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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

For the Fiscal Year Ended June 27, 2003

For the transition period from                     to                     

Commission File Number: 0-10726

C-COR.net Corp.

(Exact name of Registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.05 par value

Series A Junior Participating Preferred Stock Purchase Rights

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.    ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12-b2 of the Act).    Yes x    No ¨

As of December 27, 2002, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $115,701,834.

As of August 27, 2003, the Registrant had 36,571,189 shares of Common Stock outstanding.

Documents Incorporated by Reference:

Proxy Statement expected to be dated on or about September 15, 2003

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. Forward-looking statements represent C-COR’s judgment regarding future events and are based on currently available information. Although C-COR believes it has a reasonable basis for these forward-looking statements, we cannot guarantee their accuracy and actual results may differ materially from those we 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:

This listing of factors is NOT intended to include ALL potential risk factors. The Company makes no commitment to update these factors or to revise any forward-looking statements for events or circumstances occurring after the statement is issued, except as required by law.

Introduction

C-COR, headquartered in State College, Pennsylvania, provides communications equipment, software solutions, and technical services to the global market for the full network life cycle of two-way hybrid fiber coax broadband networks. C-COR was organized as a corporation under the laws of the Commonwealth of Pennsylvania on June 30, 1953. Our core strategy is to leverage our 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 worldwide.

C-COR operates through three divisions, each focused on a business segment: Broadband Communications Products, Broadband Network Services, and Broadband Management Solutions.

Broadband Communications Products (BCP), headquartered in Meriden, Connecticut, with an engineering facility in State College, Pennsylvania, supporting production facilities in Mexico and Austria, and sales offices around the world, is responsible for development, management, production, support, and sale of our advanced fiber optic, digital video transport, and radio frequency equipment.

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Broadband Network Services (BNS), headquartered in Lakewood, Colorado, with satellite offices throughout the U.S., provides broadband network engineering and design services, network integration services, outside plant and construction services, outsourced operational services, and consulting services. BNS is one of the nation’s largest non-cable operator-affiliated technical forces serving the cable industry.

Broadband Management Solutions (BMS), headquartered in Pleasanton, California, with an engineering facility in State College, Pennsylvania, is responsible for development, integration, management, implementation, support, and sale of our operations support system software solutions to operate and manage reliable, high-quality multi-service networks.

Our principal customers include many of the largest cable operators in the United States, such as Adelphia Communications, Cablevision Systems, Charter Communications, Comcast, Cox Communications, Insight Communications, Mediacom Communications, and Time Warner Cable; a number of smaller domestic cable operators; and numerous international cable operators. These customers primarily operate hybrid fiber coax networks for delivering video, voice, and data services to homes and businesses. Our customer base also includes telephone companies and broadcasters who purchase digital video transport equipment.

See Note T to the consolidated financial statements for financial information relating to each of the business segments for fiscal years 2003, 2002 and 2001.

On September 16, 2002, we completed the acquisition of Philips Broadband Networks (PBN), a global provider of broadband products and services with a strong customer base in Europe and Asia. Following the completion of the purchase, PBN became part of our BCP division. As part of the integration of PBN into the BCP division,  C-COR conducted a product rationalization process to eliminate redundant offerings and consolidate production facilities (including the closing of PBN’s Manlius, New York, facility) to streamline operations. With the PBN acquisition, we have increased our customer and installed equipment base in international markets and have expanded our optical product capabilities.

See Note B to the consolidated financial statements for further information relating to business combinations.

Industry Overview

A local hybrid fiber coax network (also known as the metro-access tier of the network) consists of (i) a headend where information is received from a third-party operation (such as satellite, Internet gateway, or telephony network) or from another of the cable operator’s facilities; (ii) a transmission infrastructure that distributes the signal throughout the local network; and (iii) connections from the local transmission network to the end-users or subscribers. Historically, these systems offered one-way only video service.

During the past decade, the cable industry, like other segments of the communications industry, has undergone substantial change as a result of:

For the cable operator, these factors have resulted in:

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While these evolving changes have provided many opportunities for cable equipment suppliers, current market conditions are volatile due to a number of factors, including:

These market challenges in fiscal 2003 caused a decline in demand for our products and services. We responded by controlling our costs, reducing our workforce as appropriate, consolidating facilities to operate more efficiently, and acquiring Philips Broadband Networks to expand our international and domestic customer base.

Strategy Overview

Our strategic goal is to balance our business base across three distinct market segments: advanced telecommunications products; operations management software solutions; and technical field services. We seek 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 Hybrid Fiber Coax Network Product Line.    We offer a full range of radio frequency and fiber optic transmission products to transmit signals in both directions over hybrid fiber coax networks between “the headend and the curb.” In addition, we offer digital video transport products, which are used primarily by telephone and broadcast companies to optically transport a wide variety of uncompressed video, audio, and data signals over wide and/or metropolitan areas.

Providing Broadband Management Software Solutions to Enhance Network Integrity.    Network integrity and reliability have become critical needs as hybrid fiber coax network traffic and complexity have grown and as these networks are increasingly used by multiple service providers. Traditional approaches to managing hybrid fiber coax networks focus on monitoring limited, individual elements of the network, such as cable modems or power supplies. In contrast, C-COR’s Integrated Service Management (ISM^™) suite of software application modules allows cable operators to automate and proactively manage their network integrity and service delivery processes across multi-technology, multi-service, multi-vendor, and multi-ISP networks.

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Delivering Total Network Solutions to Meet the Emerging Broadband Needs of Hybrid Fiber Coax Network Operators.    We are able to offer a broad network solution to cable operators by delivering a comprehensive line of equipment, management software solutions, and network services that they require across the hybrid fiber coax 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 Europe, Asia, Canada, and Latin America. The PBN acquisition expanded our customer base, particularly in Europe and Asia. With our 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, Software, and Services

We provide broadband communications products, technical services, and management software solutions to support primarily cable operators as they plan, design, build, maintain, and manage complex broadband communications networks. These major market areas of equipment, software, and services are formally represented within the C-COR organization by the following three business divisions:

Broadband Communications Products (BCP) provides our advanced fiber optic, digital video transport, and radio frequency telecommunications equipment.

Broadband Network Services (BNS) provides technical field services, covering broadband network engineering and design services, outside plant and construction services, outsourced operational services, and consulting services.

Broadband Management Solutions (BMS) provides our array of operations management software solutions to operate and manage reliable, high-quality, multi-service networks.

Broadband Communications Products

C-COR segments the cable network into two technology tiers: metro-access and metro-core. The metro-access tier covers the local hybrid fiber coax network infrastructure delivering signals from the operator’s local headend to the subscriber’s home or to the small and medium enterprise and back. The metro-access tier generally encompasses analog video, quadrature amplitude modulation, and fiber to the premise technologies. The metro-core tier interconnects the service provider’s local headend or point-of-presence with other inter-city operator facilities or with third party operations. An example of metro-core connections would be between a cable operator’s headend and a broadcaster’s facility in transporting quality video over long distances. With our radio frequency and fiber optic equipment as well as our digital video transport product family, C-COR’s Broadband Communications Products division has a market position in both the metro-access and metro-core tiers.

Metro-Access Product Families

A local hybrid fiber coax network connects a local central content source, typically referred to as the headend, to individual residential or business users through a physical plant of fiber optic and coaxial cables and a variety of electrical and optical devices that modulate, transmit, receive, and amplify the signals as they move through the network. A typical local hybrid fiber coax network consists of three major segments: the headend and hubs, nodes, and the radio frequency plant. C-COR offers a comprehensive range of metro-access technology products for each of these segments. The primary objective of the C-COR metro-access product suite is to efficiently

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utilize bandwidth capacity to accelerate deployment of advanced services. This is accomplished through innovative technology creating converged, high-density smart platforms with universal element management systems.

