,000,000 shares.
The Company used its available capital resources to fund the purchases. The
repurchased stock is being held by the Company as treasury stock and is
available to be used in meeting the Company's obligations under its present and
future stock option plans and for other corporate purposes. In addition, shares
of the Company's common stock purchased under a non-qualified deferred
compensation arrangement, held in a Rabbi Trust, have been presented in a
manner similar to treasury stock. As of June 29, 2001 and June 30, 2000, 24,480
shares and 23,495 shares, respectively, were held in the Trust. In fiscal year
2000, the Company retired 116,672 shares of treasury stock upon the mergers
with Convergence.com Corporation (Convergence) and Worldbridge Broadband
Services, Inc. (Worldbridge).
Net Income (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common
shares outstanding. Diluted net income (loss) per share is computed by dividing
net income (loss) available to common shareholders by the weighted average
number of common shares outstanding plus the dilutive effect of options,
warrants and convertible preferred stock. The dilutive effect of options and
warrants is calculated under the treasury stock method using the average market
price for
33
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
the period. The dilutive effect of the convertible preferred stock is
calculated under the if-converted method. Net income (loss) per share is
calculated as follows:
Year Ended
-----------------------
June June June
29, 30, 25,
2001 2000 1999
------- ------- ------
Income (loss) from continuing operations.............. $(7,827) $14,461 $ (704)
Less: Accretion of convertible preferred stock........ -- -- (613)
------- ------- ------
Income (loss) available to common shareholders from
continuing operations................................ (7,827) 14,461 (1,317)
Gain from discontinued operations..................... 177 1,063 397
------- ------- ------
Net income (loss) available to common shareholders.... $(7,650) $15,524 $ (920)
======= ======= ======
Weighted average common shares outstanding............ 32,905 30,039 22,483
Common share equivalents.............................. -- 3,929 --
------- ------- ------
Weighted average common shares and common share
equivalents.......................................... 32,905 33,968 22,483
======= ======= ======
Net income (loss) per share--basic:
Continuing operations............................... $ (0.24) $ 0.48 $(0.06)
Discontinued operations............................. 0.01 0.04 0.02
------- ------- ------
Net income (loss) available to common
shareholders..................................... $ (0.23) $ 0.52 $(0.04)
======= ======= ======
Net income (loss) per share--diluted:
Continuing operations............................... $ (0.24) $ 0.43 $(0.06)
Discontinued operations............................. 0.01 0.03 0.02
------- ------- ------
Net income (loss) available to common
shareholders..................................... $ (0.23) $ 0.46 $(0.04)
======= ======= ======
Product Warranty
The Company warrants its products against defects in materials and workmanship,
generally for three-to-five years, depending upon product lines. A provision
for estimated future costs relating to warranty expense is recorded when
product is shipped, based upon historical claims and specifically identified
warranty exposures.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," requires net unrealized
investment gains or losses on the Company's available-for-sale securities and
net foreign exchange gains or losses on translation to be included in
accumulated other comprehensive loss in the consolidated balance sheet and in
the disclosure of comprehensive income (loss). The totals of other
comprehensive income (loss) items and comprehensive income (loss), which
includes net income (loss), are displayed separately in the consolidated
statements of shareholders' equity.
34
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
The components of other comprehensive income (loss) and the related tax effects
are as follows:
Income
Amount Tax Amount
Before Expense Net
Tax (Benefit) of Taxes
------ --------- --------
Fiscal year ended June 29, 2001:
Unrealized holding loss during the fiscal year... $(121) $(48) $ (73)
Net foreign currency translation loss............ (46) (18) (28)
----- ---- -----
Total other comprehensive loss................... $(167) $(66) $(101)
===== ==== =====
Fiscal year ended June 30, 2000:
Unrealized holding gain during the fiscal year... $ 125 $ 50 $ 75
Net foreign currency translation loss............ (15) (6) (9)
----- ---- -----
Total other comprehensive income................. $ 110 $ 44 $ 66
===== ==== =====
Fiscal year ended June 25, 1999:
Unrealized holding gain during the fiscal year... $ 7 $ 3 $ 4
Net foreign currency translation loss............ (2) (1) (1)
----- ---- -----
Total other comprehensive income................. $ 5 $ 2 $ 3
===== ==== =====
Accounting and Disclosure Changes
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (Statement
133), as amended by Statement Nos. 137 and 138, which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Statement 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company adopted this Statement in its fiscal
year 2001 consolidated financial statements as required. Implementation of this
Statement did not have a material effect on the Company's consolidated
financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, which provides guidance for applying
generally accepted accounting principles relating to the timing of revenue
recognition in financial statements filed with the SEC. The Company adopted SAB
101 effective March 30, 2001, however, there was no material impact on the
Company's consolidated financial position or results of operations as a result
of the implementation of SAB 101.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" (Statement
141) which supersedes APB Opinion No. 16, "Business Combinations" and SFAS No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises."
Statement 141 addresses financial accounting and reporting for business
combinations and requires that all business combinations within the scope of
Statement 141 be accounted for using only the purchase method. Statement 141 is
required to be adopted for all business combinations initiated after June 30,
2001.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" (Statement 142) which supercedes APB Opinion No. 17, "Intangible
Assets." Statement 142 addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon
their acquisition. Statement 142 also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the
35
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
financial statements. Statement 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
Statement 142. Statement 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values and reviewed for impairment in accordance with
Statement 121. The provisions of Statement 142 are required to be applied
starting with fiscal years beginning after December 15, 2001. Statement 142,
which is required to be applied at the beginning of an entity's fiscal year, is
to be applied to all goodwill and other intangible assets recognized in the
financial statements at that date.
As of June 29, 2001, the Company has unamortized goodwill of $8,733.
Amortization expense related to goodwill was $635, $103 and $0 for fiscal years
2001, 2000 and 1999, respectively. Because of the effort needed to comply with
adopting Statements 141 and 142, it is not currently practicable to reasonably
estimate the impact of adopting these Statements on the Company's consolidated
financial statements.
B. Business Combinations
Purchase Method:
On April 27, 2001, the Company acquired MobileForce, which was accounted for as
a purchase. The results of operations of MobileForce are included in the
consolidated financial statements from the date of acquisition. Consideration
for the acquisition was $9,138, consisting of a cash payment of $5,029, direct
transaction costs and expenses of $738 and the assumption of MobileForce stock
options to purchase 500,000 shares of the Company's common stock having a fair
market value, calculated using the Black-Scholes option-pricing model, of
$3,371. The Company used its available cash to fund the cash portion of the
consideration. As part of the acquisition, the Company also assumed $15,222 of
MobileForce debt. The resulting goodwill of $7,011 is being amortized on a
straight-line method over the estimated useful life of three years. The
acquisition agreement provides for additional consideration to be paid to
MobileForce stockholders, in an amount not to exceed $13,500, if MobileForce
achieves certain performance objectives through April 2002.
The assets acquired of MobileForce, including the cost in excess of net assets
acquired and liabilities assumed in the acquisition, are as follows:
Tangible assets acquired at fair value............................. $ 3,990
Intangible assets acquired at fair value........................... 16,600
Liabilities assumed at fair value.................................. (18,463)
Cost in excess of net assets acquired.............................. 7,011
--------
Total purchase price............................................... $ 9,138
========
The following selected unaudited pro forma information is provided to present a
summary of the combined results of the Company's continuing operations, as if
the acquisition had occurred as of June 26, 1999, giving effect to purchase
accounting adjustments. The pro forma data is for informational purposes only
and may not necessarily reflect the results of continuing operations of the
Company had MobileForce operated as part of the Company for the years ended
June 29, 2001 and June 30, 2000.
Year Ended
------------------
June 29, June 30,
2001 2000
-------- --------
Net sales............................................... $223,796 $283,262
Net loss from continuing operations..................... $(21,251) $ (1,302)
Net loss per share--diluted............................. $ (0.65) $ (0.04)
36
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
On January 28, 2000, a wholly owned subsidiary of the Company purchased
substantially all of the assets of ACSI for $3,610. The Company did not assume
any material liabilities of ACSI in the transaction. The impact of the
acquisition on the Company's historical results of operations was not material.
Pooling of Interests:
On July 9, 1999, the Company consummated a merger with Convergence, whereby
Convergence became a wholly owned subsidiary of the Company. As consideration
in the merger, the outstanding shares of common stock of Convergence were
converted into 2,866,646 shares of the Company's common stock. Outstanding
warrants to acquire Convergence common stock were converted into warrants to
acquire an aggregate of 733,860 shares of the Company's common stock.
Prior to the merger, Convergence had operated on a calendar year basis.
Operating results for fiscal year 1999 include the operations of Convergence
for the 12-month period ended June 30, 1999.
On September 17, 1999, the Company consummated a merger with Silicon Valley
Communications, Inc. (SVCI), whereby SVCI became a wholly owned subsidiary of
the Company. As consideration in the merger, the outstanding shares of common
stock of SVCI were converted into 3,090,162 shares of the Company's common
stock (including 350,418 shares that were issued into escrow). Outstanding
stock options and warrants to acquire SVCI common stock were converted into
stock options and warrants to acquire an aggregate of 767,688 shares of the
Company's common stock.
