-----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, KwBfiTRGBvduDk4QASAnrHO+OHxuZcj5wkOsKd89rSmoyzHMjr4lgc0KYmNkrnzn KysitUtr2IqgiQJ/2TUoVw== /in/edgar/work/20000915/0001036050-00-001747/0001036050-00-001747.txt : 20000923 0001036050-00-001747.hdr.sgml : 20000923 ACCESSION NUMBER: 0001036050-00-001747 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: C COR NET CORP CENTRAL INDEX KEY: 0000350621 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 240811591 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10726 FILM NUMBER: 723751 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-K 1 0001.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2000 [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-10726 ---------------- C-COR.net Corp. (Exact name of Registrant as specified in its charter) Pennsylvania 24-0811591 (I.R.S. Employer (State or other jurisdiction of Identification No.) incorporation or organization) 60 Decibel Road State College, Pennsylvania 16801 (Address of principal executive offices and Zip Code) Registrant's telephone number, including area code: (814) 238-2461 ---------------- Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None Not Applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05 par value Series A Junior Participating Preferred Stock Purchase Rights ---------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] As of August 31, 2000, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $656,166,069. As of August 31, 2000, the Registrant had 34,040,523 shares of Common Stock outstanding. Documents Incorporated by Reference: 1)Proxy Statement dated September 13, 2000 (Part III) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I Item 1. Business Some of the information presented in this report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements regarding the ability of C-COR.net Corp. (the Company or we) to provide complete network solutions, the demand for network integrity, the trend toward more fiber in the network, the Company's ability to develop new and enhanced products, global demand for the Company's products and services, and statements relating to the Company's business strategy. Forward- looking statements represent the Company's judgment regarding future events. Although the Company believes it has a reasonable basis for these forward- looking statements, the Company cannot guarantee their accuracy and actual results may differ materially from those the Company anticipated due to a number of uncertainties, many of which we are not aware. Factors which could cause actual results to differ from expectations include, among others, capital spending patterns of the communications industry, the Company's ability to develop new and enhanced products, continued industry consolidation, the development of competing technology, 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. Introduction We design, manufacture and market network transmission products and provide services and support to information service providers. Our principal customers are the largest cable operators in the United States, such as AT&T Broadband, Time Warner Cable, Adelphia Communications, Charter Communications, Cox Communications and Comcast, many smaller domestic cable operators, companies building new broadband networks in the United States, and several international cable operators. Our customers primarily operate hybrid fiber coax (HFC) networks for delivering video, voice and data services to homes and businesses. We offer a comprehensive range of products, including RF (radio frequency) amplifiers, and fiber optic equipment for the network headend, node and RF plant. Our services focus on enabling and supporting reliable, high-speed broadband communications over HFC networks. These services include 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. Our core strategy is to leverage our 47-year reputation for quality and service, our strong customer relationships, and our extensive installed base of transmission equipment to provide a broad line of flexible, reliable and cost- effective network products and service solutions. To meet the strategic objective of delivering both a comprehensive line of equipment and the network services that our customers require across the entire HFC network, we completed four acquisitions during fiscal year 2000. On July 9, 1999, we acquired Convergence.com Corporation (Convergence). The acquisition of Convergence has enabled us to offer an integrated package of network management and application enabling services and products. On September 17, 1999, we acquired Silicon Valley Communications, Inc. (SVCI). This acquisition has enabled us to broaden and strengthen our network transmission product offering by adding advanced fiber optic products to our existing RF and fiber optic equipment. On January 28, 2000, we acquired Advanced Communications Services, Inc. (ACSI) and on February 18, 2000, we acquired Worldbridge Broadband Services, Inc. (Worldbridge). These acquisitions have expanded our customer and geographic base in providing engineering and technical services to the broadband industry. 1 Our headquarters are in State College, Pennsylvania. We have production and service facilities in State College and Tipton, Pennsylvania; Tijuana, Mexico; Santa Clara and Riverside, California; Suwanee, Georgia; and Lakewood, Colorado. We also maintain offices in Almere, The Netherlands, and Hong Kong. Industry Overview HFC networks consist of a headend where information is received from a satellite, Internet gateway or telephony network, a transmission infrastructure that distributes the signal throughout the network and connections from the transmission network to the subscribers. Historically, these systems offered one-way only video service. Recently, the cable industry, like other segments of the communications industry, has been undergoing substantial change as a result of: . deregulation that allows competition among communications companies, including wireline and wireless telephone companies and cable operators, for communications services; . demand by consumers for two-way, high-speed broadband communications to accommodate Internet, telephony and other new information services; and . the need to customize services for specific customers, thereby requiring flexible and easy-to-configure networks. For the cable television industry, these factors are resulting in: . upgrades to existing cable networks to provide two-way, interactive broadband services that will allow cable operators to compete against other broadband communications technologies, including digital subscriber line (DSL), local multichannel distribution service (LMDS), and direct broadcast satellite (DBS); . greater utilization of fiber optic technology, such as dense wave division multiplexing (DWDM), in the cable network; . consolidation among cable operators driven by the increased capital requirements to implement system upgrades; . investments in cable operators by non-cable operators in an effort to compete for both new and existing services and to provide a full range of communication services; . entry of new, well-capitalized companies building advanced HFC networks that offer alternative access to business and residential users; . increased demand for more flexible and reliable cable networks to support the new services being offered; and . demand for more sophisticated network management products to address quality of service requirements and to support access by multiple information service providers. Strategy Overview Our core business strategy is to leverage our 47-year legacy in the broadband communications industry for quality and service, our strong customer relationships, and our extensive installed base of network transmission equipment to provide a full line of flexible, reliable and cost-effective HFC network solutions. We are seeking to implement this strategy through both internal development of new products and services as well as acquisitions. Specific aspects of our strategy include: Providing a Comprehensive HFC Network Product Line. We offer a full range of RF and fiber optic distribution electronics to transmit signals in both directions over HFC networks from "the headend to the curb." We have ongoing initiatives to broaden our product line to capture the additional investment being made by HFC network operators. For example, our September 1999 acquisition of SVCI added advanced fiber optic headend equipment and optical transmitters, receivers and amplifiers to our legacy product lines. In addition, 2 over the past year we have introduced new versions of our NAVICOR(TM) and FlexNet(R) product lines with features designed for international markets. We have also introduced new versions of our NAVICOR product line tailored for the emerging domestic market for advanced HFC networks being deployed by new network operators. Leveraging an Extensive Installed Base of Equipment for Upgrade and Rebuild Sales. We are leveraging our large installed base of transmission equipment in our customers' networks through upgrades, rebuilds and node size reductions. We provide a cost-effective upgrade path for our customers to upgrade existing components of installed products rather than purchasing all new equipment. Providing Network Management Services to Enhance Network Integrity. The requirement for HFC network integrity and reliability has become much greater as network traffic and complexity have grown and as networks have become increasingly used for critical communications, such as telephony and electronic commerce. Current approaches to managing HFC networks, however, focus on monitoring limited, individual elements of the network, such as the cable modem or power supplies. In contrast, our network management software and Network Operations Center provide a comprehensive, proactive view of the network from the set top box and/or modem to the headend. We are continuing to enhance and expand our network management services to address the various types of equipment and the unique characteristics of the different information types that will be delivered over future HFC networks. Delivering Total Network Solutions to Meet the Emerging Broadband Needs of HFC Network Operators. We are able to offer a broad network solution to HFC network operators by delivering both a comprehensive line of equipment and the network services that they require across the entire HFC network. We design the network to enhance reliability, deliver the equipment and software, furnish installation and activation services, and provide ongoing network management and support services. Increasing International Sales. We are currently supplying products and services to a number of international customers, including cable operators in Canada, Europe, and Asia. In an effort to increase international sales, we are expanding our international distribution channels and providing localized versions of our products. With our broadened product and services offering, 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. Increasing Domestic Sales to New Network Operators. We are currently pursuing opportunities with a number of new companies that are building advanced HFC networks in metropolitan areas across the United States. Unlike our traditional customers that are upgrading legacy networks that were originally designed for one-way transmission of video signals, these new customers are implementing new networks designed for high-speed bidirectional traffic. We are modifying our NAVICOR product line accordingly. In addition, we are offering to outsource our full capability of technical services and network management to these new customers who do not have established technical work forces. Products and Services We provide products and services through two business segments in support of our customers as they plan, design, build and maintain complex broadband communications networks. Our Telecommunications Equipment segment offers high-quality RF and fiber optic transmission electronics for two-way HFC networks. Our Broadband Management Services (BMS) segment offers comprehensive customer service for the full HFC network life cycle. These services include network management services, high-speed data certification, system integration services, data security solutions, network engineering and design, system activation, network optimization, and system maintenance. See Note S to the consolidated financial statements for financial information relating to each of these segments for fiscal years 2000, 1999 and 1998. 3 Telecommunications Equipment Segment An HFC network connects a central information source, typically referred to as the headend, to individual residential users through a physical plant of fiber optic and coaxial cables and a variety of electrical and fiber optic devices that transmit, receive, modulate and amplify the signals as they move through the network. A typical HFC network consists of three major segments: the headend, the node and the RF plant. We offer a comprehensive range of products for each of these segments. Headend Equipment The headend receives information from a satellite transmission, Internet gateway, telephony network or other source and converts this information to laser modulated optical signals for transmission across the network. Larger networks feature both primary headends and a series of secondary headends or hubs. We offer a broad range of headend equipment that features advanced technology, such as DWDM, allowing multiple signal wavelengths to be transmitted on one fiber across the network. This increases the volume of information that can be conveyed over the network. It also allows network operators flexibility in tailoring content for individual subscribers by dedicating certain wavelengths to that content, such as video on demand. Nodes The general function of the node in the HFC network is to convert information from optical signals to RF signals for distribution to the home. We offer the NAVICOR family of node products that are upgradeable, scalable, modular and fully integrated with our RF amplifiers. These features allow RF amplifiers to be upgraded to nodes and simple nodes to be upgraded to telecommunication nodes with narrowcasting and redundant configurations. Narrowcasting refers to customizing content for certain subscribers by dedicating fibers or wavelengths to that content. We have designed the optical components of the nodes to fit into the lid, or cover, of the amplifier housing so that upgrades from amplifiers to nodes are easily accomplished by replacing the lid. In addition to offering the "fiber in the lid" upgrade product, in September 1999 we introduced new node products, the Mux Node and the Mini Node, designed for relatively small node sizes of 50 to 250 homes. In December 1999, we demonstrated digital return technology in our nodes that enhances the return path capacity of a network. RF Plant The RF plant comprises products that transmit information between the nodes and subscribers. These products are essentially RF amplifiers that come in various configurations such as trunks, bridgers and line extenders. A trunk amplifier handles a large amount of information in a network when the node size is greater than 500 homes. A bridger splits the signal to send it to a greater number of destinations. Line extenders move the information to the home. 4 The following table summarizes our major products and their primary functions and features:
Network Segment Products Functions and Features - ---------------------------------------------------------------------------------------------------- Headend Universal Chassis . houses components of the headend equipment . features modular one and three rack design . compact design maximizes limited headend rack space -------------------------------------------------------------------------------------- 1310 nm and 1550 nm . convert RF signals to laser modulated optical signals Transmitters . incorporate predistortion and linearization technology . satisfy primary channel requirements for North America, Latin America and parts of Asia and Europe -------------------------------------------------------------------------------------- Erbium Doped Fiber . used to amplify optical signals Amplifiers (EDFAs) . suitable for wave division multiplexing (WDM) and DWDM . used for both analog and digital applications -------------------------------------------------------------------------------------- Forward Path Receiver . converts optical signals to RF signals . features low noise contribution for clear signal conversion -------------------------------------------------------------------------------------- Return Path Transmitter . conveys digital and video return path signals . used for data monitoring and other interactive applications -------------------------------------------------------------------------------------- Dual Return Path Receiver . plug-in module that includes two independent return path receivers . receives digital and video return path signals - ---------------------------------------------------------------------------------------------------- Nodes NAVICOR Quadrant . provides four optical transmitters and four optical Node/Bridger receivers . includes a variety of reverse path transmitters for data, telephony and video services . modular design increases operating flexibility -------------------------------------------------------------------------------------- NAVICOR FlexNet Nodes . can be configured with single or dual optical receivers and transmitters . available in cost effective version for less complex networks -------------------------------------------------------------------------------------- Node Return Path . available in Fabry-Perot and distributed feedback Transmitters versions for analog and digital applications -------------------------------------------------------------------------------------- Mux Node . scalable, bi-directional fiber optic network device . used to transmit and receive fiber optic signals to up to twelve Mini Nodes. -------------------------------------------------------------------------------------- Mini Node . a high output receiver that replaces many of the amplifiers in the network . designed to serve approximately 50-to-100 homes . features multiple forward and reverse paths that support analog video, digital video, high-speed data and telephone applications -------------------------------------------------------------------------------------- I-Flex(R) II Node . cabinet-mount, modular design with two or three active outputs . single or dual forward path receivers and reverse path transmitters . optional I-Flex II standards--compliant transponder for element management capability
5
Network Segment Products Functions and Features - ----------------------------------------------------------------------------------------------- RF Plant FlexNet Trunk . high performance, high capacity amplifier with three outputs . field upgradeable to a node . available in 750 and 862 MHz bandwidth versions --------------------------------------------------------------------------------- FlexNet Terminating . amplifier with two distribution outputs Bridger . field upgradeable to a node . available in 750 and 862 MHz bandwidth versions --------------------------------------------------------------------------------- NAVICOR and FlexNet . used to transmit information at the end of the line to Line Extenders subscribers . available in 750 and 862 MHz bandwidth versions --------------------------------------------------------------------------------- I-Flex II Bridger . cabinet-mount, two or three active outputs . high performance, high capacity, 862 MHz bandwidth . flexible reverse path capability . upgradable to I-Flex II node --------------------------------------------------------------------------------- I-Flex Line Extender . cabinet-mount, end-of-line amplifier used with I-Flex nodes and bridgers . available in 862 MHz bandwidth
New HFC Products and Developments include: New Product Capabilities Specific to the International Market. In December 1999, we enhanced our NAVICOR and FlexNet product lines with a 55/70 split at 862 MHz. The frequency split is the demarcation between forward channels and reverse bandwidth. The 55/70 frequency split meets the requirements of the Asian market. Digital Return Technology. In December 1999, we demonstrated digital return technology in our NAVICOR nodes and headend products at a major industry show. Digital return technology replaces conventional high-performance Distributed Feedback (DFB) laser technology with a lower cost, but equal-performing digital grade laser. In March 2000, we entered into an agreement with Finisar Corporation to develop a set of fiber optics-based products for active or passive broadband HFC networks that will enhance and facilitate the transmission of the return-path signals using digital technology. We anticipate these products will be available in fiscal year 2001. Standards-Based Network Management Equipment. In June 2000, we reached an agreement in principle with SilCom Manufacturing Technology Inc. to jointly design and develop a transponder for our I-Flex Fiber Node product line that is compatible with proposed HMS (Hybrid Management Sub-Layer) standards. As an original member of the SCTE (Society of Cable Telecommunications Engineers) Subcommittee defining the HMS protocol suite to support cost effective interoperability of HFC network management systems, we have played an active role in drafting the HMS standards now under evaluation by the Subcommittee. The HMS-compatible I-Flex II Node will be designed and implemented to migrate to final SCTE standards using a simple software upgrade. New Circuit Technique. In June 2000, we announced we had developed and applied for a patent on a new circuit technique, Transfer Linearization(TM), to improve the linear characteristics of standard silicon technology hybrids (active amplifier components of fiber optic nodes and RF amplifiers) while maintaining the reliability of silicon. We anticipate that, by implementing Transfer Linearization, broadband system operators will realize the advantages of lower distortion and higher operating levels and channel capacities with little additional power consumption. 6 1310 nm TA Series Transmitters. In June 2000, we introduced a new line of advanced 1310 nm headend forward path transmitters within the NAVICOR family of RF fiber optic products. The TA series of 1310 nm transmitters are designed specifically to meet the high performance requirements needed to maintain the reliability and integrity of broadband networks as they deliver multiple services. Broadband Management Services Segment We offer the broadband network operator a broad array of products and services to support the implementation, operation and management of reliable, multi- application networks with high integrity. Our BMS segment enables and manages new service applications over HFC networks, offering 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. Specific BMS products and services include: COR-ConvergenceTM. COR-Convergence is a multi-layered, scalable and integrated communications management system supporting end-to-end element, network, service and business management functions for broadband networks that handle multiple consumer services such as telephony, high-speed data and/or video. Specific capabilities provided by COR-Convergence include, but are not limited to, real-time device monitoring, auto-provisioning, plant management, QoS (Quality of Service) management and root cause analyses. COR-ConnectTM. A component of COR-Convergence, COR-Connect is a platform also sold as a stand-alone product. The unit provides software translation for converting between network protocols, thereby allowing standards-based or proprietary host systems to communicate with various standards-based or proprietary network elements. CNMTM (Cable Network Manager) System. A component of COR-Convergence, the CNM System is also sold as a stand-alone product. The PC-based CNM supports proactive management of network performance, reliability and quality with specific functions in the areas of fault management, change control, directed maintenance, network performance and facilities management. COR.LaunchSM. We provide High-Speed Data (HSD) end-to-end launch services from design through deployment. Services include project management, requirements analyses, system design, development and integration, RF/CMTS certification using sweep and balance techniques, and traffic analysis and planning. COR.CallSM. We provide a 24X7 High-Speed Data (HSD) Help Desk Service via a toll-free number for cable modem or dial-up subscribers of broadband network operators. Customer Help Desk support includes OS connectivity support, web browser support and configuration, mail client support and configuration, FTP access and client support, new user install assistance, end-user Home Page assistance, account creation and management, return-call support, dispatch services for market escalations, and modem provisioning and management services. COR.NOCSM. Our Network Operations Center (NOC), near Atlanta, Georgia, provides 24X7 outsourced monitoring and management for the broadband operator's network equipment and services. NOC support includes network monitoring, remote management, troubleshooting, and fault isolation and reporting, all using state-of-the-art tools. Outsourced Operational Services. We provide customers full outsourcing services in handling field operations, including technical management, system maintenance, customer service calls and installation activity. All field operations are managed and performed to predetermined standards and technical metrics. Outside Plant Services. We provide hands-on technical services performed in the customer's plant. These are highly complex tasks largely centered on the conversion of the cable operator's plant from a one-way analog 7 video medium to a two-way, fully interactive broadband pipe, and the continuing operation of it as such. Among the services provided are system sweep, reverse path activation, ingress mitigation, node certification, plant hardening, cable testing, cable repair, system maintenance, contract service calls, process design, personnel development and training, and network construction. Network Systems Integration (Inside Plant) Services. We provide systems integration and installation services for data, telephony and digital video platforms to network operators and network equipment manufacturers. We also provide consulting services that include process design advisory services, SPC (Statistical Process Control) system design, network design and specification consulting. Our Network Systems Integration technicians perform hands-on services covering "rack and stack" final assembly and deployment of Cable Modem Termination Systems, DWDM lasers, and HFC telephony systems, among others. Significant Customers During the past fiscal year, our customers have included almost all of the largest cable system operators in the United States. Our largest customers during fiscal year 2000 were AT&T, Time Warner Cable and Adelphia, accounting for 19%, 19%, and 13%, respectively, of net sales. Our largest customers during fiscal year 1999 were Time Warner Cable and AT&T, which accounted for 27% and 15%, respectively, of net sales. Our largest customer during fiscal year 1998 was Time Warner Cable, which accounted for 30% of net sales. All of these principal customers purchase both products and services. Sales and Distribution Our sales and distribution function is organized into two major global regions: the first covering the Americas; the second covering the EuroPacific area. Cross-functional account teams focused on specific customers or groups of customers support our sales and distributions efforts. Sales efforts are conducted from our headquarters; from offices in the Netherlands, Hong Kong, Canada and Latin America; from regional sales offices located in the United States; and through numerous distributors around the world. We sell our products and services in the United States through our direct sales force, which is organized both geographically and by customer account teams. We approach our customers at both the corporate and system levels. 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 Canada, Europe, Asia and Latin America are made through our direct sales force and through distributors. Additionally, we provide 24x7 technical support, both directly and through distributors, as well as training for customers and distributors, as required, both in our facilities and on-site. 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, particularly at major accounts. For fiscal year 2000, our international sales represented 11% of net sales. In fiscal years 1999 and 1998, international sales were 10% and 19%, respectively, of net sales. See Note S to the consolidated financial statements. Backlog We schedule production of our products 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. At 8 June 30, 2000, our backlog of orders was $89.3 million including $61.3 million for the Telecommunications Equipment segment and $28.0 million for the BMS segment. At June 25, 1999, our backlog of orders was $73.0 million, including $57.2 million for the Telecommunications Equipment segment and $15.8 million for the BMS segment. At June 26, 1998 our backlog of orders was $31.0 million, including $25.1 million for the Telecommunications Equipment segment and $5.9 million for the BMS segment. Anticipated orders from customers may fail to materialize and delivery schedules may be deferred or canceled for a number of reasons, including reductions in capital spending by network operators. In addition, due to weather-related seasonal factors and annual capital spending budget cycles of many customers, our backlog may not necessarily be indicative of actual sales for any succeeding period. Research and Product Development We operate in an industry that is subject to rapid changes in technology. Our ability to compete successfully depends in large part upon anticipating such changes. Accordingly, we engage in ongoing research and development activities that are intended to advance existing product lines, provide custom-designed variations of existing product lines and develop or evaluate new products. Research and development activities are conducted at our headquarters and at our facilities in Santa Clara, California, and Suwanee, Georgia. Our product planning teams, which take input from account teams and research engineers, assign product development priorities and develop an overall product plan. Cross-functional project teams, coordinated by a program manager then implement the product plan. During the past fiscal year, research and product development expenditures were primarily directed at expanding our fiber optic technology and network management systems. We also continued with product development process improvements to reduce cycle time to design, develop and deliver new products, reduce manufacturing costs and improve design quality. During fiscal years 2000, 1999 and 1998, we spent approximately $16.0 million, $11.8 million and $10.0 million, respectively, on research and development. Anticipated product development initiatives focused on fiber optics, network management and other technology areas are expected to result in increased research and development expense in future years. No research and product development expenditures mentioned above have been capitalized. Competition The broadband communications markets are dynamic and highly competitive, requiring substantial resources of those companies that compete in these markets, skilled and experienced personnel and a capability to anticipate and capitalize on change. Our Telecommunications Equipment segment competes with other companies including Motorola's Broadband Communications Sector (formerly General Instrument Corporation), Scientific-Atlanta, Antec, Harmonic and ADC Telecommunications, some of which are large publicly traded companies that may have greater financial, technical and marketing resources than we do. Our products are marketed with emphasis on their quality and are 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. There are several competing vendors offering network management products and services in the United States, some of which have greater sales of similar products and services than we do. However, we believe that we offer a more integrated solution that is tailored to the requirements of HFC network operators. We also believe that our work force of broadband technicians is among the largest in the United States and provides a competitive advantage. 9 Employees We had approximately 2,200 employees as of August 2000. Suppliers We closely monitor supplier delivery performance and quality, and employ a strategy of limiting the total number of global suppliers to those who are quality leaders in their respective specialties and who will work with us as partners in the supply chain. Typical items purchased are die cast aluminum housings, RF hybrids, printed circuit boards, fiber optic lasers and standard electronic components. Although a few of the components we use are single- sourced, we have experienced no significant difficulties to date in obtaining adequate quantities of raw materials and component parts. We use in-house vendor supply relationships to gain access to key parts needed in the manufacturing process on a "just-in-time" basis. We have implemented a number of in-house vendor supply relationships to date and will continue to establish such relationships in the future in order to decrease vendor lead times and reduce on-hand inventory. We outsource the manufacture of certain assemblies and modules where it is cost-effective to do so or where there are advantages with respect to delivery times. Current outsourcing arrangements include power supplies, accessories, optical modules and digital return modules. We also outsource the manufacture of products in Europe to reduce logistics costs and improve delivery times. We anticipate further outsourcing initiatives in the future. Strategic Partnerships We have entered into strategic agreements with various technology partners to enhance our fiber optic capabilities, to further development of our network management systems and to expand globally. In the area of fiber optics, we have entered into an agreement with Finisar Corporation, a leading provider of optical and digital integration technology, to co-develop a set of fiber optics-based products for two-way HFC networks that provide digital return functionality to improve network performance, economics and capacity. In addition, JDS Uniphase is working with us through an OEM agreement to incorporate JDS fiber-optic lasers into our headend product line. In the area of network management, our alliances with Fortress Technologies Inc., SilCom Manufacturing Technology Inc., and Interactive Enterprise Ltd. have significantly enhanced our branded BMS product offerings: COR.NOC, our NOC near Atlanta, Georgia, and COR-Convergence, our communications management system for broadband networks. Fortress Technologies is providing us with advanced security solutions for broadband networks. SilCom is working with us on emerging industry standards-based hardware and software technology for network element management. Interactive Enterprise is contributing a software- based mediation platform that enables, among other network management functions, the auto-provisioning of cable modems. All address key network management concerns of our customer base of network operators. To facilitate our expansion in the international markets, we are partnering with Filtronic plc, an international electronics company, to cost-effectively design and manufacture amplifiers and nodes tailored to the European market. Intellectual Property We hold 14 United States patents for various inventions relating to fiber optic and RF transmission equipment and technology, and network management techniques and services. We attempt to protect our intellectual 10 property through patents, trademarks, copyrights and a program of maintaining certain technology as trade secrets. Item 2. Properties We operate the following principal facilities:
Approximate (O)Owned Location Principal Use Square Feet (L)Leased - -------- ------------- ----------- --------- State College, Pennsylvania........... Administrative Offices and Manufacturing 133,000 O Tipton, Pennsylvania.... Manufacturing 45,000 O Tijuana, Mexico......... Manufacturing 89,400 L Santa Clara, California............. Development Engineering and Manufacturing 24,500 L Suwanee, Georgia........ Network Operations Center 13,650 L Lakewood, Colorado...... Administrative Offices 4,510 L Riverside, California... Administrative Offices 4,023 L Almere, The Netherlands............ Administrative Offices 5,100 L
On June 25, 1998, we announced the closing of our manufacturing plant located in Reedsville, Pennsylvania, in order to reduce costs and improve productivity and asset utilization. On August 10, 1998, we purchased the facility, which is currently being held for sale. We are approved for ISO 9001 registration at our Pennsylvania and Tijuana manufacturing facilities. ISO 9001 is the most comprehensive of all ISO 9000 series requirements and includes quality assurance in design, development, production, installation and servicing. Criteria for registration are set by the International Organization for Standardization, whose function is to develop global standards in an effort to improve the exchange of goods and services internationally. This designation builds on our reputation as a high- quality, global provider of transmission electronics. Item 3. Legal Proceedings None 11 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 30, 2000. Executive Officers of the Registrant All executive officers of the company are elected annually at the Annual Meeting of the Board of Directors (which is normally held on the date of the Annual Meeting of Shareholders of the Company) to serve in their offices for the next succeeding year and until their successors are duly elected and qualified. The listing immediately following this paragraph gives certain information about our executive officers, including the age, present position and business experience during the past five years.