Headend and Hubs

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 local network. Larger networks feature both primary headends and a series of secondary headends or hubs. C-COR offers a broad range of headend and hub equipment under our CHP Max5000^™ Converged Headend Platform that combines headend, hub, and compressed digital video transport onto one fully managed, scalable platform. The CHP Max5000 includes several transmission and access options, including analog and digital transmitters and receivers. The CHP Max5000 2RU platform supports ten application modules providing the smallest footprint and highest density headend platform on the market. A standard 6-foot rack holds up to 200 CHP Max5000 transmitters, providing exceptional space efficiency in the headend area, while reducing power consumption and equipment cooling costs. The innovative design of the CHP Max5000 lowers the capital costs of delivering more bandwidth per subscriber while enabling network operators to increase their bandwidth capacity for provisioning of advanced services, such as video-on-demand, high-speed Internet access, and voice-over-IP.

Nodes

The general function of the node in the local hybrid fiber coax network is to convert information from optical signals to radio frequency signals for distribution to the home or business. C-COR’s Opti Max^™ Optimum Node Series ranges from advanced fully-segmentable to fiber deep platforms offering superior performance and cost efficiency required to meet the demands of the most advanced network architectures. The Opti Max4000 Advanced Fully Segmentable Node Platform provides field scalability that incorporates one-to-four node operations on the same platform, thereby preserving the network operator’s investment while offering growth to meet service-increasing demands. The Opti Max1000 Fiber Deep Node Platform combines cost-efficient design and superior performance. The Opti Max Optimum Node Series also offers a wide selection of optical transmission options and platforms, ranging from one-to-four coaxial outputs that provide solutions to optimize network operator flexibility. For fiber-challenged applications seeking maximum geographical reach, DWDM (Dense Wavelength Division Multiplexing), CWDM (Coarse Wavelength Division Multiplexing), and digital multiplexing technologies are incorporated to increase the volume of information transmitted over a single fiber. Opti Max nodes utilize space and cost-saving scalable technology that allows network operators to have a “pay-as-they-grow” approach in deploying their infrastructure, minimizing capital expenditures, while maximizing network service availability and performance.

Radio Frequency Plant Equipment

The radio frequency plant comprises products that transmit information between the optical nodes and subscribers. These products are essentially radio frequency 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 or business. C-COR’s Flex Max^™ Series of Flexible Amplifiers offers a wide variety of aerial and cabinet-mount amplifiers. Our robust and reliable aerial trunk, bridger, and line extender amplifiers provide excellent forward and return path performance for architectures delivering both analog and digital channels. Our highly flexible cabinet-mount amplifiers include high-performance trunk and bridger amplifiers, high-output line extenders, and multi-dwelling unit (MDU) amplifiers. Representing one of the largest installed bases in the industry, the Flex Max Series of Flexible Amplifiers uses drop-in replacement modules to provide cost-savings upgrade applications.

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Metro-Core Product Family

C-COR’s DV6000/DV6400 family of transport products are capable of digitally transporting over optical cables a wide variety of video, audio, and data signals to the service provider’s local headend or point-of-presence. Since the establishment of the original DV6000 system in 1993, the DV product family has evolved and continues to be enhanced into one of the most widely used and cost-effective fiber optic transport systems available in the industry. C-COR’s DV platforms are used by major telecommunications providers around the world to carry prominent video programming.

Summary of C-COR’s Metro-Access and Metro-Core Products

The following table summarizes our major products and their primary functions and features:

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New Products and/or Developments

During fiscal year 2003, C-COR completed an intensive product rationalization process covering C-COR legacy metro-access product lines and the product lines from our acquisition of certain operations of ADC Telecommunications, Inc. (ADC) and of PBN to eliminate redundant offerings and consolidate capabilities into complementary lines of equipment. Following completion of the product rationalization, C-COR announced its newly branded line of metro-access equipment—CHP Max Converged Headend Platform, Opti Max Optimum Node Series, and Flex Max Series of Flexible Amplifiers—at a major industry show in May 2003. Of these, the Opti Max1000 Fiber Deep Platform is a new product development targeted to service providers who are launching advanced services in fiber-poor networks. The Opti Max1000 increases bandwidth and thus revenue potential of network operators with minimum capital expenditures.

In addition, during fiscal year 2003, C-COR continued to develop and deploy several enhancements to its metro-core DV video transport product line. These on-going efforts include:

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Broadband Network Services

With offices located throughout the U.S., C-COR’s Broadband Network Services division offers technical services for engineering, design, and deployment of advanced subscriber services over broadband networks. The technical services provided by the Broadband Network Services division include:

Broadband Management Solutions

C-COR’s Broadband Management Solutions division develops operations support system solutions that enable our customers to automate and proactively manage their networks and service delivery processes. C-COR’s Integrated Services Management (ISM) suite of operations support system software applications delivers a unified view of customers, quality of service, and network performance. During fiscal year 2003, BMS added a new module under the ISM umbrella: the Network Configuration Manager (NCM^™), a software application that documents network topology.

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The ISM currently incorporates the following specific application modules:

Significant Customers

During the past fiscal year, our customers have included almost all of the largest cable system operators in the United States, as well as a number of smaller domestic cable operators, numerous international cable operators, and telephone companies and broadcasters interested in digital video transport products. Our largest customers during fiscal year 2003 were Comcast and Time Warner Cable, accounting for 19% and 17%, respectively, of net sales. Our largest customers during fiscal year 2002 were Adelphia Communications, Charter Communications, and Time Warner Cable, accounting for 30%, 11%, and 10%, respectively, of net sales. Our largest customers during fiscal year 2001 were Adelphia Communications, Cox Communications, Time Warner Cable, and Charter Communications, which accounted for 17%, 15%, 15%, and 12%, respectively, of net sales. All of these principal customers purchase both products and services.

See Note P to the consolidated financial statements for further information relating to concentration of credit risk.

Sales and Distribution

Our sales and distribution are corporate functions focused on maximizing the synergies of C-COR’s three market offerings—equipment, services, and software—as a comprehensive network solution. Sales and distribution are organized into two major global regions: the first covering the Americas, and the second covering the EuroPacific area.

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Sales efforts are conducted from our headquarters in Pennsylvania; from offices in Europe, Canada, Asia, and Australia; from regional sales offices located throughout the United States; and through numerous sales and distribution channel partners around the world.

We sell our products and services in the United States through our direct sales force, national account representatives, and sales and distribution channel partners. Our direct sales force is organized by geographic regions and approaches the customer at the system level, and our national account representatives approach 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 Canada are made both through our direct sales force and channel partners, while sales in Latin America are made through channel partners. Sales management for Europe is located in our Netherlands office, for Asia in our offices in Australia and Mainland China, and for Canada and Latin America from our headquarters in State College, Pennsylvania. For fiscal year 2003, our international sales represented 28% of consolidated net sales. In fiscal years 2002 and 2001, international sales were 13% and 13%, respectively, of net sales. The increase in fiscal year 2003 is a result of expansion of our customer base and installed equipment base, resulting from the acquisition of PBN.

Additionally, we provide 24x7 technical support, both directly and through channel partners, as well as training for customers and channel partners, as required, both in our facilities and at our customers’ sites.

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.

C-COR utilizes a corporate-wide ERP (Enterprise Resource Planning) system, accessible by C-COR personnel worldwide. The ERP system automates and standardizes key corporate functions in finance, manufacturing, purchasing, and customer service management.

Backlog

We schedule production of our Broadband Communications Products division’s 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 Broadband Management Solutions and Broadband Network Services divisions typically reflects longer-term systems development and field service projects that convert into revenue over a 12-month period.

At June 27, 2003, our backlog of orders was $54.3 million, including $25.8 million for Broadband Communications Products, $20.8 million for Broadband Network Services, and $7.7 million for Broadband Management Solutions.

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, customer financial difficulties, annual capital spending budget cycles, and construction delays.

