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 24, 2000
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.net Corp.
(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, $.05 Par Value - 33,822,945 shares as of April 24, 2000.
<PAGE>
INDEX
C-COR.net Corp.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed consolidated balance sheets -- March 24, 2000, and
June 25, 1999.
Condensed consolidated statements of operations -- thirteen weeks
ended March 24, 2000, and March 26, 1999; thirty-nine weeks
ended March 24, 2000, and March 26, 1999.
Condensed consolidated statements of cash flows -- thirty-nine
weeks ended March 24, 2000, and March 26, 1999.
Notes to condensed consolidated financial statements --
March 24, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
C-COR.net Corp.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 24, June 25,
2000 1999
--------- ---------
(Unaudited)
(000's omitted)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 75,547 $ 5,805
Marketable securities 51,889 445
Interest receivable 847 1
Accounts and notes receivables, net 44,204 35,252
Inventories 31,427 23,565
Deferred taxes 6,699 6,352
Property held for sale, net 1,100 1,281
Other current assets 2,713 2,265
Net current assets of discontinued operations 109 433
--------- ---------
TOTAL CURRENT ASSETS 214,535 75,399
Property, plant, and equipment, net 28,864 28,821
Intangible assets, net 2,560 1,131
Deferred taxes 4,927 1,113
Other long-term assets 6,540 2,716
--------- ---------
TOTAL ASSETS $ 257,426 $ 109,180
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 14,465 $ 16,421
Accrued liabilities 20,097 17,400
Line-of-credit and short-term
credit obligations - 4,638
Current portion of long-term debt 226 858
--------- ---------
TOTAL CURRENT LIABILITIES 34,788 39,317
Long-term debt, less current portion 1,587 3,741
Other long-term liabilities 1,984 1,464
Commitments and contingent liabilities
--------- ---------
TOTAL LIABILITIES 38,359 44,522
Series A redeemable convertible preferred
stock, no par - 3,393
SHAREHOLDERS' EQUITY
Preferred stock, no par; authorized 2,000,000
shares; issued, none
Convertible preferred stock, no par - 24,304
Common stock, $.05 par; authorized shares
100,000,000 at March 24, 2000 and 48,000,000
at June 25, 1999, issued shares of 34,965,933
on March 24, 2000, and 23,923,065 on June 25, 1999 1,748 1,197
Additional paid-in capital 193,918 22,416
Accumulated other comprehensive loss (127) (96)
Unearned compensation (12) -
Retained earnings 30,520 20,605
Treasury stock at cost, shares of 1,201,446 on
March 24, 2000 and 1,318,118 on June 25, 1999 (6,980) (7,161)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 219,067 61,265
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 257,426 $ 109,180
========= =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
C-COR.net Corp.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------------------- --------------------------------
March 24, 2000 March 26, 1999 March 24, 2000 March 26, 1999
-------------- --------------- --------------- ---------------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 62,936 $ 51,819 $ 201,598 $ 135,001
COST AND EXPENSES:
Cost of sales 47,108 39,924 151,458 105,307
Selling and administrative 6,214 7,366 21,087 20,823
Research and product development 4,323 2,481 11,006 8,442
Merger-related costs 4,373 - 8,046 -
Interest expense 14 182 775 345
Investment income (1,884) (64) (2,802) (199)
Other expense (income), net (73) (67) 226 142
-------------- --------------- --------------- ---------------
60,075 49,822 189,796 134,860
-------------- --------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,861 1,997 11,802 141
INCOME TAX (BENEFIT) EXPENSE (1,774) 1,246 2,532 2,210
-------------- --------------- --------------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 4,635 751 9,270 (2,069)
DISCONTINUED OPERATIONS:
Gain on disposal of discontinued business segment, net of tax 780 - 822 304
-------------- --------------- --------------- ---------------
NET INCOME (LOSS) 5,415 751 10,092 (1,765)
Dividend requirements on preferred stocks - (144) - (468)
-------------- --------------- --------------- ---------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 5,415 $ 607 $ 10,092 $ (2,233)
============== =============== =============== ===============
NET INCOME (LOSS) PER SHARE - BASIC:
Continuing operations $ 0.14 $ 0.03 $ 0.32 $ (0.11)
Discontinued operations:
Gain on disposal 0.02 - 0.03 0.01
-------------- --------------- --------------- ---------------
NET INCOME (LOSS) PER SHARE $ 0.16 $ 0.03 $ 0.35 $ (0.10)
============== =============== =============== ===============
NET INCOME (LOSS) PER SHARE - DILUTED:
Continuing operations $ 0.13 $ 0.03 $ 0.28 $ (0.11)
