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, 1999
OR
[ ] 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 ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 24-0811591
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
----- -----
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, $.10 Par Value - 9,163,439 shares as of May 03, 1999.
<PAGE>
INDEX
C-COR ELECTRONICS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed consolidated balance sheets -- March 26, 1999, and June
26, 1998.
Condensed consolidated statements of operations -- thirteen weeks
ended March 26, 1999, and March 27, 1998; thirty-nine weeks ended
March 26, 1999, and March 27, 1998.
Condensed consolidated statements of cash flows -- thirty-nine
weeks ended March 26, 1999, and March 27, 1998.
Notes to condensed consolidated financial statements -- March 26,
1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
<TABLE>
Item 1. Financial Statements
<CAPTION>
C-COR ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 26, June 26,
ASSETS 1999 1998
----------- ----------
(Unaudited) (Note)
(000's omitted)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 571 $ 2,313
Marketable securities 383 356
Accounts receivable 22,950 19,404
----------- ----------
23,904 22,073
----------- ----------
Inventories:
Raw materials 15,116 12,770
Work-in-process 3,052 1,755
Finished goods 2,577 2,850
----------- ----------
Total inventories 20,745 17,375
----------- ----------
Deferred taxes 3,818 2,797
Property held for sale, net 1,281 0
Other current assets 1,470 2,468
Net current assets of discontinued operations 353 0
----------- ----------
TOTAL CURRENT ASSETS 51,571 44,713
----------- ----------
PROPERTY, PLANT, AND EQUIPMENT, NET 25,508 27,751
INVESTMENT 5,000 0
INTANGIBLE ASSETS, NET 1,231 1,295
OTHER LONG-TERM ASSETS 2,331 1,759
----------- ----------
TOTAL ASSETS $ 85,641 $ 75,518
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 22,310 $ 16,029
Line of credit 0 0
Current portion of long-term debt 758 854
Net current liabilities of discontinued operations 0 517
----------- ----------
TOTAL CURRENT LIABILITIES 23,068 17,400
----------- ----------
LONG-TERM DEBT, less current portion 3,822 5,513
DEFERRED TAXES 1,505 1,374
OTHER LONG-TERM LIABILITIES 1,327 1,041
----------- ----------
TOTAL LIABILITIES 29,722 25,328
----------- ----------
SHAREHOLDERS' EQUITY
Common Stock, $.10 par; authorized shares
24,000,000; issued shares of 9,718,042 on 3/26/99,
and 9,672,128 on 06/26/98. 972 967
Additional paid-in capital 20,787 20,341
Retained earnings 41,249 34,877
Accumulated other comprehensive loss (109) (99)
Treasury stock (6,980) (5,896)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 55,919 50,190
----------- ----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 85,641 $ 75,518
=========== ==========
<FN>
Note: The balance sheet at June 26, 1998, has been derived from audited
financial statements at that date.