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

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development activities that are intended to advance existing product lines and develop or evaluate new products. Our current research and product development focus is on optical equipment, operations support system software solutions, and emerging packet-based technologies, architectures, and standards that impact critical areas, such as bandwidth management for multiple cable subscriber services.

Product managers in both the Broadband Communications Products and Broadband Management Solutions divisions have responsibility for the product life cycle of specific hardware or software products from concept through development, expansion, and end-of-life. In this role, the product managers coordinate with a variety of C-COR professionals from sales, marketing, engineering, and technical support to develop and implement product plans. The Broadband Communications Products division, specifically, utilizes a concurrent product development program to enhance the division’s capability to produce new products within an optimal time frame. The program addresses a number of key business activities, including portfolio management, innovation, product selection, product definition, electronic design and testing, selection of new product components, prototyping and piloting, and the ability to rapidly commercialize a new product.

During the past fiscal year, research and product development expenditures were primarily directed at expanding our fiber optic technology, developing new platforms for next-generation broadband applications, and expanding our deployments of operations support system software applications. We also continued with product development process improvements to reduce cycle time to design, reduce manufacturing costs, and improve design quality.

During fiscal years 2003, 2002, and 2001, we spent $27.0 million, $27.1 million, and $17.4 million, respectively, on research and product development. Research and product development expenses in the Broadband Communications Products division were $21.2 million, $17.9 million and $10.1 million, respectively, for fiscal years 2003, 2002, and 2001. Research and product development expenses in the Broadband Management Solutions division were $5.3 million, $8.3 million, and $6.7 million, respectively, for fiscal years 2003, 2002, and 2001. Other research and product development expenses, not allocated to segments, were $544,000, $900,000 and $600,000, respectively, for fiscal years 2003, 2002, and 2001. All research and product development expenditures have been expensed. Anticipated product development initiatives are expected to result in increased research and product development expense in future years.

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 Broadband Communications Products division competes with other companies, including Motorola’s Broadband Communications Sector (formerly General Instrument Corporation), Scientific Atlanta, Inc., and Harmonic, Inc., some of which are large publicly traded companies that may have greater financial, technical, and marketing resources than we do.

Equipment from our Broadband Communications Products division is marketed with emphasis on quality, differentiating features, and business case, 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.

With regard to our Broadband Management Solutions and Broadband Network Services divisions, there are several competing vendors offering network management, mobile workforce management, and network configuration 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 hybrid fiber coax network operators.

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Employees

We had approximately 1,170 employees as of August 28, 2003.

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, radio frequency 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 during the past fiscal year in obtaining adequate quantities of raw materials and component parts.

We outsource the manufacture and repair 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 certain power supplies, accessories, optical modules, digital return modules, circuit boards, repair services, and small-lot manufacturing.

Intellectual Property

We hold eighteen (18) U. S. patents and have fourteen (14) patents pending in the U. S. Patent and Trademark Office. In addition, we hold an exclusive license, for use in our field, for thirty-one (31) ADC U. S. patents and patent applications and a non-exclusive license for forty-six (46) Philips U. S. patents, relating to fiber optic and radio frequency transmission equipment and technology, and network management techniques and services. 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:

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We are approved for ISO 9001:2000 registration at our State College, Meriden, Klagenfurt, and Tijuana facilities. C-COR’s quality management system 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

Certain former security holders and employees of Convergence.com Corporation, a company that we acquired in fiscal year 2000, filed claims against C-COR in March 2001 alleging violations of state securities laws and certain other state law claims under a stock option plan. The complaint alleges that the damages suffered by the individuals approximate $2.1 million, which is based on the amount of stock options multiplied by the highest price of C-COR’s common stock since the acquisition, and does not take into account the exercise price which the plaintiffs would have had to pay to the Company if the options were exercised. The plaintiffs also petitioned for treble damages, an undetermined amount of punitive damages and reimbursement of attorneys’ fees. We believe that we have defenses to these claims and are contesting them vigorously; however, we cannot be sure that we will be successful in defending these claims.

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 27, 2003.

Executive Officers of the Registrant

All executive officers of C-COR 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.

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PART II

Item 5.    Market for the Registrant’s Common Stock

The Company’s common stock is traded on The Nasdaq National Market under the symbol of CCBL. The range of high and low price information as reported by Nasdaq follows:

We have never paid a dividend. As of June 27, 2003, there were 676 shareholders of record of common stock.

Equity Compensation Plans

The following table sets forth additional information as of June 27, 2003 with respect to our equity compensation plans that provide for the issuance of stock options, warrants or rights to purchase C-COR securities.

Equity compensation plans not approved by security holders represent plans assumed in connection with the acquisitions of Convergence.com Corporation, Silicon Valley Communications, Inc., Worldbridge Broadband Services, Inc. and MobileForce Technologies, Inc. Each of the assumed plans covered warrants, stock options or a combination thereof. The warrants or stock options covered by the assumed plans were converted at applicable exchange ratios into warrants or stock options to purchase C-COR common stock. No future awards may be granted under these plans and all existing awards vested immediately upon C-COR’s assumption of the plans.

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Item 6.    Selected Financial Data

Selected Financial Data

(in thousands except per share data)

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 broadband networks. We operate in three industry segments: Broadband Communications Products, Broadband Network Services, and Broadband Management Solutions.

Our Broadband Communications Products division is responsible for research, development, management, production, support, and sales of advanced fiber optic and radio frequency equipment. Our Broadband Network Services division provides outsourced technical services, including network engineering and design,

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construction, activation, optimization, certification, maintenance, and operations. Our Broadband Management Solutions division is responsible for the development, integration, management, implementation, support and sales of operational support systems that focus on network services management and mobile workforce management solutions.

Business Combination

On September 16, 2002, we acquired certain assets and liabilities of PBN from Royal Philips Electronics. PBN is a provider of broadband products, including transmission products, network optimizing technologies, and element management systems. PBN is supported by sales and services organizations worldwide, with a strong customer base in Europe and the Asia Pacific region. The purchase included assets in various countries, cable infrastructure products, and a design and production facility in Manlius, New York. These assets and the facility became part of our Broadband Communications Products division. The purchase price for the acquisition was approximately 80.0 million Euros, which was subject to certain adjustments. The effective date of the acquisition was August 26, 2002 (PBN’s fiscal month end). Accordingly, the results of operations of PBN are included in the consolidated financial statements for the period from August 26, 2002 through June 27, 2003. At closing on September 16, 2002, the Company made an initial cash payment of 75.0 million Euros ($72.5 million U.S. dollars, which was net of $200,000 of imputed interest) to Royal Philips Electronics, with subsequent payments subject to certain adjustments. As final consideration of the purchase price, a cash payment of 604,000 Euros ($691,000 U.S. dollars at June 27, 2003) will be paid by December 31, 2003. In addition, the Company incurred direct transaction costs of approximately $1.3 million to consummate the transaction. The Company used its available cash to fund the acquisition. The acquisition was accounted for as a purchase, and resulted in goodwill of $51.1 million. See Note B to the consolidated financial statements.

Impairment and Non-Recurring Charges

Fiscal year 2003

Plant Closings.    During the quarter ended December 27, 2002, we announced the closing of our Manlius, New York manufacturing facility and our Louviers, France engineering and support services facility. The decision to close the Manlius manufacturing facility was a result of the process we began, as of the PBN acquisition date, to address redundancy in the product lines and manufacturing capacity resulting from the acquisition of PBN. We ceased manufacturing and operations at these facilities as of June 27, 2003. As of June 27, 2003, fair value adjustments for property, plant and equipment of $655,000 and exit costs of $7.5 million, which include employee severance and termination benefits, relocation for employees offered employment transfers, and lease commitment costs, were accounted for as an adjustment to the allocation of the original purchase price, and recorded as additional goodwill (see Notes B and C to the consolidated financial statements).

