-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SIAaXH1As/WvU/j4nVH9h4efIEvEBdVqhoQ9AiBLh9Wu1wjSboKZhmkhWWsmqiKd Jok9PJlfQWIzNPd0C/tKWw== 0000350621-01-500014.txt : 20010515 0000350621-01-500014.hdr.sgml : 20010515 ACCESSION NUMBER: 0000350621-01-500014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010330 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: C COR NET CORP CENTRAL INDEX KEY: 0000350621 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 240811591 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10726 FILM NUMBER: 1633475 BUSINESS ADDRESS: STREET 1: 60 DECIBEL RD CITY: STATE COLLEGE STATE: PA ZIP: 16801 BUSINESS PHONE: 8142382461 MAIL ADDRESS: STREET 1: 60 DECIBEL ROAD CITY: STATE COLLEGE STATE: PA ZIP: 16801 FORMER COMPANY: FORMER CONFORMED NAME: C COR ELECTRONICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 fy01q3.txt FISCAL YEAR 2001 Q3 10Q United States SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the thirteen-week period ended: March 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 C-COR.net Corp. -------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Pennsylvania 0-10726 24-0811591 ------------------------------------------------------------------------------ (State or Other Juris- (Commission File (IRS Employer diction of Incorporation) Number) Identification No.) 60 Decibel Road State College, PA 16801 - -------------------------------------------------------------------------------- (Address of Principal (Zip Code) Executive Offices) (814) 238-2461 -------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.05 Par Value - 32,316,060 shares as of May 1, 2001. C-COR.net Corp. Page ---- Part I -- FINANCIAL INFORMATION Item 1. Financial Statements Independent Accountants' Review Report ..................... 2 Condensed Consolidated Balance Sheets: As of March 30, 2001 and June 30, 2000................... 3 Condensed Consolidated Statements of Operations: Thirteen Weeks Ended March 30, 2001 and March 24, 2000.... 4 Thirty-nine Weeks Ended March 30, 2001 and March 24, 2000. 5 Condensed Consolidated Statements of Cash Flows Thirty-nine Weeks Ended March 30, 2001 and March 24, 2000. 6 Notes to Condensed Consolidated Financial Statements ....... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk ... 17 Part II -- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Shareholders .............. 17 Item 5. Other Information..............................................17 Item 6. Exhibits and Reports on Form 8-K ............................. 17 Signatures ........................................................... 18 1 Independent Accountants' Review Report The Board of Directors C-COR.net Corp. and Subsidiaries: We have reviewed the condensed consolidated balance sheet of C-COR.net Corp. and subsidiaries as of March 30, 2001 and the related condensed consolidated statements of operations and cash flows for the thirteen-week and thirty-nine week periods ended March 30, 2001 and March 24, 2000. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of C-COR.net Corp. and subsidiaries as of June 30, 2000, and the related consolidated statements of operations, cash flows, and shareholders' equity for the year then ended (not presented herein); and in our report dated August 11, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2000, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG LLP - --------------------------- State College, Pennsylvania April 12, 2001 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements C-COR.net Corp. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) March 30, June 30, 2001 2000 --------- --------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents ............................ $ 111,784 $ 95,379 Marketable securities ................................ 8,799 42,154 Interest receivable .................................. 411 1,007 Accounts and notes receivables, net .................. 31,755 49,325 Inventories .......................................... 39,307 31,760 Deferred taxes ....................................... 8,256 7,470 Other current assets ................................. 8,564 3,826 --------- --------- TOTAL CURRENT ASSETS ................................. 208,876 230,921 Property, plant, and equipment, net .................. 20,140 28,322 Intangible assets, net ............................... 2,174 2,477 Deferred taxes ....................................... 5,598 4,909 Other long-term assets ............................... 6,266 6,410 --------- --------- TOTAL ASSETS.......................................... $ 243,054 $ 273,039 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ..................................... $ 15,345 $ 21,341 Accrued liabilities .................................. 19,701 20,056 Current portion of long-term debt .................... 214 225 --------- --------- TOTAL CURRENT LIABILITIES ............................ 35,260 41,622 Long-term debt, less current portion ................. 1,375 1,527 Other long-term liabilities .......................... 1,872 2,232 --------- --------- TOTAL LIABILITIES .................................... 38,507 45,381 SHAREHOLDERS' EQUITY Common stock, $.05 par; authorized shares 100,000,000; issued shares of 35,467,261 on March 30, 2001 and 35,219,825 on June 30, 2000 ..... 1,773 1,761 Additional paid-in capital ........................... 199,344 197,240 Accumulated other comprehensive loss ................. (147) (30) Unearned compensation ................................ (2) (8) Retained earnings .................................... 34,528 35,952 Treasury stock at cost ............................... (30,949) (7,257) --------- --------- TOTAL SHAREHOLDERS' EQUITY ........................... 204,547 227,658 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 243,054 $ 273,039 ========= ========= See independent accountants' review report and notes to condensed consolidated financial statements. 3 C-COR.net Corp. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) Thirteen Weeks Ended --------------------------- March 30, March 24, 2001 2000 ----------- ----------- Net sales ........................................ $ 40,134 $ 63,339 Cost of sales .................................... 38,486 46,670 ----------- ----------- Gross margin ..................................... 1,648 16,669 ----------- ----------- Operating expenses: Selling and administrative ..................... 