United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the thirteen-week period ended: March 26, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
C-COR.net Corp.
(Exact Name of Registrant as Specified in Charter)
| Pennsylvania | 0-10726 | 24-0811591 | ||
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 60 Decibel Road State College, PA | 16801 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(814) 238-2461
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.05 Par Value - 43,012,386 shares as of April 28, 2004.
| Page | ||
| Item 1. Financial Statements |
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| 2 | ||
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Condensed Consolidated Balance Sheets: |
3 | |
| 4 | ||
| 5 | ||
| 6 | ||
| 7-14 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15-21 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
22 | |
| Item 4. Controls and Procedures |
23 | |
| Item 1. Legal Proceedings |
24 | |
| Item 6. Exhibits and Reports on Form 8-K |
25 | |
| 26 | ||
Independent Accountants’ Review Report
The Board of Directors and Shareholders
C-COR.net Corp.:
We have reviewed the condensed consolidated balance sheet of C-COR.net Corp. and subsidiaries as of March 26, 2004, the related condensed consolidated statements of operations for the thirteen-week and thirty-nine week periods ended March 26, 2004 and March 28, 2003, and the related condensed consolidated statements of cash flows for the thirty-nine week periods ended March 26, 2004 and March 28, 2003. These condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of C-COR.net Corp. and subsidiaries as of June 27, 2003, and the related consolidated statements of operations, cash flows, and shareholders’ equity for the year then ended (not presented herein); and in our report dated August 8, 2003, we expressed an unqualified opinion on those consolidated financial statements. Our report discloses the Company’s adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective June 29, 2002. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 27, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
| /s/ KPMG LLP |
| Harrisburg, Pennsylvania May 5, 2004 |
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| March 26, 2004 |
June 27, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 107,565 | $ | 22,609 | ||||
| Restricted cash |
1,637 | 2,300 | ||||||
| Marketable securities |
41,502 | 2 | ||||||
| Accounts receivable, net |
38,855 | 35,750 | ||||||
| Inventories |
24,934 | 30,438 | ||||||
| Other current assets |
4,030 | 4,760 | ||||||
| Total current assets |
218,523 | 95,859 | ||||||
| Property, plant and equipment, net |
18,411 | 24,418 | ||||||
| Goodwill |
17,079 | 15,034 | ||||||
| Other intangible assets, net |
2,286 | 3,936 | ||||||
| Deferred taxes |
— | 507 | ||||||
| Other long-term assets |
3,100 | 3,091 | ||||||
| Total assets |
$ | 259,399 | $ | 142,845 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 21,125 | $ | 20,299 | ||||
| Accrued liabilities |
31,009 | 37,260 | ||||||
| Deferred taxes |
509 | 528 | ||||||
| Current portion of long-term debt |
160 | 175 | ||||||
| Total current liabilities |
52,803 | 58,262 | ||||||
| Long-term debt, less current portion |
811 | 938 | ||||||
| Deferred taxes |
142 | — | ||||||
| Other long-term liabilities |
2,572 | 2,116 | ||||||
| Total liabilities |
56,328 | 61,316 | ||||||
| Commitments and contingent liabilities |
||||||||
| Shareholders’ equity |
||||||||
| Preferred stock, no par value; authorized shares of 2,000,000; none issued |
— | — | ||||||
| Common stock, $.05 par; authorized shares of 100,000,000; issued shares of 46,614,924 as of March 26, 2004 and 40,210,226 as of June 27, 2003 |
2,331 | 2,011 | ||||||
| Additional paid-in capital |
343,605 | 264,662 | ||||||
| Accumulated other comprehensive income |
5,156 | 2,432 | ||||||
| Accumulated deficit |
(113,671 | ) | (153,211 | ) | ||||
| Treasury stock at cost, 3,645,850 shares as of March 26, 2004 and 3,647,509 shares as of June 27, 2003 |
(34,350 | ) | (34,365 | ) | ||||