Restructuring Charges.    We continued to implement various initiatives during fiscal year 2003 to improve our operating performance, and align our cost structure with current business levels. As a result, we recorded additional restructuring charges of $935,000 during fiscal year 2003. These were partially offset by a reversal of $475,000 for previously recorded restructuring charges incurred in prior fiscal years. The result was a net charge in fiscal year 2003 of $460,000.

Goodwill Impairment Charge.    In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” (Statement 142). The Company adopted the provisions of Statement 142 effective June 29, 2002. As of the date of adoption, the Company determined it did not have an impairment of goodwill. We are required to reevaluate whether goodwill is impaired on at least an annual basis. We have selected the end of our third fiscal quarter of each year to reassess the value of our reporting units and related goodwill balances, or at other times if events

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have occurred or circumstances exist that indicate the carrying amount of goodwill may not be recoverable. Accordingly, we reassessed whether goodwill was impaired as of March 28, 2003. For purposes of applying Statement 142, we believe our operating segments (Broadband Communications Products, Broadband Network Services, and Broadband Management Solutions) represent the Company’s reporting units, although there was no goodwill or intangible assets associated with Broadband Management Solutions as of the date of adoption or as of March 28, 2003. We determined the carrying value of each reporting unit by assigning the related assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company then determined the fair value of each reporting unit, based on an independent third-party appraisal, using a discounted cash flow model. The Company determined that the carrying value of the Broadband Communications Products reporting unit exceeded its fair value, indicating that an impairment existed. The amount of the impairment loss was determined by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Consequently, an impairment charge of $40.1 million was recorded during the fiscal quarter ended March 28, 2003. The decline in the fair value of the Broadband Communications Products reporting unit was largely attributable to the weakness in capital spending by cable operators. An estimate was made of the value of other intangible assets not recorded on our balance sheet as of March 28, 2003, in order to allocate the fair value of the reporting unit to both tangible and intangible assets as of March 28, 2003. Based on a third-party valuation of these unrecorded intangible assets completed during the fourth quarter ending June 27, 2003, we recorded an additional goodwill impairment charge of $6.0 million in our fourth quarter operating results, resulting in a total goodwill impairment charge for the fiscal year ended June 27, 2003 of $46.1 million. As of June 27, 2003, the remaining goodwill associated with Broadband Communications Products and Broadband Network Services was $8.0 million and $7.0 million, respectively (see Note G to the consolidated financial statements).

Fiscal Year 2002

Plant Closing.    On February 11, 2002, we announced the closing of our Buenos Aires, Argentina, manufacturing facility. This action completed the final step of the integration of assets purchased from ADC Telecommunications Inc. (ADC) in August 2001. The decision to close the Argentina manufacturing facility was a result of the process we began, as of the acquisition date, to address redundancy in the product lines and manufacturing capacity resulting from the acquisition. We substantially ceased manufacturing operations at this facility as of March 2002. Fair value adjustments for inventory and fixed assets of $5.0 million and exit costs of $2.9 million were accounted for as an adjustment to the original purchase price and were recorded as additional goodwill. In addition, we realized a translation loss of $617,000 related to the devaluation of the Argentine peso in the fourth quarter of fiscal year 2002.

Restructuring Charges.    We implemented various initiatives during fiscal year 2002 to consolidate our manufacturing operations, improve our operating performance, and align our cost structure with current business levels. As a result, we recorded restructuring charges of $3.6 million. These were partially offset by a reversal of $891,000 for previously recorded restructuring charges incurred in fiscal year 2001, related to consolidation efforts at our Pennsylvania and Georgia facilities. The result was a net charge in fiscal year 2002 of $2.7 million. Our restructuring costs primarily related to involuntary workforce reduction costs of $2.8 million for approximately 350 employees, fixed asset write-downs of $202,000, and cancellation costs associated with fixed contractual obligations of $561,000.

Impairment Charges.    In the fourth quarter of fiscal year 2002, we recorded an impairment charge of $13.6 million for goodwill and other intangible assets related to our acquisition of MobileForce in fiscal year 2001. The impairment was based on a write-down of these assets to their estimated fair value, based upon the projected recoverability of these intangible assets through an analysis of expected future cash flows. In accordance with our ordinary business practices, projected future cash flows were discounted at a rate corresponding to our estimated cost of capital.

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Non-recurring Charges.    On June 25, 2002, Adelphia Communications (Adelphia), a major customer, filed a petition for protection under the federal bankruptcy statutes. As of June 28, 2002, the Company had outstanding accounts receivable of $44.9 million related to Adelphia and affiliated companies. A charge-off to bad debts of $44.9 million was recorded as of June 28, 2002, due to management’s assessment that these accounts receivable were likely not recoverable. This charge was included in selling and administrative expense in the consolidated statements of operations.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the Company’s consolidated financial statements requires management to make estimates, assumptions, and judgments 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 applicable period. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, assumptions, and judgments.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are:

Different assumptions and judgments would change estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported.

Revenue Recognition.    We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sale price is fixed or determinable, and collectibility is reasonably assured. Our revenues derive principally from equipment sales, which are generally recognized when the 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. For our software licensing arrangements involving multiple elements, revenue is allocated to each element based on vendor specific objective evidence of fair values of the elements. License revenue allocated to software products, under certain terms and conditions, is recognized upon the delivery of the software products. For certain of our software license arrangements where professional services are being provided that 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 on the completed-contract method as the arrangements represent our initial installations, and the Company does not currently have the ability to reasonably estimate contract costs at the inception of the contracts. Under the completed-contract

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method, revenue is recognized when the contract is complete, and all direct costs and related revenues are deferred until that time. The entire amount of an estimated loss on a contract is accrued at the time a loss on a contract is projected. Revenue recognition in each period is dependent on the application of these accounting policies.

Allowances for Doubtful Accounts.    We establish a general allowance for doubtful accounts based on percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, contractual terms and conditions, and historical payment experience. In addition, we establish allowances to charge-off specifically identified doubtful accounts for the amount deemed worthless when a loss is deemed to be both probable and estimable. In the event that we are not able to predict changes in the financial condition of our customers, resulting in an unexpected problem with collectibility of receivables and our actual bad debts differ from estimates, or we adjust estimates in future periods, our established allowances may be insufficient and we may be required to record additional allowances. Alternatively, if we provided more allowances than are ultimately required, we may reverse a portion of such provisions in future periods based on our actual collection experience. In the event we adjust our allowance estimates, it could materially affect our operating results and financial position.

Valuation of Inventories.    Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. We establish provisions for excess and obsolete inventories after evaluation of historical sales and usage, current economic trends, market conditions, product rationalization, forecasted sales, product lifecycles, and current inventory levels. This evaluation requires us to make estimates regarding future events in an industry where rapid technological changes are prevalent. We experienced significant changes in required reserves during fiscal year 2003, due primarily to a decline in market conditions and product rationalization resulting from the PBN and ADC acquisitions. It is possible that increases in inventory reserves may be required in the future if there is a further decline in market conditions or if changes in expected product lifecycles occur. Alternatively, if market conditions improve or product lifecycles extend, we may have greater success in selling inventory that had previously been written-down. In either event, the value of our inventory may be under or overstated and recognition of such under or overstatement will affect our cost of sales in a future period, which could materially affect our operating results and financial position.

Valuation of Goodwill, Other Intangible Assets and Other Long-lived Assets.    We assess goodwill at least annually for impairment and more frequently if circumstances warrant. We have chosen the end of the third quarter of each fiscal year as the period for performing our annual assessment. The impairment assessment is performed in two steps: (i) we determine impairment by comparing the fair value of each of our reporting units with its carrying value and (ii) if there is an indication of impairment, we measure the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. We normally calculate the fair value of our reporting units by using the projected discounted cash flow method using a discount rate we determine to be commensurate with the risk inherent in our current business. If impairment is indicated, we allocate the fair value of the reporting unit to the reporting unit’s individual assets and liabilities. The residual value is the implied fair value of goodwill. The difference between the carrying amount of the goodwill and the implied fair value of the goodwill is recorded as an impairment loss. We assess other intangible assets and other long-lived assets for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. When impairment is determined, it is recorded as a charge against earnings in the period when recognized. For additional information regarding goodwill and other intangible assets, refer to Note G of our consolidated financial statements.