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
C-COR ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
March 26, March 27, March 26, March 27,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 44,144 $ 40,248 $ 114,207 $ 114,498
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 33,919 31,574 87,283 89,171
Selling, general and administrative
expenses 4,141 3,948 11,388 11,275
Research and product development costs 1,808 1,877 6,226 5,340
Interest expense 85 115 172 268
Investment income (5) (7) (75) (19)
Foreign exchange loss (gain) (34) (33) 36 111
Other expense (income) (34) (15) (11) 273
----------- ----------- ----------- -----------
39,880 37,459 105,019 106,419
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 4,264 2,789 9,188 8,079
INCOME TAX EXPENSE 1,459 912 3,120 2,735
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 2,805 1,877 6,068 5,344
DISCONTINUED OPERATIONS:
Gain on disposal of discontinued
business segment, less applicable
income tax expense 0 363 304 363
----------- ----------- ----------- -----------
NET INCOME $ 2,805 $ 2,240 $ 6,372 $ 5,707
=========== =========== =========== ===========
NET INCOME PER SHARE - (BASIC):
Continuing operations $ 0.31 $ 0.20 $ 0.67 $ 0.58
Discontinued operations 0.00 0.04 0.03 0.04
----------- ----------- ----------- -----------
NET INCOME PER SHARE $ 0.31 $ 0.24 $ 0.70 $ 0.62
=========== =========== =========== ===========
NET INCOME PER SHARE - (DILUTED):
Continuing operations $ 0.30 $ 0.20 $ 0.65 $ 0.57
Discontinued operations 0.00 0.04 0.03 0.04
----------- ----------- ----------- -----------
NET INCOME PER SHARE $ 0.30 $ 0.24 $ 0.68 $ 0.61
=========== =========== =========== ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
C-COR ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirty-Nine Weeks Ended
March 26, March 27,
1999 1998
----------- -----------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 6,372 $ 5,707
Adjustments to reconcile net income to net cash and cash equivalents provided
by operating activities:
Depreciation and amortization 5,240 4,682
Gain on disposal of discontinued operations,
net of tax expense (304) (363)
Provision for deferred retirement salary plan 186 72
Loss on sales of property, plant and equipment 62 -
Changes in operating assets and liabilities:
Accounts receivable (3,546) (1,636)
Inventories (3,370) (1,980)
Other assets 426 (1,257)
Accounts payable 5,290 941
Accrued liabilities 991 2,452
Other liabilities 100 200
Deferred income taxes (887) (599)
Discontinued operations - working capital changes
and noncash charges (566) 1,536
NET CASH AND CASH EQUIVALENTS PROVIDED BY ----------- ---------
OPERATING ACTIVITIES 9,994 9,755
----------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,281) (7,591)
Purchase of marketable securities (35) -
Proceeds from sale of marketable securities - 15
Investment (5,000) -
Investing activities of discontinued operations - 22
NET CASH AND CASH EQUIVALENTS ----------- -----------
USED IN INVESTING ACTIVITIES (9,316) (7,554)
----------- -----------
FINANCING ACTIVITIES
Payment of debt and capital lease obligations (4,787) (624)
Proceeds from long-term debt borrowing 3,000 -
Proceeds from line of credit 17,670 44,961
Payment of line of credit (17,670) (46,750)
Issue common stock to employee stock purchase plan 36 40
Proceeds from exercise of stock options 415 145
Purchase of treasury stock (1,084) -
NET CASH AND CASH EQUIVALENTS USED IN ----------- -----------
FINANCING ACTIVITIES (2,420) (2,228)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,742) (27)
Cash and cash equivalents at beginning of period 2,313 452
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 571 $ 425
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
C-COR ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying, unaudited, condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, and in the opinion of management, contain all
adjustments (consisting only of normal, recurring adjustments) necessary to
fairly present the Company's financial position as of March 26, 1999, and the
results of its operations for the thirteen-week and thirty-nine-week periods
then ended. Operating results for the thirteen-week and thirty-nine-week periods
are not necessarily indicative of the results that may be expected for the year
ending June 25, 1999. For further information, refer to financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended June 26, 1998.
2. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
Accounts payable and accrued liabilities consist of:
<CAPTION>
March 26, June 26,
1999 1998
---------------- ----------------
(000's omitted)
<S> <C> <C>
Accounts payable $11,074 $ 5,784
Accrued incentive plan expense 821 1,716
Accrued vacation expense 1,772 1,435
Accrued salary expense 1,431 719
Accrued salary and sales tax expense 814 903
Accrued warranty expense 1,607 1,716
Accrued workers' compensation
self-insurance expense 1,704 1,319
Accrued restructuring costs - 625
Accrued other 3,087 1,812
---------------- ----------------
$22,310 $16,029
================ ================
</TABLE>
3. COMPREHENSIVE INCOME:
During the quarter ended September 25, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130), which is required for fiscal years beginning after December 15,
1997. Statement 130 establishes standards for reporting comprehensive income and
its components in a full set of general-purpose financial statements. The
components of accumulated other comprehensive income (loss), net of tax, of the
Company are as follows: <TABLE> <CAPTION>
March 26, June 26,
1999 1998
----------- ----------
(000's omitted)
<S> <C> <C>
Foreign currency translation adjustments $ (97) $ (92)
Unrealized loss on equity securities (12) (7)
---------- ----------
Accumulated other comprehensive income (loss) $ (109) $ (99)
========== ==========
</TABLE>
The components of comprehensive income of the Company for the thirteen-week and
thirty-nine-week periods ended March 26, 1999, and March 27, 1998, are as
follows: <TABLE> <CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
March 26, March 27, March 26, March 27,
1999 1998 1999 1998
-------- -------- -------- --------
(000's omitted)
<S> <C> <C> <C> <C>
Net income $ 2,805 $ 2,240 $ 6,372 $ 5,707
Other comprehensive income, net of tax:
Foreign currency translation adjustments (20) (11) (3) 9
Unrealized (loss) gain on equity securities (1) (1) (5) 4
-------- -------- -------- --------
Other comprehensive income (21) (12) (8) 13
-------- -------- -------- --------
Comprehensive income $ 2,784 $ 2,228 $ 6,364 $ 5,720
======== ======== ======== ========
</TABLE>
4. NET INCOME PER SHARE:
Basic earnings per share are computed based on the weighted average number of
common shares outstanding, excluding any dilutive options and awards. Dilutive
earnings per share are computed based on the weighted average number of common
shares outstanding plus the dilutive effect of options. The dilutive effect of
options is calculated under the treasury stock method using the average market
price for the period. Net income per share is calculated for the periods
presented as follows: <TABLE> <CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
March 26, March 27, March 26, March 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding 9,112 9,154 9,128 9,147
------------ ------------ ------------ ------------
Total 9,112 9,154 9,128 9,147
Income from continuing operations $ 2,805 $ 1,877 $ 6,068 $ 5,344
Gain from discontinued operations 0 363 304 363
------------ ------------ ------------ ------------
Net income $ 2,805 $ 2,240 $ 6,372 $ 5,707
============ ============ ============ ============
Net income per share
Continuing operations $ 0.31 $ 0.20 $ 0.67 $ 0.58
Discontinued operations 0.00 0.04 0.03 0.04
------------ ------------ ------------ ------------
Net income per share $ 0.31 $ 0.24 $ 0.70 $ 0.62
============ ============ ============ ============
Diluted:
Weighted average shares outstanding 9,112 9,154 9,128 9,147
Weighted average common stock
equivalents 293 266 255 244
------------ ------------ ------------ ------------
Total 9,405 9,420 9,383 9,391
Income from continuing operations $ 2,805 $ 1,877 $ 6,068 $ 5,344
Gain from discontinued operations 0 363 304 363
------------ ------------ ------------ ------------
Net income $ 2,805 $ 2,240 $ 6,372 $ 5,707
============ ============ ============ ============
Net income per share
Continuing operations $ 0.30 $ 0.20 $ 0.65 $ 0.57
Discontinued operations 0.00 0.04 0.03 0.04
------------ ------------ ------------ ------------
Net income per share $ 0.30 $ 0.24 $ 0.68 $ 0.61
============ ============ ============ ============
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion addresses the financial condition of the Company as of
March 26, 1999, and the results of operations for the thirteen-week and
thirty-nine-week periods ended March 26, 1999, compared with the same periods of
the prior year. This discussion should be read in conjunction with the
Management's Discussion and Analysis section for the fiscal year ended June 26,
1998, included in the Company's Annual Report on Form 10-K.