Name Age Position/Experience ---- --- ------------------- Richard E. Perry.......... 70 Chairman since June 1986; Chief Executive Officer from July 1985 to August 1996, and from March 1998 to July 1998. David A. Woodle........... 44 President and Chief Executive Officer since July 20, 1998. General Manager-Strategic Systems of Raytheon Systems Company, a company providing computer systems integration services to government and commercial customers, from January 1998 to July 1998; Vice President and General Manager, Raytheon E-Systems, HRB Systems from June 1996 to January 1998; VP, Strategic Programs and TMS, Raytheon E-Systems, HRB Systems from October 1990 to June 1996. Mary G. Beahm............. 40 Vice President--Human Resources since November 1998; Human Resources Consultant, Westinghouse Electric Corporation, a company providing products and services to government and commercial industries, from August 1987 to November 1998. David J. Eng.............. 47 Sr. Vice President--Americas Business , since February 2000; Sr. Vice President--Worldwide Sales from March 1997 to February 2000; Vice President--Sales, North, Central and South America from August 1996 to March 1997; Vice President--Sales & Marketing from August 1994 to August 1996. Lawrence R. Fisher, Jr. .. 50 Vice President--Science and Technology since July 1999. Vice President--Engineering from August 1996 to July 1999; Director, RF Engineering Product Development from June 1995 to July 1996. William T. Hanelly........ 44 Vice President--Finance, Secretary and Treasurer since October 1998; Regional Controller, Raytheon E-Systems, a company providing computer systems integration services to government and commercial customers, from May 1998 to October 1998; Vice President-- Finance, HRB Systems from June 1994 to May 1998. Donald F. Miller.......... 58 Vice President--Operations & Manufacturing since August 1995. Gerhard B. Nederlof....... 52 Sr. Vice President--EuroPacific Business since February 2000; Sr. Vice President--Broadband Management Services from July 1999 to February 2000; Sr. Vice President--Marketing from September 1998 to July 1999; Sr. Vice President--Marketing, Business Development and Services from March 1997 to September 1998; Vice President--Sales, Europe and Pacific Rim from August 1996 to March 1997; Vice President--International from January 1992 to August 1996.
12 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The Company's common stock is traded on The Nasdaq Stock Market's National Market System. The Nasdaq symbol is CCBL. The range of high and low price information as reported by Nasdaq follows:
High Low ------ ------ 1999 Quarter ended September 30, 1998........................................... $ 9.63 $ 5.66 December 31, 1998............................................ $ 7.75 $ 5.00 March 31, 1999............................................... $ 9.75 $ 6.97 June 30, 1999................................................ $14.72 $ 8.56 2000 Quarter ended September 30, 1999........................................... $18.13 $10.81 December 31, 1999............................................ $41.64 $14.13 March 31, 2000............................................... $51.63 $21.38 June 30, 2000................................................ $48.50 $19.50
We have never paid a dividend. As of June 30, 2000, there were 638 shareholders of record of common stock. In connection with the acquisition of Worldbridge on February 18, 2000, the Company issued 1,603,584 shares of the Company's common stock (including 160,356 shares that were issued into escrow). These securities were issued in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended. As required under the merger agreement, a registration statement covering the resale of shares issued to former Worldbridge shareholders, has been declared effective by the Securities and Exchange Commission. 13 Item 6. Selected Financial Data Selected Financial Data (in thousands except per share data)
Historical(/1/) --------------- June 30, June 25, June 26, June 27, June 28, Fiscal Year Ended 2000 1999 1998 1997 1996 - ----------------- -------- -------- -------- -------- --------------- Statement of operations data: Net sales................ $281,135 $202,168 $169,852 $144,988 $139,539 Income (loss) from continuing operations excluding non-recurring charges................. 17,903 (704) 434 1,284 9,014 Income (loss) from continuing operations... 14,461 (704) 40 1,284 9,014 Loss from discontinued operations.............. -- -- -- (6,605) (3,095) Gain (loss) from disposal of discontinued operations.............. 1,063 397 928 (3,830) -- Net income (loss)........ 15,524 (307) 968 (9,151) 5,919 Net income (loss) per share--basic(/2/) Continuing operations excluding non- recurring charges..... $ 0.60 $ (0.06) $ 0.02 $ 0.05 $ 0.47 Continuing operations.. 0.48 (0.06) -- 0.05 0.47 Discontinued operations............ -- -- -- (0.28) (0.16) Disposal of discontinued operations............ 0.04 0.02 0.04 (0.17) -- Net income (loss) per share--basic............ 0.52 (0.04) 0.04 (0.40) 0.31 Net income (loss) per share--diluted(/2/) Continuing operations excluding non- recurring charges..... $ 0.53 $ (0.06) $ 0.02 $ 0.05 $ 0.46 Continuing operations.. 0.43 (0.06) -- 0.05 0.46 Discontinued operations............ -- -- -- (0.25) (0.16) Disposal of discontinued operations............ 0.03 0.02 0.04 (0.15) -- Net income (loss) per share--diluted.......... 0.46 (0.04) 0.04 (0.35) 0.30 Weighted average common shares and common share equivalents(/2/) Basic.................. 30,039 22,483 22,503 23,197 19,109 Diluted................ 33,968 22,483 22,503 25,929 19,737 Balance sheet data (at period end): Working capital.......... $189,299 $ 36,082 $ 31,696 $ 35,591 $ 35,452 Total assets............. 273,039 109,180 90,160 88,721 77,278 Total long-term debt obligations............. 1,752 7,992 9,348 8,532 8,030 Shareholders' equity..... 227,658 61,265 60,933 55,976 53,317
- -------- (/1/)The information presented for fiscal year ended June 28, 1996, is derived from the historical consolidated financial statements of C-COR.net Corp., and has not been restated for the fiscal year 2000 mergers. (/2/)Net income (loss) per share amounts and weighted average common shares and common share equivalents have been adjusted to reflect a 2-for-1 stock split effective December 22, 1999. 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We design, manufacture and market network transmission products and provide services and support to HFC network operators. We operate 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. Business Combinations Pooling of Interests. During fiscal year 2000, the Company consummated three acquisitions which were accounted for under the pooling-of-interests method of accounting. On July 9, 1999, we consummated a merger with Convergence, whereby Convergence became a wholly owned subsidiary of the Company. As consideration in the merger, the outstanding shares of common stock of Convergence were converted into 2,866,646 shares of the Company's common stock. Outstanding warrants to acquire Convergence common stock were converted into warrants to acquire an aggregate of 733,860 shares of the Company's common stock. On September 17, 1999, we consummated a merger with SVCI, whereby SVCI became a wholly owned subsidiary of the Company. As consideration in the merger, the outstanding shares of common stock of SVCI were converted into 3,090,162 shares of the Company's common stock (including 350,418 shares that were issued into escrow). Outstanding stock options and warrants to acquire SVCI common stock were converted into stock options and warrants to acquire an aggregate of 767,688 shares of the Company's common stock. On February 18, 2000, we consummated a merger with Worldbridge, whereby Worldbridge became a wholly owned subsidiary of the Company. As consideration in the merger, the outstanding shares of common stock of Worldbridge were converted into 1,603,584 shares of the Company's common stock (including 160,356 shares that were issued into escrow). Outstanding stock options to acquire Worldbridge common stock were converted into stock options to acquire an aggregate of 196,416 shares of the Company's common stock. We recorded one-time charges of $9.0 million related to the business combinations with Convergence, SVCI and Worldbridge during fiscal year 2000. The one-time charges include merger transaction and other related costs, as well as restructuring costs which included severance payments for approximately 40 employees affected by consolidation of positions and administrative functions resulting from the mergers, and write-off of assets related to existing fiber optic products that became redundant as a result of the acquisition of SVCI. At June 30, 2000, a liability of $489,000 related to these business combination costs is included in accrued liabilities. Asset Purchase. On January 28, 2000, a wholly owned subsidiary of the Company purchased substantially all of the assets of ACSI for $3.6 million. As a result of the acquisition, we recorded goodwill in the amount of $2.5 million related to the excess of the purchase price over the fair value of the net assets acquired. The goodwill is being amortized on a straight-line basis over ten years. We did not assume any material liabilities of ACSI in the transaction. 15 Results of Operations The Company's consolidated statements of operations from continuing operations for fiscal years 2000, 1999, and 1998 as a percentage of net sales, are as follows:
Year Ended --------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Net sales...................................... 100.0% 100.0% 100.0% Cost of sales.................................. 74.2% 75.3% 79.0% ----- ----- ----- Gross margin................................... 25.8% 24.7% 21.0% Operating expenses: Selling and administrative................... 11.1% 16.0% 14.5% Research and product development............. 5.7% 5.9% 5.9% Merger and restructuring costs............... 3.2% 0.0% 0.3% ----- ----- ----- Total operating expenses................... 20.0% 21.9% 20.7% ----- ----- ----- Income from continuing operations.............. 5.8% 2.8% 0.3% Interest and other income (expense), net..... 1.3% (0.7)% (0.2)% ----- ----- ----- Income from continuing operations before income taxes......................................... 7.1% 2.1% 0.1% Provision for income taxes..................... 2.0% 2.4% 0.1% ----- ----- ----- Income (loss) from continuing operations....... 5.1% (0.3)% 0.0% ===== ===== =====
Net Sales. Net sales increased by 39% to $281.1 million in fiscal year 2000 from $202.2 million in fiscal year 1999. Telecommunications Equipment segment sales increased by 35% to $239.3 million in fiscal year 2000 from $176.8 million in fiscal year 1999. The increase was attributable to sales growth in RF and fiber optics products as we continue to expand our product offering through development of new products, acquisitions and strategic partnerships to meet domestic and international customer demands. BMS segment sales increased by 65% to $41.8 million in fiscal year 2000 from $25.4 million in fiscal year 1999. The increase was primarily attributable to technical services performed in our customers' plants, including system sweep, reverse path activation, ingress mitigation, node certification and system maintenance. Net sales increased by 19% to $202.2 million in fiscal year 1999 from $169.9 million in fiscal year 1998. Telecommunications Equipment segment sales increased by 16%, to $176.8 million in fiscal year 1999 from $152.8 million in fiscal year 1998, as a result of increased capital spending by certain domestic cable operators for network transmission equipment. BMS segment sales increased by 49%, to $25.4 million in fiscal year 1999 from $17.1 million in fiscal year 1998, due to increased technical services related to design, activation and support of HFC networks. Domestic sales increased by 37% to $250.3 million in fiscal year 2000 from $182.6 million in fiscal year 1999. This growth occurred in both telecommunication equipment and broadband management services sales. A significant amount of consolidation and system swaps occurred among our domestic customer base over the past 18 months. Following that activity, several of the resulting large multiple system operators (MSO's) began upgrading the properties they had acquired and this translated into increased demand for our products and services. Domestic sales increased by 33% to $182.6 million in fiscal year 1999 from $137.2 million in fiscal year 1998. The increase was principally in sales of telecommunications equipment, resulting from increased demand for network equipment by certain domestic MSO's. Total domestic sales were 89% of net sales for fiscal year 2000, as compared to 90% and 81% for fiscal years 1999 and 1998, respectively. International sales increased by 58% to $30.8 million in fiscal year 2000 from $19.6 million in fiscal year 1999. This growth was principally in sales of telecommunications equipment and reflected the beginning of a network upgrade program by a major customer in Canada and increased demand from customers in the EuroPacific region. International sales decreased by 40% to $19.6 million in fiscal year 1999 from $32.7 million in fiscal year 1998. The decrease resulted generally from a weakness in sales to all international markets, with the 16 exception of Asia, in fiscal year 1999. We expect international markets will continue to represent a substantial portion of our sales base, but believe demand will continue to be highly variable. The international markets represent distinct markets in which capital spending decisions for HFC network distribution equipment can be impacted by a variety of factors including access to financing and general economic conditions. Our total international sales were 11% of consolidated net sales in fiscal year 2000, as compared to 10% and 19% for fiscal years 1999 and 1998, respectively. We are subject to certain risks as a result of market and customer concentration. For additional information regarding risks, reference Note P of the consolidated financial statements. Gross Margin. Gross margin was 25.8% in fiscal year 2000, 24.7% in fiscal year 1999 and 21.0% in fiscal year 1998. For the Telecommunications Equipment segment, gross margin was 27.3% in fiscal year 2000, 25.3% in fiscal year 1999 and 22.3% in fiscal year 1998. In fiscal year 2000, efficiencies resulting from higher production volumes enabled us to improve our absorption of fixed manufacturing overhead costs, and realize greater material cost reductions, as compared to fiscal year 1999. In addition, changes in product mix and ongoing efforts to improve manufacturing automation initiatives also contributed to the increase in gross margin percentage in fiscal year 2000, relative to fiscal year 1999. Reductions in material costs, changes in customer and product mix, lower manufacturing costs resulting from our operation in Mexico, efficiencies resulting from higher production volume and manufacturing automation initiatives, all contributed to the increase in the gross profit margin in fiscal year 1999, relative to fiscal year 1998. For the BMS segment, gross margin was 17.6% in fiscal year 2000, 19.9% in fiscal year 1999 and 9.6% in fiscal year 1998. In fiscal year 2000, gross margin for the BMS segment declined relative to fiscal year 1999 due to increased costs associated with a ramp-up of personnel and other infrastructure costs as the Company expanded its technical services group. Gross margin for the BMS segment increased in fiscal year 1999, compared to fiscal year 1998, due to improved margins on products and services to manage high-speed data, as well as technical customer services. Selling and Administrative. Selling and administrative expenses were $31.3 million (11.1% of net sales) in fiscal year 2000, $32.4 million (16.0% of net sales) in fiscal year 1999 and $24.6 million (14.5% of net sales) in fiscal year 1998. The decrease in selling and administrative expenses in fiscal year 2000 was primarily due to the consolidation of certain positions and administrative functions, as a result of the mergers with Convergence and SVCI. The increase in selling and administrative expenses for fiscal year 1999, compared to fiscal year 1998, was due primarily to personnel and other costs associated with expansion of our domestic sales force in conjunction with the introduction of new products and expanded offering of technical services related to design, activation and support of HFC networks. We anticipate increasing selling and administrative expense in future periods, related to international expansion, although these expenses may vary as a percentage of net sales. Research and Product Development. Research and product development expenses were $16.0 million (5.7% of net sales) in fiscal year 2000, $11.8 million (5.9% of net sales) in fiscal year 1999 and $10.0 million (5.9% of net sales) in fiscal year 1998. The increase in research and product development expenditures in fiscal year 2000 resulted from higher personnel costs and additional expenses primarily for development of fiber optic transmission products, including transmitters, receivers, Erbium-Doped Fiber Amplifiers and the continued development of network management products and capabilities. The increase in research and product development expenses in fiscal year 1999 compared to fiscal year 1998 resulted from higher personnel costs and additional expenses primarily for development of fiber optic and network management products. We anticipate continuing increases in research and product development expenses in future periods, related to ongoing initiatives, although these expenses may vary as a percentage of net sales. Operating Income (Loss) By Segment. Operating income (excluding non-recurring business combination costs) for the Telecommunications Equipment segment in fiscal years 2000, 1999 and 1998, was $28.1 million, $8.2 million and $3.3 million, respectively. The increase in operating income for each year was attributable to increased volume and improvement in gross margins. Operating loss (excluding non-recurring business combination costs) for the BMS segment in fiscal years 2000, 1999 and 1998, was $2.8 million, $2.6 million 17 and $2.8 million, respectively. The losses derive primarily from increased investment and development costs associated with our network management products. Interest and Investment Income. Interest expense was $814,000 in fiscal year 2000, $1.4 million in fiscal year 1999 and $437,000 in fiscal year 1998. The decrease in interest expense in fiscal year 2000 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 SVCI. The increase in interest expense in fiscal year 1999 compared to 1998 resulted primarily from increased borrowings on various credit facilities and $911,000 of amortization related to the fair market value of warrants issued in connection with certain debt financing arrangements by SVCI. Investment income was $4.9 million in fiscal year 2000, $318,000 in fiscal year 1999 and $434,000 in fiscal year 1998. The increase in investment income in fiscal year 2000 resulted from short-term investments of the net proceeds received in our follow-on public offering completed on November 12, 1999. The decrease in investment income in fiscal year 1999 compared to 1998 resulted primarily from a reduced level of short-term invested cash balances. Income Taxes. Our overall effective income tax rate was 27.6% for fiscal year 2000, 117.0% for fiscal year 1999 and 58.8% for fiscal year 1998. The lower effective income tax rate for fiscal year 2000 resulted primarily from an adjustment to the valuation allowance on deferred tax assets related to certain tax benefits from the acquisitions of Convergence and SVCI, and was offset partially by permanent differences for non-deductible business combination costs incurred in relation with the mergers with Convergence, SVCI and Worldbridge. The higher effective income tax rate in fiscal year 1999, as compared to fiscal year 1998, resulted primarily from limited tax benefit from the operating losses at SVCI and Convergence, reduced tax benefits from our Foreign Sales Corporation and higher state income taxes. In addition, fluctuations in the effective income tax rate from period to period reflect other changes in permanent non-deductible amounts, the relative profitability related to both U.S. and non-U.S. operations and differences in statutory rates. We expect to have an effective annual tax rate that approximates statutory rates in the future. Results of Discontinued Operations On July 10, 1997, we announced the discontinuation of our Digital Fiber Optics Transmission Products segment located in Fremont, California. We recorded gains on the disposal of the discontinued operations, net of tax, of $1.1 million, $397,000 and $928,000, for fiscal years 2000, 1999 and 1998, respectively. The gain on disposal of the discontinued business segment in fiscal year 2000 resulted primarily from settlement of certain litigation with a supplier. The gain on disposal of the discontinued business segment in fiscal year 1999 resulted primarily from the settlement of certain warranty claims. In fiscal year 1998, the gain derived primarily from higher than anticipated proceeds associated with the disposal of assets, primarily inventory, and lower than anticipated operating costs from the measurement date to the disposal date. 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 June 30, 2000, cash and cash equivalents and short-term investments totaled $137.5 million, up from $6.3 million at June 25, 1999. Net cash and cash equivalents provided by operating activities were $10.8 million in fiscal year 2000 compared to $4.6 million in fiscal year 1999 and $5.0 million in fiscal year 1998. The $10.8 million of cash provided by operations in fiscal year 2000 includes the effect of $9.0 million of nonrecurring costs associated with the mergers completed during the year. Excluding these costs, the operations generated $18.4 million in cash in 18 fiscal year 2000. The increase in cash and cash equivalents provided by operating activities in fiscal year 2000 was primarily due to the increase in net income for fiscal year 2000, compared to a net loss in fiscal year 1999, and higher accounts payable and accrued liabilities, which was partially offset by increases in accounts receivable and inventory. Net cash and cash equivalents used in investing activities were $56.3 million in fiscal year 2000 compared to $6.6 million in fiscal year 1999 and $12.2 million in fiscal year 1998. The increase in cash and cash equivalents used in investing activities in fiscal year 2000 was primarily due to purchases of marketable securities and other short-term investments. Other investing activities included our purchases of property, plant and equipment for $7.9 million, as well as our purchase of substantially all the assets of ACSI for $3.6 million, of which $3.2 million was disbursed during the fiscal year, with the remaining balance subject to certain escrow requirements. In addition, we invested $3.5 million in Fortress Technologies. Net cash and cash equivalents provided by financing activities were $135.1 million in fiscal year 2000 compared to $3.4 million in fiscal year 1999 and $1.5 million in fiscal year 1998. The increase in cash provided by financing activities for fiscal year 2000 resulted primarily from net proceeds received through a follow-on public offering of our common stock. Our other financing activities consisted primarily of payments on short-term and long-term debt and proceeds from the exercise of employee stock options and warrants. 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 30, 2000. The credit agreement also permits us to borrow up to $50.0 million, for strategic acquisitions and/or investments, which is also committed through November 30, 2000. 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 three 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 June 30, 2000, we had no borrowings outstanding under the credit agreement, and based on fiscal year 2000 EBITDA, the full $70 million facility was available. Management believes that operating cash flow, proceeds received from the follow-on public offering, as well as the aforementioned credit agreement, will be adequate to provide for all cash requirements for the foreseeable future, subject to requirements that strategic developments might dictate. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. 19 Item 8. Financial Statements and Supplementary Data Consolidated financial statements of C-COR.net Corp. meeting the requirements of Regulation S-X are filed on the following pages of this Item 8 of this Annual Report on Form 10-K, as listed below:
Page ----- Report of Independent Auditors.......................................... 21 Consolidated Balance Sheets as of June 30, 2000 and June 25, 1999....... 22 Consolidated Statements of Operations for the Years Ended June 30, 2000, June 25, 1999 and June 26, 1998........................................ 23 Consolidated Statements of Cash Flows for the Years Ended June 30, 2000, June 25, 1999 and June 26, 1998........................................ 24 Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 2000, June 25, 1999 and June 26, 1998.............................. 25 Notes to Consolidated Financial Statements.............................. 26-50
20 Independent Auditors' Report The Board of Directors C-COR.net Corp. and Subsidiaries: We have audited the accompanying consolidated balance sheets of C-COR.net Corp. and subsidiaries as of June 30, 2000 and June 25, 1999, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended June 30, 2000. 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 30, 2000 and June 25, 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP KPMG LLP State College, Pennsylvania August 11, 2000 21 C-COR.net Corp. Consolidated Balance Sheets (In thousands, except share data)
June 30, June 25, 2000 1999 -------- -------- ASSETS Current assets Cash and cash equivalents.................................. $ 95,379 $ 5,805 Marketable securities...................................... 42,154 445 Interest receivable........................................ 1,007 1 Accounts and notes receivables, less allowance of $1,148 in 2000 and $1,052 in 1999................................... 49,325 35,252 Inventories................................................ 31,760 23,565 Deferred taxes............................................. 7,470 6,352 Other current assets....................................... 3,447 3,546 Net current assets of discontinued operations.............. 379 433 -------- -------- Total current assets................................... 230,921 75,399 Property, plant and equipment, net......................... 28,322 28,821 Intangible assets, net of accumulated amortization of $242 in 2000 and $172 in 1999.................................. 2,477 1,131 Deferred taxes............................................. 4,909 1,113 Other long-term assets..................................... 6,410 2,716 -------- -------- Total assets........................................... $273,039 $109,180 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable........................................... $ 21,341 $ 16,421 Accrued liabilities........................................ 20,056 17,400 Line-of-credit and short-term credit obligations........... -- 4,638 Current portion of long-term debt.......................... 225 858 -------- -------- Total current liabilities.............................. 41,622 39,317 Long-term debt, less current portion....................... 1,527 3,741 Other long-term liabilities................................ 2,232 1,464 Commitments and contingent liabilities -------- -------- Total liabilities...................................... 45,381 44,522 -------- -------- Series A redeemable convertible preferred stock, no par.... -- 3,393 Shareholders' equity Preferred stock, no par; authorized shares of 2,000,000; issued, none.............................................. -- -- Convertible preferred stock, no par........................ -- 24,304 Common stock, $.05 par; authorized shares of 100,000,000 in 2000 and 48,000,000 in 1999; issued shares of 35,219,825 in 2000 and 23,923,065 in 1999............................ 1,761 1,197 Additional paid-in capital................................. 197,240 22,416 Accumulated other comprehensive loss....................... (30) (96) Unearned compensation...................................... (8) -- Retained earnings.......................................... 35,952 20,605 Treasury stock at cost, 1,224,941 shares in 2000 and 1,318,118 shares in 1999.................................. (7,257) (7,161) -------- -------- Total shareholders' equity............................. 227,658 61,265 -------- -------- Total liabilities and shareholders' equity............. $273,039 $109,180 ======== ========
See accompanying notes to consolidated financial statements. 22 C-COR.net Corp. Consolidated Statements of Operations (In thousands, except per share data)
Year Ended ---------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Net sales........................................ $281,135 $202,168 $169,852 Cost of sales.................................... 208,546 152,315 134,128 -------- -------- -------- Gross margin..................................... 72,589 49,853 35,724 Operating expenses: Selling and administrative..................... 31,350 32,430 24,609 Research and product development............... 16,003 11,833 9,988 Merger and restructuring costs................. 9,045 -- 625 -------- -------- -------- Total operating expenses..................... 56,398 44,263 35,222 Income from operations........................... 16,191 5,590 502 Interest expense................................. (814) (1,396) (437) Investment income................................ 4,901 318 434 Other expense, net............................... (305) (377) (402) -------- -------- -------- Income before income taxes....................... 19,973 4,135 97 Income tax expense............................... 5,512 4,839 57 -------- -------- -------- Income (loss) from continuing operations......... 14,461 (704) 40 -------- -------- -------- Discontinued operations: Gain on disposal of discontinued business segment, net of tax........................... 1,063 397 928 -------- -------- -------- Net income (loss)................................ 15,524 (307) 968 Dividend requirements on preferred stocks........ -- (613) (122) -------- -------- -------- Net income (loss) available to common shareholders.................................... $ 15,524 $ (920) $ 846 ======== ======== ======== Net income (loss) per share--basic: Continuing operations.......................... $ 0.48 $ (0.06) -- Gain on disposal of discontinued operations.... 0.04 0.02 0.04 -------- -------- -------- Net income (loss)............................ $ 0.52 $ (0.04) $ 0.04 ======== ======== ======== Net income (loss) per share--diluted: Continuing operations.......................... $ 0.43 $ (0.06) $ -- Gain on disposal of discontinued operations.... 0.03 0.02 0.04 -------- -------- -------- Net income (loss)............................ $ 0.46 $ (0.04) $ 0.04 ======== ======== ======== Weighted average common shares and common share equivalents Basic.......................................... 30,039 22,483 22,503 Diluted........................................ 33,968 22,483 22,503
See accompanying notes to consolidated financial statements. 23 C-COR.net Corp. Consolidated Statements of Cash Flows (In thousands)
Year Ended ---------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Operating Activities: Net income (loss)............................... $ 15,524 $ (307) $ 968 Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities: Depreciation and amortization................... 8,891 9,199 7,233 Amortization of debt discount................... 381 911 -- Amortization of unearned compensation........... 14 -- -- Gain on disposal of discontinued operations, net of tax......................................... (1,063) (397) (928) Provision for deferred retirement salary plan... 309 204 292 Loss (gain) on sale of property, plant, and equipment...................................... 331 235 (20) Incentive plan compensation expense............. 369 -- -- Tax benefit deriving from exercise and sale of stock option shares............................ 3,859 94 57 Changes in operating assets and liabilities, net of acquisition: Interest receivable............................ (1,006) -- -- Accounts receivable............................ (13,188) (12,294) (1,188) Inventories.................................... (8,195) (5,756) 2,748 Other assets................................... 468 (58) (3,064) Accounts payable............................... 4,920 9,540 (2,609) Accrued liabilities............................ 2,983 6,084 3,818 Deferred income taxes.......................... (4,917) (2,303) (3,357) Discontinued operations--working capital changes and noncash charges................... 1,117 (553) 1,051 -------- -------- -------- Net cash and cash equivalents provided by operating activities........................... 10,797 4,599 5,001 -------- -------- -------- Investing Activities: Purchase of property, plant and equipment....... (7,891) (8,669) (10,808) Purchase of marketable securities and other short-term investments......................... (41,709) (84) -- Proceeds from sale of (investment in) equity securities..................................... (3,501) -- 15 Issuance of (payments on) notes receivable, net............................................ -- 1,972 (2,011) Change in other assets.......................... -- 94 (146) Asset purchase of ACSI.......................... (3,185) -- -- Proceeds from sale of property, plant and equipment...................................... 8 48 51 Proceeds from discontinued operations........... -- -- 656 -------- -------- -------- Net cash and cash equivalents used in investing activities..................................... (56,278) (6,639) (12,243) -------- -------- -------- Financing Activities: Payment of debt and capital lease obligations... (2,847) (5,107) (1,136) Proceeds from long-term debt borrowing.......... -- 3,097 52 Proceeds from (payments on) short-term credit facilities, net................................ (5,019) 5,019 (3,573) Proceeds from issuance of convertible preferred stock.......................................... -- 1,355 6,180 Proceeds from issuance of common stock to employee stock purchase plan................... 130 76 51 Proceeds from exercise of stock options......... 6,272 1,202 277 Proceeds from exercise of stock warrants........ 3,485 -- -- Proceeds from issuance of common stock, net..... 133,311 -- -- Purchase and retirement of convertible preferred stock.......................................... -- (1,000) -- Purchase of treasury stock...................... (277) (1,265) (312) -------- -------- -------- Net cash and cash equivalents provided by financing activities........................... 135,055 3,377 1,539 -------- -------- -------- Increase (decrease) in cash and cash equivalents.................................... 89,574 1,337 (5,703) Elimination of duplicated activity.............. -- 1,014 (6) Cash and cash equivalents at beginning of year.. 5,805 3,454 9,163 -------- -------- -------- Cash and cash equivalents at end of year........ $ 95,379 $ 5,805 $ 3,454 ======== ======== ======== Supplemental cash flow information: Non-cash investing and financing activities Fair value adjustment of available-for-sale securities.................................... $ 75 -- -- Conversion of convertible preferred stock...... 27,697 -- -- Exercise of warrants........................... 247 -- -- Retirement of treasury stock................... 181 -- --
See accompanying notes to consolidated financial statements. 24 C-COR.net Corp. Consolidated Statements of Shareholders' Equity (In thousands)
Accumulated Other Additional Comprehensive Comprehensive Preferred Common Paid-in Income Unearned Retained Treasury Income Stock Stock Capital (Loss) Compensation Earnings Stock ------------- --------- ------ ---------- ------------- ------------ -------- -------- Balance, June 27, 1997.. $20,610 $1,178 $ 20,534 $(115) $-- $19,535 $(5,765) Net income.............. $ 968 -- -- -- -- -- 968 -- Other comprehensive income: Net unrealized holding gains on marketable securities............. 7 -- -- -- -- -- -- -- Foreign currency translation gain....... 9 -- -- -- -- -- -- -- ------- Other comprehensive income................. 16 -- -- -- 16 -- -- -- ------- Comprehensive income.... $ 984 -- -- -- -- -- -- -- ======= Adjustment related to merger (Note B)........ -- -- -- -- -- 432 -- Shares issued........... 3,400 -- -- -- -- -- -- Issuance of stock warrants............... -- -- 189 -- -- -- -- Accretion of discount on convertible preferred stock.................. -- -- -- -- -- (122) -- Exercise of stock options................ -- 5 272 -- -- -- -- Tax benefit deriving from exercise and sale of stock option shares................. -- -- 57 -- -- -- -- Issue shares to employee stock purchase plan.... -- -- 51 -- -- -- -- Purchase of treasury stock.................. -- -- -- -- -- -- (312) ------- ------ -------- ----- ---- ------- ------- Balance, June 26, 1998.. 24,010 1,183 21,103 (99) -- 20,813 (6,077) Net loss................ $ (307) -- -- -- -- -- (307) -- Other comprehensive income: Net unrealized holding gains on marketable securities............. 4 -- -- -- -- -- -- -- Foreign currency translation loss....... (1) -- -- -- -- -- -- -- ------- Other comprehensive income................. 3 -- -- -- 3 -- -- -- ------- Comprehensive loss...... $ (304) -- -- -- -- -- -- -- ======= Adjustment related to merger (Note B)........ -- -- -- -- -- 712 -- Shares adjustment....... -- -- (45) -- -- -- -- Issuance of stock warrants............... 1,294 -- -- -- -- -- -- Accretion of discount on convertible preferred stock.................. -- -- -- -- -- (613) -- Exercise of stock options................ -- 13 1,189 -- -- -- -- Tax benefit deriving from exercise and sale of stock option shares................. -- -- 94 -- -- -- -- Issue shares to employee stock purchase plan.... -- 1 75 -- -- -- -- Purchase and retirement of preferred stock..... (1,000) -- -- -- -- -- -- Purchase of treasury stock.................. -- -- -- -- -- -- (1,084) ------- ------ -------- ----- ---- ------- ------- Balance, June 25, 1999.. 24,304 1,197 22,416 (96) -- 20,605 (7,161) Net income.............. $15,524 -- -- -- -- -- 15,524 -- Other comprehensive income: Net unrealized holding gains on marketable securities............. 75 -- -- -- -- -- -- -- Foreign currency translation loss....... (9) -- -- -- -- -- -- -- ------- Other comprehensive income................. 66 -- -- -- 66 -- -- -- ------- Comprehensive income.... $15,590 -- -- -- -- -- -- -- ======= Shares issued for secondary public offering............... -- 322 132,989 -- -- -- -- Conversion of preferred stock and retirement of treasury shares........ (24,304) 161 27,532 -- -- (177) 181 Exercise of stock options................ -- 45 6,227 -- -- -- -- Exercise of stock warrants............... -- 35 3,697 -- -- -- -- Tax benefit deriving from exercise and sale of stock option shares................. -- -- 3,859 -- -- -- -- Issue shares to employee stock purchase plan.... -- -- 130 -- -- -- -- Issue performance shares................. -- 1 368 -- -- -- -- Issue restricted stock.. -- -- 22 -- (22) -- -- Purchase of treasury stock to deferred compensation plan...... -- -- -- -- -- -- (277) Amortization of unearned compensation expense... -- -- -- -- 14 -- -- ------- ------ -------- ----- ---- ------- ------- Balance, June 30, 2000.. $ -- $1,761 $197,240 $ (30) $(8) $35,952 $(7,257) ======= ====== ======== ===== ==== ======= =======
See accompanying notes to consolidated financial statements. 25 C-COR.net Corp. Notes to Consolidated Financial Statements (In thousands, except share and per share data) For the three fiscal years ended June 30, 2000 Description of Business C-COR.net Corp. (the Company) designs, manufactures and markets network transmission products and provides services and support to 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 hybrid fiber coax (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. A. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Reporting Periods Management has adopted a fiscal year that ends on the last Friday in June. For reporting periods presented herein, the periods ended on June 30, 2000, June 25, 1999 and June 26, 1998. These years contained 53, 52 and 52 weeks, respectively (see Note B). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts in the financial statements and related notes have been reclassified to conform to the fiscal year 2000 classifications. Revenue Recognition The Company's revenues derive principally from equipment sales, which are generally recognized when the equipment has been shipped. Revenue from Internet service is recognized monthly as services are provided to subscribers. Other 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. Fair Value of Financial Instruments The carrying value of the Company's long-term borrowings approximates fair value, after taking into consideration current rates offered to the Company for similar debt instruments of comparable maturities. The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. 26 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) Cash Equivalents The Company considers all highly liquid investments, with a maturity of three months or less when purchased, to be cash equivalents. Cash equivalents are reflected at the lower of cost or market. Marketable Securities Marketable securities at June 30, 2000 consisted of municipal bonds, corporate obligations and equity securities. The Company follows the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (Statement 115), in accounting for marketable securities. Under Statement 115, the Company classifies all of its marketable securities as available-for-sale and records them at fair value. Unrealized holding gains and losses are excluded from income and are recorded directly to shareholders' equity in accumulated other comprehensive loss, net of related deferred income taxes. Inventories Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment, which includes leased property under capital leases, is stated at cost. Depreciation or amortization is calculated on the straight-line method for financial statement purposes based upon the following estimated useful lives: Building and improvements under capital lease................. 15 years Buildings..................................................... 15 to 25 years Machinery and equipment under capital lease................... 5 years Machinery and equipment....................................... 2 to 10 years Leasehold improvements........................................ 7 to 15 years
Computer Software Under Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes certain internal and purchased software development and production costs once technological feasibility has been achieved. The Company did not capitalize any software development costs during fiscal year 2000. For fiscal years 1999 and 1998, the Company capitalized $389 and $670, respectively, of purchased software development costs, which is included in other long-term assets in the consolidated financial statements. Amortization expense for fiscal years 2000, 1999 and 1998 was $353, $0 and $0, respectively. Intangible Assets Patent, trademark and license costs relate to purchased and internally developed product lines and are carried at cost less accumulated amortization, which is calculated on a straight-line basis over the estimated three year useful life of the asset. Goodwill acquired in connection with the asset purchase of Advanced Communications Services, Inc. (ACSI) in January 2000 is being amortized on a straight-line basis over the estimated useful life of ten years. Amortization expense for the fiscal years 2000, 1999 and 1998, was $273, $172 and $0, respectively. 27 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) Investment On October 6, 1999, the Company invested $501 in Fortress Technologies, Inc. (Fortress), a security networking company, and subsequently on January 11, 2000, increased its investment to $3,501. The investment in Fortress represents approximately a 5 percent ownership interest. In connection with the investment, the Company and Fortress have agreed on key terms of a reseller agreement, under which the companies will jointly offer a network-based security solution for residential and business cable modem customers. In addition, the Company will become the exclusive provider of this security solution to the domestic broadband cable-operator market. The investment in Fortress, which does not fall within the guidelines of Statement 115, is being carried at cost, since the Company does not exert significant influence over Fortress. Income Taxes Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Shareholders' Equity On October 19, 1999, the shareholders of the Company approved a proposal to amend the Amended and Restated Articles of Incorporation to increase the number of shares of common stock authorized from 24,000,000 to 50,000,000. On November 12, 1999, the Company completed a follow-on public offering of its common stock, whereby 6,440,000 shares of common stock were issued and sold at a price of $22.00 per share. This offering resulted in net proceeds (after deducting issuance costs) to the Company of $133,311. The proceeds of the offering were used for repayment of debt and will also be used for strategic investments, capital expenditures, working capital and other general corporate purposes. On December 7, 1999, the Company's board of directors declared a two-for-one stock split of the Company's common stock. The stock split was effective for all shares of record as of the close of business on December 22, 1999. The additional shares were distributed on January 6, 2000. In connection with the stock split, the par value per share of common stock was reduced from $.10 to $.05, and the authorized number of shares of common stock was proportionately increased from 50,000,000 to 100,000,000. All share and per share amounts have been adjusted for the two-for-one stock split effective December 22, 1999, for all periods presented. At June 30, 2000 and June 25, 1999, treasury stock consisted of 1,224,941 and 1,318,118 shares of common stock, respectively. In fiscal year 2000, the Company retired 116,672 shares of treasury stock upon the mergers with Convergence.com Corporation (Convergence) and Worldbridge Broadband Services, Inc. (Worldbridge). In addition, 23,495 shares of the Company's common stock purchased under a non-qualified deferred compensation arrangement, held in a Rabbi Trust, have been presented in a manner similar to treasury stock as of June 30, 2000. In fiscal years 1999 and 1998, the Company repurchased 180,762 shares of its common stock for $1,084 and 44,628 shares of its common stock for $312, respectively, under stock repurchase programs. The Company used its available capital resources to fund the purchases. The repurchased stock is being held by the 28 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) Company as treasury stock and is available to be used in meeting the Company's obligations under its present and future stock option plans and for other corporate purposes. 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, warrants and convertible preferred stock. The dilutive effect of options and warrants is calculated under the treasury stock method using the average market price for the period. The dilutive effect of the convertible preferred stock is calculated under the if-converted method. Net income (loss) per share is calculated as follows:
Year Ended --------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Income (loss) from continuing operations........... $14,461 $ (704) $ 40 Less: Accretion of convertible preferred stock......... -- (613) (122) ------- ------- ------ Continuing income (loss) available to common shareholders...................................... $14,461 $(1,317) $ (82) Gain from discontinued operations.................. 1,063 397 928 ------- ------- ------ Net income (loss) available to common shareholders...................................... $15,524 $ (920) $ 846 ======= ======= ====== Weighted average common shares outstanding......... 30,039 22,483 22,503 Common share equivalents........................... 3,929 -- -- ------- ------- ------ Weighted average common shares and common share equivalents....................................... 33,968 22,483 22,503 ======= ======= ====== Net income (loss) per share--basic: Continuing operations............................ $ 0.48 $ (0.06) $ -- Discontinued operations.......................... 0.04 0.02 0.04 ------- ------- ------ Net income (loss) available to common shareholders.................................. $ 0.52 $ (0.04) $ 0.04 ======= ======= ====== Net income (loss) per share--diluted: Continuing operations............................ $ 0.43 $ (0.06) $ -- Discontinued operations.......................... 0.03 0.02 0.04 ------- ------- ------ Net income (loss) available to common shareholders.................................. $ 0.46 $ (0.04) $ 0.04 ======= ======= ======