Restructuring Costs.    For restructuring activities initiated prior to December 31, 2002, we recorded restructuring costs in accordance with the provisions of Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in

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a Restructuring)” and Staff Accounting Bulletin No. 100, “Restructuring and Impairment Charges.” Restructuring costs were recorded when the Company committed to an exit plan and significant changes to the exit plan were not likely. We estimated the future amounts to be incurred as a result of exit plans and recorded the amounts as a charge against earnings. For restructuring activities initiated after December 31, 2002, restructuring costs are recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” For additional information regarding restructuring costs, refer to Note C of our consolidated financial statements. Revisions to our estimates could result in an additional charge to earnings or a reversal of previously recorded charges, which could materially impact our operating results and financial position in future periods if anticipated events and key assumptions change.

Warranty Liabilities.    We warranty our products against defects in materials and workmanship, generally for two to five years, depending upon product lines and geographic regions. A provision for estimated future costs related to warranty activities is recorded when the product is shipped, based upon our historical experience of known product failure rates and historical costs incurred in correcting product failures. In addition, from time to time, the recorded amount is adjusted for specifically identified warranty exposures if unforeseen technical problems arise. In the event that our historical experience of product failure rates and costs of correcting product failures change, or our estimates relating to probable losses resulting from specifically identified warranty exposures change, we may be required to record additional warranty reserves. Alternatively, if we provide more reserves than we need, we may reverse a portion of such provisions in future periods. In the event we change our warranty reserve estimates, a charge against future cost of sales or a reversal of previously recorded charges may materially affect our operating results and financial position.

Accounting for Foreign Currency Translation and Transactions.    We convert the assets and liabilities of foreign operations into their U.S. dollar equivalents at rates in effect at the balance sheet dates, and record translation adjustments in shareholders’ equity. The statements of operations of foreign operations are translated from the operation’s functional currency to U.S. dollar equivalents at average rates for the period. Foreign currency transaction gains and losses resulting from settlement of foreign receivables and payables, including certain cross-currency intercompany activities where payment is expected to be satisfied in the normal course of business, are recorded in the consolidated statements of operations. Other cross-currency intercompany activities, where management has no intent to require payment in the foreseeable future, are recorded in shareholders’ equity as a component of other comprehensive income (loss). In the event management’s intent with respect to cross-currency intercompany activities changes, it could result in a foreign currency gain or loss that may materially affect our operating results and financial position.

Accounting for Income Taxes.    We estimate our income taxes for each of the jurisdictions in which we operate. This involves estimating our actual current income tax payable and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals, for tax and accounting purposes. Deferred taxes arise due to temporary differences in the bases of assets and liabilities and from net operating losses and credit carryforwards. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s statement of operations become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, realization of deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized. 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. Management considers historical operating losses, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. As a result of the cumulative losses over the past three years, we concluded during fiscal year 2003 that a valuation allowance against our net deferred tax assets was necessary. As of June 27, 2003, a full valuation allowance on our net deferred tax assets has been recorded, with the exception of certain net deferred tax assets in specific foreign jurisdictions where we believe it is more likely than not that such tax benefits will be realized. In addition, we expect to provide a valuation allowance on any future tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize these assets.

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Results of Operations

The Company’s consolidated statements of operations from continuing operations for fiscal years 2003, 2002 and 2001 as a percentage of net sales, are as follows:

The table below sets forth our net sales for fiscal years 2003, 2002, and 2001 for each of our reportable segments described in Note T of our consolidated financial statements.

Fiscal 2003 Compared to Fiscal 2002

Net Sales.    Net sales decreased by 25% to $200.7 million in fiscal year 2003 from $265.7 million in fiscal year 2002.

Broadband Communications Products segment sales decreased by 23% to $172.8 million in fiscal year 2003 from $224.3 million in fiscal year 2002. The decrease in net sales was largely attributable to reduced or deferred capital spending by customers in the cable industry for network build-outs and expansion of existing networks. The Company believes the reduced capital spending levels are the result of financial difficulties of certain cable customers, challenges in gaining access to capital markets, and a focus by cable operators on reducing debt and

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increasing cash flow. The decline in sales affected our optical product lines and, to a lesser extent, our radio frequency product lines. Optical product sales declined 33%, to $76.0 million in fiscal year 2003, compared to $113.8 million in fiscal year 2002. Sales of radio frequency amplifiers decreased 12%, to $96.8 in fiscal year 2003 from $110.5 million in fiscal year 2002. Although the Company has broadened its customer base and increased its base of installed equipment, Broadband Communications Products sales are dependent on the capital spending levels of its customers.

Broadband Network Services segment sales decreased by 38.6% to $23.4 million in fiscal year 2003 compared to $38.1 million in fiscal year 2002. The decrease during fiscal year 2003 also resulted from reduced spending by domestic cable operators on technical services, primarily related to our Outside Plant operations, which include system sweep, reverse path activation, ingress mitigation, node certification, and system maintenance.

Broadband Management Solutions segment sales increased by 39.5% to $4.5 million in fiscal year 2003 compared to $3.3 million in fiscal year 2002. We increased system deployments for both our Network Service Manager (NSM) and Mobile Workforce Manager (MWM) software products. We believe these software products, which provide tools to network operators for proactively managing services being delivered and monitoring the status of their networks, have begun to gain acceptance.

Domestic sales decreased by 38% to $144.8 million in fiscal year 2003 from $232.1 million in fiscal year 2002. The decrease resulted from reductions in both Broadband Communications Products segment and Broadband Network Services segment sales due to reduced spending by certain domestic multiple system operators (MSOs). Total domestic sales were 72% of consolidated net sales for fiscal year 2003, compared to 87% for fiscal year 2002.

International sales increased by 66% to $55.9 million in fiscal year 2003 from $33.6 million in fiscal year 2002. The increase for fiscal year 2003 resulted from higher Broadband Communications Products segment sales, primarily in Europe and Asia. As a result of our acquisition of the PBN assets and operations, we have increased our customer base and installed equipment base in the markets of Europe and Asia. We have added operations in the Netherlands, Spain, Portugal, United Kingdom, France, Germany, Singapore, Australia and China. These operations include engineering, sales and administrative support activities to support the delivery of localized versions of products and services to customers in Europe and Asia. We expect the demand for our products in international markets will continue to be highly variable. The international markets represent distinct markets in which capital spending decisions for hybrid fiber coax network distribution equipment can be affected by a variety of factors, including access to financing and general economic conditions. Our total international sales were 28% of consolidated net sales for fiscal year 2003, compared to 13% for fiscal year 2002.

Gross Margin.    Gross margin was 15.9% in fiscal year 2003, compared to 29.4% in fiscal year 2002. For the Broadband Communications Products segment, gross margin was 15.5% in fiscal year 2003, compared to 31.6% in fiscal year 2002. The decrease in Broadband Communications Products segment gross margin for fiscal year 2003 was due primarily to lower volumes and an increase in our provision for excess and obsolete inventory. The increase in the excess and obsolete inventory provision was the result of significant reductions in demand levels, product line rationalization decisions for overlapping product lines resulting from acquisitions, transition to an outsourced manufacturer of product lines determined to be at the end of their product lifecycle, and a refinement of the Company’s reserve estimation process to quantify reserve requirements for inventory levels in excess of our forecasted demand. In addition, lower volumes resulted in higher manufacturing costs per unit due to allocating higher fixed factory overhead costs which contributed to lower gross margins during the year. For the Broadband Network Services segment, gross margin was 18.0% in fiscal year 2003, compared to 23.8% in fiscal year 2002. The decrease in Broadband Network Services segment gross margin was due primarily to reduced volume levels without a corresponding level of reduction in fixed overhead costs and services mix. Broadband Management Solutions segment gross margin was 21.9% in fiscal year 2003, compared to (58.0%) in fiscal year 2002. Broadband Management Solutions segment gross margin increased as a result of increased deployments of

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NSM and MWM software solutions, whereby the operation began absorbing certain fixed personnel and other costs. We anticipate that our future gross margin will continue to be affected by many factors, including sales volumes, sales mix, competitive pricing, and the timing of new product introductions.