Disclosure Regarding Forward-Looking Statements
Some of the information presented in this report constitutes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including, without limitation, continuation of increased domestic spending
for network upgrades, the Company's competitive position for providing products
and services, the continuation of competitive pricing pressures, anticipated
increased spending on research and product development, the anticipated higher
production levels for the fourth quarter of fiscal year 1999, the continued
availability of capital resources, and the Company's ability to assess the risks
of the Year 2000 issue with respect to its operations, and to resolve them in a
timely manner. Although the Company believes its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include the timing of orders received from customers,
the gain or loss of significant customers, changes in the mix of products sold,
changes in the cost and availability of parts and supplies, fluctuations in
warranty costs, new product development activities, economic conditions
affecting domestic and international markets, regulatory changes affecting the
telecommunications industry, in general, and the Company's operations, in
particular, competition and changes in domestic and international demand for the
Company's products, and other factors which may impact operations and
manufacturing. 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 Company's reports
filed on Form 10-K and other reports filed with the Securities and Exchange
Commission.
Results of Operations
Net sales for the thirteen-week period ended March 26, 1999, were $44,144,000,
an increase of 10% from the prior year's sales of $40,248,000 for the same
period. The increase in sales was primarily attributable to increased sales in
the domestic market, as well as in Asia. The Company experienced a reduction of
sales in Canada, Latin America, and Europe during the quarter, compared to the
same period of the prior year. Net sales for the thirty-nine-week period ended
March 26, 1999, were $114,207,000, a decrease of less than 1% from the prior
year's sales of $114,498,000 for the same period. The year-to-date results as of
March 26, 1999, reflect an increase in sales to the domestic market, which
offset a reduction in sales to international markets.
Domestic sales, as a percentage of total consolidated sales, were 88% for the
quarter ended March 26, 1999, and 87% for the period year-to-date. This compares
to 83% for the quarter and 75% year-to-date for the same periods of the prior
year. Sales to domestic customers increased 17% during the quarter ended March
26, 1999, and 17% for the period year-to-date, compared to the same periods of
the prior year. The Company has seen a steady demand from domestic
telecommunication operators for hybrid/fiber coax (HFC) distribution equipment.
The Company believes network upgrade and rebuild activities have continued by
telecommunications operators, as they continue to increase capacity for delivery
of improved services to subscribers. These services include not only voice and
video requirements, but also demands for high-speed data transmission.
Competition for delivering these advanced services has continued to accelerate
change and consolidation in the telecommunication industry. The Company believes
it is positioned well for providing competitive and cost effective products and
services to these telecommunication operators, enabling them to provide these
advanced services to their subscribers.
International sales, as a percentage of total consolidated sales, were 12% for
the quarter ended March 26, 1999, and 13% for the period year-to-date. This
compares to 17% for the quarter and 25% year-to-date for the same periods of the
prior year. Sales to international customers decreased 23% during the quarter
ended March 26, 1999, and 51% for the period year-to-date, compared to the same
periods of the prior year. The decrease for the quarter, resulted primarily from
reduced demand in Europe and Latin America. The decrease for the period
year-to-date resulted primarily from reduced demand from a customer in Canada,
as well as reduced sales to Europe, Asia, and Latin America. These markets
continue to represent distinct markets for cable television (CATV) equipment,
and, in general, demand can be highly variable.
The Company's backlog of sales orders at March 26, 1999, was approximately $54.7
million, consisting of backlog from domestic and international customers of 91%
and 9%, respectively. This compares to a backlog of approximately $27.2 million
at March 27, 1998, consisting of backlog from domestic and international
customers of 92% and 8%, respectively. The Company's backlog was approximately
$42.4 million at the end of the previous fiscal quarter ended December 25, 1998,
which consisted of backlog from domestic and international customers of 85% and
15%, respectively. The Company booked approximately $56.6 million of new sales
orders during the quarter ended March 26, 1999, resulting in a book-to-bill
ratio for the quarter of 1.3, compared to 1.5 for the previous quarter ended
December 25, 1998. The increased sales order activity derived primarily from the
domestic market.