Prior to the merger, SVCI had operated on a fiscal year ending in June.
Operating results for fiscal year 1999 include the operations of SVCI for the
12-month period ended June 25, 1999.
On February 18, 2000, the Company consummated a merger with Worldbridge,
whereby Worldbridge became a wholly owned subsidiary of the Company. As
consideration in the merger, the outstanding shares of common stock of
Worldbridge were converted into 1,603,584 shares of the Company's common stock
(including 160,356 shares that were issued into escrow). Outstanding stock
options to acquire Worldbridge common stock were converted into stock options
to acquire an aggregate of 196,416 shares of the Company's common stock.
Prior to the merger, Worldbridge had operated on a calendar year basis.
Operating results for fiscal year 1999 include the operations of Worldbridge
for the 12-month period ended June 30, 1999. Operating results for fiscal year
1998 included the operations of Worldbridge for the 12-month period ended
December 31, 1998. This resulted in an overlapping period (July 1998 through
December 1998) for Worldbridge's results of operations being included in the
consolidated financial statements for the fiscal year ended June 25, 1999.
Accordingly, the consolidated statement of shareholders' equity for fiscal year
1999 includes a $712 adjustment to eliminate the impact on retained earnings
for the overlap period.
The Company recorded one-time charges of $9,045 related to the business
combinations with Convergence, SVCI and Worldbridge during fiscal year 2000.
The one-time charges included the merger transaction and other related costs,
as well as restructuring costs which included severance payments for
approximately 40 employees affected by consolidation of positions and
administrative functions resulting from the mergers, and write-off of assets
related to existing fiber optic products that became redundant as a result of
the acquisition of SVCI. At June 29, 2001, a liability of $498 related to these
business combination costs is included in accrued liabilities.
37
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
Net sales and net income (loss) for the Company, Convergence, SVCI and
Worldbridge prior to the combinations are as follows:
Year Ended
June 25,
1999
----------
Net sales:
C-COR.net Corp.................................................. $172,964
Convergence..................................................... 6,635
SVCI............................................................ 5,509
Worldbridge..................................................... 18,743
--------
Combined.......................................................... $203,851
========
Net income (loss):
C-COR.net Corp.................................................. $ 10,852
Convergence..................................................... (2,516)
SVCI............................................................ (8,622)
Worldbridge..................................................... (21)
--------
Combined.......................................................... $ (307)
========
C. Restructuring
In fiscal year 2001, the Company recorded a restructuring charge of $11,031
related to its decision to consolidate its manufacturing and network management
operations and discontinue providing high-speed data helpdesk services,
affecting the Company's State College and Tipton, Pennsylvania, and Suwanee,
Georgia, facilities. The restructuring charges represent employee termination
benefits for approximately 850 employees, of which approximately 110 were still
employed as of June 29, 2001, and other costs to consolidate the operations.
Other costs reflect a write-down of fixed assets and other long-lived assets
that were employed in the operations, which the Company anticipates disposing
of in the first half of fiscal year 2002, as well as cancellation costs
associated with fixed contractual obligations.
Details of the restructuring charges as of June 29, 2001 are as follows:
Accrual at
Restructuring Cash June 29,
Charges Paid Non-cash 2001
------------- ------ -------- ----------
Employee severance and termination
benefits......................... $ 5,391 $3,533 $ -- $1,858
Write-off of property, plant and
equipment........................ 4,036 3 4,033 --
Write-off of intangible and other
long-lived assets................ 490 -- 490 --
Contractual obligations and
other............................ 1,114 500 16 598
------- ------ ------ ------
Total............................. $11,031 $4,036 $4,539 $2,456
======= ====== ====== ======
It is expected that the remaining amounts accrued as of June 29, 2001 will be
paid out over the first half of fiscal year 2002.
D. Discontinued Operations
On July 10, 1997, the Company announced the discontinuation of its Digital
Fiber Optics Transmission Products segment located in Fremont, California.
38
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
The Company recorded gains on the disposal of the discontinued operations, net
of tax, of $177, $1,063 and $397, for fiscal years 2001, 2000 and 1999,
respectively.
The assets and liabilities of the discontinued operations have been
reclassified in the accompanying consolidated financial statements to
separately identify them as net assets related to the discontinued operations.
These net assets consist of net working capital and other assets, less related
liabilities, as of June 29, 2001 and June 30, 2000:
June 29, June 30,
2001 2000
-------- --------
Current assets:
Accounts receivable................................. $ -- $ 16
Note receivable..................................... -- 70
Deferred tax assets................................. 375 493
----- -----
375 579
----- -----
Current liabilities:
Accrued warranty.................................... (75) (150)
Allowance for disposal of discontinued operations... (50) (50)
----- -----
(125) (200)
----- -----
Net assets of discontinued operations................. $ 250 $ 379
===== =====
39
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
E. Marketable Securities
Marketable securities as of June 29, 2001 and June 30, 2000 consisted of the
following:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
June 29, 2001:
Available-for-sale:
Municipal bonds (Due in 1 year or
less)........................... $ 3,180 $-- $ -- $ 3,180
Corporate obligations (Due in 1
year or less)................... 9,819 -- -- 9,819
Equity securities................ 1 2 -- 3
------- ---- ----- -------
Total classified as current
assets............................ $13,000 $ 2 $ -- $13,002
======= ==== ===== =======
Available-for-sale:
Mutual funds..................... $ 45 $ 2 $ -- $ 47
U.S. government securities (Due
in 1 year or less).............. 71 -- -- 71
Corporate obligations (Due in 2
to 5 years)..................... 60 1 -- 61
Equity securities................ 227 -- (5) 222
Certificate of deposits.......... 30 -- -- 30
Trading:
Mutual funds..................... 964 8 (166) 806
------- ---- ----- -------
Total classified as noncurrent
assets............................ $ 1,397 $ 11 $(171) $ 1,237
======= ==== ===== =======
June 30, 2000:
Available-for-sale:
Municipal bonds (Due in 1 year or
less)........................... $ 335 $-- $ (12) $ 323
Corporate obligations (Due in 1
year or less)................... 41,828 -- -- 41,828
Equity securities................ 1 2 -- 3
------- ---- ----- -------
Total classified as current
assets............................ $42,164 $ 2 $ (12) $42,154
======= ==== ===== =======
Available-for-sale:
Mutual funds..................... $ 612 $ 91 $ (13) $ 690
------- ---- ----- -------
Total classified as noncurrent
assets............................ $ 612 $ 91 $ (13) $ 690
======= ==== ===== =======
F. Inventories
Inventories as of June 29, 2001 and June 30, 2000 consisted of the following:
June June
29, 30,
2001 2000
------- -------
Finished goods............................................... $11,277 $ 5,288
Work-in-process.............................................. 5,576 6,841
Raw materials................................................ 17,956 19,631
------- -------
$34,809 $31,760
======= =======
40
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
Included in the amounts above were reserves for obsolete and excess inventories
of $9,361 at June 29, 2001 and $3,094 at June 30, 2000.
G. Property, Plant and Equipment
Property, plant and equipment as of June 29, 2001 and June 30, 2000 consisted
of the following:
June June
29, 30,
2001 2000
------- -------
Land....................................................... $ 468 $ 468
Buildings.................................................. 10,264 11,027
Machinery and equipment under capital lease................ 2,153 173
Machinery and equipment.................................... 61,864 60,053
Leasehold improvements..................................... 1,729 1,584
------- -------
76,478 73,305
Less accumulated depreciation and amortization............. (54,869) (44,983)
------- -------
$21,609 $28,322
======= =======
H. Intangible Assets
Intangible assets as of June 29, 2001 and June 30, 2000 consisted of the
following:
June
29, June 30,
2001 2000
------- --------
Cost of intangibles:
Goodwill................................................. $ 9,471 $2,461
Purchased technology..................................... 11,100 --
Assembled workforce...................................... 2,900 --
Patents and trademarks................................... 1,100 8
Licensing costs.......................................... -- 250
------- ------
24,571 2,719
------- ------
Less accumulated amortization:
Goodwill................................................. (738) (103)
Purchased technology..................................... (617) --
Assembled workforce...................................... (161) --
Patents and trademarks................................... (61) --
Licensing costs.......................................... -- (139)
------- ------
(1,577) (242)
------- ------
$22,994 $2,477
======= ======
I. Credit Facilities
In June 2001, the Company amended its credit agreement established with three
banks under which it may borrow up to $70,000. The agreement has two parts.