Selling and Administrative.    Selling and administrative expenses were $49.0 million (24.4% of net sales) in fiscal year 2003, compared to $93.3 million (35.1% of net sales) in fiscal year 2002. Included in selling and administrative expense for fiscal year 2002 was bad debt expense of $47.3 million, which included $44.9 million for a specific charge-off of accounts receivables from Adelphia Communications and affiliates, and $2.4 million related to customers in Latin America, where economic conditions affected the collection of certain outstanding accounts receivable. In addition, costs of $1.9 million associated with the implementation of a fully integrated ERP system were incurred during fiscal year 2002. Excluding the aforementioned costs relating to fiscal year 2002, the Company increased selling and administrative expenses during fiscal year 2003 for personnel costs and administrative expenses related to our acquisition of PBN assets and operations, which were partially offset by recovery of $1.4 million on certain accounts previously deemed uncollectible.

Research and Product Development.    Research and product development expenses were $27.0 million (13.5% of net sales) in fiscal year 2003, compared to $27.1 million (10.2% of net sales) in fiscal year 2002. Research and product development expenses in the Broadband Communications Products segment were $21.2 million for fiscal year 2003, compared to $17.9 million for fiscal year 2002. The increase was primarily due to higher personnel costs resulting from our acquisition of PBN assets and operations. Research and product development expenses in the Broadband Management Solutions segment were $5.3 million in fiscal year 2003, compared to $8.3 million in fiscal year 2002. The decrease was primarily due to lower personnel costs resulting from reductions in the workforce and lower expenses for the development of MWM software solutions. Other research and product development expenses, not charged to segments, were $544,000 in fiscal year 2003, compared to $900,000 in fiscal year 2002. The decrease was primarily due to lower personnel and other costs associated with technology investigation and oversight functions. We anticipate continuing investments in research and product development expenses in future periods related to ongoing initiatives in the development of optical products and network services management and mobile workforce software capabilities.

Operating Loss By Segment.    Operating loss (excluding unallocated items) for the Broadband Communications Products segment in fiscal year 2003 was $18.7 million, compared to a loss of $8.5 million in fiscal year 2002. Included in the operating loss for fiscal year 2002 was a charge of $37.7 million for a specific charge-off of accounts receivable from Adelphia Communications and affiliates, and $2.4 million related to customers in Latin America. Excluding these charges from the prior year, the change in our operating results from year to year would have been increased losses as a result of lower sales volumes, lower gross margins, and increased provisions for excess and obsolete inventory during fiscal year 2003. Operating loss (excluding unallocated items) for the Broadband Network Services segment in fiscal year 2003 was $791,000, compared to a loss of $3.0 million in fiscal year 2002. The decline in operating loss for fiscal year 2003 was primarily a result of a charge to bad debt expense of $7.2 million related to Adelphia in fiscal year 2002. Excluding this charge, the operating loss would have increased as a result of lower sales volumes and lower gross margins during fiscal year 2003. Operating loss (excluding unallocated items) for the Broadband Management Solutions segment in fiscal year 2003 was $7.9 million, compared to a loss of $19.1 million in fiscal year 2002. Included in the operating loss for fiscal year 2002 was $5.0 million in amortization of intangibles related to our acquisition of Mobileforce. Based upon the projected recoverability of these intangible assets, an impairment charge for the remaining carrying value of these assets was recorded as of June 28, 2002, but not allocated to the Broadband Management Solutions segment. Excluding the aforementioned amortization, the reduction in operating loss for fiscal year 2003 derives primarily from increased volume during the fiscal year, as a result of increased deployments, and an improved cost structure.

Interest and Investment Income.    Interest expense was $317,000 in fiscal year 2003, compared to $146,000 in fiscal year 2002. The increase in interest expense in fiscal year 2003 resulted primarily from an imputed interest charge of $200,000 related to the PBN acquisition.

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Investment income was $999,000 in fiscal year 2003, compared to $1.8 million in fiscal year 2002. The decrease in investment income resulted from reduced investment balances, compared to fiscal year 2002 and lower interest rates. Operating cash and short-term investments were used to fund the PBN acquisition and operating losses during fiscal year 2003

Foreign Exchange Gain (Loss).    Foreign exchange loss was $803,000 in fiscal year 2003, compared to a gain of $2.5 million in fiscal year 2002. The foreign currency exchange loss for fiscal year 2003 includes a $1.6 million loss related to the settlement of a foreign exchange forward contract. In fiscal year 2002, we recorded a gain of $1.6 million related to this foreign exchange forward contract.

Other Income (Expense), Net.    Other income, net was $905,000 in fiscal year 2003, compared to other expense, net of $1.5 million in fiscal year 2002. Other income, net for fiscal year 2003 included $800,000 as a partial recovery on a note receivable from a third party that had been fully reserved for by the Company in fiscal year 2002.

Income Taxes.    Income tax expense was $47.0 million for fiscal year 2003, compared with an income tax benefit for fiscal year 2002 of $23.2 million. During fiscal year 2003, the Company assessed the realizability of its deferred tax assets, giving consideration to historical operating losses, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. As a result of the cumulative losses over the past three years, we determined that realization of any future benefit from deductible temporary differences, net operating losses and tax credit carryforwards was uncertain as of June 27, 2003. Therefore, the Company recorded an additional valuation allowance of $82.2 million for the full amount of its net deferred tax assets, with the exception of certain net deferred tax assets in specific foreign jurisdictions. We expect to record valuation allowances related to net tax benefits arising from temporary differences and operating losses in future periods until a level of profitability is sustained that demonstrates it is more likely than not that the Company will be able to realize all or part of the tax benefits of the deferred tax assets.

Fiscal 2002 Compared to Fiscal 2001

Net Sales.    Net sales increased by 19% to $265.7 million in fiscal year 2002 from $223.3 million in fiscal year 2001. Broadband Communications Products segment sales increased by 23% to $224.3 million in fiscal year 2002 from $181.9 million in fiscal year 2001. Demand increased from both domestic and international cable operators compared to the prior year when broadband communications products sales declined as a result of a sharp slowdown of capital spending in the telecommunications industry. Spending for network system upgrades during the year was driven by requirements for higher bandwidth products to support new two-way services. Contributing to the sales growth were incremental sales resulting from our acquisition of certain assets of ADC, primarily for optical product lines. Optical product sales were $113.8 million in fiscal year 2002, compared to $33.0 million in fiscal year 2001. Sales of radio frequency amplifiers decreased 26% to $110.5 million in fiscal year 2002 from $148.9 million in fiscal year 2001. Broadband Network Services segment sales remained relatively flat at $38.1 million in fiscal year 2002 compared to $38.8 million in fiscal year 2001. Sales were primarily attributable to technical services performed in our customers’ plants. Broadband Management Solutions segment sales also remained relatively flat at $3.3 million in fiscal year 2002 compared to $2.7 million in fiscal year 2001. Sales were primarily attributable to mobile workforce software licenses and professional services.

Domestic sales increased by 19% to $232.1 million in fiscal year 2002 from $194.7 million in fiscal year 2001. This increase resulted primarily from an increase in Broadband Communications Products segment sales, due to the increased capital spending by certain domestic MSOs. Included in the domestic sales for fiscal year 2002, were $78.5 million of sales to Adelphia. On June 25, 2002, Adelphia filed a petition for protection under the federal bankruptcy statutes. Total domestic sales were 87% of consolidated net sales for both fiscal years 2002 and 2001.