Gross profit percentage for the thirteen-week period ended March 26, 1999, was
23.2% versus 21.6% for the same period of the prior year. Gross profit
percentage for the thirty-nine-week period ended March 26, 1999, was 23.6%
versus 22.1% for the same period of the prior year. The increase in the gross
profit margin for the quarter and year-to-date periods is a result of changes in
product sales mix and steps the Company has undertaken to lower manufacturing
costs, which include increasing the capacity of the Company's manufacturing
facility in Tijuana, Mexico. Although pricing pressures continue, the Company
has taken steps to improve manufacturing processes in order to enhance
efficiency and productivity, and to redesign products to enhance
manufacturability and reduce material costs.
Selling, general and administrative expenses for the thirteen-week period ended
March 26, 1999, were $4,141,000, an increase of 5% over the prior year's total
of $3,948,000 for the same period. Selling, general and administrative expenses
for the thirty-nine-week period ended March 26, 1999, were $11,388,000, an
increase of 1% over the prior year's total of $11,275,000 for the same period.
The increases are due to various selling and administrative costs, including
personnel costs associated with expansion of the Company's technical customer
services business unit.
Research and product development costs for the thirteen-week period ended March
26, 1999, were $1,808,000, a decrease of 4% over the prior year's total of
$1,877,000 for the same period. Research and product development costs for the
thirty-nine-week period ended March 26, 1999, were $6,226,000, an increase of
17% over the prior year's total of $5,340,000 for the same period. The decrease
for the quarter is due to lower development expenses, compared to the same
period of the prior year. The increase year-to-date is a result of higher
personnel costs and increased expenditures due to the Company's continued
investments in new products and technologies, which include additional
development costs for the Company's Navicor(TM) platform of products, and cable
network management software. During the quarter, the Company began shipping
Navicor products to customers. In accordance with the current development
schedule and beta tests underway with the Company's cable network management
system (CNM(TM) System 2), the Company anticipates production release of this
product during the fourth quarter of the Company's fiscal year 1999. Anticipated
new technology enhancement initiatives are expected to increase research and
product development expenses in future periods.
Interest expense for the thirteen-week period ended March 26, 1999, was $85,000,
a decrease of 26% from the prior year's total of $115,000. Interest expense for
the thirty-nine-week period ended March 26, 1999, was $172,000, a decrease of
36% from the prior year's total of $268,000. The decrease for the quarter and
year-to-date periods is a result of a decrease in short-term borrowings on the
Company's revolving line of credit during the periods, and a reduction in
long-term borrowings resulting from the payoff of certain loans during the first
quarter of the current fiscal year.
Investment income for the thirteen-week period ended March 26, 1999, was $5,000,
a decrease from the prior year's total of $7,000. Investment income for the
thirty-nine-week period ended March 26, 1999, was $75,000, an increase from the
prior year's total of $19,000. The increase for the year-to-date periods, is a
result of dividends on current marketable securities and short-term investments
of operating cash balances during the periods.
Foreign exchange gain for the thirteen-week period ended March 26, 1999, was
$34,000, an increase of 3% from the prior year's total of $33,000. Foreign
exchange loss for the thirty-nine-week period ended March 26, 1999, was $36,000,
a decrease of 68% from the prior year's total of $111,000. Changes in foreign
exchange gains and losses for the quarter and year-to-date periods, compared to
the same periods of the prior year are related to fluctuations in exchange
rates, resulting primarily from sales transactions denominated in Canadian
dollars.
Other income for the thirteen-week period ended March 26, 1999, was $34,000.
This compares to other income of $15,000 for the same period of the prior year.
Other income for the thirty-nine-week period ended March 26, 1999, was $11,000,
as compared to other expenses of $273,000 for the same period of the prior year.
The decrease in other expense for the year-to-date period resulted primarily
from expense accrued in the first quarter of the prior year for settlement of
certain litigation.