Product Warranty The Company warrants its products against defects in materials and workmanship, generally for three-to-five years, depending upon product lines. A provision for estimated future costs relating to warranty expense is recorded when product is shipped, based upon historical claims and specifically identified warranty exposures. Restructuring Costs On June 25, 1998, the Company announced the closing of its manufacturing plant located in Reedsville, Pennsylvania. As a result of this action, the Company incurred restructuring charges in the fourth quarter of its fiscal year 1998 of $625. The restructuring charge represented salaries and benefits for approximately 140 29 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) employees affected by the plant closing. The work force reduction occurred during the first quarter of fiscal year 1999, thereby eliminating the restructuring accrual at June 25, 1999. At June 26, 1998, the Company had a Lease/Option to Purchase Agreement with the Mifflin County Industrial Development Corporation (MCIDC) for the building and improvements located in Reedsville, Pennsylvania. On August 10, 1998, the Company purchased the facility using its available capital resources and expects to sell the facility at a price in excess of its net carrying value. The facility has been reclassified from property, plant and equipment to property held-for-sale, which is included in other current assets on the consolidated balance sheet as of June 30, 2000, with a carrying value of $1,100. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires net unrealized investment gains or losses on the Company's available-for-sale securities and net foreign exchange gains or losses on translation to be included in accumulated other comprehensive loss in the consolidated balance sheet and in the disclosure of comprehensive income (loss). The totals of other comprehensive income (loss) items and comprehensive income (loss) (which includes net income) are displayed separately in the consolidated statements of shareholders' equity. The components of other comprehensive income (loss) and the related tax effects are as follows:
Income Amount Tax Amount Before Expense Net Tax (Benefit) of Taxes ------ --------- -------- Fiscal year ended June 30, 2000: Unrealized holding gain during the fiscal year.... $125 $50 $75 Net foreign currency translation loss............. (15) (6) (9) ---- --- --- Total other comprehensive income.................. $110 $44 $66 ==== === === Fiscal year ended June 25, 1999: Unrealized holding gain during the fiscal year.... $ 7 $ 3 $ 4 Net foreign currency translation loss............. (2) (1) (1) ---- --- --- Total other comprehensive income.................. $ 5 $ 2 $ 3 ==== === === Fiscal year ended June 26, 1998: Unrealized holding gain during the fiscal year.... $ 12 $ 5 $ 7 Net foreign currency translation gain............. 15 6 9 ---- --- --- Total other comprehensive income.................. $ 27 $11 $16 ==== === ===
Accounting and Disclosure Changes In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, which amends the required adoption date of Statement 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company anticipates adopting this Statement in its fiscal year 2001 consolidated financial statements as required. Implementation of this Statement is not expected to have a material effect on the Company's consolidated financial statements. 30 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) B. Business Combinations Pooling of Interests: On July 9, 1999, the Company consummated a merger with Convergence, whereby Convergence became a wholly owned subsidiary of the Company. As consideration in the merger, the outstanding shares of common stock of Convergence were converted into 2,866,646 shares of the Company's common stock. Outstanding warrants to acquire Convergence common stock were converted into warrants to acquire an aggregate of 733,860 shares of the Company's common stock. Prior to the merger, Convergence had operated on a calendar year basis. Operating results for fiscal years 1999 and 1998 include the operations of Convergence for the 12-month periods ended June 30, 1999 and June 30, 1998, respectively. Operating results for the fiscal year ended June 27, 1997 include the operations of Convergence for the 12-month period ended December 31, 1997. This results in an overlapping period (July 1997 through December 1997) for Convergence's results of operations being included in the consolidated financial statements for the fiscal year ended June 26, 1998. Accordingly, the consolidated statement of shareholders' equity for fiscal year 1998 includes a $432 adjustment to eliminate the impact on retained earnings for the overlap period. On September 17, 1999, the Company consummated a merger with Silicon Valley Communications, Inc. (SVCI), whereby SVCI became a wholly owned subsidiary of the Company. As consideration in the merger, the outstanding shares of common stock of SVCI were converted into 3,090,162 shares of the Company's common stock (including 350,418 shares that were issued into escrow). Outstanding stock options and warrants to acquire SVCI common stock were converted into stock options and warrants to acquire an aggregate of 767,688 shares of the Company's common stock. Prior to the merger, SVCI had operated on a fiscal year ending in June. Operating results for fiscal years 1999 and 1998 include the operations of SVCI for the 12-month periods ended June 25, 1999 and June 30, 1998, respectively. On February 18, 2000, the Company consummated a merger with Worldbridge, whereby Worldbridge became a wholly owned subsidiary of the Company. As consideration in the merger, the outstanding shares of common stock of Worldbridge were converted into 1,603,584 shares of the Company's common stock (including 160,356 shares that were issued into escrow). Outstanding stock options to acquire Worldbridge common stock were converted into stock options to acquire an aggregate of 196,416 shares of the Company's common stock. Prior to the merger, Worldbridge had operated on a calendar year basis. Operating results for fiscal year 1999 includes the operations of Worldbridge for the 12-month period ended June 30, 1999. Operating results for fiscal year 1998 include the operations of Worldbridge for the 12-month period ended December 31, 1998. This results in an overlapping period (July 1998 through December 1998) for Worldbridge's results of operations being included in the consolidated financial statements for the fiscal year ended June 25, 1999. Accordingly, the consolidated statement of shareholders' equity for fiscal year 1999 includes a $712 adjustment to eliminate the impact on retained earnings for the overlap period. The Company recorded one-time charges of $9,045 related to the business combinations with Convergence, SVCI and Worldbridge during fiscal year 2000. The one-time charges include the merger transaction and other related costs, as well as restructuring costs which included severance payments for approximately 40 employees affected by consolidation of positions and administrative functions resulting from the mergers, and write-off of assets related to existing fiber optic products that became redundant as a result of the acquisition of SVCI. At June 30, 2000, a liability of $489 related to these business combination costs is included in accrued liabilities. 31 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) Net sales and net income (loss) for the Company, Convergence, SVCI and Worldbridge prior to the combinations are as follows:
Year Ended ------------------ June 25, June 26, 1999 1998 -------- -------- Net sales: C-COR.net Corp......................................... $171,281 $152,144 Convergence............................................ 6,635 1,276 SVCI................................................... 5,509 621 Worldbridge............................................ 18,743 15,811 -------- -------- Combined................................................. $202,168 $169,852 ======== ======== Net income (loss): C-COR.net Corp......................................... $ 10,852 $ 8,245 Convergence............................................ (2,516) (979) SVCI................................................... (8,622) (5,420) Worldbridge............................................ (21) (878) -------- -------- Combined................................................. $ (307) $ 968 ======== ========
Asset Purchase--Advanced Communications Services, Inc. (ACSI) On January 28, 2000, a wholly owned subsidiary of the Company purchased substantially all of the assets of ACSI for $3,610. The Company did not assume any material liabilities of ACSI in the transaction. The impact of the acquisition on the Company's historical results of operations was not material. C. Discontinued Operations On July 10, 1997, the Company announced the discontinuation of its Digital Fiber Optics Transmission Products segment located in Fremont, California. The Company recorded gains on the disposal of the discontinued operations, net of tax, of $1,063, $397 and $928, for fiscal years 2000, 1999 and 1998, respectively. 32 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) The assets and liabilities of the discontinued operations have been reclassified in the accompanying consolidated financial statements to separately identify them as net current assets related to the discontinued operations. These net assets consist of net working capital and other assets, less related liabilities as follows, as of June 30, 2000 and June 25, 1999:
June 30, June 25, 2000 1999 -------- -------- Current assets: Accounts receivable...................................... $ 16 $ 16 Note receivable.......................................... 70 796 Deferred tax assets...................................... 493 474 ----- ----- 579 1,286 ----- ----- Current liabilities: Accrued warranty and other............................... (150) (728) Allowance for disposal of discontinued operations........ (50) (125) ----- ----- (200) (853) ----- ----- Net current assets of discontinued operations.............. $ 379 $ 433 ===== =====
D. Marketable Securities Marketable securities as of June 30, 2000 and June 25, 1999 consisted of the following:
Gross Gross Unrealized Unrealized Amortized Holding Holding Fair Cost Gains Losses Value --------- ---------- ---------- ------- June 30, 2000: Available-for-sale: Municipal bonds.................. $ 335 $ -- $ (12) $ 323 Corporate obligations............ 41,828 -- -- 41,828 Equity securities................ 1 2 -- 3 ------- ----- ----- ------- Total classified as current assets............................ $42,164 $ 2 $ (12) $42,154 ======= ===== ===== ======= Available-for-sale: Mutual funds..................... $ 612 $ 91 $ (13) $ 690 ------- ----- ----- ------- Total classified as noncurrent assets............................ $ 612 $ 91 $ (13) $ 690 ======= ===== ===== ======= June 25, 1999: Available-for-sale: Municipal bonds.................. $ 351 $ -- $ (9) $ 342 Equity securities................ 101 2 -- 103 ------- ----- ----- ------- Total classified as current assets............................ $ 452 $ 2 $ (9) $ 445 ======= ===== ===== =======
33 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) Maturities of investment securities classified as available-for-sale at June 30, 2000, were as follows:
Amortized Fair Cost Value --------- ------- Available-for-sale: Due in one year or less................................. $42,163 $42,151
E. Inventories Inventories as of June 30, 2000 and June 25, 1999 consisted of the following:
June 30, June 25, 2000 1999 -------- -------- Finished goods............................................. $ 5,288 $ 3,287 Work-in-process............................................ 6,841 3,038 Raw materials.............................................. 19,631 17,240 ------- -------- $31,760 $ 23,565 ======= ========
Included in the amounts above were reserves of $3,094 at June 30, 2000, and $2,231 at June 25, 1999. F. Property, Plant and Equipment Property, plant and equipment as of June 30, 2000 and June 25, 1999 consisted of the following:
June 30, June 25, 2000 1999 -------- -------- Land....................................................... $ 468 $ 468 Buildings.................................................. 11,027 10,760 Machinery and equipment under capital lease................ 173 485 Machinery and equipment.................................... 60,053 52,367 Leasehold improvements..................................... 1,584 1,326 ------- ------- 73,305 65,406 Less accumulated depreciation and amortization............. 44,983 36,585 ------- ------- $28,322 $28,821 ======= =======
34 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) G. Intangible Assets Intangible assets as of June 30, 2000 and June 25, 1999 consisted of the following:
June 30, June 25, 2000 1999 -------- -------- Cost of intangibles: Goodwill................................................. $2,461 $ -- Patents and trademarks................................... 8 1,053 Licensing costs.......................................... 250 250 ------ ------ 2,719 1,303 ------ ------ Less accumulated amortization: Goodwill................................................. (103) -- Patents and trademarks................................... -- (116) Licensing costs.......................................... (139) (56) ------ ------ (242) (172) ------ ------ Net book value............................................. $2,477 $1,131 ====== ======
H. Credit Facilities In December 1999, the Company amended its credit agreement established with three banks under which it may borrow up to $70,000. The agreement has two parts. First, $20,000 is available as a revolving line-of-credit, subject to an aggregate sub-limit of $2,000 for issuance of letters of credit, which is committed through November 30, 2000. The second part is a standby acquisition facility, which enables the Company to borrow up to $50,000, for strategic acquisitions and/or investments, which is also committed through November 30, 2000. A pricing matrix has been established for credit pricing on these facilities which is a function of the Company's total funded indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio. Borrowings under this credit agreement bear interest at various rates, at the Company's option. Borrowings on these facilities are unsecured, subject to a negative pledge on all business assets, and the Company is required to maintain certain financial ratios and comply with indebtedness tests. As of June 30, 2000, the Company had no borrowings outstanding under this credit agreement. As a result of the Company's acquisition of SVCI, the Company had an additional line of credit with a bank, which provided for borrowings of up to $3,000; a bank bridge loan, which provided for borrowings of up to $1,000 and a bank equipment term loan of $300. The Company terminated the loans on September 24, 1999, by paying the remaining principal balances of the various loans. The principal balances on the line of credit, the bridge loan and the term loan were $2,715, $1,000 and $150, respectively, on the date of payoff. In connection with the bridge loan, warrants to purchase 9,454 shares of the Company's common stock were issued at an exercise price of $21.16 per share. These warrants had a fair value of $41 and were amortized over the life of the bridge loan. In fiscal year 1998, in connection with the line of credit and term loan, warrants to purchase 7,940 shares of the Company's common stock were issued at an exercise price of $6.56 per share. The purchase rights represented by these warrants expire on January 4, 2002. The warrants had a fair value of $13 and were amortized over the life of the related debt instruments. 35 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) On October 21, 1998, a then existing bank line of credit and term loan was restructured. In consideration for the restructuring, warrants to purchase 1,890 shares of the Company's common stock were issued at an exercise price of $6.56 per share. The warrants are exercisable upon issuance and expire on January 4, 2002. The warrants had a fair value of $4 and were amortized over the life of the related debt instruments. From March to May 1999, SVCI borrowed $1,817 from certain founders and shareholders of SVCI under promissory notes payable. As of June 30, 2000, the balance on these loans was $0. In connection with these notes, SVCI issued warrants to purchase its common stock (see Note K). In connection with the merger, these warrants were converted into warrants to acquire the Company's common stock. I. Long-term Debt
June 30, June 25, 2000 1999 -------- -------- Notes payable.............................................. $1,633 $4,392 Capital lease obligations.................................. 119 207 ------ ------ 1,752 4,599 Less current portion....................................... 225 858 ------ ------ $1,527 $3,741 ====== ======
Notes Payable: The Company obtained funding through the Pennsylvania Industrial Development Authority (PIDA) of $539 for construction of the Tipton, Pennsylvania, manufacturing facility. The PIDA borrowing has an interest rate of 3%, which is contingent upon meeting certain job creation commitments. Monthly payments of principal and interest of $4 are required through 2006. Certain property, plant and equipment collateralize the borrowing. The principal balance at June 30, 2000, was $227. The Company obtained funding through the PIDA of $1,952 for 40% of the cost of building expansion at its manufacturing facility in State College, Pennsylvania. The PIDA borrowing has an interest rate of 2%, which is contingent upon meeting certain job creation commitments. Monthly payments of principal and interest of $13 are required through 2010. Certain property, plant and equipment collateralize the borrowing. The principal balance at June 30, 2000, was $1,406. On October 19, 1998, the Company borrowed $3,000 under a term loan facility with a bank. On November 12, 1999, the Company paid off the remaining principal balance of $1,350 on this term loan. 36 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) As a result of the mergers with Convergence, SVCI and Worldbridge, the Company acquired various capital leases for machinery and equipment, office equipment and furniture and fixtures that expire through 2003. At June 30, 2000, the future minimum payments required under capital lease arrangements were as follows: Fiscal year ending: 2001................................................................. $ 77 2002................................................................. 46 2003................................................................. 18 2004................................................................. -- 2005................................................................. -- Thereafter........................................................... -- ---- 141 Less amount representing interest...................................... 22 ---- Present value of future minimum lease payments......................... 119 Less current portion of obligation under capital leases................ 62 ---- Long-term obligations under capital lease.............................. $ 57 ====
Long-term debt at June 30, 2000, had scheduled maturities as follows: Fiscal year ending: 2001................................................................ $ 225 2002................................................................ 207 2003................................................................ 185 2004................................................................ 173 2005................................................................ 177 Thereafter.......................................................... 785 ------ $1,752 ======
Total interest paid on the short-term credit facilities (see Note H) and long- term debt was $433, $399 and $410 for fiscal years 2000, 1999 and 1998, respectively. J. Stock Award Plans In October 1998, the Company adopted a Stock Incentive Plan (1998 Incentive Plan), which provides for several types of equity-based incentive compensation awards. Awards, when made, may be in the form of stock options, restricted shares, performance shares and performance units. Stock options granted to employees and directors are at a price not less than 100% of the fair market value of such shares on the date of grant. Stock options granted to certain employees begin vesting in cumulative annual installments of 25% per year beginning one year after the date of grant. Options granted to non-employee directors are exercisable one year after grant. During fiscal year 2000, the Company issued performance units to certain officers of the Company pursuant to the 1998 Incentive Plan. The performance units will be awarded based upon certain performance criteria. Compensation expense of $197 was recorded in fiscal year 2000 related to the performance units. 37 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) During fiscal year 1999, 4,000 restricted shares were awarded under the 1998 Incentive Plan. The restricted shares had an aggregate value of $22, which is being amortized over a vesting period through June 2001. Also during fiscal year 1999, 22,000 performance shares were awarded to certain officers and key employees pursuant to the Company's 1998 Incentive Plan. During fiscal year 2000, 18,000 of the performance share awards were earned based upon achievement of certain performance criteria and 4,000 were cancelled. Compensation expense of $554 related to the performance shares was recorded in fiscal year 2000 based upon the current market price of the Company's common stock at the time the performance criteria were satisfied. The Company's previous stock option plans provided for the grant of options to employees with an exercise price per share of at least the fair market value of such shares on the date prior to grant, and to directors with an exercise price equal to the fair market value on the date of grant. Stock options granted to certain employees vest in cumulative annual installments of either 20% or 25% per year beginning one year after the date of grant. Options granted to non- employee directors were exercisable one year after grant. Certain options held by the Chairman were exercisable immediately. In connection with the acquisition of SVCI, outstanding incentive and nonqualified stock options to acquire SVCI common stock were converted into stock options to acquire the Company's common stock. Incentive stock options generally vest over four or five years, with 25% or 20% vesting after one year and the remainder monthly thereafter, and expire ten years from the date of grant. Nonqualified options are generally fully vested upon issuance and expire ten years from date of grant. In connection with the acquisition of Worldbridge, outstanding incentive and nonqualified stock options to acquire Worldbridge common stock were converted into stock options to acquire the Company's common stock. The incentive and nonqualified stock options expire upon the earlier of the date of termination of employment or ten years from the date of grant. The options vested immediately upon assumption by the Company. 38 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) The Company has adopted the disclosure requirements of the Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123). As allowed by Statement 123, the Company has chosen to continue to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the grant date over the amount an employee must pay to acquire the stock. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's plans been determined under Statement 123, the Company's net income (loss) and net income (loss) per share would have been adjusted to the pro forma amounts indicated below:
Year Ended --------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Net income (loss) As reported................................... $15,524 $ (307) $ 968 Pro forma..................................... $11,438 $(3,781) $ (566) Net income (loss) per share: Basic As reported................................. $ 0.52 $ (0.04) $ 0.04 Pro forma................................... $ 0.38 $ (0.20) $(0.03) Diluted As reported................................. $ 0.46 $ (0.04) $ 0.04 Pro forma................................... $ 0.34 $ (0.20) $(0.03)