7,167 7,055 Research and product development ............... 4,463 4,323 Merger and restructuring costs ................. 11,076 4,373 ----------- ----------- Total operating expenses ...................... 22,706 15,751 ----------- ----------- Income (loss) from operations (21,058) 918 Interest expense ................................. (36) (14) Investment income ................................ 1,820 1,884 Other income, net ................................ 8 73 ----------- ----------- Income (loss) before income taxes ................ (19,266) 2,861 Income tax benefit ............................... (7,742) (1,774) ----------- ----------- Income (loss) from continuing operations ......... (11,524) 4,635 Discontinued operations: Gain on disposal of discontinued business segment, net of tax ................... 6 780 ----------- ----------- Net income (loss) ................................ $ (11,518) $ 5,415 =========== =========== Net income (loss) per share - basic: Continuing operations .......................... $ (0.36) $ 0.14 Gain on disposal of discontinued operations ................................... 0.00 0.02 ----------- ----------- Net income (loss) ................................ $ (0.36) $ 0.16 =========== =========== Net income (loss) per share - diluted: Continuing operations .......................... $ (0.36) $ 0.13 Gain on disposal of discontinued operations ................................... 0.00 0.02 ----------- ----------- Net income (loss) ................................ $ (0.36) $ 0.15 =========== =========== See independent accountants' review report and notes to condensed consolidated financial statements. 4 C-COR.net Corp. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) Thirty-nine Weeks Ended --------------------------- March 30, March 24, 2001 2000 ----------- ----------- Net sales ........................................ $ 184,514 $ 203,181 Cost of sales .................................... 143,941 149,900 ----------- ----------- Gross margin .................................... 40,573 53,281 ----------- ----------- Operating expenses: Selling and administrative ..................... 23,417 24,228 Research and product development ............... 13,276 11,006 Merger and restructuring costs ................. 11,726 8,046 ----------- ----------- Total operating expenses ...................... 48,419 43,280 ----------- ----------- Income (loss) from operations (7,846) 10,001 Interest expense ................................. (65) (775) Investment income ................................ 5,737 2,802 Other expense, net ............................... (203) (226) ----------- ----------- Income (loss) before income taxes ................ (2,377) 11,802 Income tax expense (benefit) ..................... (951) 2,532 ----------- ----------- Income (loss) from continuing operations ......... (1,426) 9,270 Discontinued operations: Gain on disposal of discontinued business segment, net of tax ................... 2 822 ----------- ----------- Net income (loss) ................................ $ (1,424) $ 10,092 =========== =========== Net income (loss) per share - basic: Continuing operations ......................... $ (0.04) $ 0.32 Gain on disposal of discontinued operations ................................... 0.00 0.03 ----------- ----------- Net income (loss) ................................ $ (0.04) $ 0.35 =========== =========== Net income (loss) per share - diluted: Continuing operations ......................... $ (0.04) $ 0.28 Gain on disposal of discontinued operations ................................... 0.00 0.03 ----------- ----------- Net income (loss) ................................ $ (0.04) $ 0.31 =========== =========== See independent accountants' review report and notes to condensed consolidated financial statements. 5 C-COR.net Corp. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands of dollars) Thirty-nine Weeks Ended -------------------- March 30, March 24, 2001 2000 -------- -------- OPERATING ACTIVITIES Net income (loss) .................................... $ (1,424) $ 10,092 Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: Depreciation and amortization ...................... 7,583 7,219 Amortization of debt discount ...................... - 381 Amortization of unearned compensation .............. 6 10 Gain on disposal of discontinued operations, net of tax........................................ (2) (822) Loss on sales and write-down of long-lived assets .. 5,214 331 Tax benefit deriving from exercise and sales of stock option shares ..................... 207 2,775 Changes in operating assets and liabilities: Interest receivable ............................. 596 (846) Accounts and notes receivable ................... 17,570 (8,066) Inventories ..................................... (7,547) (7,862) Other assets .................................... (6,219) (40) Accounts payable ................................ (5,996) (1,956) Accrued liabilities ............................. (780) 2,814 Deferred retirement salary plan ................. (6) 75 Deferred income taxes ........................... (1,404) (3,968) Discontinued operations - working capital changes and noncash charges ........................... 93 1,146 -------- -------- NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES ................... 7,891 1,283 -------- -------- INVESTING ACTIVITIES Purchase of property, plant, and equipment ........... (2,933) (6,868) Proceeds from sale (purchase) of marketable securities and other short term investments .................... 33,355 (51,444) Asset purchase of ACSI ............................... - (3,246) Investment in equity securities....................... - (3,501) Proceeds from sale of property, plant, and equipment.. 38 8 -------- -------- NET CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN) INVESTING ACTIVITIES ......... 30,460 (65,051) -------- -------- FINANCING ACTIVITIES Payment of debt and capital lease obligations ........ (163) (2,786) Payment on short-term credit facilities, net ......... - (5,019) Issue common stock to employee stock purchase plan ... 107 85 Proceeds from exercise of stock options .............. 1,243 4,909 Proceeds from exercise of warrants ................... 559 2,960 Proceeds from issuance of common stock, net .......... - 133,361 Purchase of treasury stock ........................... (23,692) - -------- -------- NET CASH AND CASH EQUIVALENTS (USED IN) PROVIDED BY FINANCING ACTIVITIES ......... (21,946) 133,510 -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS ................ 