The effective income tax rate for the thirteen-week period ended March 26, 1999,
was 34.2%, compared to 32.7% for the same period of the prior year. The
effective income tax rate for the thirty-nine-week period ended March 26, 1999,
was 34.0%, compared to 33.9% for the same period of the prior year. Fluctuations
in the effective income tax rate from period to period reflect changes in the
benefit that derives from the Company's foreign sales corporation, changes in
non-deductible amounts, the relative profitability related to both U.S. and
non-U.S. operations, and differences in statutory rates.
Net income for the thirteen-week period ended March 26, 1999, was $2,805,000,
all of which derived from continuing operations. This compares to net income of
$2,240,000 for the same period of the prior year, which included income from
continuing operations of $1,877,000 and a gain on disposal of discontinued
operations of $363,000, net of tax. Net income for the thirty-nine-week period
ended March 26, 1999, was $6,372,000, which included income from continuing
operations of $6,068,000 and a gain on disposal of discontinued operations of
$304,000, net of tax. This compares to net income of $5,707,000 for the same
period of the prior year, which included income from continuing operations of
$5,344,000 and a gain on disposal of discontinued operations of $363,000, net of
tax.
Results of Discontinued Operations
On July 10, 1997, the Company announced the discontinuation of its digital fiber
optic business segment located in Fremont, California, in a wind-down process
that was substantially completed as of the quarter ended March 27, 1998. A gain
from the disposal of the discontinued business segment of $304,000, net of tax
of $112,000, was recorded during the thirty-nine-week period ended March 26,
1999, resulting primarily from the settlement of certain warranty liabilities
and royalties resulting from licensing the digital fiber optic technology. This
compares to a gain from the disposal of the discontinued business segment of
$363,000, net of tax of $188,000, for the same period of the prior year.
Liquidity and Capital Resources
The Company's current ratio at March 26, 1999, was 2.2 compared to 2.6 at June
26, 1998. Net cash generated from operating activities was $9,994,000 for the
thirty-nine-week period ended March 26, 1999, compared to $9,755,000 for the
same period of the prior year. Working capital was $28,503,000 as of March 26,
1999, compared to $27,313,000 at June 26, 1998. As of March 26, 1999, increases
in both inventories and associated accounts payables resulted from a higher
level of purchases to support higher production levels anticipated in the fourth
quarter of fiscal year 1999.
Net cash used in investing activities was $9,316,000 for the thirty-nine-week
period ended March 26, 1999, compared to 7,554,000 for the same period of the
prior year. The increase in cash used in investing activities was primarily due
to an investment made by the Company in the stock of Convergence.com. In
December 1998, the Company entered into a strategic alliance with
Convergence.com, a provider of internet-enabling technical services. Under this
arrangement, C-COR has made a $5,000,000 investment in Convergence.com and is
the exclusive reseller of Convergence.com's products and services in North
America. Convergence.com's products and services enable delivery of high-speed,
broadband internet and data services to businesses, residential customers,
schools and other institutions. The investment in Convergence.com is being
carried at cost, as the ownership interest is less than 20% and does not fall
within the guidelines of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (Statement 115). The
Company's other investing activities derive primarily from purchases of
property, plant and equipment and other investing activities.
Net cash used in financing activities totaled $2,420,000 for the
thirty-nine-week period ended March 26, 1999, compared to net cash used in
financing activities of $2,228,000 for the same period of the prior year. The
Company's financing activities consist primarily of borrowings and payments on
short-term and long-term debt.
The Company has a stock repurchase program which allows it to repurchase up to
500,000 shares of C-COR common stock. The shares may be purchased from time to
time in the open market through block or privately negotiated transactions, or
otherwise. The repurchased stock is being held by the Company as treasury stock
to be used to meet the Company's obligations under its present and future stock
option plans and for other corporate purposes. As of March 26, 1999, a total of
100,723 shares had been repurchased under this stock repurchase program, of
which none were purchased during the quarter. The total shares being held by the
Company as treasury stock as of March 26, 1999, were 600,723.