First, $20,000 is available as a revolving line-of-credit, subject to an
aggregate sub-limit of $2,000 for issuance of letters of credit, which is
committed through
41
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
November 30, 2001. The second part is a standby acquisition facility, which
enables the Company to borrow up to $50,000, for strategic acquisitions and/or
investments, which is also committed through November 30, 2001. A pricing
matrix has been established for credit pricing on these facilities which is a
function of the Company's total funded indebtedness to earnings before
interest, taxes, depreciation and amortization (EBITDA) ratio adjusted for
certain non-recurring charges. Borrowings under the credit agreement bear
interest at various rates, at our option, and are limited to two and a quarter
(2.25) times adjusted EBITDA. Borrowings on these facilities are unsecured,
subject to a negative pledge on all business assets, and the Company is
required to maintain certain financial ratios and comply with indebtedness
tests. As of June 29, 2001, the Company had no borrowings outstanding under the
credit agreement and, based on fiscal year 2001 adjusted EBITDA, approximately
$30.6 million of the facility was available. Based upon the current slowdown in
business, the Company anticipates a reduced borrowing capacity under the
current credit agreement. The Company is in the process of soliciting proposals
for renewal of the credit agreement at the end of the current commitment
period.
As a result of the Company's acquisition of SVCI, the Company had an additional
line of credit with a bank, which provided for borrowings of up to $3,000; a
bank bridge loan, which provided for borrowings of up to $1,000 and a bank
equipment term loan of $300. The Company terminated the loans on September 24,
1999, by paying the remaining principal balances of the various loans. The
principal balances on the line of credit, the bridge loan and the term loan
were $2,715, $1,000 and $150, respectively, on the date of payoff.
In connection with the bridge loan, warrants to purchase 9,454 shares of the
Company's common stock were issued at an exercise price of $21.16 per share.
These warrants had a fair value of $41 and were amortized over the life of the
bridge loan.
From March to May 1999, SVCI borrowed $1,817 from certain founders and
shareholders of SVCI under promissory notes payable. As of June 30, 2000, the
balance on these loans was $0. In connection with these notes, SVCI issued
warrants to purchase its common stock (see Note L). In connection with the
merger, these warrants were converted into warrants to acquire the Company's
common stock.
J. Long-term Debt
June 29, June 30,
2001 2000
-------- --------
Notes payable.............................................. $1,470 $1,633
Capital lease obligations.................................. 295 119
------ ------
1,765 1,752
Less current portion....................................... (264) (225)
------ ------
$1,501 $1,527
====== ======
Notes Payable: The Company obtained funding through the Pennsylvania Industrial
Development Authority (PIDA) of $539 for construction of the Tipton,
Pennsylvania, manufacturing facility. The PIDA borrowing has an interest rate
of 3%, which is contingent upon meeting certain job creation commitments.
Monthly payments of principal and interest of $4 are required through 2006.
Certain property, plant and equipment collateralize the borrowing. The
principal balance at June 29, 2001, was $188.
The Company obtained funding through the PIDA of $1,952 for 40% of the cost of
building expansion at its manufacturing facility in State College,
Pennsylvania. The PIDA borrowing has an interest rate of 2%, which is
42
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
contingent upon meeting certain job creation commitments. Monthly payments of
principal and interest of $13 are required through 2010. Certain property,
plant and equipment collateralize the borrowing. The principal balance at June
29, 2001, was $1,282.
As a result of the various business combinations consummated in fiscal years
2000 and 2001, the Company acquired various capital leases for machinery and
equipment, office equipment and furniture and fixtures that expire through
2006. At June 29, 2001, the future minimum payments required under capital
lease arrangements were as follows:
Fiscal year ending:
2002................................................................. $142
2003................................................................. 130
2004................................................................. 76
2005................................................................. 23
2006................................................................. 11
----
382
Less amount representing interest...................................... 87
----
Present value of future minimum lease payments......................... 295
Less current portion of obligation under capital leases................ 99
----
Long-term obligations under capital lease.............................. $196
====
Long-term debt at June 29, 2001, had scheduled maturities as follows:
Fiscal year ending:
2002................................................................ $ 264
2003................................................................ 273
2004................................................................ 238
2005................................................................ 196
2006................................................................ 169
Thereafter.......................................................... 625
------
$1,765
======
Total interest paid on the short-term credit facilities (see Note I) and long-
term debt was $109, $433 and $399 for fiscal years 2001, 2000 and 1999,
respectively.
K. Stock Award Plans
In October 1998, the Company adopted an Incentive Plan (1998 Incentive Plan),
which provides for several types of equity-based incentive compensation awards.
In August 2000, the 1998 Incentive Plan was amended and restated by the Board
of Directors (Amended Incentive Plan). Awards, when made, may be in the form of
stock options, restricted shares, performance shares and performance units.
Stock options granted to employees and directors are at a price not less than
100% of the fair market value of such shares on the date of grant. Stock
options granted to certain employees generally begin vesting in cumulative
annual installments of 25% per year beginning one year after the date of grant.
Options granted to non-employee directors are exercisable one year after grant.
43
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
During fiscal year 2001, the Company issued performance units to certain
officers of the Company pursuant to the Amended Incentive Plan. The performance
units will be earned based upon certain performance criteria. There was no
compensation expense recorded in fiscal year 2001 related to the performance
units. In addition, during fiscal year 2001 the Company reversed compensation
expense of $197 that had originally been recorded during the previous fiscal
year for performance units issued to certain officers of the Company during
fiscal year 2000, because achievement of the performance criteria was no longer
deemed to be probable. These performance units were subsequently canceled.
During fiscal year 1999, 4,000 restricted shares were awarded under the 1998
Incentive Plan. The restricted shares had an aggregate value of $22, which was
amortized over a vesting period through June 2001. Also during fiscal year
1999, 22,000 performance shares were awarded to certain officers and key
employees pursuant to the Company's 1998 Incentive Plan. During fiscal year
2000, 18,000 of the performance share awards were earned based upon achievement
of certain performance criteria and 4,000 were cancelled. Compensation expense
of $554 related to the performance shares was recorded in fiscal year 2000
based upon the current market price of the Company's common stock at the time
the performance criteria were satisfied.
The Company's previous stock option plans provided for the grant of options to
employees with an exercise price per share of at least the fair market value of
such shares on the date prior to grant, and to directors with an exercise price
equal to the fair market value on the date of grant. Stock options granted to
certain employees vest in cumulative annual installments of either 20% or 25%
per year beginning one year after the date of grant. Options granted to non-
employee directors were exercisable one year after grant. Certain options held
by the Chairman were exercisable immediately.
In connection with the acquisition of MobileForce, outstanding incentive and
nonqualified stock options to acquire MobileForce common stock were converted
into stock options to acquire the Company's common stock. The incentive and
nonqualified stock options expire upon the earlier of three months after the
date of termination of employment or ten years from the date of grant. The
options vested immediately upon assumption by the Company.
In connection with the acquisition of Worldbridge, outstanding incentive and
nonqualified stock options to acquire Worldbridge common stock were converted
into stock options to acquire the Company's common stock. The incentive and
nonqualified stock options expire upon the earlier of the date of termination
of employment or ten years from the date of grant. The options vested
immediately upon assumption by the Company.
In connection with the acquisition of SVCI, outstanding incentive and
nonqualified stock options to acquire SVCI common stock were converted into
stock options to acquire the Company's common stock. Incentive stock options
generally vest over four or five years, with 25% or 20% vesting after one year
and the remainder monthly thereafter, and expire ten years from the date of
grant. Nonqualified options are generally fully vested upon issuance and expire
ten years from date of grant.
44
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" (Statement 123). As allowed by
Statement 123, the Company has chosen to continue to account for stock-based
compensation using Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the grant date over the amount an
employee must pay to acquire the stock. Accordingly, no compensation cost has
been recognized. Had compensation cost for the Company's plans been determined
under Statement 123, the Company's net income (loss) and net income (loss) per
share would have been adjusted to the pro forma amounts indicated below:
Year Ended
-------------------------
June June
June 29, 30, 25,
2001 2000 1999
-------- ------- -------
Net income (loss)
As reported.................................... $ (7,650) $15,524 $ (307)
Pro forma...................................... $(13,654) $11,438 $(3,781)
Net income (loss) per share:
Basic
As reported.................................. $ (0.23) $ 0.52 $ (0.04)
Pro forma.................................... $ (0.41) $ 0.38 $ (0.20)
Diluted
As reported.................................. $ (0.23) $ 0.46 $ (0.04)
Pro forma.................................... $ (0.41) $ 0.34 $ (0.20)
The per share weighted-average fair values of stock options granted during
fiscal years 2001, 2000 and 1999 were $5.37, $14.01 and $8.66, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Fiscal year 2001-expected dividend yield of 0%, risk-free interest rate of
4.89%, a volatility factor of 86.00% and a weighted-average expected life of
approximately 4 years.
Fiscal year 2000-expected dividend yield of 0%, risk-free interest rate of
6.25%, a volatility factor of 77.42% and a weighted-average expected life of
approximately 4 years.
Fiscal year 1999-expected dividend yield of 0%, risk-free interest rate of
5.00%, a volatility factor of 73.95% and a weighted-average expected life of
approximately 4 years.