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International sales increased by 18% to $33.6 million in fiscal year 2002 from $28.6 million in fiscal year 2001. The increase resulted from an increase in Broadband Communications Products segment sales in Europe, Asia, and Latin America during the year. As a result of our acquisition of certain assets and operations of ADC, we benefited from expansion of our customer base in Europe and added an operation in Klagenfurt, Austria. Our total international sales were 13% of consolidated net sales for both fiscal years 2002 and 2001.

Gross Margin.    Gross margin was 29.4% in fiscal year 2002, compared to 20.4% in fiscal year 2001. For the Broadband Communications Products segment, gross margin was 31.6% in fiscal year 2002, compared to 19.7% in fiscal year 2001. The improvement in Broadband Communications Products segment gross margin was due primarily to product mix, which included higher sales of optical products which typically carry higher gross margins than radio frequency products, and improvements in our cost structure as a result of manufacturing consolidation efforts which began in the last half of fiscal year 2001. For the Broadband Network Services segment, gross margin was 23.8% in fiscal year 2002, compared to 24.1% in fiscal year 2001. The decrease in Broadband Network Services segment gross margin was due primarily to services mix. Broadband Management Solutions segment gross margin was (58.0%) in fiscal year 2002, compared to 14.8% in fiscal year 2001. Broadband Management Solutions segment gross margin was impacted negatively by increased costs associated with employees that support the deployment of network services management and mobile workforce management solutions, which were included in cost of sales.

Selling and Administrative.    Selling and administrative expenses were $93.3 million (35.1% of net sales) in fiscal year 2002, compared to $31.0 million (13.9% of net sales) in fiscal year 2001. Included in selling and administrative expense for fiscal year 2002 was bad debt expense of $47.3 million, which includes $44.9 million for a specific charge-off of accounts receivable from Adelphia Communications and affiliates, and $2.4 million related to customers in Latin America. Selling and administrative expenses also increased during fiscal year 2002 due to personnel costs and administrative expenses related to our acquisitions of MobileForce Technologies Inc. (MobileForce) in April 2001, and certain operations of ADC in August 2001. In addition, costs associated with the implementation of a fully integrated ERP system were incurred during fiscal year 2002. Costs of $1.9 million related to business process reengineering activities and training associated with this project were expensed as incurred in fiscal year 2002.

Research and Product Development.    Research and product development expenses were $27.1 million (10.2% of net sales) in fiscal year 2002, compared to $17.4 million (7.8% of net sales) in fiscal year 2001. Research and product development expenses in the Broadband Communications Products segment were $17.9 million for fiscal year 2002, compared to $10.1 million for fiscal year 2001. The increase was primarily due to higher personnel costs resulting from inclusion of certain operations of ADC and additional expenses for the development of optical products. Research and product development expenses in the Broadband Management Solutions segment were $8.3 million in fiscal year 2002, compared to $6.7 million for fiscal year 2001. The increase was primarily due to higher personnel costs resulting from our acquisition of MobileForce in April 2001 and additional expenses for the development of mobile workforce management software solutions. Other research and product development expenses, not charged to segments, were $900,000 in fiscal year 2002, compared to $600,000 in fiscal year 2001. The increase was primarily due to higher personnel and other costs associated with technology investigation and oversight functions.

Operating Income (Loss) By Segment.    Operating loss (excluding unallocated items) for the Broadband Communications Products segment in fiscal year 2002 was $8.5 million, compared to operating income of $15.2 million in fiscal year 2001. The decrease in operating income for fiscal year 2002 was primarily attributable to bad debt expense of $40.1 million related to Adelphia and Latin American customers during the year. Operating loss (excluding unallocated items) for the Broadband Network Services segment in fiscal year 2002 was $3.0 million, compared to operating income of $4.1 million in fiscal year 2001. The operating loss for fiscal year 2002 derived primarily from a charge to bad debt expense of $7.2 million related to Adelphia. Operating loss (excluding unallocated items) for the Broadband Management Solutions segment in fiscal year 2002 was

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$19.1 million, compared to a loss of $8.3 million in fiscal year 2001. The increased operating loss for fiscal year 2002 derives primarily from investment and development costs associated with our network services management products, as well as operating costs, including amortization of acquired intangible assets related to our MobileForce acquisition in April 2001.

Interest and Investment Income.    Interest expense was $146,000 in fiscal year 2002, compared to $109,000 in fiscal year 2001. The increase in interest expense in fiscal year 2002 resulted primarily from interest on certain long-term obligations.

Investment income was $1.8 million in fiscal year 2002, compared to $7.4 million in fiscal year 2001. The decrease in investment income resulted from reduced investment balances compared to fiscal year 2001 and lower interest rates.

Foreign Exchange Gain.    Foreign exchange gain was $2.5 million in fiscal year 2002, compared to $55,000 in fiscal year 2001. The increase in foreign exchange gain in fiscal year 2002 included $1.6 million for a gain related to the fair value of a foreign exchange forward contract, and $923,000 for other net foreign currency transaction gains during the period.

Other Expense, Net.    Other expense, net was $1.5 million in fiscal year 2002, compared to $3.5 million in fiscal year 2001. Other expense, net for fiscal year 2002 included a provision for impairment of a note receivable of $1.3 million from a third party. In fiscal year 2001, other expense, net primarily was comprised of a $3.5 million write-off of a long-term investment.

Income Taxes.    Our overall effective income tax rate was (35.6%) for fiscal year 2002, compared to (39.8%) for fiscal year 2001. The effective income tax rate for fiscal year 2002 reflects the impact of U.S. federal, foreign and state income taxes and changes in the valuation allowance for deferred taxes. The lower effective income tax rate for fiscal year 2002 resulted primarily from an increase in the valuation allowance of $2.9 million related to the tax benefits of losses in foreign jurisdictions and for state income tax purposes that may not be realized. In addition, fluctuations in the effective income tax rate from period to period reflect changes in permanent differences, non-deductible amounts, the relative profitability related to U.S. versus non-U.S. operations and the differences in statutory tax rates by jurisdiction.

Liquidity and Capital Resources

As of June 27, 2003, cash and cash equivalents totaled $22.6 million, down from $111.9 million at June 28, 2002. In addition, the Company has an arrangement with a bank at June 27, 2003 whereby a cash compensating balance of $2.3 million is being maintained to secure certain letters of credit issued on behalf of the Company. The total cash compensating balance was classified as a current asset at June 27, 2003, as the terms for the letters of credit expire in less than one year.

Working capital was $37.6 million at June 27, 2003 as compared with $164.7 million as of June 28, 2002. The reduction in working capital was primarily attributable to our acquisition of PBN, establishment of a valuation allowance related to net deferred tax assets, increases in excess and obsolete inventory provisions, and funding the loss from operations during fiscal year 2003.

Net cash used in operating activities was $11.9 million in fiscal year 2003, compared with $11.0 million in fiscal year 2002. The net loss for fiscal year 2003 included a number of non-cash charges such as the $46.9 million intangible asset impairment charge, a $45.3 million change in deferred tax assets related to recording a valuation allowance, and a $19.6 million increase in inventory reserves. Accounts and notes receivable decreased

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by $12.6 million in fiscal year 2003 compared to a decrease of $2.6 million in the prior year, reflecting declining sales volumes during the current year. Offsetting these changes were cash used of $7.9 million for reductions in accounts payables and $14.3 million related to reductions in accrued liabilities, reflecting payments against incentive, restructuring and other accruals from the prior year. All of the foregoing amounts are net of the effect of acquisitions.