The Company maintains a line of credit with a bank pursuant to which it may
borrow the lesser of $25,000,000, net of outstanding letters of credit up to a
$2,000,000 sub-limit, or a percentage of eligible accounts receivable and
inventory. The line of credit is committed through December 31, 1999. The
borrowings are collateralized by accounts receivable and inventory. The Company
had no borrowings on this line of credit as of March 26, 1999. Based upon the
Company's analysis of eligible accounts receivable and inventory, approximately
$21,437,000 was available to borrow as of March 26, 1999.
Management believes that operating cash flow, as well as the Company's bank line
of credit is adequate to provide for all cash requirements for the foreseeable
future, subject to requirements that additional growth or strategic development
might dictate.
Year 2000
The Company is aware of the issues associated with the limitations of the
programming code in many existing computer systems, whereby the computer systems
may not properly recognize date-sensitive information as the millennium (Year
2000) approaches. The Company's date-sensitive systems include, but are not
limited to, test equipment, computer systems embedded in production equipment,
products containing computer systems, business data processing systems,
production management and planning systems, and personal computers. Systems that
do not properly recognize such information could generate erroneous data or
cause a system to fail.
During the thirteen-week period ended March 26, 1999, the Company's Year 2000
project team (consisting of representatives from its information technology,
finance, manufacturing, product development, quality assurance, and sales and
marketing departments) substantially completed its assessment of the Company's
internal date-sensitive equipment to determine Year 2000 compliance. As of March
26, 1999, the Company has concluded that approximately 85% of the Company's
date-sensitive equipment is deemed to be compliant or has only minor issues. The
Company is in the process of addressing approximately 8% of its date-sensitive
equipment with minor upgrades or replacements. Another 2% requires some further
investigation to determine compliance, but is not in critical system areas, and
approximately 5% has been determined to be non-compliant. Most of these
non-compliant items can be upgraded to be compliant before January 1, 2000. The
non-compliant hardware and software have been determined not to be in critical
systems. The Company will continue the ongoing process of evaluating its
remaining date-sensitive equipment for Year 2000 compliance during the fourth
quarter of fiscal year 1999.
At this time, all critical systems have been designated compliant by their
manufacturer. To verify manufacturer's assertions, the Company developed a
testing plan for its critical systems, and began compliance testing during the
thirteen-week period ended March 26, 1999. The Company has completed
approximately 50% of such compliance testing, and at this time, there are no
exceptions identified with these manufacturer assertions. The Company
anticipates completing its compliance testing by the end of its fourth quarter
of fiscal year 1999.
In addition, during the thirteen-week period ended March 26, 1999, the Company
continued corresponding with its principal customers, suppliers, vendors and
subcontractors to ascertain their readiness for the Year 2000, and requested
assurances that they are addressing the Year 2000 issue. All major customers and
vendors, including sole and single source supply vendors, have replied or
disclosed that they have a program in place or are compliant. These actions are
intended to help mitigate the possible external impact of Year 2000 issues,
however, the Company is unable to fully assess the potential consequences in the
event of unforeseen compliance issues with the systems operated by its
customers, suppliers, vendors or subcontractors.
The Company has assessed its products presently being sold and those installed
in customers' networks. With the exception of the Company's network management
system, the Company's products do not cause a Year 2000 issue. The Company has
assessed its network management software and firmware, both present and
previously sold versions, and found them to be Year 2000 compliant.
The Company's current timetable is that it expects to complete its remaining
Year 2000 risk assessment and testing by the end of its fourth quarter of fiscal
year 1999, however, there can be no assurance that the Company will meet this
timetable.