16,405 69,742 Cash and cash equivalents at beginning of year ....... 95,379 5,805 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $111,784 $ 75,547 ======== ======== Supplemental cash flow information: Non-cash investing activities Fair value adjustment of available-for-sale securities ........................................ $ (88) $ (2) See independent accountants' review report and notes to condensed consolidated financial statements. 6 C-COR.net Corp. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands except per share data) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, and in the opinion of management, contain all adjustments (consisting only of normal, recurring adjustments) necessary to fairly present the Company's financial position as of March 30, 2001, and the results of its operations for the thirteen-week and thirty-nine week periods then ended. Operating results for the thirteen-week and thirty-nine week periods are not necessarily indicative of the results that may be expected for the year ending June 29, 2001. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended June 30, 2000. 2. DESCRIPTION OF BUSINESS C-COR.net Corp. (the Company) designs, manufactures and markets network transmission products and provides services and support to hybrid fiber coax (HFC) network operators. The Company operates in two industry segments: the Telecommunications Equipment segment which provides a comprehensive range of products, including radio frequency (RF) amplifiers and fiber optic equipment for the network headend, node and RF plant; and the Broadband Management Services segment which focuses on enabling reliable, high speed, broadband communications over HFC networks and includes network management and enabling services, high-speed data certification, system integration services, data security solutions, network engineering and design, system activation, network optimization, and system maintenance. 3. INVENTORIES Inventories as of March 30, 2001 and June 30, 2000 consisted of the following: March 30, June 30, 2001 2000 ------- ------- Finished goods .............................. $ 8,925 $ 5,288 Work-in-process ............................. 6,284 6,841 Raw materials ............................... 24,098 19,631 ------- ------- Total inventories ........................ $39,307 $31,760 ======= ======= 4. ACCRUED LIABILITIES Accrued liabilities consisted of: March 30, June 30, 2001 2000 ------------- ------------- Accrued incentive plan expense .............. $ 1,716 $ 3,510 Accrued vacation expense .................... 1,780 1,880 Accrued salary expense ...................... 908 2,678 Accrued payroll and sales tax ............... 993 972 Accrued warranty expense .................... 3,722 2,232 Accrued workers compensation self-insurance expense .................... 2,124 1,577 Accrued restructuring and merger-related costs ..................................... 5,368 489 Accrued other ............................... 3,090 6,718 ------------- ------------- $ 19,701 $ 20,056 ============= ============= 7 5. RESTRUCTURING COSTS During the thirty-nine week period ended March 30, 2001, the Company recorded restructuring charges of $11,726, of which $11,076 was recorded during the thirteen week period ended March 30, 2001. The restructuring charges relate to our decisions to consolidate our manufacturing and network management operations and discontinue providing high-speed data Helpdesk services, affecting the Companys' State College and Tipton, Pennsylvania and Atlanta Georgia, facility locations. The restructuring charges represent employee termination benefits for approximately 850 employees and other costs to consolidate the operations. Other costs reflect a write-down of fixed assets and other long-lived assets that were employed in the operations, which the Company anticipate disposing of over the next few quarters, as well as cancellation costs associated with fixed contractual obligations. Details of the restructuring charge are as follows: Restructuring Accrual at Charges Cash Paid Non-Cash March 30, 2001 Employee severance and termination benefits ......... $ 5,391 $ 1,500 $ -- $ 3,891 Write-off of property, plant, and equipment ............. 4,478 -- 4,474 4 Write-off of intangibles and other long-lived assets ......... 490 -- 490 -- Contractual obligations ........... 1,073 74 -- 999 Other ............................. 294 -- 270 24 ------- ------- ------- ----------- Total ............................. $11,726 $ 1,574 $ 5,234 $ 4,918 ======= ======= ======= =========== It is expected that the remaining amounts accrued as of March 30, 2001 will be paid out over the next six months. 6. COMPREHENSIVE INCOME (LOSS) The components of accumulated other comprehensive loss, net of tax, of the Company are as follows: March 30, June 30, 2001 2000 ------------- ------------- Unrealized (loss) gain on marketable securities $ (16) $ 72 Foreign currency translation loss ............. (131) (102) ------------- ------------- Accumulated other comprehensive loss .......... $ (147) $ (30) ============= ============= The components of comprehensive income (loss) of the Company for the thirteen-week and thirty-nine week periods ended March 30, 2001, and March 24, 2000, are as follows: Thirteen Weeks Ended -------------------------- March 30, March 24, 2001 2000 --------- --------- Net income (loss) .................................. $ (11,518) $ 5,415 Other comprehensive loss, net of tax: Unrealized loss on marketable securities........ (25) - Foreign currency translation loss .............. - (20) --------- --------- Other comprehensive loss ........................... (25) (20) --------- --------- Comprehensive income (loss) ........................ $ (11,543) $ 5,395 ========= ========= Thirty-nine Weeks Ended --------------------------- March 30, March 24, 2000 1999 --------- --------- Net income (loss) .................................. $ (1,424) $ 10,092 Other comprehensive loss, net of tax: Unrealized loss on marketable securities ....... (88) (2) Foreign currency translation loss .............. (29) (29) --------- --------- Other comprehensive loss ........................... (117) (31) --------- --------- Comprehensive income (loss) ........................ $ (1,541) $ 10,061 ========= ========= 8 7. NET INCOME (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding. Dilutive net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding plus the dilutive effect of options and warrants. The dilutive effect of options and warrants is calculated under the treasury stock method using the average market price for the period. Net income (loss) per share is calculated as follows: Thirteen Weeks Ended ----------------------------- March 30, March 24, 2001 2000 ------------ ------------ Income (loss) from continuing operations ..... $ (11,524) $ 4,635 Gain from discontinued operations ............ 6 780 ------------ ------------ Net income (loss) ............................ $ (11,518) $ 5,415 ============ ============ Weighted average common shares outstanding ... 32,314 33,315 Common share equivalents ..................... - 3,750 ------------ ------------ Weighted average common shares and common share equivalents .......................... 32,314 37,065 ============ ============ Net income (loss) per share - basic: Continuing operations ...................... $ (0.36) $ 0.14 Discontinued operations .................... 0.00 0.02 ------------ ------------ Net income (loss) per share .................. $ (0.36) $ 0.16 ============ ============ Net income (loss) per share - diluted: Continuing operations ...................... $ (0.36) $ 0.13 Discontinued operations .................... 0.00 0.02 ------------ ------------ Net income (loss) per share .................. $ (0.36) $ 0.15 ============ ============ Thirty-nine Weeks Ended ----------------------------- March 30, March 24, 2001 2000 ------------ ------------ Income (loss) from continuing operations ..... $ (1,426) $ 9,270 Gain from discontinued operations ............ 2 822 ------------ ------------ Net income (loss)............................. $ (1,424) $ 10,092 ============ ============ Weighted average common shares outstanding ... 33,103 28,624 Common share equivalents ..................... - 4,200 ------------ ------------ Total ........................................ 33,103 32,824 ============ ============ Net income (loss) per share - basic: Continuing operations ...................... $ (0.04) $ 0.32 Discontinued operations .................... 0.00 0.03 ------------ ------------ Net income (loss) per share .................. $ (0.04) $ 0.35 ============ ============ Net income (loss) per share - diluted: Continuing operations ...................... $ (0.04) $ 0.28 Discontinued operations .................... 0.00 0.03 ------------ ------------ Net income (loss) per share .................. $ (0.04) $ 0.31 ============ ============ 9 8. SEGMENT INFORMATION The Company operates in two industry segments: the Telecommunications Equipment segment which provides a comprehensive range of products, including RF amplifiers and fiber optic equipment for the network headend, node and RF plant; and the Broadband Management Services segment which focuses on enabling reliable, high speed, broadband communications over HFC networks and includes network management and enabling services, high-speed data certification, system integration services, data security solutions, network engineering and design, system activation, network optimization, and system maintenance. Information about industry segments for the thirteen-week and the thirty-nine week periods ended March 30, 2001, and March 24, 2000, are as follows: Continuing Operations ---------------------------- Telecom- Broadband munications Management Equipment Services Total --------------------------------- 13 week period ended March 30, 2001 Total revenue .............................. $ 32,318 $ 7,816 $ 40,134 Operating loss (A) ......................... (7,400) (2,582) (9,982) Investment income .......................... 1,820 Interest expense ........................... 36 Income tax benefit(A) ...................... (3,312) Cash equivalents and marketable securities . 102,774 Identifiable assets at March 30, 2001 (B) 122,245 17,747 139,992 Capital expenditures ....................... 1,002 185 1,187 Depreciation and amortization .............. 2,169 602 2,771 13 week period ended March 24, 2000 Total revenue .............................. $ 53,998 $ 9,341 $ 63,339 Operating income (loss) (A) ................ 8,024 (2,733) 5,291 Investment income .......................... 1,884 Interest expense ........................... 14 Income tax benefit(A)....................... (1,310) Cash equivalents and marketable securities . 118,020 Identifiable assets at March 24, 2000 (B) 120,664 18,633 139,297 Capital expenditures ....................... 1,060 627 1,687 Depreciation and amortization .............. 1,818 548 2,366 39 week period ended March 30, 2001 Total revenue .............................. $151,461 $ 33,053 $184,514 Operating income (loss) (A)................. 6,087 (2,207) 3,880 Investment income .......................... 5,737 Interest expense ........................... 65 Income tax expense(A) ...................... 3,739 Cash equivalents and marketable securities . 102,774 Identifiable assets at March 30, 2001 (B) 122,245 17,747 139,992 Capital expenditures ....................... 2,204 729 2,933 Depreciation and amortization .............. 5,702 1,881 7,583 39 week period ended March 24, 2000 Total revenue .............................. $175,983 $ 27,198 $203,181 Operating income (loss)(A) ................. 21,277 (3,230) 18,047 Investment income .......................... 2,802 Interest expense ........................... 775 Income tax expense (A) ..................... 3,556 Cash equivalents and marketable securities . 118,020 Identifiable assets at March 24, 2000 (B) 120,664 18,633 139,297 Capital expenditures ....................... 5,070 1,798 6,868 Depreciation and amortization .............. 5,970 1,249 7,219 (A) Operating income (loss) and income tax expense (benefit) exclude the impact of non-recurring merger-related and restructuring costs. (B) Identifiable assets at March 30, 2001 and March 24, 2000 exclude cash equivalents and marketable securities related to the Company's follow-on public offering. 10 The Company and subsidiaries operate in various geographic areas as indicated by the following:
U.S Europe Elimination Total -------------------------------------------- 13 week period ended March 30, 2001 Sales to unaffiliated customers: Domestic .................................... $ 37,082 $ 805 $ -- $ 37,887 Export ...................................... 2,247 -- -- 2,247 Transfers between geographic areas .......... 400 -- (400) 0 Total revenue ............................... 39,729 805 (400) 40,134 Operating income (loss)(A) .................. (9,930) (52) -- (9,982) Investment income ........................... 1,820 Interest expense ............................ 36 Income tax benefit (A) ...................... (3,312) Identifiable assets at March 30, 2001 ....... 239,927 3,127 -- 243,054 Capital expenditures ........................ 1,187 -- -- 1,187 Depreciation and amortization ............... 2,771 -- -- 2,771 13 week period ended March 24, 2000 Sales to unaffiliated customers: Domestic .................................... $ 56,579 $ 320 $ -- $ 56,899 Export ...................................... 6,440 -- -- 6,440 Transfers between geographic areas .......... 104 -- (104) 0 Total revenue ............................... 63,123 320 (104) 63,339 Operating income (A) ........................ 4,542 749 -- 5,291 Investment income ........................... 1,884 Interest expense ............................ 14 Income tax benefit (A) ...................... (1,310) Identifiable assets at March 24, 2000 ....... 256,605 821 -- 257,426 Capital expenditures ........................ 1,687 -- -- 1,687 Depreciation and amortization ............... 2,361 5 -- 2,366 39 week period ended March 30, 2001 Sales to unaffiliated customers: Domestic .................................... $ 161,228 $ 3,220 $ -- $ 164,448 Export ...................................... 20,066 -- -- 20,066 Transfers between geographic areas .......... 615 -- (615) 0 Total revenue ............................... 181,909 3,220 (615) 184,514 Operating income (A) ........................ 3,870 10 -- 3,880 Investment income ........................... 5,737 Interest expense ............................ 65 Income tax expense (A) ...................... 3,739 Identifiable assets at March 30, 2001 ....... 239,927 3,127 -- 243,054 Capital expenditures ........................ 2,933 -- -- 2,933 Depreciation and amortization ............... 7,555 28 -- 7,583 39 week period ended March 24, 2000 Sales to unaffiliated customers: Domestic .................................... $ 181,682 $ 497 $ -- $ 182,179 Export ...................................... 21,002 -- -- 21,002 Transfers between geographic areas .......... 136 -- (136) 0 Total revenue ............................... 202,820 497 (136) 203,181 Operating income (A) ........................ 17,968 79 -- 18,047 Investment income ........................... 2,802 Interest expense ............................ 775 Income tax expense (A)....................... 3,556 Identifiable assets at March 24, 2000 ....... 256,605 821 -- 257,426 Capital expenditures ........................ 6,867 1 -- 6,868 Depreciation and amortization ............... 7,204 15 -- 7,219
(A) Operating income (loss) and income tax expense (benefit) exclude the impact of non-recurring merger-related and restructuring costs. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The following discussion addresses the financial condition of C-COR.net Corp. (the Company, or we) as of March 30, 2001, and the results of operations for the thirteen-week and thirty-nine week periods ended March 30, 2001, compared with the same periods of the prior fiscal year. This discussion should be read in conjunction with the Management's Discussion and Analysis section for the fiscal year ended June 30, 2000, included in the Company's Annual Report on Form 10-K. Disclosure Regarding Forward-Looking Statements Some of the information presented in this report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements regarding the ability of the Company to expand its product offering, statements regarding near-term softening in demand for telecommunications equipment, the continuation of network upgrade activity, the trend toward more fiber in the network, the Company's ability to develop new and enhanced products, global demand for the Company's products and services, the ability of the Company to expand its operations internationally and statements relating to the Company's business strategy. Forward-looking statements represent the Company's judgment regarding future events. Although the Company believes it has a reasonable basis for these forward-looking statements, the Company cannot guarantee their accuracy and actual results may differ materially from those the Company anticipated due to a number of uncertainties, many of which we are not aware. Factors which could cause actual results to differ from expectations include, among others, capital spending patterns of the communications industry, the Company's ability to develop new and enhanced products, continued industry consolidation, the development of competing technology, and the Company's ability to achieve its strategic objectives. For additional information concerning these and other important factors which may cause the Company's actual results to differ materially from expectations and underlying assumptions, please refer to the reports filed by the Company with the Securities and Exchange Commission. Results of Operations Net sales for the thirteen-week period ended March 30, 2001 were $40.1 million, a decrease of 37% from the prior year's sales of $63.3 million for the same period. Net sales for the thirty-nine week period ended March 30, 2001 were $184.5 million, a decrease of 9% from the prior year's sales of $203.2 million for the same period. Telecommunications Equipment segment sales decreased by 40% to $32.3 million during the thirteen-week period, compared to $54.0 million for the same period of the prior year. Telecommunications Equipment segment sales decreased by 14% to $151.5 million during the thirty-nine-week period, compared to $176.0 million for the same period of the prior year. We believe the decreases for the quarter and year-to-date periods reflect the sharp slowdown of capital spending in the telecommunications industry that began in the latter part of calendar year 2000. We believe factors affecting the slowdown in capital spending include high customer on-hand inventory levels, delays in construction schedules for hybrid fiber coax (HFC) network system build-outs, continued customer consolidation, and access to financing. We expect network system upgrade activity for current build-outs to continue, but spending for HFC network products to be delayed, as customers review their capital spending