The per share weighted-average fair values of stock options granted during fiscal years 2000, 1999 and 1998, were $14.01, $8.66 and $5.55, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: Fiscal year 2000-expected dividend yield of 0%, risk-free interest rate of 6.25%, a volatility factor of the expected market price of the Company's common stock of .7742, and a weighted-average expected life of approximately 4 years. Fiscal year 1999-expected dividend yield of 0%, risk-free interest rate of 5.00%, a volatility factor of the expected market price of the Company's common stock of .7395, and a weighted-average expected life of approximately 4 years. Fiscal year 1998-expected dividend yield of 0%, risk-free interest rate of 5.72%, a volatility factor of the expected market price of the Company's common stock of .4913, and a weighted-average expected life of approximately 4 years. The fair value of stock options included in the pro forma amounts for fiscal years 2000, 1999 and 1998 is not necessarily indicative of future effects on net income (loss) and net income (loss) per share. 39 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) A summary of the status of the Company's stock option plans, as of June 30, 2000, June 25, 1999 and June 26, 1998, and changes during the years ended on those dates is presented below:
June 30, 2000 June 25, 1999 June 26, 1998 ------------------------- ------------------------- ------------------------- Weighted- Weighted- Weighted- Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price --------- -------------- --------- -------------- --------- -------------- Outstanding at beginning of year................ 4,365,279 $ 7.66 3,161,234 $6.25 1,671,054 $6.63 Granted................. 1,590,599 $21.55 1,820,625 $9.04 2,267,913 $5.27 Exercised............... (921,617) $ 6.73 (256,438) $4.77 (91,759) $2.89 Canceled................ (445,039) $ 8.99 (360,142) $3.78 (470,095) $4.76 --------- --------- --------- Outstanding at end of year................... 4,589,222 $12.53 4,365,279 $7.66 3,377,113 $6.08 ========= ========= ========= Options exercisable at end of year............ 1,484,376 1,675,146 1,244,096
Stock option plan information as of June 25, 1999, includes stock option activity of Worldbridge for the period of July 1, 1998 through June 30, 1999. Stock option activity for Worldbridge as of June 26, 1998, is included on a calendar year basis. This results in an overlap of stock option activity for the period ended June 25, 1999. The following table summarizes information about the Company's stock option plans as of June 30, 2000:
Options Outstanding Options Exercisable ------------------------------------------ ------------------------- Number Weighted-Avg. Weighted-Avg. Number Weighted-Avg. Outstanding Remaining Exercise Exercisable Exercise Range of Exercise Prices at 6/30/00 Contractual Life Price at 6/30/00 Price - ------------------------ ----------- ---------------- ------------- ----------- ------------- $ 0.06.................. 2,172 5.8 years $ 0.06 1,794 $ 0.06 $ 0.86 to $ 1.06........ 94,121 8.1 years $ 1.04 23,862 $ 0.97 $ 1.38 to $ 2.00........ 9,800 0.7 years $ 1.66 9,800 $ 1.66 $ 3.00 to $ 4.25........ 309,320 3.0 years $ 3.37 309,320 $ 3.37 $ 4.56 to $ 6.81........ 455,134 5.3 years $ 5.19 145,612 $ 5.30 $ 6.88 to $10.06........ 943,755 6.0 years $ 7.62 393,915 $ 7.57 $10.50 to $15.63........ 1,489,453 6.7 years $11.28 593,073 $11.23 $16.06 to $22.94........ 1,044,117 7.8 years $21.25 7,000 $21.83 $25.75 to $38.50........ 231,600 7.6 years $31.94 0 $ 0.00 $39.13 to $49.72........ 9,750 7.7 years $41.46 0 $ 0.00 --------- --------- 4,589,222 6.5 years $12.53 1,484,376 $ 7.85 ========= =========
40 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) K. Shareholders' Equity (a) Classes of Capital Stock The authorized, issued and outstanding shares of the Company's classes of capital stock are as follows:
Authorized Shares as Issued and outstanding at: of -------------------------------- June 30, June 30, June 25, June 26, 2000 2000 1999 1998 ----------- ---------- ---------- ---------- Preferred stock, no par.......... 2,000,000 -- -- -- Series A redeemable convertible preferred stock................. -- -- 300,000 295,000 Series B convertible perferred stock........................... -- -- 378,136 378,136 Series C convertible perferred stock........................... -- -- 694,352 694,352 Series D convertible perferred stock........................... -- -- 9,534 11,725 Common stock, $.05 par value per share, net of treasury stock.... 100,000,000 33,994,884 22,604,947 22,525,071
Shares presented in the table above have been adjusted based upon the applicable exchange ratios associated with the acquisitions of Convergence, SVCI and Worldbridge (see Note B). During fiscal year 2000, the Series A through D convertible preferred stocks were converted into common stock, in conjunction with the acquisitions of Convergence, SVCI and Worldbridge. (b) Warrants Warrants presented in the table below have been adjusted for the stock-split and applicable exchange ratios associated with the acquisitions of Convergence and SVCI (see Notes A and B). As a result of the consummated mergers with Convergence and SVCI, warrants to acquire Convergence and SVCI preferred and common stock were converted into warrants to acquire common stock of the Company. These warrants were originally issued in connection with various financing and employment arrangements. The following table summarizes information about warrants outstanding as of June 30, 2000:
Warrants issued in connection with: Warrants Warrants Fiscal Year -------------------------------------- Originally Outstanding Exercise Warrants Debt Equity Employment Issued Issued as of 6/30/00 Prices Expire Financing Financing Services - ------ ---------- ------------- -------- ----------- ----------- ----------- ------------ Fiscal Year 1997........ 264,696 229,361 $10.58 2001 -- 264,696 -- Fiscal Year 1998........ 600,000 6,000 $ 5.00 2005 -- 600,000 -- Fiscal Year 1998........ 6,050 -- $ 6.56 2002 6,050 -- -- Fiscal Year 1999........ 133,860 80,316 $ 5.00 2003 -- -- 133,860 Fiscal Year 1999........ 14,180 2,836 $ 6.56 2002 14,180 -- -- Fiscal Year 1999........ 207,030 199,468 $15.87 2002 207,030 -- -- Fiscal Year 1999........ 7,562 7,562 $37.02 2002 7,562 -- -- --------- ------- ----------- ----------- ----------- 1,233,378 525,543 234,822 864,696 133,860 ========= ======= =========== =========== ===========
The fair value of the warrants issued in connection with debt financing transactions was calculated by the Company using the Black-Scholes pricing model. In fiscal year 1999, warrants to purchase 228,772 shares of the Company's stock were issued in connection with these debt financing arrangements. The warrants had a fair value of $1,292 which was amortized over the life of the related loans. Amortization in fiscal years 2000 and 1999 totaled $381 and $911, respectively, which was included in interest expense in the accompanying consolidated statements of operations. No separate fair values were calculated in connection with the 864,696 warrants in fiscal years 1998 and 1997, as these were issued in connection with an equity financing transaction. Also in fiscal year 1999, the Company recognized compensation expense of $247 41 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) in connection with the issuance of warrants to an employee, as the exercise price was less than the fair value of the stock on the date of grant. L. Income Taxes Total income tax expense (benefit) was allocated as follows:
Year Ended -------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Income from continuing operations............... $5,512 $4,839 $ 57 Gain (loss) on disposal of discontinued operations..................................... 668 477 (94) Shareholders' equity, for tax benefit derived from exercise and sale of stock option shares.. (3,859) (94) (57) ------ ------ ---- $2,321 $5,222 $(94) ====== ====== ====
Income tax expense (benefit) attributable to continuing operations consisted of the following components:
Year Ended -------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Current: Federal....................................... $7,510 $6,466 $ 2,891 State......................................... 1,740 617 142 Foreign....................................... 165 59 39 ------ ------ ------- 9,415 7,142 3,072 ------ ------ ------- Deferred: Federal....................................... (3,200) (1,914) (2,539) State......................................... (703) (389) (476) ------ ------ ------- (3,903) (2,303) (3,015) ------ ------ ------- $5,512 $4,839 $ 57 ====== ====== ======= A reconciliation of the effective income tax rate from continuing operations with the U.S. federal income tax rate of 35 percent applied to pretax income from continuing operations was as follows: Year Ended -------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Statutory rate.................................. 35.0% 35.0% 35.0% State income taxes, net of federal tax.......... 5.4 (10.8) (389.7) Tax effect of foreign income and losses......... 0.3 -- -- Tax effect of foreign sales corporation......... (1.1) -- (300.0) Loss of net operating loss attributable to S corporation period............................. -- -- 19.6 Increase (decrease) in the valuation allowance for deferred tax assets........................ (23.6) 92.8 921.6 Permanent differences........................... 10.1 -- 30.9 Other........................................... 1.5 -- (258.6) ------ ------ ------- 27.6% 117.0% 58.8% ====== ====== =======
42 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2000 and June 25, 1999, relating to continuing operations, are presented below:
June 30, June 25, 2000 1999 -------- -------- Gross deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts......................................... $ 431 $ 405 Inventories, principally due to additional costs for tax purposes.................................................. -- 220 Inventories, principally due to accrual for obsolescence... 1,229 809 Compensated absences, principally due to accrual for financial reporting purposes.............................. 768 837 Workers' compensation expense accrual for financial reporting purposes........................................ 631 689 Warranty expense accrual for financial reporting purposes.. 893 650 Employee benefit plan accrual for financial reporting purposes.................................................. 498 375 Deferred research and development for tax purposes......... 1,446 3,180 Net operating loss carryforwards........................... 8,410 8,690 Alternative minimum tax credit carryforwards............... -- 600 Research and development tax credit carryforwards.......... 890 -- Deferred benefit of nonqualified stock options............. 1,084 -- Other...................................................... 597 381 ------- ------- Total gross deferred tax assets.......................... 16,877 16,836 Less valuation allowance..................................... (2,727) (7,433) ------- ------- Net total deferred tax assets............................ 14,150 9,403 ------- ------- Gross deferred tax liabilities Plant and equipment, principally due to differences in depreciation.............................................. (1,550) (1,842) Other...................................................... (221) (96) ------- ------- Total gross deferred tax liabilities..................... (1,771) (1,938) ------- ------- Net deferred tax assets...................................... $12,379 $ 7,465 ======= ======= Reflected in consolidated balance sheets as: Current deferred tax assets................................ $ 7,470 $ 6,352 Non-current deferred tax assets............................ 4,909 1,113 ------- ------- Net deferred tax assets pertaining to continuing operations.............................................. $12,379 $ 7,465 ======= =======
The valuation allowance for deferred tax assets as of the beginning of fiscal year 2000 and 1999 was $7,433 and $2,851, respectively. The net change in valuation allowance for the years ended June 30, 2000 and June 25, 1999 was a (decrease) increase of $(4,706) and $4,582, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the net total deferred tax assets, the Company will need to generate future taxable income prior to the expiration of the net operating loss carryforwards which expire at various years through 2019. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it 43 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) is more likely than not the Company will realize the benefits of these deferred tax assets, net of the valuation allowance at June 30, 2000. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of June 30, 2000, will be allocated to income tax benefit that would be reported in the consolidated statements of operations. At June 30, 2000, the Company had federal net operating loss carryforwards of approximately $19,990 and state net operating loss carryforwards of approximately $18,950, which are available to offset future federal and state taxable income, and expire at various dates through fiscal year 2019. In addition, at June 30, 2000, the Company has research and development credit carryovers for federal and state income tax purposes of approximately $634 and $256, respectively. The federal credit carryforwards expire in the years 2010 and 2019, and the state carryforwards can be carried forward indefinitely. The Company has not recognized a deferred tax liability for the basis differences and the undistributed earnings related to its foreign subsidiaries since the investment is essentially permanent in duration. Undistributed earnings were approximately $638 at June 30, 2000. Cash paid for income taxes was $6,603, $2,915 and $1,915 in fiscal years 2000, 1999 and 1998, respectively. M. Retirement Plans The Company has retirement savings and profit sharing plans, which qualify under Section 401(k) of the Internal Revenue Code. Participation is available to all employees meeting minimum service requirements. The Company has a deferred compensation plan that does not qualify under Section 401 of the Internal Revenue Code, which provides officers and key executives with the opportunity to participate in an unqualified deferred compensation plan. The total of net participant deferrals, which is reflected in other long-term liabilities, was $1,325 and $464 at June 30, 2000 and June 25, 1999, respectively. The Company also has a deferred retirement salary plan, which is limited to certain officers. The Company has accrued the present value of the estimated future retirement benefit payments over the estimated service period from the date of the agreements. The accrued balance of these plans, included in other long-term liabilities, was $907 and $865 at June 30, 2000 and June 25, 1999, respectively. Total expenses for these plans were $1,840, $1,158 and $1,349 for fiscal years 2000, 1999 and 1998 respectively. 44 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) N. Accrued Liabilities Accrued liabilities as of June 30, 2000 and June 25, 1999 consisted of the following:
June June 30, 25, 2000 1999 ------- ------- Accrued incentive plan expense.............................. $ 3,510 $ 2,285 Accrued vacation expense.................................... 1,880 2,000 Accrued salary expense...................................... 2,678 1,704 Accrued payroll and sales tax expense....................... 972 1,639 Accrued sales commissions and rebates payable............... 419 951 Accrued warranty expense.................................... 2,232 1,742 Accrued workers' compensation self-insurance expense........ 1,577 1,724 Accrued merger-related costs................................ 489 -- Accrued income tax payable.................................. 4,199 3,383 Accrued other............................................... 2,100 1,972 ------- ------- $20,056 $17,400 ======= =======
O. Other Expense, Net
Year Ended -------------------------- June 30, June 25, June 26, 2000 1999 1998 -------- -------- -------- Loss on foreign currency transactions............. $ 81 $ 4 $164 Other, net........................................ 224 373 238 ---- ---- ---- $305 $377 $402 ==== ==== ====
P. Concentration of Credit Risk The Company's customers are primarily in the cable television industry. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral. At June 30, 2000 and June 25, 1999, accounts receivables from customers in the cable industry were approximately $50,309 and $35,178, respectively. Receivables are generally due within 30 days. Credit losses are provided for in the consolidated financial statements and have consistently been within management's expectations. Sales to three customers were $54,592 (19%), $52,020 (19%) and $35,929 (13%), respectively, in fiscal year 2000. Sales to two customers were $54,044 (27%) and $31,314 (15%), respectively, in fiscal year 1999. Sales to one customer were $51,165 (30%) in fiscal year 1998. All of these principal customers purchase both products and services. Q. Commitments and Contingencies The Company had an established letter of credit of $1,700 at June 30, 2000, for its self-insured workers' compensation program. 45 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) The Company leases real property and other equipment under operating leases. Certain leases are renewable and provide for the payment of real estate taxes and other occupancy expenses. At June 30, 2000, the future minimum lease payments for noncancelable leases with remaining lease terms in excess of one year were as follows: Fiscal year ending: 2001................................................................ $3,281 2002................................................................ 3,197 2003................................................................ 1,622 2004................................................................ 811 2005................................................................ 555 Thereafter.......................................................... 425 ------ $9,891 ======
Rent expense relating to continuing operations was $3,080, $3,412 and $2,271 for fiscal years 2000, 1999 and 1998, respectively. R. Quarterly Results of Operations (Unaudited) Quarterly results of operations for fiscal years 2000 and 1999 were as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- -------- Fiscal Year 2000 Net sales............................. $70,281 $68,381 $62,936 $79,537 $281,135 Gross profit.......................... 18,033 17,399 16,266 20,891 72,589 Income from continuing operations..... 341 4,294 4,635 5,191 14,461 Discontinued operations............... 36 6 780 241 1,063 Net income............................ $ 377 $ 4,300 $ 5,415 $ 5,432 $ 15,524 ======= ======= ======= ======= ======== Net income per share--basic: Continuing operations............... $ 0.01 $ 0.15 $ 0.14 $ 0.15 $ 0.48 Discontinued operations............. -- -- 0.02 0.01 0.04 ------- ------- ------- ------- -------- Net income........................ $ 0.01 $ 0.15 $ 0.16 $ 0.16 $ 0.52 ======= ======= ======= ======= ======== Net income per share--diluted: Continuing operations............... $ 0.01 $ 0.13 $ 0.13 $ 0.14 $ 0.43 Discontinued operations............. -- -- 0.02 0.01 0.03 ------- ------- ------- ------- -------- Net income........................ $ 0.01 $ 0.13 $ 0.15 $ 0.15 $ 0.46 ======= ======= ======= ======= ========
46 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) R. Quarterly Results of Operations (Unaudited) (Continued)
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- -------- Fiscal Year 1999 Net sales......................... $38,464 $44,718 $51,819 $67,167 $202,168 Gross profit...................... 8,249 10,549 12,385 18,670 49,853 Income (loss) from continuing operations....................... (1,447) (1,373) 751 1,365 (704) Discontinued operations........... 288 16 -- 93 397 Net income (loss)................. $(1,159) $(1,357) $ 751 $ 1,458 $ (307) ======= ======= ======= ======= ======== Net income (loss) per share-- basic: Continuing operations........... $ (0.07) $ (0.07) $ 0.03 $ 0.05 $ (0.06) Discontinued operations......... 0.01 -- -- 0.01 0.02 ------- ------- ------- ------- -------- Net income (loss)............. $ (0.06) $ (0.07) $ 0.03 $ 0.06 $ (0.04) ======= ======= ======= ======= ======== Net income (loss) per share-- diluted: Continuing operations........... $ (0.07) $ (0.07) $ 0.03 $ 0.05 $ (0.06) Discontinued operations......... 0.01 -- -- -- 0.02 ------- ------- ------- ------- -------- Net income (loss)............. $ (0.06) $ (0.07) $ 0.03 $ 0.05 $ (0.04) ======= ======= ======= ======= ========
S. Segment Information The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," in fiscal year 1999. For the three fiscal years ended June 30, 2000, the Company operated 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. 47 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) Information about industry segments for fiscal years 2000, 1999 and 1998 is as follows:
Continuing Operations ----------------------------- Broadband Telecommunications Management Equipment Services Total ------------------ ---------- -------- Year ended June 30, 2000 Total revenue......................... $239,279 $41,856 $281,135 Operating income (loss)(A)............ 28,053 (2,817) 25,236 Investment income..................... 4,901 Interest expense...................... 814 Income tax expense(A)................. 6,930 Cash equivalents and marketable securities........................... 119,848 Identifiable assets at June 30, 2000(B).............................. 132,070 20,742 152,812 Capital expenditures.................. 5,623 2,268 7,891 Depreciation and amortization......... 7,111 1,780 8,891 Year ended June 25, 1999 Total revenue......................... $176,790 $25,378 $202,168 Operating income (loss)............... 8,154 (2,564) 5,590 Investment income..................... 150 168 318 Interest expense...................... 1,376 20 1,396 Income tax expense.................... 4,835 4 4,839 Identifiable assets at June 25, 1999.. 95,672 13,075 108,747 Capital expenditures.................. 6,828 1,841 8,669 Depreciation and amortization......... 8,496 703 9,199 Year ended June 26, 1998 Total revenue......................... $152,765 $17,087 $169,852 Operating income (loss)............... 3,278 (2,776) 502 Investment income..................... 369 65 434 Interest expense...................... 390 47 437 Income tax expense (benefit).......... 972 (915) 57 Identifiable assets at June 26, 1998.. 82,319 7,841 90,160 Capital expenditures.................. 9,287 1,521 10,808 Depreciation and amortization......... 6,792 441 7,233
- -------- (A) Operating income (loss) and income tax expense for fiscal year 2000 excludes the impact of the one-time merger costs related to the Convergence, SVCI and Worldbridge mergers (see Note B). (B) Identifiable assets at June 30, 2000, exclude cash equivalents and marketable securities related to the Company's follow-on public offering. 48 C-COR.net Corp. Notes to Consolidated Financial Statements--(Continued) (In thousands, except share and per share data) The Company and subsidiaries operate in various geographic areas. The table below presents the Company's continuing operations in each of the geographic areas as indicated by the following:
U.S. Canada Europe Eliminations Total -------- ------ ------ ------------ -------- Year ended June 30, 2000 Sales to unaffiliated customers: Domestic...................... $250,345 $ 42 $1,356 $ -- $251,743 Export........................ 29,392 -- -- -- 29,392 Transfers between geographic areas......................... 170 -- -- (170) -- Total revenue.................. 279,907 42 1,356 (170) 281,135 Operating income(A)............ 25,086 100 50 -- 25,236 Investment income.............. 4,900 -- 1 -- 4,901 Interest expense............... 789 -- 25 -- 814 Income tax expense (benefit)(A).................. 6,952 -- (22) -- 6,930 Identifiable assets at June 30, 2000.......................... 271,217 60 1,383 -- 272,660 Capital expenditures........... 7,862 -- 29 -- 7,891 Depreciation and amortization.. 8,870 -- 21 -- 8,891 Year ended June 25, 1999 Sales to unaffiliated customers: Domestic...................... $182,632 $ 421 $ 236 $ -- $183,289 Export........................ 18,879 -- -- -- 18,879 Transfers between geographic areas......................... 162 -- -- (162) -- Total revenue.................. 201,673 421 236 (162) 202,168 Operating income (loss)........ 5,902 (280) (32) -- 5,590 Investment income.............. 318 -- -- -- 318 Interest expense............... 1,396 -- -- -- 1,396 Income tax expense............. 4,839 -- -- -- 4,839 Identifiable assets at June 25, 1999.......................... 107,755 509 483 -- 108,747 Capital expenditures........... 8,669 -- -- -- 8,669 Depreciation and amortization.. 9,163 12 24 -- 9,199 Year ended June 26, 1998 Sales to unaffiliated customers: Domestic...................... $137,182 $1,635 $ 146 $ -- $138,963 Export........................ 30,889 -- -- -- 30,889 Transfers between geographic areas......................... 798 -- -- (798) -- Total revenue.................. 168,869 1,635 146 (798) 169,852 Operating income (loss)........ 23 290 189 -- 502 Investment income.............. 432 -- 2 -- 434 Interest expense............... 436 -- 1 -- 437 Income tax expense (benefit)... 80 8 (31) -- 57 Identifiable assets at June 26, 1998.......................... 88,925 954 281 -- 90,160 Capital expenditures........... 10,807 1 -- -- 10,808 Depreciation and amortization.. 7,197 12 24 -- 7,233