The fair value of stock options included in the pro forma amounts for fiscal
years 2001, 2000 and 1999 is not necessarily indicative of future effects on
net income (loss) and net income (loss) per share.
45
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
A summary of the status of the Company's stock option plans as of June 29,
2001, June 30, 2000 and June 25, 1999, and changes during the years ended on
those dates is presented below:
June 29, 2001 June 30, 2000 June 25, 1999
------------------------- ------------------------- -------------------------
Weighted-Avg. Weighted-Avg. Weighted-Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
Outstanding at beginning
of year................ 4,590,965 $12.53 4,365,279 $ 7.66 3,161,234 $6.25
Granted................. 3,108,332 $ 6.92 1,594,211 $21.55 1,820,625 $9.04
Exercised............... (344,542) $ 5.17 (927,899) $ 6.73 (256,438) $4.77
Canceled................ (941,268) $14.16 (440,626) $ 8.99 (360,142) $3.78
--------- --------- ---------
Outstanding at end of
year................... 6,413,487 $ 9.97 4,590,965 $12.53 4,365,279 $7.66
========= ========= =========
Options exercisable at
end of year............ 2,590,835 1,484,376 1,675,146
========= ========= =========
The following table summarizes information about the Company's stock option
plans as of June 29, 2001:
Options Outstanding Options Exercisable
--------------------------------------- -------------------------
Weighted-Avg.
Number Remaining Weighted-Avg. Number Weighted-Avg.
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 6/29/01 Life (years) Price at 6/29/01 Price
- ------------------------ ----------- ------------- ------------- ----------- -------------
$ 0.06.................. 1,890 4.8 $ 0.06 1,890 $ 0.06
$ 0.50.................. 41,629 3.0 $ 0.50 41,629 $ 0.50
$ 1.06 to $ 1.50........ 393,370 6.0 $ 1.47 380,142 $ 1.49
$ 2.00 to $ 3.00........ 101,000 2.0 $ 2.99 101,000 $ 2.99
$ 3.06 to $ 4.25........ 199,600 2.1 $ 3.57 199,600 $ 3.57
$ 4.75 to $ 7.00........ 1,893,749 7.1 $ 6.04 329,860 $ 5.60
$ 7.19 to $10.78........ 1,187,347 5.8 $ 7.90 565,893 $ 7.98
$10.81 to $16.19........ 1,657,972 6.1 $11.62 694,108 $11.32
$16.41 to $24.50........ 752,093 6.7 $21.70 229,193 $21.82
$25.75 to $38.50........ 179,150 6.5 $31.51 45,960 $31.82
$39.13 to $49.72........ 5,687 6.6 $42.86 1,560 $42.59
--------- ---------
6,413,487 6.2 $ 9.97 2,590,835 $ 8.63
========= =========
L. Shareholders' Equity
(a) Classes of Capital Stock
The authorized, issued and outstanding shares of the Company's classes of
capital stock are as follows:
Authorized Issued and outstanding at:
Shares as --------------------------------
of June 29, June 29, June 30, June 25,
2001 2001 2000 1999
----------- ---------- ---------- ----------
Preferred stock, no par.......... 2,000,000 -- -- --
Series A redeemable convertible
preferred stock................. -- -- -- 300,000
Series B convertible preferred
stock........................... -- -- -- 378,136
Series C convertible preferred
stock........................... -- -- -- 694,352
Series D convertible preferred
stock........................... -- -- -- 9,534
Common stock, $.05 par value per
share, net of treasury stock.... 100,000,000 32,469,221 33,994,884 22,604,947
46
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
Shares presented in the table above have been adjusted based upon the
applicable exchange ratios associated with the acquisitions of Convergence,
SVCI and Worldbridge (see Note B).
During fiscal year 2000, the Series A through D convertible preferred stocks
were converted into common stock, in conjunction with the acquisitions of
Convergence, SVCI and Worldbridge.
(b) Warrants
Warrants presented in the table below have been adjusted for the stock split
and applicable exchange ratios associated with the acquisitions of Convergence
and SVCI (see Notes A and B).
As a result of the consummated mergers with Convergence and SVCI, warrants to
acquire Convergence and SVCI preferred and common stock were converted into
warrants to acquire common stock of the Company. These warrants were originally
issued in connection with various financing and employment arrangements.
The following table summarizes information about warrants outstanding as of
June 29, 2001:
Warrants issued in connection
with:
Warrants Warrants Fiscal Year ------------------------------
Originally Outstanding Exercise Warrants Debt Equity Employment
Issued Issued as of 6/29/01 Prices Expire Financing Financing Services
- ------ ---------- ------------- -------- ----------- --------- --------- ----------
Fiscal Year 1997........ 264,696 -- $10.58 2001 -- 264,696 --
Fiscal Year 1998........ 600,000 6,000 $ 5.00 2005 -- 600,000 --
Fiscal Year 1998........ 6,050 -- $ 6.56 2002 6,050 -- --
Fiscal Year 1999........ 133,860 80,316 $ 5.00 2003 -- -- 133,860
Fiscal Year 1999........ 14,180 2,836 $ 6.56 2002 14,180 -- --
Fiscal Year 1999........ 207,030 199,460 $15.87 2002 207,030 -- --
Fiscal Year 1999........ 7,562 7,562 $37.02 2002 7,562 -- --
--------- ------- ------- ------- -------
1,233,378 296,174 234,822 864,696 133,860
========= ======= ======= ======= =======
The fair value of the warrants issued in connection with debt financing
transactions was calculated by the Company using the Black-Scholes pricing
model. In fiscal year 1999, warrants to purchase 228,772 shares of the
Company's stock were issued in connection with these debt financing
arrangements. The warrants had a fair value of $1,292 which was amortized over
the life of the related loans. Amortization in fiscal years 2000 and 1999
totaled $381 and $911, respectively, which was included in interest expense in
the accompanying consolidated statements of operations. No separate fair values
were calculated in connection with the 864,696 warrants in fiscal years 1998
and 1997, as these were issued in connection with an equity financing
transaction. Also in fiscal year 1999, the Company recognized compensation
expense of $247 in connection with the issuance of warrants to an employee, as
the exercise price was less than the fair value of the stock on the date of
grant.
47
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
M. Income Taxes
Total income tax expense (benefit) was allocated as follows:
Year Ended
---------------------------
June
29, June 30, June 25,
2001 2000 1999
------- -------- --------
Income (loss) from continuing operations....... $(5,164) $ 5,512 $4,839
Gain on disposal of discontinued operations.... 117 668 477
Shareholders' equity, for unrealized holding
gain (loss)................................... (48) 50 3
Shareholders' equity, for net foreign currency
translation loss.............................. (18) (6) (1)
Shareholders' equity, for tax benefit derived
from exercise and sale of stock option
shares........................................ (2,207) (3,859) (94)
------- ------- ------
$(7,320) $ 2,365 $5,224
======= ======= ======
Income tax expense (benefit) attributable to continuing operations consisted of
the following components:
Year Ended
---------------------------
June
29, June 30, June 25,
2001 2000 1999
------- -------- --------
Current:
Federal........................................ $ (162) $ 7,510 $ 6,466
State.......................................... 102 1,740 617
Foreign........................................ 150 165 59
------- ------- -------
90 9,415 7,142
------- ------- -------
Deferred:
Federal........................................ (4,367) (3,200) (1,914)
State.......................................... (887) (703) (389)
------- ------- -------
(5,254) (3,903) (2,303)
------- ------- -------
$(5,164) $ 5,512 $ 4,839
======= ======= =======
A reconciliation of the effective income tax rate from continuing operations
with the U.S. federal income tax rate of 35 percent applied to pretax income
(loss) from continuing operations was as follows:
Year Ended
---------------------------
June 29, June 30, June 25,
2001 2000 1999
-------- -------- --------
Statutory rate.......... (35.0)% 35.0% 35.0%
State income taxes, net
of federal tax......... (6.3) 5.4 (10.8)
Tax effect of foreign
income and losses...... (1.1) 0.3 --
Tax effect of foreign
sales corporation...... (2.9) (1.1) --
Increase (decrease) in
the valuation
allowance.............. 10.2 (23.6) 92.8
Research and
experimental tax
credit................. (3.1) (1.1) --
Permanent differences... 1.0 10.1 --
Other................... (2.5) 2.6 --
----- ----- -----
(39.7)% 27.6% 117.0%
===== ===== =====
48
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 29, 2001 and
June 30, 2000, relating to continuing operations, are presented below:
June June
29, 30,
2001 2000
------- -------
Gross deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts......................................... $ 570 $ 431
Inventories, principally due to additional costs for tax
purposes.................................................. 290 --
Inventories, principally due to accrual for obsolescence... 3,729 1,229
Compensated absences, principally due to accrual for
financial reporting purposes.............................. 620 768
Workers' compensation expense accrual for financial
reporting purposes........................................ 471 631
Warranty expense accrual for financial reporting purposes.. 1,444 893
Employee benefit plan accrual for financial reporting
purposes.................................................. 449 498
Deferred research and development for tax purposes......... 1,003 1,446
Investment impairment for financial reporting purposes..... 1,225 --
Net operating loss carryforwards........................... 9,167 8,410
Research and development tax credit carryforwards.......... 1,202 890
Restructuring expense accrual for financial reporting
purposes.................................................. 2,446 --
Other...................................................... 1,698 1,681
------- -------
Total gross deferred tax assets.......................... 24,314 16,877
Less valuation allowance..................................... (4,048) (2,727)
------- -------
Net total deferred tax assets.............................. 20,266 14,150
------- -------
Gross deferred tax liabilities
Plant and equipment, principally due to differences in
depreciation.............................................. (875) (1,550)
Other...................................................... (290) (221)
------- -------
Total gross deferred tax liabilities..................... (1,165) (1,771)
------- -------
Net deferred tax assets...................................... $19,101 $12,379
======= =======
Reflected in consolidated balance sheets as:
Current deferred tax assets................................ $12,250 $ 7,470
Non-current deferred tax assets............................ 6,851 4,909
------- -------
Net deferred tax assets pertaining to continuing
operations.............................................. $19,101 $12,379
======= =======
The valuation allowance for deferred tax assets as of the beginning of fiscal
year 2001 and 2000 was $2,727 and $7,433, respectively. The net change in
valuation allowance for the years ended June 29, 2001 and June 30, 2000 was an
increase (decrease) of $1,321 and $(4,706), respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. In order to fully realize the net total
deferred tax assets, the Company will need to generate future taxable income
prior to the expiration of the net operating loss carryforwards which expire at
various years through 2020. Based upon the level of historical taxable income
and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deferred tax assets,
net of the
49
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
valuation allowance at June 29, 2001. The amount of the deferred tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of June 29, 2001 will be allocated to income tax benefit
that would be reported in the consolidated statements of operations.