and upgrade plans. As a result, we anticipate a lower demand for telecommunications products in the near-term. 12 Broadband Management Services (BMS) segment sales decreased by 16% to $7.8 million during the thirteen-week period, compared to $9.3 million for the same period of the prior year. BMS segment sales increased by 22% to $33.1 million during the thirty-nine-week period, compared to $27.2 million for the same period of the prior year. BMS segment revenues were also negatively impacted during the quarter due to a slowdown in upgrade activities by several customers for technical customer services. The increase in BMS sales for the thirty-nine week period ended was due to an increase in technical services related to network upgrades, principally as a result of strong demand in the first half of the fiscal year before industry upgrade activity slowed. Domestic sales as a percentage of total consolidated sales were 92% and 87% for the thirteen-week and thirty-nine-week periods ended March 30, 2001, respectively. This compares to 89% for both periods of the prior year. Sales to domestic customers declined year over year 34% and 11% during the thirteen-week and thirty-nine week periods, respectively, primary due to a declines in Telecommunications Equipment segment sales for the periods. International sales as a percentage of total consolidated sales were 8% and 13% for the thirteen-week and thirty-nine-week periods ended March 30, 2001, respectively. This compares to 11% for both periods of the prior year. For the quarter, sales to international customers decreased 55%, due to reduced spending in Canada and Asia, but for the thirty-nine week period they increased 8%, principally due to sales of telecommunications equipment. This growth reflected sales to a major customer in Canada and increased demand from customers in the EuroPacific region in the first half of the fiscal year. 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 HFC network distribution equipment can be impacted by a variety of factors, including access to financing and general economic conditions. Gross margins were 4.1% and 22.0% for the thirteen-week and thirty-nine-week periods ended March 30, 2001, respectively. This compares to 26.3% and 26.2% for the same respective periods of the prior year. For the Telecommunications Equipment segment, gross margins were 1.9% and 21.5% for the thirteen-week and thirty-nine-week periods ended March 30, 2001, respectively. This compares to 29.2% and 28.1% for the same respective periods of the prior year. The decrease in gross margins for the periods derived primarily from under-absorbed manufacturing overhead resulting from lower production volumes, and increases to operating reserves for inventory obsolescence and warranty costs. We took steps during the quarter to mitigate the impact of volume reductions by announcing plans to consolidate over the next six months our manufacturing operations in State College and Tipton, Pennsylvania to our Tijuana, Mexico facility. We anticipate reduced gross margins in future quarters as the Company completes this consolidation. In addition, we incurred expenses of $3.2 million during the quarter to address technological obsolescence and slow moving inventories, as well as $1.3 million for higher warranty costs for equipment upgrades and replacements during the period. For the BMS segment, gross margins were 13.2% and 24.2% for the thirteen-week and thirty-nine-week periods ended March 30, 2001, respectively. This compares to 9.9% and 13.9% for the same respective periods of the prior year. The increases in gross margin for the quarter and year-to-date period were due primarily to service mix and volume changes. Selling and administrative expenses were $7.2 million (17.9% of net sales) for the thirteen-week period ended March 30, 2001, compared to $7.1 million (11.1% of net sales) for the same period of the prior year. Selling and administrative expenses were $23.4 million (12.7% of net sales) for the thirty-nine-week period ended March 30, 2001, compared to $24.2 million (11.9% of net sales) for the same period of the prior year. Our selling and administrative expense in absolute dollars did not vary much for the quarter, and declined slightly for the period year-to-date, but did increase as a percentage of sales due to the lower revenue volume for the periods. We have taken steps to reduce selling and administrative expenses, including personnel and other operating costs, to obtain a more favorable cost structure. We do anticipate increased selling and administrative expense in future periods, related to the acquisition of MobileForce Technologies Inc. (MobileForce), although selling and administrative expenses are expected to vary as a percentage of net sales. See Note 5. Research and product development expenses were $4.5 million (11.1% of net sales) for the thirteen-week period ended March 30, 2001, compared to $4.3 million (6.8% of net sales) for the same period of the prior year. Research and product development expenses were $13.3 million (7.2% of net sales) for the thirty-nine-week period ended March 30, 2001, compared to $11.0 million (5.4% of net sales) for the same period of the prior year. Research and product 13 development expenditures in absolute dollars did not vary much for the quarter, but did increase for the period year-to-date. The increase year-to-date derives from higher personnel costs and additional expenses primarily for development of fiber optic transmission products and the continued development of network management products and capabilities. We anticipate continuing increases in research and product development expenses in future periods, related to ongoing initiatives in the development of fiber optic products and network management products and capabilities, as well as the acquisition of MobileForce, although research and product development expenses are expected to vary as a percentage of net sales. The following discussion of operating income (loss) by segment for the thirteen-week and thirty-nine-week periods compared to the same periods of the prior year, exclude non-recurring merger related and restructuring costs. Operating loss for the Telecommunications Equipment segment for the thirteen-week period ended March 30, 2001, was $7.4 million, compared to operating income of $8.0 million for the same period of the prior year. Operating income for the Telecommunications Equipment