Discontinued operations:
Gain on disposal 0.02 - 0.02 0.01
-------------- --------------- --------------- ---------------
NET INCOME (LOSS) PER SHARE $ 0.15 $ 0.03 $ 0.30 $ (0.10)
============== =============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
C-COR.net Corp.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
March 24, March 26,
2000 1999
- --------------------------------------------------------------------------------
(000's omitted)
OPERATING ACTIVITIES
<S> <C> <C>
NET INCOME (LOSS) $ 10,092 $ (1,765)
Adjustments to reconcile net income (loss) to net cash
and cash equivalents provided by operating activities:
Depreciation and amortization 7,219 5,772
Amortization of debt discount 381 -
Amortization of unearned restricted stock 10 -
Gain on disposal of discontinued operations, net of tax (822) (304)
Provision for deferred retirement salary plan 459 186
Loss on sale of property, plant, and equipment 331 56
Changes in operating assets and liabilities:
Interest receivable (846) -
Accounts receivable (8,066) (5,994)
Inventories (7,862) (4,771)
Other assets (40) 2,109
Accounts payable (1,956) 7,945
Accrued liabilities 2,430 2,697
Deferred income taxes (3,968) (1,575)
Discontinued operations - working capital changes
and noncash charges 1,146 (566)
--------- ---------
NET CASH AND CASH EQUIVALENTS (USED IN)
PROVIDED BY OPERATING ACTIVITIES (1,492) 3,790
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (6,868) (5,601)
Purchase of marketable securities and other short
term investments (51,444) (27)
Change in other assets - 89
Asset purchase of ACSI (3,246) -
Investment in equity securities (3,501) -
Proceeds from sale of property, plant, and equipment 8 16
--------- ---------
NET CASH AND CASH EQUIVALENTS
USED IN INVESTING ACTIVITIES (65,051) (5,523)
--------- ---------
FINANCING ACTIVITIES
Payment of debt and capital lease obligations (2,786) (4,786)
Proceeds from long-term debt borrowing - 3,000
Proceeds from (payments on) short-term credit
facilities, net (5,019) 4,218
Tax benefit deriving from exercise and sale of stock
option shares 2,775 -
Issue common stock to employee stock purchase plan 85 36
Proceeds from exercise of stock options 4,909 419
Proceeds from exercise of warrants 2,960 -
Proceeds from issuance of common stock 133,361 -
Proceeds from issuance of convertible preferred stock - 1,355
Purchase of treasury stock - (1,265)
--------- ---------
NET CASH AND CASH EQUIVALENTS
PROVIDED BY FINANCING ACTIVITIES 136,285 2,977
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 69,742 1,244
ELIMINATION OF DUPLICATED ACTIVITY - 1,014
Cash and cash equivalents at beginning of year 5,805 3,454
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 75,547 $ 5,712
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
C-COR.net Corp.
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 24, 2000, 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 period
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2000. The consolidated balance sheet at June 25, 1999, has been
derived from the supplemental financial statements at that date which gives
effect to the transaction with Worldbridge Broadband Services, Inc. For further
information, refer to financial statements and footnotes thereto included in the
Company's Form 8-K/A dated February 18, 2000.
2. DESCRIPTION OF BUSINESS
The Company designs, manufactures, and markets cable network transmission
products and provides services and support to cable network operators. The
Company offers a comprehensive range of products, including radio frequency
("RF") amplifiers, and fiber optic components for the cable headend, node and RF
plant. The Company's services focus on enabling reliable, high-speed, broadband
communications over hybrid fiber coax ("HFC") networks, and include network
design, service activation, optimization, management and maintenance.
3. BUSINESS COMBINATIONS
POOLING OF INTEREST
On July 9, 1999, the Company consummated a merger with Convergence.com
Corporation ("Convergence.com") a Georgia corporation, whereby Convergence.com
became a wholly owned subsidiary of the Company. As consideration in the merger,
each outstanding share of common stock of Convergence.com was converted into one
share of the Company's common stock for an aggregate of 1,433,323 shares
(2,866,646 shares on a post-split basis) of the Company's common stock. Each
outstanding warrant to acquire Convergence.com common stock was converted into a
warrant to acquire the Company's common stock for an aggregate of warrants to
acquire 366,930 shares (733,860 shares on a post-split basis) of the Company's
common stock. The merger was accounted for under the pooling-of-interests method
of accounting.