- -------- (A) Operating income and income tax expense for fiscal year 2000 excludes the impact of the one-time merger costs related to the Convergence, SVCI and Worldbridge mergers (see Note B). 49 Financial Report To the Shareholders: The management of C-COR.net Corp. is responsible for the preparation of all financial statements in this Annual Report on Form 10-K. These statements were prepared in accordance with generally accepted accounting principles from the books and records maintained by the Company. Adequate accounting systems and financial controls are maintained to assure that these records reflect the transactions of the Company and that its assets are protected from loss or unauthorized use. In addition, the Audit Committee of the Board of Directors meets periodically with management and KPMG LLP to discuss financial reporting matters, the internal controls, and the scope and results of the audit. /s/ William T. Hanelly William T. Hanelly Vice President - Finance, Secretary and Treasurer August 11, 2000 50 Item 9. Changes and Disagreements on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant The information with respect to Directors required by this item is incorporated herein by reference to pages 3 and 4 of the Registrant's Proxy Statement dated September 13, 2000. The information with respect to Executive Officers required by this item is set forth in Part I of this report. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended June 30, 2000, its officers, directors and ten-percent shareholders complied with all applicable Section 16(a) filing requirements, with the exception of those filings listed on page 23 of the Registrant's Proxy Statement dated September 13, 2000, incorporated by reference herein. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to pages 16 through 22 of the Registrant's Proxy Statement dated September 13, 2000. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to pages 14 and 15 of the Registrant's Proxy Statement dated September 13, 2000. Item 13. Certain Relationships and Related Transactions None PART IV Item 14. Exhibits, Financial Statements and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) The following financial statements are included in Item 8 of this report: Report of Independent Auditors Consolidated Balance Sheets as of June 30, 2000 and June 25, 1999 Consolidated Statements of Operations for the Years Ended June 30, 2000, June 25, 1999 and June 26, 1998 Consolidated Statements of Cash Flows for the Years Ended June 30, 2000, June 25, 1999 and June 26, 1998 Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 2000, June 25, 1999 and June 26, 1998 51 Notes to Consolidated Financial Statements (2) Schedule II--Valuation and Qualifying Accounts Report of KPMG LLP Schedules, other than the one listed above, have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits*
Number Description of Documents ------ ------------------------ (2)(a) Agreement and Plan of Merger dated May 15, 1999, among C-COR Electronics, Inc., C-COR Acquisition Corp. and Convergence.com Corporation (incorporated by reference to the Registrant's 8-K filed on July 26, 1999). (2)(b) Agreement and Plan of Merger dated July 13, 1999, among C-COR.net Corp., C-COR.net Acquisition Corp. and Silicon Valley Communications, Inc. (incorporated by reference to Exhibit (2)(b) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726). (2)(c) Agreement and Plan of Merger dated February 18, 2000, among C-COR.net Corp., C-COR.net Services Acquisition Corp. and Worldbridge Broadband Services, Inc. (incorporated by reference to the Registrant's 8-K filed on March 3, 2000). (3)(a) Amended and Restated Articles of Incorporation of Registrant (the "Articles of Incorporation") filed with the Secretary of State of the Commonwealth of Pennsylvania on February 19, 1981 (incorporated by reference to Exhibit (3)(a) to Registrant's Form 10-Q for the quarter ended December 24, 1999, Securities and Exchange Commission File No. 0- 10726). (3)(b) Amendment to the Articles of Incorporation of Registrant filed with the Secretary of State of the Commonwealth of Pennsylvania on November 14, 1986 (incorporated by reference to Exhibit (3)(b) to Registrant's Form 10-Q for the quarter ended December 24, 1999, Securities and Exchange Commission File No. 0-10726). (3)(c) Amendment to the Articles of Incorporation filed with the Secretary of State of the Commonwealth of Pennsylvania on September 21, 1995 (incorporated by reference to Exhibit (3)(c) to Registrant's Form 10-Q for the quarter ended December 24, 1999, Securities and Exchange Commission File No. 0-10726). (3)(d) Amendment to the Articles of Incorporation filed with the Secretary of State of the Commonwealth of Pennsylvania on July 9, 1999 (incorporated by reference to Exhibit (3)(d) to Registrant's Form 10-Q for the quarter ended December 24, 1999, Securities and Exchange Commission File No. 0-10726). (3)(e) Statement with Respect to Shares of Series A Junior Participating Preferred Stock filed with the Secretary of State of the Commonwealth of Pennsylvania on August 30, 1999 (incorporated by reference to Exhibit (3)(e) to Registrant's Form 10-Q for the quarter ended December 24, 1999, Securities and Exchange Commission File No. 0-10726). (3)(f) Amendment to the Articles of Incorporation filed with the Secretary of State of the Commonwealth of Pennsylvania on October 20, 1999 (incorporated by reference to Exhibit (3)(f) to Registrant's Form 10-Q for the quarter ended December 24, 1999, Securities and Exchange Commission File No. 0-10726). (3)(g) Amendment to Articles of Incorporation filed with the Secretary of State of the Commonwealth of Pennsylvania on December 22, 1999 (incorporated by reference to Exhibit (3)(g) to Registrant's Form 10-Q for the quarter ended December 24, 1999, Securities and Exchange Commission File No. 0-10726).
52
Number Description of Documents ------- ------------------------ (3)(h) Bylaws of Registrant, as amended through August 17, 1999 (incorporated by reference to Exhibit (3)(e) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726). (4)(a) Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4 to Amendment No. 1 of Form S-1 Registration Statement, File No. 2-70661). (4)(b) Rights Agreement, dated as of August 17, 1999, between C-COR.net Corp. and American Stock Transfer and Trust Co, as Rights Agent, including the Form of Statement with Respect to Shares as Exhibit A, the Form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C (incorporated by Reference to Registrant's 8-K filed on August 30, 1999). (10)(a) Deferred Compensation Plan between the Registrant and Richard E. Perry dated December 6, 1989, (incorporated by reference to Exhibit (10)(y) to the Registrant's Form 10-K for the year ended June 30, 1990, Securities and Exchange Commission File No. 0-10726). (10)(b) 1989 Non-Employee Directors' Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 28 to Form S-8 Registration Statement, File No. 33-35208). (10)(c) Indemnification Agreement dated February 3, 1992, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10)(gg) to the Registrant's Form 10-K for the year ended June 26, 1992, Securities and Exchange Commission File No. 0-10726). (10)(d) Supplemental Retirement Plan Participation Agreement dated April 20, 1993, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10)(bb) to the Registrant's Form 10-K for the year ended June 25, 1993, Securities and Exchange Commission File No. 0-10726). (10)(e) Form of Indemnification Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10)(pp) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10)(f) Supplemental Retirement Plan Participation Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10)(qq) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10)(g) Supplemental Retirement Plan Participation Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10)(ll) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10)(h) Form of Indemnification Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10)(nn) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10)(i) Registrant's Retirement Savings and Profit Sharing Plan as Amended July 1, 1989, and including amendments through April 19, 1994 (incorporated by reference to Exhibit 99.B14 to Form S-8 Registration Statement, File No. 333-02505). (10)(j) Supplemental Retirement Plan Participation Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10)(aa) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10)(k) Form of Indemnification Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10)(cc) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
53
Number Description of Documents ----------- ------------------------ (10)(l) Registrant's Supplemental Executive Retirement Plan effective May 1, 1996 (incorporated by reference to Exhibit (10)(ff) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10)(m)(i) 1988 Stock Option Plan (incorporated by reference to Exhibit (10)(kk)(i) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10)(m)(ii) Amendment to 1988 Stock Option Plan (incorporated by reference to Exhibit (10)(kk)(ii) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10)(n)(i) 1992 Stock Purchase Plan (incorporated by reference to Exhibit (10)(ll)(i) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10)(n)(ii) Amendment to 1992 Stock Purchase Plan (incorporated by reference to Exhibit (10)(ll)(ii) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10)(o) Amended and Restated Employment Agreement dated July 21, 1997, between the Registrant and Richard E. Perry (incorporated by reference to Exhibit (10)(nn) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10)(p) Amendment to Employment Agreement dated January 18, 2000, between the Registrant and Richard E. Perry. (10)(q) Amended and Restated Employment Agreement dated July 30, 1997, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10)(oo) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10)(r) Amendment to Employment Agreement dated January 18, 2000, between the Registrant and Gerhard B. Nederlof. (10)(s) C-COR Electronics, Inc. Incentive Plan (incorporated by reference to Exhibit (10)(tt) to the Registrant's Form 10-K for the year ended June 26, 1998, Securities and Exchange Commission File No. 0-10726). (10)(t) Supplemental Retirement Plan Participation Agreement dated November 9, 1998, between the Registrant and Mary G. Beahm (incorporated by reference to Exhibit (10)(ii) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726). (10)(u) Form of Indemnification Agreement dated November 9, 1998, between the Registrant and Mary G. Beahm (incorporated by reference to Exhibit (10)(kk) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0- 10726). (10)(v) Supplemental Retirement Plan Participation Agreement dated October 19, 1998, between the Registrant and William T. Hanelly (incorporated by reference to Exhibit (10)(ll) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726). (10)(w) Form of Indemnification Agreement dated October 19, 1998, between the Registrant and William T. Hanelly (incorporated by reference to Exhibit (10)(nn) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726).
54
Number Description of Documents -------- ------------------------ (10)(x) Credit Agreement dated August 9, 1999, between the Registrant and Broadband Capital Corporation as borrowers, and The Banks Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent (incorporated by reference to Exhibit (10)(oo) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726). (10)(y) Fiscal Year 2000 Profit Incentive Plan (PIP) (incorporated by reference to Exhibit (10)(pp) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726). (10)(z) Amended and Restated Employment Agreement dated September 14, 1999, between the Registrant and David A. Woodle (incorporated by reference to Exhibit (10)(qq) to the Registrant's Form 10-K for the year ended June 25, 1999, Securities and Exchange Commission File No. 0-10726). (10)(aa) Amendment to Employment Agreement dated January 18, 2000, between the Registrant and David A. Woodle. (10)(bb) Form of Amended and Restated Change of Control Agreement (Registrant entered into eight of such agreements, each dated January 18, 2000, with William T. Hanelly, Mary G. Beahm, David J. Eng, Lawrence R. Fisher, Jr., Donald F. Miller, David A. Woodle, Gerhard B. Nederlof and Richard E. Perry respectively). (10)(cc) Fiscal Year 2001 Profit Incentive Plan (PIP). (10)(dd) First Amendment to Credit Agreement dated August 9, 1999, between the Registrant and Broadband Capital Corporation as borrowers, and The Banks Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent, dated December 29, 1999. (10)(ee) Second Amendment to Credit Agreement dated August 9, 1999, between the Registrant and Broadband Capital Corporation as borrowers, and The Banks Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent, dated May 4, 2000. (11) Statement re Computation of Earnings Per Share. (21) Subsidiaries of the Registrant. (23) Consent of Independent Auditors of C-COR.net Corp. (27) Financial Data Schedule.
- -------- * All exhibits listed herein and not otherwise incorporated by reference to reports or registration statements of the Registrant were filed with the Registrant's report on Form 10-K for the fiscal ended June 30, 2000. Such exhibits are incorporated herein by reference and made a part hereof. (b) Reports on Form 8-K filed in the fourth quarter of the fiscal year 2000: None (c) Exhibits: See (a) (3) above. 55 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. C-COR.net Corp. (Registrant) /s/ David A. Woodle _____________________________________ President and Chief Executive Officer (principal executive officer) September 15, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 15th day of September 2000. /s/ Richard E. Perry ______________________________________ Director, Chairman /s/ Donald M. Cook, Jr. /s/ John J. Omlor ______________________________________ ______________________________________ Director Director /s/ Michael J. Farrell /s/ Frank Rusinko, Jr. ______________________________________ ______________________________________ Director Director /s/ I.N. Rendall Harper, Jr. /s/ James J. Tietjen ______________________________________ ______________________________________ Director Director /s/ Joseph E. Zavacky /s/ William T. Hanelly ______________________________________ ______________________________________ Controller and Assistant Secretary Vice President--Finance, Secretary (principal accounting officer) and Treasurer (principal financial officer) 56 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C ------ ------------------- ------------------------------- ADDITIONS ------------------------------- Charged to Charged to Balance at Costs Costs DESCRIPTION Beginning of Period and Expenses Accounts-Describe ----------- ------------------- ------------ ----------------- Year ended June 30, 2000 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts................. $ 1,052,000 $ 286,000 $-- Inventory Reserve-- Continuing Operations.... $ 2,231,000 $ 2,150,000 $-- ----------- ----------- ---- $ 3,283,000 $ 2,436,000 $-- =========== =========== ==== Reserves not deducted from assets: Product Warranty Reserve-- Continuing Operations.... $ 1,742,000 $ 1,855,000 $-- Product Warranty Reserve-- Discontinued Operations.. $ 410,000 $ -- $-- Workers' Compensation Self-insurance........... $ 1,724,000 $ 449,000 $-- Allowance for Disposal of Discontinued Operations.. $ 125,000 $ (75,000) $-- ----------- ----------- ---- $ 4,001,000 $ 2,229,000 $-- =========== =========== ==== Year ended June 25, 1999 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts................. $ 923,000 $ 370,000 $-- Inventory Reserve-- Continuing Operations.... $ 3,213,000 $ 1,757,000 $-- Inventory Reserve-- Discontinued Operations.. $ 845,000 $ -- $-- ----------- ----------- ---- $ 4,981,000 $ 2,127,000 $-- =========== =========== ==== Reserves not deducted from assets: Product Warranty Reserve-- Continuing Operations.... $ 1,733,000 $ 1,184,000 $-- Product Warranty Reserve-- Discontinued Operations.. $ 2,291,000 $ (301,000) $-- Workers' Compensation Self-insurance........... $ 1,319,000 $ 837,000 $-- Allowance for Disposal of Discontinued Operations.. $ 600,000 $ (475,000) $-- ----------- ----------- ---- $ 5,943,000 $ 1,245,000 $-- =========== =========== ==== Year ended June 26, 1998 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts................. $ 756,000 $ 168,000 $-- Inventory Reserve-- Continuing Operations.... $ 1,233,000 $ 2,900,000 $-- Inventory Reserve-- Discontinued Operations.. $ 3,630,000 $(1,573,000) $-- ----------- ----------- ---- $ 5,619,000 $ 1,495,000 $-- =========== =========== ==== Reserves not deducted from assets: Product Warranty Reserve-- Continuing Operations.... $ 2,185,000 $ 983,000 $-- Product Warranty Reserve-- Discontinued Operations.. $ 3,429,000 $ 1,283,000 $-- Workers' Compensation Self-insurance........... $ 1,162,000 $ 921,000 $-- Allowance for Disposal of Discontinued Operations.. $ 3,375,000 $ -- $-- ----------- ----------- ---- $10,151,000 $ 3,187,000 $-- =========== =========== ====
57 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. D COL. E ------ ------------------- ------------- Balance at DESCRIPTION Deductions-Describe End of Period ----------- ------------------- ------------- Year ended June 30, 2000 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts............ $ 190,000(1) $1,148,000 Inventory Reserve--Continuing Operations... $1,287,000(2) 3,094,000 ---------- ---------- $1,477,000 $4,242,000 ========== ========== Reserves not deducted from assets: Product Warranty Reserve--Continuing Operations................................ $1,365,000(3) $2,232,000 Product Warranty Reserve--Discontinued Operations................................ $ 260,000(3) 150,000 Workers' Compensation Self-insurance....... $ 596,000(4) 1,577,000 Allowance for Disposal of Discontinued Operations................................ $ -- (5) 50,000 ---------- ---------- $2,221,000 $4,009,000 ========== ========== Year ended June 25, 1999 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts............ $ 241,000(1) $1,052,000 Inventory Reserve--Continuing Operations... $2,739,000(2) 2,231,000 Inventory Reserve--Discontinued Operations................................ $ 845,000(2) -- ---------- ---------- $3,825,000 $3,283,000 ========== ========== Reserves not deducted from assets: Product Warranty Reserve--Continuing Operations................................ $1,175,000(3) $1,742,000 Product Warranty Reserve--Discontinued Operations................................ $1,580,000(3) 410,000 Workers' Compensation Self-insurance....... $ 432,000(4) 1,724,000 Allowance for Disposal of Discontinued Operations................................ $ -- (5) 125,000 ---------- ---------- $3,187,000 $4,001,000 ========== ========== Year ended June 26, 1998 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts............ $ 1,000(1) $ 923,000 Inventory Reserve--Continuing Operations... $ 920,000(2) 3,213,000 Inventory Reserve--Discontinued Operations................................ $1,212,000(2) 845,000 ---------- ---------- $2,133,000 $4,981,000 ========== ========== Reserves not deducted from assets: Product Warranty Reserve--Continuing Operations................................ $1,435,000(3) $1,733,000 Product Warranty Reserve--Discontinued Operations................................ $2,421,000(3) 2,291,000 Workers' Compensation Self-insurance....... $ 764,000(4) 1,319,000 Allowance for Disposal of Discontinued Operations................................ $2,775,000(5) 600,000 ---------- ---------- $7,395,000 $5,943,000 ========== ==========
- -------- (1) Uncollectible accounts written off, net of recoveries. (2) Inventory disposal. (3) Warranty claims honored during year. (4) Workers compensation claims paid. (5) Expenses for Discontinued Operations incurred from measurement date to disposal date. Note: Unless otherwise indicated, reserves relate to continuing operations. 58 Independent Auditors' Report The Board of Directors and Stockholders C-COR.net Corp.: Under date of August 11, 2000, we reported on the consolidated balance sheets of C-COR.net Corp. as of June 30, 2000 and June 25, 1999, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended June 30, 2000, which are included herein. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule included herein. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP KPMG LLP State College, Pennsylvania August 11, 2000 59 EX-10.P 2 0002.txt AMEND. TO EMPLOYMENT AGREE. - RICHARD E. PERRY EXHIBIT (10)(p) AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated January 18, 2000, by and between C-COR.net CORP., a Pennsylvania corporation (the "Company"), and RICHARD E. PERRY (the "Employee"). BACKGROUND ---------- A. The Employee and the Company entered into an Amended and Restated Employment Agreement on July 21, 1997 (the "Employment Contract"). B. Section V of the Employment Contract provides certain measures and protections for the Employee in the event of a change of control of the Company. C. The Company and the Employee have mutually determined that the Change of Control Agreement used by the Company generally for its executive employees should be modified and that an Amended and Restated Change of Control Agreement should be entered into between the Company and the Employee. D. On even date herewith, the Company and the Employee have entered into an Amended and Restated Change of Control Agreement. E. The Company and the Employee mutually desire to amend the Employment Contract to delete Section V concerning change of control provisions which will be replaced by the Amended and Restated Change of Control Agreement. NOW, THEREFORE, the parties to this Amendment to Employment Agreement, intending to be legally bound, agree as follows: 1. Effective as of the date of this Amendment to Employment Agreement, Section V of the Employment Contract concerning change of control, is deleted and shall be of no further force and effect. 2. In all other respects, the Employment Contract is ratified and affirmed and shall continue in accordance with its terms. 3. This Agreement shall be binding upon the successors, heirs, personal representatives and assigns of each party. C-COR.net CORP. By: /s/ James J. Tietjen ---------------------------------- Title: Chairman, Compensation Committee --------------------------------- THE EMPLOYEE: /s/ Richard E. Perry ---------------------------------- Richard E. Perry 2 EX-10.R 3 0003.txt AMEND. TO EMPLOYMENT AGREE. - GERHARD B. NEDERLOF EXHIBIT (10)(r) AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated January 18, 2000, by and between C-COR.net CORP., a Pennsylvania corporation (the "Company"), and GERHARD B. NEDERLOF (the "Employee"). BACKGROUND ---------- A. The Employee and the Company entered into an Employment Agreement on July 30, 1997 (the "Employment Contract"). B. Section 5.01 of the Employment Contract provides certain measures and protections for the Employee in the event of a change of control of the Company. C. The Company and the Employee have mutually determined that the Change of Control Agreement used by the Company generally for its executive employees should be modified and that an Amended and Restated Change of Control Agreement should be entered into between the Company and the Employee. D. On even date herewith, the Company and the Employee have entered into an Amended and Restated Change of Control Agreement. E. The Company and the Employee mutually desire to amend the Employment Contract to delete Section 5.01 concerning change of control provisions which will be replaced by the Amended and Restated Change of Control Agreement. NOW, THEREFORE, the parties to this Amendment to Employment Agreement, intending to be legally bound, agree as follows: 1. Effective as of the date of this Amendment to Employment Agreement, Section 5.01 of the Employment Contract concerning change of control, is deleted and shall be of no further force and effect. 2. In all other respects, the Employment Contract is ratified and affirmed and shall continue in accordance with its terms. 