Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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