At June 29, 2001, the Company had federal net operating loss carryforwards of
approximately $21,249 and state net operating loss carryforwards of
approximately $24,636, which are available to offset future federal and state
taxable income, and expire at various dates through fiscal year 2020. In
addition, at June 29, 2001, the Company has research and development credit
carryovers for federal and state income tax purposes of approximately $938 and
$264, respectively. The federal credit carryforwards expire in the years
through 2021, and the state carryforwards can be carried forward indefinitely.
The Company has not recognized a deferred tax liability for the basis
differences and the undistributed earnings related to its foreign subsidiaries
since the investment is essentially permanent in duration. Undistributed
earnings were approximately $945 at June 29, 2001.
Cash paid for income taxes was $7,866, $6,603 and $2,915 in fiscal years 2001,
2000 and 1999, respectively.
N. Retirement Plans
The Company has retirement savings and profit sharing plans, which qualify
under Section 401(k) of the Internal Revenue Code. Participation is available
to all employees meeting minimum service requirements.
The Company has a deferred compensation plan that does not qualify under
Section 401 of the Internal Revenue Code, which provides officers and key
executives with the opportunity to participate in an unqualified deferred
compensation plan. The total of net participant deferrals, which is reflected
in other long-term liabilities, was $1,100 and $1,325 at June 29, 2001 and June
30, 2000, respectively.
The Company also has a deferred retirement salary plan, which is limited to
certain officers. The Company has accrued the present value of the estimated
future retirement benefit payments over the estimated service period from the
date of the agreements. The accrued balance of these plans, included in other
long-term liabilities, was $911 and $907 at June 29, 2001 and June 30, 2000,
respectively.
Total expenses for these plans were $1,482, $1,840 and $1,158 for fiscal years
2001, 2000 and 1999, respectively.
50
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
O. Accrued Liabilities
Accrued liabilities as of June 29, 2001 and June 30, 2000 consisted of the
following:
June June
29, 30,
2001 2000
------- -------
Accrued incentive plan expense.............................. $ 1,540 $ 3,510
Accrued vacation expense.................................... 1,549 1,880
Accrued salary expense...................................... 1,568 2,678
Accrued warranty expense.................................... 3,610 2,232
Accrued workers' compensation self-insurance expense........ 1,178 1,577
Accrued restructuring costs................................. 2,456 --
Accrued income tax payable.................................. 315 4,199
Accrued other............................................... 6,081 3,980
------- -------
$18,297 $20,056
======= =======
P. Other Expense, Net
Other expense, net for fiscal years 2001, 2000 and 1999 was as follows:
Year Ended
--------------------------
June 29, June 30, June 25,
2001 2000 1999
-------- -------- --------
(Gain) loss on foreign currency transactions.... $ (55) $ 81 $ 4
Write-off of long-term investment............... 3,501 -- --
Other (income) expense, net..................... (40) 121 373
------ ---- ----
$3,406 $202 $377
====== ==== ====
Q. Concentration of Credit Risk
The Company's customers are primarily in the cable television industry. The
Company performs periodic credit evaluations of its customers' financial
conditions and generally does not require collateral. At June 29, 2001 and June
30, 2000, accounts receivables from customers in the cable industry were
approximately $26,142 and $50,309, respectively. Receivables are generally due
within 30 days. Credit losses are provided for in the consolidated financial
statements and have consistently been within management's expectations.
Sales to four customers were $38,769 (17%), $34,168 (15%), $33,125 (15%) and
$27,353 (12%), respectively, in fiscal year 2001. Sales to three customers were
$54,592 (19%), $52,020 (18%) and $35,929 (13%), respectively, in fiscal year
2000. Sales to two customers were $54,044 (27%) and $31,314 (15%),
respectively, in fiscal year 1999. All of these principal customers purchase
both products and services.
R. Commitments and Contingencies
The Company had an established letter of credit of $1,700 at June 29, 2001, for
its self-insured workers' compensation program.
51
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
The Company leases real property and other equipment under operating leases.
Certain leases are renewable and provide for the payment of real estate taxes
and other occupancy expenses. At June 29, 2001, the future minimum lease
payments for noncancelable leases with remaining lease terms in excess of one
year were as follows:
Fiscal year ending:
2002............................................................... $ 4,628
2003............................................................... 3,907
2004............................................................... 1,706
2005............................................................... 1,361
2006............................................................... 429
-------
$12,031
=======
Rent expense relating to continuing operations was $5,460, $4,074 and $3,412
for fiscal years 2001, 2000 and 1999, respectively.
S. Quarterly Results of Operations (Unaudited)
Quarterly results of operations for fiscal years 2001 and 2000 were as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
Fiscal Year 2001
Net sales........................ $78,335 $66,045 $ 40,134 $38,781 $223,295
Gross profit..................... 21,293 17,673 1,669 4,992 45,627
Income (loss) from continuing
operations...................... 5,814 4,284 (11,524) (6,401) (7,827)
Discontinued operations.......... 1 (5) 6 175 177
Net income (loss)................ $ 5,815 $ 4,279 $(11,518) $(6,226) $ (7,650)
======= ======= ======== ======= ========
Net income (loss) per share--
basic:
Continuing operations.......... $ 0.17 $ 0.13 $ (0.36) $ (0.20) $ (0.24)
Discontinued operations........ -- -- -- 0.01 0.01
------- ------- -------- ------- --------
Net income (loss)............ $ 0.17 $ 0.13 $ ( 0.36) $( 0.19) $ (0.23)
======= ======= ======== ======= ========
Net income (loss) per share--
diluted:
Continuing operations.......... $ 0.16 $ 0.13 $ (0.36) $ (0.20) $ (0.24)
Discontinued operations........ -- -- -- 0.01 0.01
------- ------- ------- ------- --------
Net income (loss)............ $ 0.16 $ 0.13 $ (0.36) $ (0.19) $ (0.23)
======= ======= ======= ======= ========
52
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
S. Quarterly Results of Operations (Unaudited) (Continued)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
Fiscal Year 2000
Net sales............................. $70,888 $68,954 $63,339 $80,081 $283,262
Gross profit.......................... 18,749 17,991 16,690 21,456 74,886
Income from continuing operations..... 341 4,294 4,635 5,191 14,461
Discontinued operations............... 36 6 780 241 1,063
Net income............................ $ 377 $ 4,300 $ 5,415 $ 5,432 $ 15,524
======= ======= ======= ======= ========
Net income per share--basic:
Continuing operations............... $ 0.01 $ 0.15 $ 0.14 $ 0.15 $ 0.48
Discontinued operations............. -- -- 0.02 0.01 0.04
------- ------- ------- ------- --------
Net income........................ $ 0.01 $ 0.15 $ 0.16 $ 0.16 $ 0.52
======= ======= ======= ======= ========
Net income per share--diluted:
Continuing operations............... $ 0.01 $ 0.13 $ 0.13 $ 0.14 $ 0.43
Discontinued operations............. -- -- 0.02 0.01 0.03
------- ------- ------- ------- --------
Net income........................ $ 0.01 $ 0.13 $ 0.15 $ 0.15 $ 0.46
======= ======= ======= ======= ========
T. Segment Information
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The Company operates in two industry
segments: the Telecommunications Equipment segment, which includes our
Broadband Communications Division and the Broadband Management Services segment
which includes both our Broadband Management Solutions Division and our
Technical Services Division. Our Broadband Communications Division is
responsible for research, development, management, production, support and
sales of advanced fiber optic and RF equipment. A digital video transport
product line was added to this division with the acquisition of certain
operations from ADC, effective August 4, 2001. Our Broadband Management
Solutions Division is responsible for the development, integration, management,
implementation, support and sales of operational support systems that focus on
network management and mobile workforce management solutions. Our Technical
Services Division provides outsourced technical services, including network
engineering and design, construction, activation, optimization, certification,
maintenance and operation.