The Company has not calculated the total estimated cost of addressing Year 2000
issues. While the total estimated cost of these efforts is difficult to predict
with accuracy, based on its evaluation and assessment thus far, the Company
believes there should not be a material adverse impact on its operating results
or financial condition. However, Year 2000 issues could have a significant
impact on the Company's operations and its financial results if modifications
cannot be completed on a timely basis, if unforeseen needs or problems arise, or
if there are unforeseen compliance problems with the systems operated by its
customers, suppliers, vendors or subcontractors. Moreover, the change to the
Year 2000 may negatively impact the Company's customers or the CATV industry as
a whole, causing reduced demand and market disruption in anticipation of, or
following, the Year 2000.
Based on its assessment to date, the Company believes it will not experience any
material disruption as a result of Year 2000 problems with its internal
financial, manufacturing and other computer systems, however, there can be no
assurance that unforseen problems could arise that could have a material adverse
effect. The Company has established a preliminary contingency plan detailing how
it will operate in the event it perceives there are unaddressed risks associated
with the Year 2000.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
The following exhibits are included herein:
(11) Statement re: computation of earnings per share
(27) Financial Data Schedule
Reports on Form 8-K filed during the reporting period:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C-COR ELECTRONICS, INC.
(Registrant)
Date: May 10, 1999 /s/ WILLIAM T. HANELLY
----------------------- --------------------------
Vice President-Finance
Secretary and Treasurer
(Principal Financial Officer)
Date: May 10, 1999 /s/ JOSEPH E. ZAVACKY
----------------------- ---------------------------
Controller and Assistant Secretary
(Principal Accounting Officer)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
March 26, March 27, March 26, March 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding 9,112 9,154 9,128 9,147
------------ ------------ ------------ ------------
Total 9,112 9,154 9,128 9,147
Income from continuing operations $ 2,805 $ 1,877 $ 6,068 $ 5,344
Gain from discontinued operations 0 363 304 363
------------ ------------ ------------ ------------
Net income $ 2,805 $ 2,240 $ 6,372 $ 5,707
============ ============ ============ ============
Net income per share
Continuing operations $ 0.31 $ 0.20 $ 0.67 $ 0.58
Discontinued operations 0.00 0.04 0.03 0.04
------------ ------------ ------------ ------------
Net income per share $ 0.31 $ 0.24 $ 0.70 $ 0.62
============ ============ ============ ============
Diluted:
Weighted average shares outstanding 9,112 9,154 9,128 9,147
Weighted average common stock
equivalents 293 266 255 244
------------ ------------ ------------ ------------
Total 9,405 9,420 9,383 9,391
Income from continuing operations $ 2,805 $ 1,877 $ 6,068 $ 5,344
Gain from discontinued operations 0 363 304 363
------------ ------------ ------------ ------------
Net income $ 2,805 $ 2,240 $ 6,372 $ 5,707
============ ============ ============ ============
Net income per share
Continuing operations $ 0.30 $ 0.20 $ 0.65 $ 0.57
Discontinued operations 0.00 0.04 0.03 0.04
------------ ------------ ------------ ------------
Net income per share $ 0.30 $ 0.24 $ 0.68 $ 0.61
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-25-1999
<PERIOD-START> JUN-27-1998
<PERIOD-END> MAR-26-1999
<CASH> 571
<SECURITIES> 383
<RECEIVABLES> 23,586
<ALLOWANCES> 636
<INVENTORY> 20,745
<CURRENT-ASSETS> 51,571
<PP&E> 57,796
<DEPRECIATION> 32,288
<TOTAL-ASSETS> 85,641
<CURRENT-LIABILITIES> 23,068
<BONDS> 0
0
0
<COMMON> 972
<OTHER-SE> 54,947
<TOTAL-LIABILITY-AND-EQUITY> 85,641
<SALES> 44,144
<TOTAL-REVENUES> 44,144
<CGS> 33,919
<TOTAL-COSTS> 5,949
<OTHER-EXPENSES> (73)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 4,264
<INCOME-TAX> 1,459
<INCOME-CONTINUING> 2,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,805
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