segment for the thirty-nine-week period ended March 30, 2001, was $6.1 million, compared to $21.3 million for the same period of the prior year. Lower revenues and gross margins for the quarter and year-to-date period from reduced demand for telecommunications products negatively impacted operating results compared to the prior year. Operating loss for the BMS segment for the thirteen-week period ended March 30, 2001, was $2.6 million, compared to $2.7 million for the same period of the prior year. On a year to date basis, for the thirty-nine-week period ended March 30, 2001, operating loss for the BMS segment was $2.2 million, compared to $3.2 million for the same period of the prior year. Operating results of our BMS segment were also negatively impacted during the quarter due to lower revenue and gross margins, and although revenues have increased for the period year-to-date, operating results continue to reflect investments and development costs associated with our network management products. Interest expense was $36,000 for the thirteen-week period ended March 30, 2000, compared to $14,000 for the same period of the prior year. Interest expense was $65,000 for the thirty-nine-week period ended March 30, 2001, compared to $775,000 for the same period of the prior year. On a year-to-date basis, the decrease in interest expense resulted from reductions of long-term debt and borrowings on various short-term credit facilities, and a decrease in the amortization related to the fair market value of warrants issued in fiscal year 1999 in connection with certain debt financing arrangements by Silicon Valley Communications, Inc. (SVCI). Investment income was $1.8 million for the thirteen-week period ended March 30, 2001, compared to $1.9 million for the same period of the prior year. Investment income for the thirty-nine-week period ended March 30, 2001 was $5.7 million, compared to $2.8 million for the same period of the prior year. The increase in investment income for the period year-to-date resulted from short-term investments of the net proceeds received in our follow-on public offering completed on November 12, 1999. Our overall effective income tax benefit rate was 40% for the both the thirteen-week and thirty-nine-week periods ended March 30, 2001. This compared to an overall effective income tax expense (benefit) rate of (62%) and 21% for the same periods of the prior year, respectively. The tax benefit for the quarter period of the prior year resulted primarily from adjustment to the valuation allowance for deferred tax assets related to certain benefits from the acquisitions of Convergence.com Corporation (Convergence) and SVCI. For the prior year-to-date period, the effective income tax rate was also impacted by permanent differences for non-deductible business combination costs associated with the acquisitions of Convergence, SVCI, and Worldbridge Broadband Services, Inc. (Worldbridge). Merger and Restructuring Costs During the thirteen-week period ended March 30, 2001, we recorded a total restructuring charge of $11.1 million, related to our decision to consolidate our manufacturing and network management operations, affecting our State College and Tipton, Pennsylvania and Atlanta Georgia, facility locations. The decision was based upon reduced near-term demand for our telecommunications products and anticipated continuing shifts of product mix in response to evolving network architectures. The non-recurring charge represents employee severance and termination benefits for approximately 850 employees and other costs to consolidate the operations. Other costs reflect a write-down of fixed assets that were employed in the operations, which we anticipate disposing of over the next few quarters, as well as cancellation costs associated with fixed contractual obligations. For the thirty-nine week period, total non-recurring 14 merger and restructuring related costs of $11.7 million reflect the above actions, as well as our decision in the previous quarter to discontinue providing high-speed data Helpdesk services. Merger and restructuring costs of $8.0 million incurred in the prior year related to the acquisitions of Convergence, SVCI and Worldbridge. Liquidity and Capital Resources In November 1999, we completed a follow-on public offering of our common stock, resulting in net proceeds (after deducting issuance costs) of $133.3 million. As of March 30, 2001, cash and cash equivalents and marketable securities totaled $120.6 million, down from $137.5 million at June 30, 2000. Net cash and cash equivalents provided by operating activities were $7.9 million for the thirty-nine-week period ended March 30, 2001, compared to $1.3 million for the same period of the prior year. The increase in net cash and cash equivalents provided by operating activities was primarily due to reductions in accounts receivable, and were partially offset by increases in inventories and other assets, and reductions of accounts payables and accrued liabilities. Net cash and cash equivalents provided by investing activities were $30.5 million for the thirty-nine-week period ended March 30, 2001, compared to net cash and cash equivalents used in investing activities of $65.1 million for the same period of the prior year. The increase in cash and cash equivalents provided by investing activities was primarily due to proceeds from the sales of marketable securities and other short-term investments. Other investing activities included our purchases of property, plant and equipment for $2.9 million, as compared to $6.9 million for the same period of the prior year. Net cash and cash equivalents used in financing activities were $21.9 million for the thirty-nine-week period ended March 30, 2001, resulting primarily from the purchase of treasury stock during the period. On September 25, 2000, we announced a stock repurchase program, effective September 22, 2000. The program allowed the Company to repurchase up to 2,000,000 shares of C-COR.net common stock. On April 6, 2001, we raised the ceiling of this stock repurchase program to allow the buy back of an additional 2,000,000 shares, bringing the total to 4,000,000 shares authorized under this program. The shares may be purchased from time to time in the open market through block or privately negotiated transactions, or otherwise. The Company intends to use its currently available capital resources to fund the purchases. The repurchased