53
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
Information about industry segments for fiscal years 2001, 2000 and 1999 is as
follows:
Continuing Operations
-----------------------------
Broadband
Telecommunications Management
Equipment Services Total
------------------ ---------- --------
Year ended June 29, 2001
Net sales............................ $181,873 $41,422 $223,295
Operating income (loss)(A)........... 595 (6,414) (5,819)
Investment income.................... 7,374
Interest expense..................... 109
Income tax benefit(A)................ (779)
Cash equivalents and marketable
securities.......................... 93,893
Identifiable assets at June 29,
2001(B)............................. 93,136 51,426 144,562
Capital expenditures................. 2,626 1,012 3,638
Depreciation and amortization........ 6,541 3,575 10,116
Year ended June 30, 2000
Net sales............................ $241,406 $41,856 $283,262
Operating income (loss)(A)........... 28,053 (2,920) 25,133
Investment income.................... 4,901
Interest expense..................... 814
Income tax expense(A)................ 6,930
Cash equivalents and marketable
securities.......................... 119,848
Identifiable assets at June 30,
2000(B)............................. 132,070 20,742 152,812
Capital expenditures................. 5,623 2,268 7,891
Depreciation and amortization........ 7,111 1,780 8,891
Year ended June 25, 1999
Net sales............................ $178,473 $25,378 $203,851
Operating income (loss).............. 8,154 (2,564) 5,590
Investment income.................... 150 168 318
Interest expense..................... 1,376 20 1,396
Income tax expense................... 4,835 4 4,839
Identifiable assets at June 25,
1999................................ 95,672 13,075 108,747
Capital expenditures................. 6,828 1,841 8,669
Depreciation and amortization........ 8,496 703 9,199
- --------
(A) Operating income (loss) and income tax expense (benefit) for fiscal year
2001 and 2000 excludes the impact of non-recurring merger and restructuring
costs.
(B) Identifiable assets at June 29, 2001 and June 30, 2000 exclude cash
equivalents and marketable securities related to the Company's follow-on
public offering.
54
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
The Company and its subsidiaries operate in various geographic areas. The table
below presents the Company's continuing operations in the following geographic
areas:
U.S. Europe Eliminations Total
-------- ------ ------------ --------
Year ended June 29, 2001
Sales to unaffiliated
customers:
Domestic................ $194,720 $4,786 $ -- $199,506
Export.................. 23,789 -- -- 23,789
Transfers between
geographic areas........ 1,422 -- (1,422) --
Net sales................ 219,931 4,786 (1,422) 223,295
Operating loss(A)........ (5,604) (215) -- (5,819)
Investment income........ 7,367 7 -- 7,374
Interest expense......... 72 37 -- 109
Income tax expense
(benefit)(A)............ (817) 38 -- (779)
Identifiable assets at
June 29, 2001........... 234,038 4,417 -- 238,455
Capital expenditures..... 3,625 13 -- 3,638
Depreciation and
amortization............ 10,085 31 -- 10,116
Year ended June 30, 2000
Sales to unaffiliated
customers:
Domestic................ $252,291 $1,356 $ -- $253,647
Export.................. 29,615 -- -- 29,615
Transfers between
geographic areas........ 170 -- (170) --
Net sales................ 282,076 1,356 (170) 283,262
Operating income(A)...... 25,083 50 -- 25,133
Investment income........ 4,900 1 -- 4,901
Interest expense......... 789 25 -- 814
Income tax expense
(benefit)(A)............ 6,952 (22) -- 6,930
Identifiable assets at
June 30, 2000........... 271,277 1,383 -- 272,660
Capital expenditures..... 7,862 29 -- 7,891
Depreciation and
amortization............ 8,870 21 -- 8,891
Year ended June 25, 1999
Sales to unaffiliated
customers:
Domestic................ $184,578 $ 236 $ -- $184,814
Export.................. 19,037 -- -- 19,037
Transfers between
geographic areas........ 162 -- (162) --
Net sales................ 203,777 236 (162) 203,851
Operating income (loss).. 5,622 (32) -- 5,590
Investment income........ 318 -- -- 318
Interest expense......... 1,396 -- -- 1,396
Income tax expense....... 4,839 -- -- 4,839
Identifiable assets at
June 25, 1999........... 108,264 483 -- 108,747
Capital expenditures..... 8,669 -- -- 8,669
Depreciation and
amortization............ 9,175 24 -- 9,199
- --------
(A) Operating income (loss) and income tax expense (benefit) for fiscal years
2001 and 2000 excludes the impact of non-recurring merger and restructuring
costs.
55
C-COR.net Corp.
Notes to Consolidated Financial Statements--(Continued)
(In thousands, except share and per share data)
U. Litigation
Certain former securityholders and employees of a company which the Company
acquired have filed claims against the Company alleging violations of state
securities laws and certain other state law claims under a stock option plan.
The Company believes it has defenses to these claims and is contesting them
vigorously.
V. Subsequent Events
On July 3, 2001, a wholly owned subsidiary of the Company acquired Aerotec
Communications Inc. (Aerotec) for $2,250. Additional cash payments of up to
$3,750 may be made to Aerotec shareholders if certain performance targets are
met. Any excess of the purchase price and related costs over the fair value of
the acquired net assets of the business will be recorded as goodwill.
On August 4, 2001, the Company completed its purchase of certain assets and
liabilities of ADC's cable product portfolio. The assets purchased include the
Optiworx(TM) and DV6000 series product lines, as well as other related cable
infrastructure products from ADC's Broadband Communications Division, located
in Meriden, Connecticut; Buenos Aires, Argentina; and Klagenfurt, Austria.
These facilities and their assets will become part of our Broadband
Communications Division, as part of the Telecommunications Equipment segment.
We acquired the assets for approximately $25,000 in cash and the assumption of
approximately $400 of debt, together with certain other liabilities. The
acquisition is being accounted for as a purchase. Any excess of the purchase
price and related costs over the fair value of the acquired net assets of the
business will be recorded as goodwill.
56
Financial Report
To the Shareholders:
The management of C-COR.net Corp. is responsible for the preparation of all
financial statements in this Annual Report on Form 10-K. These statements were
prepared in accordance with generally accepted accounting principles from the
books and records maintained by the Company. Adequate accounting systems and
financial controls are maintained to assure that these records reflect the
transactions of the Company and that its assets are protected from loss or
unauthorized use. In addition, the Audit Committee of the Board of Directors
meets periodically with management and KPMG LLP to discuss financial reporting
matters, the internal controls and the scope and results of the audit.
/s/ William T. Hanelly
William T. Hanelly
Chief Financial Officer,
Secretary and Treasurer
August 10, 2001
57
Item 9. Changes and Disagreements on Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information with respect to Directors required by this item is incorporated
herein by reference to pages 3 through 4 of the Registrant's Proxy Statement
dated September 14, 2001.
The information with respect to Executive Officers required by this item is set
forth in Part I of this report.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended June 29, 2001, its officers,
directors and ten-percent shareholders complied with all applicable Section
16(a) filing requirements.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to
pages 10 through 15 of the Registrant's Proxy Statement dated September 14,
2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference to
pages 8 through 9 of the Registrant's Proxy Statement dated September 14, 2001.
Item 13. Certain Relationships and Related Transactions
None
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) The following financial statements are included in Item 8 of this
report:
Independent Auditors' Report
Consolidated Balance Sheets as of June 29, 2001 and June 30, 2000
Consolidated Statements of Operations for the Years Ended June 29,
2001, June 30, 2000 and June 25, 1999
Consolidated Statements of Cash Flows for the Years Ended June 29,
2001, June 30, 2000 and June 25, 1999
Consolidated Statements of Shareholders' Equity for the Years Ended
June 29, 2001, June 30, 2000 and June 25, 1999
Notes to Consolidated Financial Statements
58
(2) Schedule II--Valuation and Qualifying Accounts
Report of KPMG LLP (See Exhibit 23)
Schedules, other than the one listed above, have been omitted because
they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits*
Number Description of Documents
------ ------------------------
(2)(a) Agreement and Plan of Merger dated as of March 29, 2001, between the
C-COR.net Corp., Broadband Management Solutions, LLC and MobileForce
Technologies, Inc. (incorporated by reference to the Registrant's 8-K
filed on May 11, 2001).