3. This Agreement shall be binding upon the successors, heirs, personal representatives and assigns of each party. C-COR.net CORP. By: /s/ David A. Woodle ---------------------------------- Title: President & CEO ---------------------------------- THE EMPLOYEE: /s/ Gerhard B. Nederlof ---------------------------------- Gerhard B. Nederlof 2 EX-10.AA 4 0004.txt AMENDMENT TO EMPLOYEE AGREEMENT - DAVID A. WOODLE EXHIBIT (10)(aa) AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated January 18, 2000, by and between C-COR.net CORP., a Pennsylvania corporation (the "Company"), and DAVID A. WOODLE (the "Employee"). BACKGROUND ---------- A. The Employee and the Company entered into an Amended and Restated Employment Agreement on September 14, 1999 (the "Employment Contract"). B. Section V of the Employment Contract provides certain measures and protections for the Employee in the event of a change of control of the Company. C. The Company and the Employee have mutually determined that the Change of Control Agreement used by the Company generally for its executive employees should be modified and that an Amended and Restated Change of Control Agreement should be entered into between the Company and the Employee. D. On even date herewith, the Company and the Employee have entered into an Amended and Restated Change of Control Agreement. E. The Company and the Employee mutually desire to amend the Employment Contract to delete Section V concerning change of control provisions which will be replaced by the Amended and Restated Change of Control Agreement. NOW, THEREFORE, the parties to this Amendment to Employment Agreement, intending to be legally bound, agree as follows: 1. Effective as of the date of this Amendment to Employment Agreement, Section V of the Employment Contract concerning change of control, is deleted and shall be of no further force and effect. 2. In all other respects, the Employment Contract is ratified and affirmed and shall continue in accordance with its terms. 3. This Agreement shall be binding upon the successors, heirs, personal representatives and assigns of each party. C-COR.net CORP. By: /s/ Richard E. Perry ---------------------------------- Title: Chairman ---------------------------------- THE EMPLOYEE: /s/ David A. Woodle ---------------------------------- David A. Woodle 2 EX-10.BB 5 0005.txt AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT EXHIBIT (10)(bb) AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT --------------------------- THIS AMENDED AND RESTATED AGREEMENT, dated January 18, 2000 by and between C-COR.net Corp., a Pennsylvania corporation (the "Company"), AND ________________________________ (the "Employee"). Recital ------- A. Employee is an executive of the Company with significant policy making and operational responsibilities in the conduct of the Company's business. B. The Company recognizes that Employee is a valuable resource for the Company and the Company desires to be assured of the continued service of Employee. C. The Company is concerned that upon a possible or threatened change in control (as defined below), Employee may have concerns about the continuation of his/her employment and/or his/her status and responsibilities and may be approached by others with employment opportunities, and desires to provide Employee some assurance as to the continuation of his/her employment status and responsibilities on a basis consistent with that which he/she has earned in the event of such possible or threatened change in control. D. The Company desires to assure that if a possible change in control situation arises and Employee is involved in deliberations or negotiations in connection therewith, that Employee would be in a secure position to consider and/or negotiate such transaction as objectively as possible and without implied threat to his/her financial well-being. E. The Company is concerned about the possible effect on Employee of the uncertainties created by any proposed change in control of the Company. F. Employee is willing to continue to serve but desires that in the event of such a change in control he/she will continue to have the responsibility, status, income, benefits and perquisites that he/she received immediately prior to that event. G. The Company and Employee have previously entered into a Change of Control Agreement (the "Original Agreement") and now desire to change their rights and obligations with respect to a change in control. H. The Company and Employee hereby amend and restate the Original Agreement in its entirety as follows. 2 Agreements ---------- The parties do hereby agree as follows: 1. Change in Control. The provisions of Section 2, 3 and 4 of this Agreement shall become operative upon a change in control of the Company, as hereinafter defined. For purposes of this Agreement, a "change in control" shall be deemed to have occurred if and when: (a) Subsequent to the date of this Agreement, any person or group of persons acting in concert shall have acquired ownership of or the right to vote or to direct the voting of shares of capital stock of the Company representing 30% or more of the total voting power of the Company, or (b) The Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than 50% of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation, or (c) The Company shall have sold more than 50% of its assets to another corporation or other entity or person, or (d) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, the persons who were 3 Directors of the Company before such transaction cease to constitute a majority of Directors of the Company. 2. Acceleration of Options Upon Change in Control. In the event of a change in control (without regard to whether the Employee's employment is terminated by reason of the change in control), all outstanding options held by the Employee, both exercisable and nonexercisable, shall be immediately exercisable regardless of the time the option has been held by Employee and shall remain exercisable until their original expiration date, subject to applicable requirements of the Internal Revenue Code (the "Code"). 3. Termination Within Eighteen (18) Months. In the event that the employment of Employee with the Company is terminated involuntarily, other than for gross misconduct, within eighteen (18) months after a change in control occurs: (a) Employee shall be entitled to receive an amount of cash equal to the sum of the following amounts: (i) two (2) times his/her annual salary at his/her rate on the date of termination of employment (but not less than two times Employee's annual salary prior to the change in control); and (ii) an amount equal to two (2) times the annual amount of the Company's matching contributions with respect to the Employee's Employee- Directed Contributions to the C-COR Electronics, Inc. Retirement Savings and Profit Sharing Plan (the 4 "401(k) Plan") and deferral contributions to the C-COR Electronics, Inc. Supplemental Executive Retirement Plan (the "SERP"), determined based on the rate(s) of the Company's matching contribution(s) and the rate(s) of the Employee's deferral contribution(s) to the 401(k) Plan and SERP, as applicable, on the date of the Employee's termination of employment (but not less than such rates as in effect on the date immediately preceding the change in control.) Such amount shall be paid to the Employee in a single sum in cash and shall not be contributed to either the 401(k) Plan or the SERP; and (iii) if the Employee terminates employment with the Company during but before the last day of a plan year for which the Company makes an Employer Discretionary Contribution to the 401(k) Plan, an amount equal to the amount that would have been contributed as an Employer Discretionary Contribution to the 401(k) Plan with respect to the Employee, based on his/her actual compensation for the plan year taken into account for purposes of the 401(k) Plan, and assuming that he/she had satisfied all other requirements (e.g., 1000 hours, employment on the last day of the plan year) needed to share in the allocation of such contribution. Such amount will be paid to the Employee as soon as practicable after the Company's Employer Discretionary Contribution for the plan year is paid to the 401(k) Plan; and (iv) if the Employee terminates employment with the Company prior to acquiring a 100% nonforfeitable interest in, as applicable, his/her Employer Matching Contribution Account and Employer Discretionary Contribution Account under the 401(k) Plan and/or his Employer Matching Contribution Account under the SERP, an amount equal to the fair market value of the nonvested portion of such account(s) under the 401(k) Plan and the 5 SERP, determined as of the date the Employee terminates employment with the Company and including the value of any investment earnings accrued with respect to the nonvested portion of such account(s) which have accrued but are unallocated as of such date; provided however, that if the Employee should be ---------------- re-employed by the Company and receive the restoration of the nonvested portion of his/her Employer Matching Contribution Account and/or Employer Discretionary Contribution Account under the 401(k) Plan, then the Employee shall be obligated, within 30 days of the Company's demand following such restoration, to repay the full amount that had been paid to him/her under this paragraph 3(a)(iv) representing the fair market value of his/her nonvested account(s) under the 401(k) Plan. (b) Employee shall be entitled to receive an amount of cash equal to two times the average of the Profit Incentive Plan or the successor to such plan ("PIP") payments of the last two years awarded to him/her under the PIP of the Company, pursuant to the terms of such PIP as in effect immediately prior to such change in control. Such amount will be paid to the Employee within ten (10) days after termination of employment. If the Employee has not received PIP payments for eight full quarters at the officer level, the average annual PIP will be calculated by averaging the number of full quarters for which Employee's officer level PIP has been accrued (whether already paid or not paid) and annualizing that amount. (c) Employee shall continue for a period of 24 months from the date of his termination to be covered at the expense of the Company by the same or equivalent health, dental, accident, life and disability insurance coverages as he/she was enrolled in immediately prior to termination of his/her employment; provided, however, that Employee may elect to be 6 paid in cash within thirty (30) days after termination of his/her employment an amount equal to the Company's cost of providing such coverages during such period. (d) If on the date of termination of employment, Employee were a participant in the Company's Supplemental Retirement Plan or the successor to such plan (the "CSRP"), Employee shall become eligible for the benefits payable under such CSRP and such benefits shall be paid to Employee, or if applicable, Employee's beneficiary, in the same manner, amounts and intervals as if Employee had, on the date of his/her termination of employment following a change in control, met the age and service requirements for normal retirement as defined in Section 3(a) of the CSRP. In the event the Employee's benefit from the CSRP begins to be paid before age 65, it shall not be actuarially adjusted to reflect its early commencement, notwithstanding any provision to the contrary in the CSRP. 4. Other Events. If Employee resigns from the Company within eighteen (18) months after a change in control due to a "Good Reason", Employee shall be entitled to receive all payments and enjoy all of the benefits specified in Section 3 hereof. For purposes of this Agreement, a "Good Reason" shall be if any one or more of the following events has occurred between the change in control and Employee's resignation: (a) A reduction or alteration in the nature or status of Employee's authorities, duties or responsibilities from those in effect immediately prior to the change in control; or (b) If the base salary paid by the Company to Employee is reduced by 7 more than ten (10%) percent from his/her salary immediately prior to the change in control; or (c) If the Company requires Employee to relocate his/her principal place of work to a location more than forty (40) miles from the Employee's former place of work. 5. Excise Tax Gross-Up. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (i) any payment by the Company to or for the benefit of the Employee pursuant to Sections 3 and 4 of this Agreement, or a portion thereof (a "Payment"), or (ii) any actual or deemed compensation income to the Employee, for purposes of Section 280G of the Code, resulting from the acceleration of the exercisability of the Employee's outstanding options pursuant to Section 2 of the Agreement ("Option Income"), would be subject to the excise tax imposed by Section 4999 of the Code (relating to excess parachute payments as described in Section 280G of the Code) (the "Excise Tax"), the Employee shall be entitled to receive from the Company an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (but not including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment and/or Option Income. 8 (b) All determinations required to be made under this Section 5, including whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and amounts relevant to the last sentence of this Section 5(b), shall be made by the firm of independent accountants engaged to audit the Company's financial statements (the "Accounting Firm") which shall provide its determination (the "Determination"), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter, both to the Company and the Employee within thirty (30) business days after (i) in the case of Option Income, the date of the change in control or such later date as such Option Income is treated as a payment in the nature of compensation for purposes of Section 280G of the Code, or (ii) the date the Employee terminates employment with the Company eligible for Payments under Section 3 or 4 of this Agreement (or such earlier time as is requested by the Company). If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written statement that such Accounting Firm has concluded that no Excise Tax is payable (including the reasons therefor) and that he or she has substantial authority not to report any Excise Tax on his or her federal income tax return. If a Gross-Up Payment is determined to be payable, it shall be paid to the Employee within ten (10) business days after the Determination is delivered to the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Employee with respect to the Company's obligation to pay the Gross-Up Payment, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that a Gross-Up Payment not made by the Company should have been made (an "Underpayment"), or that a Gross-Up Payment will have been made by the Company which should not have been made (an "Overpayment"). In either such event, the Accounting Firm shall 9 determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, following a final determination by a court or the Internal Revenue Service that any portion of the Payment or Option Income is subject to Excise Tax, the amount of such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. In the case of an Overpayment, the Employee shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment; provided, however, that (i) the Employee shall not -------- ------- in any event be obligated to return to the Company an amount greater than the net after-tax portion of the Overpayment that he or she has retained or has recovered as a refund from the applicable taxing authorities and (ii) this provision shall be interpreted in a manner consistent with the intent of Section 5(a), which is to make the Employee whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Employee repaying to the Company an amount which is less than the Overpayment. 6. Agreements Not Exclusive. The specific agreements referred to herein are not intended to exclude Employee's participation in other benefits available to executive personnel generally or to preclude other compensation benefits as may be authorized by the Board of Directors of the Company at any time, and shall be in addition to the provisions of any other employment or similar agreements. 7. Enforcement Costs. The Company is aware that upon the occurrence of a 10 change in control, the Board of Directors or a shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Employee the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the Company that Employee not be required to incur the expenses associated with the enforcement of his/her rights under this agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits extended to Employee hereunder, nor be bound to negotiate any settlement of his/her rights hereunder under threat of incurring such expenses. Accordingly, if following a change in control, it should appear to Employee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits intended to be provided to Employee hereunder and that Employee has complied with all reasonable obligations related to Employee's employment with the Company, the Company irrevocably authorizes Employee from time to time to retain counsel of his/her choice at the direct expense and liability of the Company as provided in this Section 7, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection 11 the Company and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by the Company on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices up to a maximum aggregate amount of $500,000, said amount to be "grossed up" to cover federal and state income taxes. The amount of the gross up shall be calculated in accordance with the following formula: A/ (1-R), where A is the amount of legal fees and R is the combined highest marginal tax rate applicable to employee in the tax year that the payment is made. 8. No Set-Off. The Company shall not be entitled to set-off against the amount payable to Employee any amounts earned by Employee in other employment after termination of his/her employment with the Company, or any amounts which might have been earned by Employee in other employment had he/she sought other employment. The amounts payable to Employee under this Agreement shall not be treated as damages but as severance compensation to which Employee is entitled by reason of termination of his/her employment in the circumstances contemplated by this Agreement. However, a set-off may be taken by the Company against the amounts payable to Employee for expenses covering the same or equivalent hospital, medical, accident, and disability insurance coverages as set forth in Section 3(c) of this Agreement if such benefits are paid for the Employee by a new employer after Employee's termination of employment by the Company under Section 3 hereof or after Employee's resignation under Section 4 hereof. 12 9. Termination. This Agreement has no specific term, but shall terminate if, prior to a change in control of the Company, the employment of Employee with the Company shall terminate, so long as such termination was not in anticipation of or related to change in control. 10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and shall be binding upon and inure to the benefit of Employee and his/her legal representatives, heirs, and assigns. The Company shall require any successor or surviving entity in any change in control ("Successor"), by agreement in form and substance satisfactory to Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any Successor in accordance with the operation of law and such Successor shall be deemed the "Company" for purposes of this Agreement. This Agreement shall inure to the benefit of and be enforceable by Employee and his/her personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees. 11. Severability. In the event that any Section, paragraph, clause or other provision of this Agreement shall be determined to be invalid or unenforceable in any jurisdiction for any reason, such Section, paragraph, clause or other provision shall be enforceable in any other jurisdiction in which valid and enforceable and, in any event, the remaining Sections, paragraphs, clauses and other provisions of this Agreement shall be unaffected and shall remain in full force and effect to the fullest extent permitted by law. 13 12. Governing Law. This Agreement shall be interpreted, construed and governed by the laws of the Commonwealth of Pennsylvania. 13. Headings. The headings used in this Agreement are for ease of reference only and are not intended to affect the meaning or interpretation of any of the terms hereof. 14. Gender and Number. Whenever the context shall require, all words in this Agreement in the male gender shall be deemed to include the female or neuter gender, all singular words shall include the plural, and all plural words shall include the singular. IN WITNESS WHEREOF, this Agreement has been executed the date and year first above written. ATTEST: C-COR.net Corp. _________________________ By: ___________________________________ ___________________________________ Employee 14 EX-10.CC 6 0006.txt PROFIT INCENTIVE PLAN-FISCAL YEAR 2001 EXHIBIT (10)(cc) C-COR.net Corp. PROFIT INCENTIVE PLAN (PIP) FISCAL YEAR 2001 1. Conceptual Basis of the Plan The PIP plan is based upon the achievement of specific financial goals of the Corporation as established on an annual basis by the Board of Directors. The PIP plan provides the opportunity for employees to receive an incentive payment for accomplishment of these specific financial goals. The plan initiates payments based on the achievement of 85% or greater of total company operating income* or earnings per share** dependent upon participant eligibility. The basic payment formula is as follows: Key Executives (as defined in Attachment A): % of defined profit per key executive*** = PIP Payment Employees (excluding key executives): Employee's base wages X approved % = PIP Payment * Total Operating income excludes one-time merger and acquisition related costs, interest and other income expense, and operating income from new acquisitions during the year. **Earnings Per Share excludes one-time merger and acquisition related charges but includes interest and other income/expense and operating income from new acquisitions during the year. ***The President/CEO receives an amount equal to three times the key executive PIP payment. 2. Participant Eligibility Full-time, active employees and part-time, active employees (working a minimum of 20 hours per week/1040 hours per year) of C-COR.net Corp., Convergence.com, Silicon Valley Communications, Inc. and C-COR Canada are eligible for this program. The following wholly owned subsidiaries are not eligible: ---------------- - - Employees of C-COR Europe, B.V. (unless included as key executive) - - Employees of C-COR de Mexico, S.A. de C.V. - - Employees on Sales or Marketing Commission or Incentive Plans - - Employees of Worldbridge Broadband Services, Inc. - - Employees who are provided a specifically identified, alternative incentive bonus - - Temporary Agency Employees, Independent Contractors, Co-op and Intern (part-time) Employees 1 New Hires within the Fiscal Year and / or Terminated Employees - An employee is eligible for a quarterly PIP payment only if they have worked the full fiscal quarter. An employee is eligible to receive a year-end PIP payment if they worked at least one full fiscal quarter during the 12-month period and were on the payroll at the end of the fiscal year. Note: The formula for calculating a PIP payment takes into account the pro-rationing of the payment amount to reflect the amount of time the individual was actively employed during the payment period. Employees on Leave (Disability; Workers' Compensation; FMLA; Military Leave) - An employee must be a full-time or part-time active employee in order to be eligible for a payment. The individual would be eligible for a payment on a pro-rata basis for the portion of FY 2001 in which he/she was a full-time or part-time active employee. 3. Calculation of PIP Payment for Employees (excluding key executive list) Total company operating income excluding one-time merger and acquisition related costs, interest and other income expense, and operating income from new acquisitions during the year is the metric for achievement of plan goals. PIP Payment ----------- Less than 85% of Plan 0% payment 85% to *100% of Plan 7% of base wages during the measurement period 100% to 115% 9% of base wages during the measurement period **115% 11% of base wages during the measurement period * Denotes less than ** Denotes more than 2 4. Key Executive PIP Payment Fully diluted earnings per share from continuing operations excluding one-time merger and acquisition related costs is the metric for this payment. It includes interest and other income/expense, and operating income from new acquisitions during the year. The Compensation Committee of the Board of Directors may adjust earnings per share targets due to significant financial events during the year. PIP Payment ----------- Less than 85% of Plan 0% payment 85% to *100% of Plan .20% of defined profit per key exec 100% to 115% .25% of defined profit per key exec **115% .30% of defined profit per key exec The defined profit is pre-tax, pre-PIP income from continuing operations excluding one-time merger and acquisition related costs. 