| Shareholders’ equity |
203,071 | 81,529 | ||||||
| Total liabilities and shareholders’ equity |
$ | 259,399 | $ | 142,845 | ||||
See independent accountants’ review report and notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended |
||||||||
| March 26, 2004 |
March 28, 2003 |
|||||||
| Net sales: |
||||||||
| Products |
$ | 45,209 | $ | 44,309 | ||||
| Services |
13,218 | 5,791 | ||||||
| Total net sales |
58,427 | 50,100 | ||||||
| Cost of sales: |
||||||||
| Products |
26,267 | 33,520 | ||||||
| Services |
8,655 | 4,674 | ||||||
| Excess and obsolete inventory charge |
— | 18,109 | ||||||
| Total cost of sales |
34,922 | 56,303 | ||||||
| Gross margin |
23,505 | (6,203 | ) | |||||
| Operating expenses: |
||||||||
| Selling and administrative |
12,158 | 13,741 | ||||||
| Research and product development |
5,539 | 7,640 | ||||||
| Amortization of intangibles |
550 | 622 | ||||||
| Goodwill impairment charge |
— | 40,022 | ||||||
| Acquired in-process technology |
— | (760 | ) | |||||
| Restructuring costs (recovery) |
(109 | ) | 200 | |||||
| Total operating expenses |
18,138 | 61,465 | ||||||
| Income (loss) from operations |
5,367 | (67,668 | ) | |||||
| Interest expense |
(27 | ) | (14 | ) | ||||
| Investment income |
394 | 98 | ||||||
| Foreign exchange gain (loss) |
(255 | ) | 49 | |||||
| Other income (expense), net |
125 | (216 | ) | |||||
| Income (loss) before income taxes |
5,604 | (67,751 | ) | |||||
| Income tax expense |
613 | 46,890 | ||||||
| Net income (loss) |
$ | 4,991 | $ | (114,641 | ) | |||
| Net income (loss) per share: |
||||||||
| Basic |
$ | 0.13 | $ | (3.15 | ) | |||
| Diluted |
$ | 0.12 | $ | (3.15 | ) | |||
| Weighted average common shares and common share equivalents: |
||||||||
| Basic |
39,012 | 36,365 | ||||||
| Diluted |
41,201 | 36,365 | ||||||
See independent accountants’ review report and notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Thirty-nine Weeks Ended |
||||||||
| March 26, 2004 |
March 28, 2003 |
|||||||
| Net sales: |
||||||||
| Products |
$ | 136,475 | $ | 128,739 | ||||
| Services |
40,249 | 19,970 | ||||||
| Total net sales |
176,724 | 148,709 | ||||||
| Cost of sales: |
||||||||
| Products |
82,539 | 96,208 | ||||||
| Services |
27,420 | 16,876 | ||||||
| Excess and obsolete inventory charge |
— | 19,035 | ||||||
| Total cost of sales |
109,959 | 132,119 | ||||||
| Gross margin |
66,765 | 16,590 | ||||||
| Operating expenses: |
||||||||
| Selling and administrative |
30,777 | 37,997 | ||||||
| Research and product development |
16,008 | 21,446 | ||||||
| Amortization of intangibles |
1,650 | 1,411 | ||||||
| Goodwill impairment charge |
— | 40,022 | ||||||
| Acquired in-process technology charge |
— | 800 | ||||||
| Restructuring costs (recovery) |
(215 | ) | 398 | |||||
| Total operating expenses |
48,220 | 102,074 | ||||||
| Income (loss) from operations |
18,545 | (85,484 | ) | |||||
| Interest expense |
(68 | ) | (250 | ) | ||||
| Investment income |
704 | 827 | ||||||
| Foreign exchange gain (loss) |
478 | (1,192 | ) | |||||
| Gain on sale of bankruptcy trade claims |
21,075 | — | ||||||
| Other income, net |
197 | 540 | ||||||
| Income (loss) before income taxes |
40,931 | (85,559 | ) | |||||
| Income tax expense |
1,391 | 41,048 | ||||||
| Net income (loss) |
$ | 39,540 | $ | (126,607 | ) | |||
| Net income (loss) per share: |
||||||||
| Basic |
$ | 1.06 | $ | (3.48 | ) | |||
| Diluted |
$ | 1.02 | $ | (3.48 | ) | |||
| Weighted average common shares and common share equivalents: |
||||||||
| Basic |
37,439 | 36,356 | ||||||
| Diluted |
38,835 | 36,356 | ||||||
See independent accountants’ review report and notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Thirty-nine Weeks Ended |
||||||||
| March 26, 2004 |
March 28, 2003 |
|||||||
| Operating Activities: |
||||||||
| Net income (loss) |
$ | 39,540 | $ | (126,607 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
8,561 | 10,317 | ||||||
| Acquired in-process technology charge |
— | 800 | ||||||
| Goodwill impairment charge |
— | 40,022 | ||||||
| Deferred income taxes |
647 | |||||||