stock is being held by the Company as treasury stock to be used to meet the Company's obligations under its present and future stock option plans and for other corporate purposes. As of March 30, 2001, 1,895,090 shares have been repurchased under this stock repurchase program. Our other financing activities consisted primarily of payments on short-term and long-term debt and proceeds from the exercise of employee stock options and warrants. This compared to net cash and cash equivalents provided by financing activities of $133.5 million for the same period of the prior year. The increase in net cash and cash equivalents provided by financing activities for the prior year period resulted from the net proceeds from our follow-on public offering of our common stock, completed in November 1999. We have a credit agreement with three banks under which we may borrow up to $70.0 million. Under the credit agreement, $20.0 million is available as a revolving line-of-credit, subject to an aggregate sub-limit of $2.0 million for issuance of letters of credit, which is committed through November 29, 2001. The credit agreement also permits us to borrow up to $50.0 million, for strategic acquisitions and/or investments, which is also committed through November 29, 2001. Credit pricing on these facilities is a function of our total funded indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio. Borrowings under the credit agreement bear interest at various rates, at our option, and are limited to two and one quarter times EBITDA. Borrowings on these facilities are unsecured, subject to a negative pledge on all business assets, and we are required to maintain certain financial ratios and comply with indebtedness tests. As of March 30, 2001, we had no borrowings outstanding under the credit agreement and based upon our EBITDA, as measured on a rolling four-quarter basis, approximately $36.0 million of the facility was available. Based upon the current slowdown in business, we anticipate a reduced borrowing capacity under the current credit agreement. We are in the process of renegotiating certain terms of the credit agreement to accommodate operating losses that the Company is currently experiencing. We anticipate that we will be 15 successful in negotiating satisfactory terms, or alternatively, in securing a replacement facility. Management believes that operating cash flow, proceeds received from the follow-on public offering, as well as the expected borrowing capacity under our credit agreement, will be adequate to provide for all cash requirements for the foreseeable future, subject to requirements that strategic developments might dictate. Subsequent Events: On April 27, 2001, we completed a merger with MobileForce of Pleasanton, California, a Delaware corporation. MobileForce develops and markets workforce management applications and wireless mobile computing solutions for the broadband industry and other large field service industries. We acquired MobileForce for approximately $5.0 million in cash and the assumption of approximately $15.0 million of MobileForce debt in exchange for all of the outstanding stock of MobileForce. Outstanding stock options to acquire MobileForce common stock were converted into fully vested stock options to acquire an aggregate 500,000 shares of the Company's common stock, having a fair value of approximately $3.4 million. The acquisition agreement provides for additional cash consideration to be paid to the MobileForce stockholders, in an amount not to exceed $13.5 million, if MobileForce secures certain sales order contracts prior to April 30, 2002 and/or achieves certain revenue levels during the period of May 1, 2001 through April 30, 2002. The merger is being accounted for as a purchase, and for federal income tax purposes as a qualified stock purchase. Any excess of the purchase price and related costs over the fair value assigned to the net assets of the business will be recorded as goodwill and amortized on a straight-line basis over its estimated useful life. The results of operations of MobileForce will be included in the consolidated financial statements of the Company from the date of acquisition. The nature and amount of consideration paid in connection with the merger was determined based on arms- length negotiations between the Company and MobileForce. We used our available working capital to fund the acquisition. Assets acquired by the Company consist primarily of deferred tax assets and intellectual property and equipment, which are used by MobileForce in the development and sale of mobile workforce management solutions. We will continue to use such assets in the same manner and MobileForce will be integrated into our Broadband Management Services segment. 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk (Not Applicable) PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Shareholders (Not Applicable) Item 5. Other Information Certain former securityholders and employees of a company which C-COR.net Corp. acquired have filed claims against C-COR.net Corp. alleging violations of state securities laws and certain other state law claims under a stock option plan. C-COR.net Corp. believes it has defenses to these claims and is contesting them vigorously. Item 6. Exhibits and Reports on Form 8-K The following exhibits are included herein: 2.1 Agreement and Plan of Merger dated as of March 29, 2001, between the Registrant, Broadband Management Solutions, LLC and MobileForce Technologies, Inc. (incorporated by reference to Registrant's Form 8-K filed May 11, 2001. Reports on Form 8-K On March 29, 2001, the Registrant filed a Form 8-K dated March 29, 2001, which included a press release reporting it had entered into a definitive merger agreement with MobileForce Technologies, Inc. ("MobileForce"), contingent upon certain closing conditions set forth in the merger agreement. On May 11, 2001, the Registrant filed a Form 8-K dated April 27, 2001, which disclosed the terms of the Registrants' acquisition of MobileForce Technologies, Inc. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. C-COR.net Corp. (Registrant) Date: May 14, 2001 /s/ William T. Hanelly --------------------------------- Vice President-Finance, Secretary & Treasurer (Principal Financial Officer) Date: May 14, 2001 /s/ Joseph E. Zavacky --------------------------------- Controller & Assistant Secretary (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----