(3)(a) Amended and Restated Articles of Incorporation of Registrant (the
"Articles of Incorporation") filed with the Secretary of State of the
Commonwealth of Pennsylvania on February 19, 1981 (incorporated by
reference to Exhibit (3)(a) to Registrant's Form 10-Q for the quarter
ended December 24, 1999, Securities and Exchange Commission File No.
0-10726).
(3)(b) Amendment to the Articles of Incorporation of Registrant filed with
the Secretary of State of the Commonwealth of Pennsylvania on November
14, 1986 (incorporated by reference to Exhibit (3)(b) to Registrant's
Form 10-Q for the quarter ended December 24, 1999, Securities and
Exchange Commission File No. 0-10726).
(3)(c) Amendment to the Articles of Incorporation filed with the Secretary of
State of the Commonwealth of Pennsylvania on September 21, 1995
(incorporated by reference to Exhibit (3)(c) to Registrant's Form 10-Q
for the quarter ended December 24, 1999, Securities and Exchange
Commission File No. 0-10726).
(3)(d) Amendment to the Articles of Incorporation filed with the Secretary of
State of the Commonwealth of Pennsylvania on July 9, 1999
(incorporated by reference to Exhibit (3)(d) to Registrant's Form 10-Q
for the quarter ended December 24, 1999, Securities and Exchange
Commission File No. 0-10726).
(3)(e) Statement with Respect to Shares of Series A Junior Participating
Preferred Stock filed with the Secretary of State of the Commonwealth
of Pennsylvania on August 30, 1999 (incorporated by reference to
Exhibit (3)(e) to Registrant's Form 10-Q for the quarter ended
December 24, 1999, Securities and Exchange Commission File No. 0-
10726).
(3)(f) Amendment to the Articles of Incorporation filed with the Secretary of
State of the Commonwealth of Pennsylvania on October 20, 1999
(incorporated by reference to Exhibit (3)(f) to Registrant's Form 10-Q
for the quarter ended December 24, 1999, Securities and Exchange
Commission File No. 0-10726).
(3)(g) Amendment to Articles of Incorporation filed with the Secretary of
State of the Commonwealth of Pennsylvania on December 22, 1999
(incorporated by reference to Exhibit (3)(g) to Registrant's Form 10-Q
for the quarter ended December 24, 1999, Securities and Exchange
Commission File No. 0-10726).
(3)(h) Bylaws of Registrant, as amended through September 22, 2000
(incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-
Q for the quarter ended September 29, 2000, Securities and Exchange
Commission File No. 0-10726).
(4)(a) Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Form S-8 Registration Statement, File No. 333-49826).
(4)(b) Rights Agreement, dated as of August 17, 1999, between C-COR.net Corp.
and American Stock Transfer and Trust Co., as Rights Agent, including
the Form of Statement with Respect to Shares as Exhibit A, the Form of
Right Certificate as Exhibit B and the Summary of Rights as Exhibit C
(incorporated by Reference to Registrant's 8-K filed on August 30,
1999).
59
Number Description of Documents
------ ------------------------
(10)(a) 1989 Non-Employee Directors' Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 28 to Form S-8 Registration
Statement, File No. 33-35208).
(10)(b) Indemnification Agreement dated February 3, 1992, between the
Registrant and Gerhard B. Nederlof (incorporated by reference to
Exhibit (10)(gg) to the Registrant's Form 10-K for the year ended
June 26, 1992, Securities and Exchange Commission File No. 0-
10726).
(10)(c) Supplemental Retirement Plan Participation Agreement dated April
20, 1993, between the Registrant and Gerhard B. Nederlof
(incorporated by reference to Exhibit (10)(bb) to the Registrant's
Form 10-K for the year ended June 25, 1993, Securities and
Exchange Commission File No. 0-10726).
(10)(d) Indemnification Agreement dated August 22, 1994, between the
Registrant and David J. Eng (incorporated by reference to Exhibit
(10)(pp) to the Registrant's Form 10-K for the year ended June 24,
1994, Securities and Exchange Commission File No. 0-10726).
(10)(e) Supplemental Retirement Plan Participation Agreement dated August
22, 1994, between the Registrant and David J. Eng (incorporated by
reference to Exhibit (10)(qq) to the Registrant's Form 10-K for
the year ended June 24, 1994, Securities and Exchange Commission
File No. 0-10726).
(10)(f) Registrant's Retirement Savings and Profit Sharing Plan as Amended
July 1, 1989, and including amendments through April 19, 1994
(incorporated by reference to Exhibit 99.B14 to Form S-8
Registration Statement, File No. 333-02505).
(10)(g) Registrant's Supplemental Executive Retirement Plan effective May
1, 1996 (incorporated by reference to Exhibit (10)(ff) to the
Registrant's Form 10-K for the year ended June 28, 1996,
Securities and Exchange Commission File No. 0-10726).
(10)(h)(i) 1988 Stock Option Plan (incorporated by reference to Exhibit
(10)(kk)(i) to the Registrant's Form 10-K for the year ended June
28, 1996, Securities and Exchange Commission File No. 0-10726).
(10)(h)(ii) Amendment to 1988 Stock Option Plan (incorporated by reference to
Exhibit (10)(kk)(ii) to the Registrant's Form 10-K for the year
ended June 28, 1996, Securities and Exchange Commission File No.
0-10726).
(10)(i)(i) 1992 Stock Purchase Plan (incorporated by reference to Exhibit
(10)(ll)(i) to the Registrant's Form 10-K for the year ended June
28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10)(i)(ii) Amendment to 1992 Stock Purchase Plan (incorporated by reference
to Exhibit (10)(ll)(ii) to the Registrant's Form 10-K for the year
ended June 28, 1996, Securities and Exchange Commission File No.
0-10726).
(10)(j) Amended and Restated Employment Agreement dated July 30, 1997,
between the Registrant and Gerhard B. Nederlof (incorporated by
reference to Exhibit (10)(oo) to the Registrant's Form 10-K for
the year ended June 27, 1997, Securities and Exchange Commission
File No. 0-10726).
(10)(k) Amendment to Employment Agreement dated January 18, 2000, between
the Registrant and Gerhard B. Nederlof (incorporated by reference
to Exhibit (10)(r) to the Registrant's Form 10-K for the year
ended June 30, 2000, Securities and Exchange Commission File No.
0-10726).
(10)(l) C-COR.net Incentive Plan (incorporated by reference to
Registrant's Definitive Proxy Statement filed September 15, 2000,
Securities and Exchange Commission File No. 0-10726).
(10)(m) Supplemental Retirement Plan Participation Agreement dated
November 9, 1998, between the Registrant and Mary G. Beahm
(incorporated by reference to Exhibit (10)(ii) to the Registrant's
Form 10-K for the year ended June 25, 1999, Securities and
Exchange Commission
File No. 0-10726).
60
Number Description of Documents
------ ------------------------
(10)(n) Indemnification Agreement dated November 9, 1998, between the
Registrant and Mary G. Beahm (incorporated by reference to Exhibit
(10)(kk) to the Registrant's Form 10-K for the year ended June 25,
1999, Securities and Exchange Commission File No. 0-10726).
(10)(o) Supplemental Retirement Plan Participation Agreement dated October 19,
1998, between the Registrant and William T. Hanelly (incorporated by
reference to Exhibit (10)(ll) to the Registrant's Form 10-K for the
year ended June 25, 1999, Securities and Exchange Commission File No.
0-10726).
(10)(p) Indemnification Agreement dated October 19, 1998, between the
Registrant and William T. Hanelly (incorporated by reference to
Exhibit (10)(nn) to the Registrant's Form 10-K for the year ended June
25, 1999, Securities and Exchange Commission File No. 0-10726).
(10)(q) Amended and Restated Employment Agreement dated September 14, 1999,
between the Registrant and David A. Woodle (incorporated by reference
to Exhibit (10)(qq) to the Registrant's Form 10-K for the year ended
June 25, 1999, Securities and Exchange Commission
File No. 0-10726).
(10)(r) Amendment to Employment Agreement dated January 18, 2000, between the
Registrant and David A. Woodle (incorporated by reference to Exhibit
(10)(aa) to the Registrant's Form 10-K for the year ended June 30,
2000, Securities and Exchange Commission File No. 0-10726).
(10)(s) Form of Change of Control Agreement (Registrant entered into seven of
such agreements with Douglas W. Engerman, Ken Wright, William T.
Hanelly, Mary G. Beahm, David J. Eng, David A. Woodle and Gerhard B.
Nederlof respectively) (incorporated by reference to Exhibit (10)(bb)
to the Registrant's Form 10-K for the year ended June 30, 2000,
Securities and Exchange Commission File No. 0-10726).
(10)(t) Fiscal Year 2001 Profit Incentive Plan (PIP) (incorporated by
reference to Exhibit (10)(cc) to the Registrant's Form 10-K for the
year ended June 30, 2000, Securities and Exchange Commission File No.