5. Frequency and Timing of Payments After the completion of each fiscal quarter, a PIP payment will be calculated based on the financial metrics as defined in section 1 above. Each quarter is independent from the standpoint of the quarterly PIP payment calculation. C-COR.net Corp.'s rolling financial forecast will be consulted with respect to the projected total company operating income and earnings per share (as defined above) for the entire fiscal year. If the rolling forecast reflects a lower PIP ------------------ payment percentage for the year relative to the actual results for the quarter, the lower percentage corresponding to the rolling forecast results will be used ---------------- to calculate the PIP payments. If the rolling forecast reflects a higher PIP payment percentage for the year relative to the actual results for the quarter, the lower percentage dictated by the actual quarterly results will be used to ---------------- calculate PIP payments. If sufficient total operating income and/or earnings per share have been generated to warrant a quarterly PIP payment, each eligible employee will be ------------------------------ paid one-half of the PIP payment calculated for him/her for the fiscal quarter. - ------------------------------------------------------------------------------ The payment will be made as soon as practically possible, immediately after the Company's Board of Directors reviews the quarterly financial results and agrees to the payment. The Board generally reviews the financial results at mid-month following the end of each fiscal quarter, except at fiscal year-end. Note that the Board of Directors has complete discretion in administering and interpreting the PIP Plan. The remaining one-half payment from each of the first three fiscal quarters will be accrued (held back) through the end of the fiscal year. After the financial audit has been completed for the fiscal year and the Board of Directors has reviewed the annual financial results (mid-August), a payment (assuming the financial results support one) will be disbursed to all eligible employees as soon as practically possible. The payment will consist of the following: a) The remaining 1/2 payment "held back" from the first quarter of the fiscal year b) The remaining 1/2 payment "held back" from the second quarter of the fiscal year c) The remaining 1/2 payment "held back" from the third quarter of the fiscal year * Denotes less than ** Denotes more than 3 d) The fourth quarter payment as well as the amounts "held back" over the first three quarters. Note that improvement or deterioration of financial results in subsequent quarters can either positively or negatively impact the year-end payment with respect to the amount(s) "held back" from earlier quarters. 6. Definition of base wages Base wages are defined as the total base wages of an employee at the end of each measurement period, not including any special compensation such as the reimbursement of moving expenses, one-time bonuses, or the exercise of stock options. Base wages do not include overtime, however shift differential will be included in the calculation of base wages when applicable. 7. Administration (a) The Compensation Committee of the Board of Directors oversees the Plan, which shall be administered by the President and CEO and such other employees of the Company as may be appointed by the President and CEO. (b) Subject to the provisions of the Plan, the President and CEO shall have the sole authority and discretion: i) to construe and interpret the Plan; ii) to determine and recommend to the Board of Directors for approval, the amount of payments to be made under the Plan and the status and rights of any participant or beneficiary to payments under the Plan; iii) to decide all questions concerning the Plan and to make all other determinations and to take all other steps necessary or advisable for the administration of the Plan. All decisions made by the President and CEO pursuant to the provisions of the Plan shall be made in his or her sole discretion and shall be final, conclusive, and binding upon all parties. 8. Right to Withhold Taxes The Company shall have the right to withhold such amounts from any payment under this Plan as it determines necessary to fulfill any federal, state, or local wage or compensation withholding requirements. 4 9. Non-Transferability of Rights A participant's rights and interests under the Plan may not be assigned or transferred in whole or in part either directly or by operation of law or otherwise (except in an event of the participant's death), including, but not limited to, by way of execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such rights or interests of any participant under the Plan shall be subject to any obligation or liability of such participant other than any obligations or liabilities owed by the Participant to the Company. 10. No Right to Continued Employment Neither the Plan, nor any compensation payable under the Plan, shall confer upon any participant any right to continuance of employment by the Company or any affiliate of the Company nor shall they interfere in any way with the right of the Company or any affiliate of the Company to terminate any participant's employment at any time. 11. No Claim Against Assets Nothing in this Plan shall be construed as giving any participant or his or her legal representative, or designated beneficiary, any claim against any specific assets of the Company or any affiliate or as imposing any trustee relationship upon the Company or any affiliate in respect of the participant. The Company shall not be required to segregate any assets in order to provide for the satisfaction of the obligations hereunder. If and to the extent that the participant or his or her legal representative or designated beneficiary acquires a right to receive any payment pursuant to this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company or any affiliate. 12. Company's Books and Records Conclusive The Company's books and records, and internal accounting procedures, will be conclusive for all purposes under the Plan. 13. Amendment or Termination The Company may at any time, terminate or modify or amend the Plan in any respect, at any time prior to payment for a fiscal quarter. 5 14. No Other Agreements or Understandings Except as expressly provided herein, this Plan represents the sole agreement between the Company and participants concerning its subject matter and it supersedes all prior agreements, arrangements, understandings, warranties, representations, and statements between the parties concerning its subject matter. 15. Governing Law The Plan and all actions taken pursuant thereto shall be governed by, and construed in accordance with, the laws of the State of Pennsylvania applied without regard to conflict of law principles. 6 Attachment A ------------ Mary G. Beahm* David J. Eng* Lawrence R. Fisher Jr.* William T. Hanelly* William J. Milliron Gerhard B. Nederlof* Carrie M. Packer David A. Woodle* Joseph E. Zavacky* * denotes Officer of the company 7 EX-10.DD 7 0007.txt FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT (10)(dd) FIRST AMENDMENT TO CREDIT AGREEMENT ---------------------------------- THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Agreement") is made as of this 29th day of December, 1999 between C-COR.NET CORP., a Pennsylvania corporation ("C-Cor"), BROADBAND CAPITAL CORPORATION, a Delaware corporation ("Broadband," and collectively with C-Cor, the "Borrowers"), THE UNDERSIGNED BANK PARTIES (individually a "Bank" and collectively, the "Banks") and MELLON BANK, N.A., a national banking association, as agent for the Banks (the "Agent"). W I T N E S S E T H : WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit Agreement dated as of August 9, 1999 (as the same may be supplemented, modified or otherwise amended, the "Credit Agreement"), pursuant to which the Banks agreed to extend to the Borrowers a Twenty Million Dollar ($20,000,000.00) revolving credit facility, a Fifty Million Dollar ($50,000,000.00) standby acquisition facility and a Two Million Five Hundred Thousand Dollar ($2,500,000.00) term loan (Capitalized terms used herein but not defined in this Agreement shall have the meanings ascribed to them in the Credit Agreement.); WHEREAS, the Borrowers have repaid the Term Loan in full; WHEREAS, the Borrowers have requested that the Credit Agreement be amended in order to extend the Revolving Credit Expiration Date and the Standby Facility Expiration Date, increase the Swingline Limit, and modify the pricing provisions; and WHEREAS, the Agent and the Banks are willing to grant such request, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein and intending to be legally bound, the Borrowers, the Agent and the Banks hereby covenant and agree as follows: 1. Amendments. Upon the execution and delivery by the Borrowers and the ---------- Banks of this Agreement, the Credit Agreement shall be amended as follows: (a) The definition of Revolving Credit Expiration Date set forth in Section 1.01 of the Credit Agreement is deleted in its entirety and replaced with the following: "Revolving Credit Expiration Date" shall mean November 30, 2000. (b) The definition of Standby Facility Expiration Date set forth in Section 1.01 of the Credit Agreement is deleted in its entirety and replaced with the following: "Standby Facility Expiration Date" shall mean November 30, 2000. (c) The definition of Swingline Limit set forth in Section 1.01 of the Credit Agreement is deleted in its entirety and replaced with the following: "Swingline Limit" means Four Million Dollars ($4,000,000.00). (d) Subsection (ii) of Section 2.02(b), Procedures for Swingline Borrowing, shall be deleted in its entirety and replaced with the following: (ii) Each Swingline Loan (including all interest accrued shall mature and be payable on the earlier of the seventh day from the date of the advance of such Swingline Loan and the Revolving Credit Expiration Date. The Borrowers may at any time and from time to time, prepay the Swingline Loans, in whole or in part, without premium or penalty, by notifying (which notice may be given by telephone (to be promptly confirmed in writing, including by facsimile)) Agent prior to 12:00 P.M., Philadelphia time, on any Business Day of the date and amount of prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. (e) Subsection (i) of Section 2.02(c), Refunding of a Swingline Loan; Participation in Swingline Loans, shall be deleted in its entirety and replaced with the following: (i) The Agent may, on behalf of the Borrowers (which hereby irrevocably authorizes the Agent to act on their behalf in such regard), from time to time, and in any event, at least on a weekly basis, request each Bank to make a Revolving Credit Loan in an amount equal to such Bank's pro rata share of the amount of the aggregate outstanding principal amount of the Swingline Loans, or such portion thereof as Agent desires to have repaid, regardless of whether the conditions set forth in Article V have been satisfied in connection therewith. Unless any of the events described in Section 8.01(k) or (l) shall have occurred with respect to the Borrowers (in which event the procedures of Subparagraph (ii) of this Section 2.02(c) shall apply) each Bank shall make its Proportion of the requested Revolving Credit Loan available to the Agent for the account of Agent at Agent's Office prior to 11:00 A.M., Philadelphia time, in immediately available funds on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Loans shall be immediately applied to repay the relevant Swingline Loans. Effective on the day such Revolving Credit Loans are made, the relevant Swingline Loans so paid shall no longer be outstanding as a Swingline Loan. The Borrowers authorize Agent, upon written notice to the Borrowers, to charge the Borrowers' accounts with Agent (up to the amount available in each such account) in order to immediately pay the amount of the outstanding Swingline Loans to the extent amounts received from the Banks are not sufficient to repay in full such outstanding Swingline Loans. (f) The pricing grid set forth subsection (a) of Section 2.05, Interest Rates, shall be deleted in its entirety and replaced with the following: -2-
- ---------------------------------------------------------------------------------------- Applicable Margin - ---------------------------------------------------------------------------------------- Funded Revolving Revolving Standby Standby Swingline Term Loan Indebtedness Credit, Credit and Facility Term Facility Loan LIBOR to EBITDA Swingline Standby Loan term Loan fed Funds Rate Ratio Loan, and Facility Prime Rate LIBOR Rate Rate Option Standby Loan Option Option Option Facility Loan LIBOR Rate Prime Rate Option Option - ---------------------------------------------------------------------------------------- Less than (0.50%) 0.60% (0.50%) 0.75% 1.00% 1.15% 1.00 - ---------------------------------------------------------------------------------------- Greater than (0.50%) 0.75% (0.50%) 0.90% 1.15% 1.15% or equal to 1.00 and less than 1.50 - ---------------------------------------------------------------------------------------- Greater than (0.25%) 0.90% (0.25%) 1.05% 1.30% 1.15% or equal to 1.50 and less than 2.00 - ---------------------------------------------------------------------------------------- Greater than (0.25%) 1.05% (0.25%) 1.20% 1.45% 1.15% or equal to 2.00 and less than 2.50 - ---------------------------------------------------------------------------------------- Greater than 0 1.20% 0 1.35% 1.60% 1.15% or equal to 2.50 and less than 3.00 - ----------------------------------------------------------------------------------------
(g) A new Section 2.14 shall be included as follows: 2.14 Annual Facility Fees. Upon annual renewal (if any) of the revolving credit facility and the standby facility, the Borrowers shall pay to the Agent, for the ratable benefit of each of the Banks, an annual facility fee equal to 0.15% per annum (based on a year of 360 days and actual days elapsed), for each day from and including the date hereof through the Revolving Credit Expiration Date and the Standby Facility Expiration Date, on the Revolving Credit Committed Amount and the Standby Facility Committed Amount. Such fee shall be due and payable for the preceding period for which such fee has not been paid upon the Revolving Credit Expiration Date and the Standby Facility Expiration Date, except - ------ that, (i) for the period beginning December 31, 1999 and ending November ---- 30, 2000, the Borrowers shall pay on January 10, 2000 a facility fee in the amount of -3- $27,500 (0.15% of the Revolving Credit Committed Amount during such period), and (ii) for the period beginning August 6, 2000 and ending November 30, 2000, the Borrowers shall pay on August 6, 2000 a facility fee in the amount of $23,835 (0.15% of the Standby Facility Committed Amount during such period). 2. Representations and Warranties. (a) The Borrowers hereby represent ------------------------------ and warrant to the Agent and the Banks that there is no default or Event of Default under the Credit Agreement, the Loan Documents, or any other document executed in connection therewith. (b) Each of the representations and warranties by the Borrowers in or pursuant to the Credit Agreement or any Loan Document are true and correct in all material respects on and as of the date of this Agreement as though made on and as of such date. 3. Other Terms Confirmed. All other terms and conditions of the Credit --------------------- Agreement, including, without limitation, the right of the Agent and the Banks to CONFESS JUDGMENT, are hereby confirmed and shall remain in full force and effect without modification. From and after the effectiveness of the amendments set forth in Section 1 hereof, all references in any document or instrument to the Credit Agreement shall mean the Credit Agreement as amended by this Agreement. 4. No New Indebtedness. The Borrowers specifically acknowledge and ------------------- agree that this Agreement shall not represent in any way the extension of any additional credit by the Banks to the Borrowers, or the satisfaction of any indebtedness evidenced by Loan Documents or the Credit Agreement as amended hereby. 5. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 6. Headings. The descriptive headings which are used in this Agreement -------- are for convenience only and shall not affect the meaning of any provision of this Agreement. 7. Governing Law. This Agreement shall be governed by and construed ------------- under the laws of the Commonwealth of Pennsylvania, without regard to conflict of laws principles. -4- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first written above. ATTEST: C-COR.NET CORP. /s/ Joseph E. Zavacky By /s/ W. T. Hanelly - -------------------------------- ------------------------------------ By: Joseph E. Zavacky Name: W. T. Hanelly Title: Controller Title: Vice President, Finance [CORPORATE SEAL] ATTEST: BROADBAND CAPITAL CORPORATION /s/ Joseph E. Zavacky By /s/ Mark Savereno - -------------------------------- ------------------------------------ By: Joseph E. Zavacky Name: Mark Savereno Title: Controller Title: President [CORPORATE SEAL] MELLON BANK, N.A., as Issuing Bank and as Agent for the Banks By /s/ Joseph N. Butto ------------------------------------ Name: Joseph N. Butto Title: Vice President MELLON BANK, N.A., individually as a Bank By /s/ Joseph N. Butto ------------------------------------ Name: Joseph N. Butto Title: Vice President FIRST UNION NATIONAL BANK, individually as a Bank By /s/ Paul S. Phillips ------------------------------------ Name: Paul S. Phillips Title: Senior Vice President -5- PNC BANK, NATIONAL ASSOCIATION, individually as a Bank By /s/ Robert G. Mills -------------------------------------- Name: Robert G. Mills Title: Vice President -6- EX-10.EE 8 0008.txt SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT (10)(ee) [LOGO] Mellon Bank Middle Market Banking Commonwealth Region 10 South Second Street P.O. Box 1010 May 4, 2000 Harrisburg. PA 17108-1010 (717) 231-7466 Mr. William T. Hanelly Mr. George M. Savereno Vice President, Finance President C-Cor.net Corp. Broadband Capital Corporation 60 Decibel Road 1105 North Market Street, Suite 1300 State College, PA 16801 Wilmington, DE 19899 RE: $20,000,000 Revolving Line of Credit, 50,000,000 Standby Acquisition Facility and $2,500,000 Term Loan extended by Mellon Bank, N.A., as Agent for the Banks, on behalf of C-Cor.net Corp. and Broadband Capital --------------------------------------------------------- Corporation ----------- Dear Messrs. Hanelly and Savereno: Reference is made to that certain Credit Agreement dated as of August 9, 1999 and amended by that certain First Amendment to Credit Agreement dated as of December 29, 1999 (as so amended, the "Credit Agreement") pursuant to which the above-referenced facilities were extended to C-Cor.net Corp. and Broadband Capital Corporation (collectively, the "Borrowers") by Mellon Bank, N.A. ("Mellon"), as Agent for the Banks. Capitalized terms not defined herein shall have the meaning given in the Credit Agreement. Mellon hereby agrees to amend Section 3.01(b) of the Credit Agreement to allow the Borrowers to extend the expiry date of any Letter of Credit beyond the Revolving Credit Expiration Date. The Borrowers, consistent with Section 3.07 of the Credit Agreement, acknowledge the responsibility to cancel any Letter of Credit or to provide cash collateral in an amount greater than or equal to the face amount of any Letter of Credit, should Mellon and/or the Banks elect not to extend the Revolving Credit Expiration Date. All other terms and conditions of the Credit Agreement and the other Loan Documents are hereby confirmed and shall remain in full force and effect without modification. Sincerely, /s/ Joseph N. Butto Joseph N. Butto Vice President of Mellon Bank, N.A., in its capacity as the Issuing Bank and as Agent for the Banks ACKNOWLEDGED AND AGREED TO BY: ATTEST: C-COR.NET CORP. /s/ Joseph E. Zavacky By /s/ W. T. Hanelly - -------------------------- ---------------------------------- By: Joseph E. Zavacky Name: W. T. Hanelly Title: Controller and Assistant Secretary Title: Vice President, Finance [CORPORATE SEAL] ATTEST: BROADBAND CAPITAL CORPORATION /s/ Mary T. Drawl By /s/ George M. Savereno - -------------------------- ---------------------------------- By: Mary T. Drawl Name: George M. Savereno Title: Vice President Title: President [CORPORATE SEAL] MELLON BANK, N.A., individually as a Bank By /s/ Joseph N. Butto ---------------------------------- Name: Joseph N. Butto Title: Vice President FIRST UNION NATIONAL BANK, individually as a Bank By /s/ Amelia M. Crossett ---------------------------------- Name: Amelia M. Crossett Title: Vice President PNC BANK, NATIONAL ASSOCIATION, individually as a Bank By /s/ Thomas J. Fowlston ---------------------------------- Name: Thomas J. Fowlston Title: Vice President -2- EX-11 9 0009.txt COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 Computation of Earnings Per Share
Year Ended ---------------------------------- June 30, June 25, June 26, 2000 1999 1998 ---------- ----------- ----------- (000's omitted, except per share data) Income (loss) from continuing operations $14,461 $ (704) $ 40 Less: Accretion of convertible preferred stock - (613) (122) ---------- ----------- ----------- Continuing income (loss) available to common shareholders 14,461 (1,317) (82) Gain from discontinued operations 1,063 397 928 ---------- ----------- ----------- Net income (loss) available to common shareholders $15,524 $ (920) $ 846 ========== =========== =========== Weighted average common shares outstanding 30,039 22,483 22,503 common share equivalents 3,929 - - ---------- ----------- ----------- Weighted average common shares and common 33,968 22,483 22,503 share equivalents ========== =========== =========== Net income (loss) per share-basic: Continuing operations $0.48 $(0.06) $ - Discontinued operations 0.04 0.02 0.04 ---------- ----------- ----------- Net income (loss) available to common shareholders $0.52 $(0.04) $0.04 ========== =========== =========== Net income (loss) per share-diluted: Continuing operations $0.43 $(0.06) $ - Discontinued operations 0.03 0.02 0.04 ---------- ----------- ----------- Net income (loss) available to common shareholders $0.46 $(0.04) $0.04 ========== =========== ===========
EX-21 10 0010.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Registrant: State of Incorporation: C-COR/Comlux, Inc. Pennsylvania C-COR Services, Inc. Pennsylvania Broadband Capital Corporation Delaware Broadband Royalty Corporation Delaware Worldbridge Broadband Services, Inc. Delaware Convergence.com Corporation Georgia Convergence Systems, Inc. Georgia Silicon Valley Communications, Inc. California C-COR Electronics Foreign Sales Corporation St. Thomas, V.I. C-COR Europe, B.V. Foreign (Europe) C-COR Europe Holding B.V. Foreign (Europe) C-COR Electronics Canada, Inc. Foreign (Canada) C COR de Mexico, S.A. de C.V. Foreign (Mexico) EX-23 11 0011.txt CONSENT OF INDEPENDENT AUDITORS The Board of Directors C-COR.net Corp.: We consent to the incorporation by reference in the registration statements (Nos. 2-95959, 33-27440, 33-35208, 33-66590, 333-02505, 333-30982, 333-43592, 333-65805 and 333-89067) on Form S-8 and (Nos. 333-82697, 333-87909, 333-90011, 333-90589 and 333-32676) on Form S-3 of C-COR.net Corp. of our reports dated August 11, 2000, with respect to the consolidated balance sheets of C-COR.net Corp. and subsidiaries as of June 30, 2000 and June 25, 1999, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended June 30, 2000, and related schedule, which reports appear in the June 30, 2000 annual report on Form 10-K of C-COR.net Corp. KPMG LLP State College, Pennsylvania September 14, 2000 1 EX-27 12 0012.txt FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JUN-30-2000 JUN-30-2000 95,379 42,154 51,480 1,148 31,760 230,921 73,305 44,983 273,039 41,622 0 0 0 1,761 225,897 273,039 281,135 281,135 208,546 56,398 (4,596) 0 814 19,973 5,512 14,461 1,063 0 0 15,524 0.52 0.46
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