Net cash used in investing activities was $79.1 million in fiscal year 2003, compared to $20.2 million in fiscal year 2002. The increase in cash used in investing activities during the fiscal year was due primarily to utilizing $73.9 million of cash for the acquisition of PBN assets and operations, and $3.6 million for the payment of an earnout provision associated with our Aerotec Communications, Inc. acquisition. In addition to the initial consideration paid for the PBN assets, additional consideration of 604,000 Euros will be paid by December 31, 2003. Other uses of cash were for the purchase of property, plant and equipment of $4.2 million during fiscal year 2003. The major elements of the cash used for investing activities for the same period of the prior year were $26.5 million used for the acquisition of certain operations of ADC, $11.2 million for the purchase of marketable securities and other short-term investments and $8.0 million for the purchase of property, plant and equipment. These uses were offset partially by proceeds of $25.5 million from the sale of marketable securities, other short-term investments and property, plant and equipment.

Net cash used in financing activities was $151,000 in fiscal year 2003, compared with cash provided by financing activities of $54.4 million for the same period of the prior year. The current year activity primarily represented payments on long-term debt, which were partially offset by proceeds from the issuance of common stock to our employee stock purchase plan and from the exercise of stock options and warrants. The major element of the change in cash provided by financing activities for the same period of the prior year was net proceeds of $52.2 million received from our follow-on public offering of stock on February 19, 2002 and $5.3 million from the exercise of stock options and warrants, which were partially offset by $3.1 million used for the purchase of treasury stock.

The Company has a two-year secured revolving credit financing agreement with a commercial lender. Borrowings under the financing agreement may be used for working capital and general corporate purposes, and provides a commitment of up to an aggregate amount of $20.0 million. The financing agreement allows for issuance of letters of credit and cash borrowings. Letters of credit outstanding are limited to no more than $6.0 million. Cash borrowings are limited by certain availability reserves and a borrowing base, primarily a percentage of eligible domestic trade accounts receivables, up to the facility’s maximum availability less letters of credit outstanding.

As security for the financing agreement, the Company has pledged the following collateral: trade accounts receivable, inventory, general intangibles, real estate, equipment, life insurance policies, and certain stock of a wholly owned foreign subsidiary. The financing agreement contains a number of restrictive covenants, including covenants limiting incurrence of subordinated debt, disposal of collateral, and the payment of dividends (except stock dividends). The financing agreement contains no financial covenants.

The financing agreement is committed through November 6, 2004. Borrowings under the financing agreement bear interest at an applicable bank rate or LIBOR plus two and three-quarters percent (2.75%) per annum, payable monthly. The financing agreement required the payment of a facility fee of $150,000 at execution, a fee on the unused commitment of 0.375% per annum payable monthly, and an administrative fee of $36,000 per annum. As of June 27, 2003, the Company had no borrowings outstanding on the financing agreement. Based upon the eligible borrowing base at June 27, 2003, available borrowings under the financing agreement were $7.4 million.

As a condition for closing on the financing agreement, the Company terminated its prior credit agreement with a bank, whereby $7.5 million was available as a revolving line-of-credit, subject to an aggregate sub-limit of $5.0 million for issuance of letters of credit. As of June 27, 2003, we continued to maintain letters of credit with the

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bank in the aggregate of $2.3 million related to our workers compensation program, customer obligations, and equipment lease obligations. We are required to maintain cash deposits of $2.3 million as collateral for these letters of credit. Under the current financing agreement, a letter of credit has been issued for $600,000 related to increased requirements under our workers compensation policy.

Information regarding our contractual obligations are as follows:

Information regarding our commitments are as follows:

Our main source of liquidity is our unrestricted cash on hand. We will continue to use cash to fund our restructuring accrual and additional consideration required for the acquisition of certain operations of PBN. We believe that restructuring initiatives completed in fiscal year 2003, including the closing of our Manlius, New York manufacturing facility and our Louviers, France operation, will produce cash savings in fiscal year 2004. We intend to continue our initiatives to achieve more cost-effective operations throughout fiscal year 2004. Although no specific restructuring actions are planned at the present time, if a further decline in spending occurs in the cable industry, we may undertake additional restructuring initiatives and incur expenses in amounts that have not yet been determined. In addition, we have filed unsecured claims in the bankruptcy cases of Adelphia Communications and affiliates, related to our accounts receivable which were previously written-off in fiscal year 2002. A subsequent recovery or partial recovery of these accounts receivable could result in a potential future source of cash and positive impact on our results of operations.

We believe that current unrestricted cash and cash equivalents balances, as well as our new financing agreement, will be adequate to cover our operating cash requirements, planned capital expenditures, remaining restructuring costs and the additional consideration for the acquisition of certain operations of PBN over the next 12 months. However, we may find it necessary or desirable to seek other sources of financing to support our capital needs and provide available funds for working capital, or financing strategic initiatives, including acquiring or investing in complementary businesses, products, services, or technologies. Given the current status of the communications industry and its impact on our near term financial results and the restrictions in the financing agreement, we believe there are limited alternatives available as sources of additional financing. Accordingly, any plan to raise additional capital would likely involve equity-based financing, such as the issuance of common stock, preferred stock, or subordinated convertible debt securities and warrants, which would be dilutive to existing shareholders.

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Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (Statement 144), which supersedes both SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of” (Statement 121) and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). Statement 144 retains the fundamental provisions in Statement 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with Statement 121. For example, Statement 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike Statement 121, an impairment assessment under Statement 144 will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142, “Goodwill and Other Intangible Assets” (Statement 142). We adopted Statement 144 effective June 29, 2002. The adoption of Statement 144 for long-lived assets held for use did not have a material impact on the consolidated financial statements. The provisions of Statement 144 for assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (Statement 146), which replaces Emerging Issues Task Force No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Statement 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of Statement 146 are effective for exit or disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (the Interpretation), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The Interpretation also requires the recognition of a liability by a guarantor at the inception of certain guarantees.

The Interpretation requires the guarantor to recognize a liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. We have adopted the disclosure requirements of the Interpretation (see Note R to our consolidated financial statements) and will apply the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (Statement 148). The provisions of Statement 148 amend SFAS No. 123, “Accounting for Stock Based Compensation” (Statement 123), to provide alternative methods of transitioning to a fair value-based method of accounting for stock-based employee compensation. In addition, Statement 148 also expands the disclosure requirements of Statement 123 by requiring more detailed disclosure in both annual and interim financial statements. We adopted Statement 148 effective December 28, 2002. The transition provisions of Statement 148 did not have a material impact on the Company’s financial results, as the Company has not adopted the fair value-based accounting provisions of Statement 123.

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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, foreign currency exchange rates, and interest rates. The Company is exposed to market risk because of changes in foreign currency exchange rates and interest rates, and changes in the fair market value of its marketable securities portfolios.

The Company is exposed to foreign currency exchange rate risks inherent in our sales commitments, anticipated sales, and assets and liabilities denominated in currencies other than the United States dollar. We attempt to minimize exposure to currencies by managing our operating activities and net asset positions. As of June 27, 2003, our exposure to foreign currencies related primarily to intercompany foreign currency transactions where settlement is anticipated and additional consideration to be paid for the acquisition of PBN. Additional consideration of 604,000 Euros will be paid by December 31, 2003.

The Company does not use derivative instruments in its marketable securities portfolio. The Company classifies its investments in its marketable securities portfolio 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. Changes in interest rates are not expected to have a material adverse effect on our financial condition or results of operations.

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:

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Independent Auditors’ Report

The Board of Directors and Stockholders

C-COR.net Corp.:

We have audited the accompanying consolidated balance sheets of C-COR.net Corp. and subsidiaries as of June 27, 2003 and June 28, 2002, and the related consolidated statements of operations, cash flows, and shareholders’ equity for each of the fiscal years in the three-year period ended June 27, 2003. 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 27, 2003 and June 28, 2002, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended June 27, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note A to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective June 29, 2002.

Harrisburg, Pennsylvania

August 8, 2003

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C-COR.net Corp.

Consolidated Balance Sheets

(In thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

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C-COR.net Corp.

Consolidated Statements of Operations

(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

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C-COR.net Corp.

Consolidated Statements of Cash Flows

(In thousands)