0-10726).
(10)(u) Credit Agreement dated August 9, 1999, between the Registrant and
Broadband Capital Corporation as borrowers, and The Banks Parties
Hereto From Time to Time and Mellon Bank, N.A. as Agent (incorporated
by reference to Exhibit (10)(oo) to the Registrant's Form 10-K for the
year ended June 25, 1999, Securities and Exchange Commission File No.
0-10726).
(10)(v) First Amendment to Credit Agreement dated August 9, 1999, between the
Registrant and Broadband Capital Corporation as borrowers, and The
Banks Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent,
dated December 29, 1999 (incorporated by reference to Exhibit (10)(dd)
to the Registrant's Form 10-K for the year ended June 30, 2000,
Securities and Exchange Commission File No. 0-10726).
(10)(w) Second Amendment to Credit Agreement dated August 9, 1999, between the
Registrant and Broadband Capital Corporation as borrowers, and The
Banks Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent,
dated May 4, 2000 (incorporated by reference to Exhibit (10)(ee) to
the Registrant's Form 10-K for the year ended June 30, 2000,
Securities and Exchange Commission File No. 0-10726).
(10)(x) Third Amendment to Credit Agreement dated August 9, 1999, between the
Registrant and Broadband Capital Corporation as borrowers, and The
Banks Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent,
dated November 24, 2000 (incorporated by reference to Exhibit 10 to
the Registrant's Form 10-Q for the quarter ended December 29, 2000,
Securities and Exchange Commission File No. 0-10726).
61
Number Description of Documents
------ ------------------------
(10)(y) Fourth Amendment to Credit Agreement dated August 9, 1999, between
the Registrant and Broadband Capital Corporation as borrowers, and
The Banks Parties Hereto From Time to Time and Mellon Bank, N.A. as
Agent, dated June 24, 2000.
(10)(z) Fiscal year 2001/2002 Incentive and Retention Plan (IRP).
(10)(aa) Employment Agreement dated February 18, 2000, between Worldbridge
Broadband Services, Inc. and Paul Janson.
(11) Statement re Computation of Earnings Per Share.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants of C-COR.net Corp.
- --------
* All exhibits listed herein and not otherwise incorporated by reference to
reports or registration statements of the Registrant were filed with the
Registrant's report on Form 10-K for the fiscal ended June 29, 2001. Such
exhibits are incorporated herein by reference and made a part hereof.
(b) Reports on Form 8-K filed in the fourth quarter of the fiscal year 2001:
On May 11, 2001, the Registrant filed a Form 8-K dated April 27, 2001, to
report the consummation of the acquisition of MobileForce Technologies Inc.
(c) Exhibits: See (a) (3) above.
62
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.
C-COR.net Corp.
(Registrant)
/s/ David A. Woodle
_____________________________________
Chief Executive Officer
(principal executive officer)
September 14, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 14th day of September 2001.
/s/ David A. Woodle
______________________________________
Director, Chairman
/s/ Christine Jack Torreti
/s/ Donald M. Cook, Jr. ______________________________________
______________________________________ Director
Director
/s/ John J. Omlor
/s/ Michael J. Farrell ______________________________________
______________________________________ Director
Director
/s/ Frank Rusinko, Jr.
/s/ I.N. Rendall Harper, Jr. ______________________________________
______________________________________ Director
Director
/s/ James J. Tietjen
/s/ Joseph E. Zavacky ______________________________________
______________________________________ Director
Controller and Assistant Secretary
(principal accounting officer)
/s/ William T. Hanelly
______________________________________
Chief Financial Officer, Secretary
and Treasurer (principal financial
officer)
63
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C
------ ------------------- -------------------------------
ADDITIONS
-------------------------------
Charged to Charged to
Balance at Costs Costs
DESCRIPTION Beginning of Period and Expenses Accounts-Describe
----------- ------------------- ------------ -----------------
Year ended June 29, 2001
Reserves deducted from
assets to which they apply:
Allowance for Doubtful
Accounts................. $1,148,000 $ 852,000 $--
Inventory Reserve--
Continuing Operations.... 3,094,000 10,556,000 --
---------- ----------- ----
$4,242,000 $11,408,000 $--
========== =========== ====
Reserves not deducted from
assets:
Product Warranty Reserve--
Continuing Operations.... $2,232,000 $ 2,667,000 $--
Product Warranty Reserve--
Discontinued Operations.. 150,000 27,000 --
Workers' Compensation
Self-insurance........... 1,577,000 (156,000) --
Allowance for Disposal of
Discontinued Operations.. 50,000 -- --
---------- ----------- ----
$4,009,000 $ 2,538,000 $--
========== =========== ====
Year ended June 30, 2000
Reserves deducted from
assets to which they apply:
Allowance for Doubtful
Accounts................. $1,052,000 $ 286,000 $--
Inventory Reserve--
Continuing Operations.... 2,231,000 2,150,000 --
---------- ----------- ----
$3,283,000 $ 2,436,000 $--
========== =========== ====
Reserves not deducted from
assets:
Product Warranty Reserve--
Continuing Operations.... $1,742,000 $ 1,855,000 $--
Product Warranty Reserve--
Discontinued Operations.. 410,000 -- --
Workers' Compensation
Self-insurance........... 1,724,000 449,000 --
Allowance for Disposal of
Discontinued Operations.. 125,000 (75,000) --
---------- ----------- ----
$4,001,000 $ 2,229,000 $--
========== =========== ====
Year ended June 25, 1999
Reserves deducted from
assets to which they apply:
Allowance for Doubtful
Accounts................. $ 923,000 $ 370,000 $--
Inventory Reserve--
Continuing Operations.... 3,213,000 1,757,000 --
Inventory Reserve--
Discontinued Operations.. 845,000 -- --
---------- ----------- ----
$4,981,000 $ 2,127,000 $--
========== =========== ====
Reserves not deducted from
assets:
Product Warranty Reserve--
Continuing Operations.... $1,733,000 $ 1,184,000 $--
Product Warranty Reserve--
Discontinued Operations.. 2,291,000 (301,000) --
Workers' Compensation
Self-insurance........... 1,319,000 837,000 --
Allowance for Disposal of
Discontinued Operations.. 600,000 (475,000) --
---------- ----------- ----
$5,943,000 $ 1,245,000 $--
========== =========== ====
64
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. D COL. E
------ ------------------- -----------
Balance at
End of
DESCRIPTION Deductions-Describe Period
----------- ------------------- -----------
Year ended June 29, 2001
Reserves deducted from assets to which they
apply:
Allowance for Doubtful Accounts.............. $ 435,000(1) $ 1,565,000
Inventory Reserve--Continuing Operations..... 4,289,000(2) 9,361,000
---------- -----------
$4,724,000 $10,926,000
========== ===========
Reserves not deducted from assets:
Product Warranty Reserve--Continuing
Operations.................................. $1,289,000(3) $ 3,610,000
Product Warranty Reserve--Discontinued
Operations.................................. 102,000(3) 75,000
Workers' Compensation Self-insurance......... 243,000(4) 1,178,000
Allowance for Disposal of Discontinued
Operations.................................. -- 50,000
---------- -----------
$1,634,000 $ 4,913,000
========== ===========
Year ended June 30, 2000
Reserves deducted from assets to which they
apply:
Allowance for Doubtful Accounts.............. $ 190,000(1) $ 1,148,000
Inventory Reserve--Continuing Operations..... 1,287,000(2) 3,094,000
---------- -----------
$1,477,000 $ 4,242,000
========== ===========
Reserves not deducted from assets:
Product Warranty Reserve--Continuing
Operations.................................. $1,365,000(3) $ 2,232,000
Product Warranty Reserve--Discontinued
Operations.................................. 260,000(3) 150,000
Workers' Compensation Self-insurance......... 596,000(4) 1,577,000
Allowance for Disposal of Discontinued
Operations.................................. -- 50,000
---------- -----------
$2,221,000 $ 4,009,000
========== ===========
Year ended June 25, 1999
Reserves deducted from assets to which they
apply:
Allowance for Doubtful Accounts.............. $ 241,000(1) $ 1,052,000
Inventory Reserve--Continuing Operations..... 2,739,000(2) 2,231,000
Inventory Reserve--Discontinued Operations... 845,000(2) --
---------- -----------
$3,825,000 $ 3,283,000
========== ===========
Reserves not deducted from assets:
Product Warranty Reserve--Continuing
Operations.................................. $1,175,000(3) $ 1,742,000
Product Warranty Reserve--Discontinued
Operations.................................. 1,580,000(3) 410,000
Workers' Compensation Self-insurance......... 432,000(4) 1,724,000
Allowance for Disposal of Discontinued
Operations.................................. -- 125,000
---------- -----------
$3,187,000 $ 4,001,000
========== ===========
- --------
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory disposal.
(3) Warranty claims honored during year.
(4) Workers compensation claims paid.
Note: Unless otherwise indicated, reserves relate to continuing operations.
65