On September 17, 1999, the Company consummated a merger with Silicon Valley
Communications, Inc. ("SVCI") a California corporation, whereby SVCI became a
wholly owned subsidiary of the Company. As consideration in the merger, each
outstanding share of common stock of SVCI was converted into 0.094534 shares of
the Company's common stock, resulting in the issuance of 1,545,081 shares
(3,090,162 shares on a post-split basis) of the Company's common stock (subject
to reduction pursuant to certain escrow arrangements). Outstanding stock options
and warrants to acquire SVCI common stock were converted into stock options and
warrants to acquire the Company's common stock using the same conversion ratio
(with appropriate adjustment to the exercise price) for an aggregate of stock
options and warrants to acquire 383,844 shares (767,688 shares on a post-split
basis) of the Company's common stock. The merger was accounted for under the
pooling-of-interests method of accounting.
On February 18, 2000, the Company consummated a merger with Worldbridge
Broadband Services, Inc. ("Worldbridge"), a Delaware corporation, whereby
Worldbridge became a wholly owned subsidiary of the Company. As consideration in
the merger, each outstanding share of common stock of Worldbridge was converted
into .197249 shares of the Company's common stock, plus a right to receive a
pro-rata portion of 160,356 shares that were issued into escrow, resulting in
the issuance of approximately 1,603,584 shares of the Company's common stock
(including the escrowed shares). Outstanding stock options to acquire
Worldbridge common stock were converted into stock options to acquire the
Company's common stock, using a conversion ratio of .219166 shares of the
Company's common stock for each share of Worldbridge common stock, (with
appropriate adjustment to the exercise price) for an aggregate of stock options
to acquire 196,416 shares of the Company's common stock. The merger was
accounted for under the pooling-of-interests method of accounting.
The Company recorded one-time charges of $8,046,000, ($7,022,000, net of tax)
related to the business combinations. One-time charges of $3,673,000
($3,113,000, net of tax) and $4,373,000 ($3,909,000, net of tax) were recorded
in the thirteen-week periods ended September 24, 1999 and March 24, 2000,
respectively. The one-time charges include merger transaction 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.
The pooling-of-interests method of accounting requires that historical financial
results of the merged companies be combined and presented as if the companies
had always operated as one entity. Accordingly, the Company's financial
statements are presented on a restated combined basis for all periods presented.
ASSET PURCHASE
On January 28, 2000, a wholly owned subsidiary of the Company purchased
substantially all the assets of Advanced Communications Services, Inc. ("ACSI"),
a provider of advanced network engineering services, for $3,610,000. As a result
of the acquisition, the Company recorded goodwill in the amount of $2,461,000
related to the excess of the purchase price over the fair value of net assets
acquired. The allocation of the purchase price to the net assets acquired is
subject to finalization. Management does not believe that the final purchase
price allocation will produce materially different results than those reflected
herein. The goodwill is being amortized on a straight-line basis over ten years.
The Company did not assume any material liabilities of ACSI in the transaction.
4. PUBLIC OFFERING
On November 12, 1999, the Company completed a follow-on public offering of its
common stock, whereby 3,220,000 shares of common stock were issued and sold at a
price of $44.00 per share (this equates to 6,440,000 shares at $22.00 per share
on a post-split basis). This offering resulted in net proceeds (after deducting
issuance costs) to the Company of $133,361,000. 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.
5. STOCK SPLIT
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 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.
6. INVENTORIES
<TABLE>
<CAPTION>
March 24, June 25,
2000 1999
-------- ---------
(000's omitted)
<S> <C> <C>
Raw materials $20,534 $17,240
Work-in-process 4,800 3,038
Finished goods 6,093 3,287
--------- ---------
Total inventories $31,427 $23,565
========= =========
</TABLE>
7. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consisted of:
<CAPTION>
March 24, June 25,
2000 1999
---------------- ----------------
(000's omitted)
<S> <C> <C>
Accrued incentive plan expense $ 2,069 $ 2,285
Accrued vacation expense 1,837 2,000
Accrued salary expense 2,591 1,704
Accrued payroll and sales tax 1,251 1,639
Accrued warranty expense 1,951 1,742
Accrued workers compensation
self-insurance expense 2,210 1,724
Accrued merger-related costs 2,155 -
Accrued sales commissions and
rebates payable 614 951
Accrued income taxes 2,848 3,383
Accrued other 2,571 1,972
---------------- ----------------
$20,097 $17,400
================ ================
</TABLE>
8. COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive loss, net of tax, of the
Company are as follows:
<TABLE>
<CAPTION>
March 24, June 25,
2000 1999
----------- ----------
(000's omitted)
<S> <C> <C>
Foreign currency translation loss $ (121) $ (92)
Unrealized loss on marketable securities (6) (4)
---------- ----------
Accumulated other comprehensive loss $ (127) $ (96)
========== ==========
</TABLE>
The components of comprehensive income (loss) of the Company for the
thirteen-week, and thirty-nine week periods ended March 24, 2000, and
March 26, 1999, are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------- -------------------------------
March 24, March 26, March 24, March 26,
2000 1999 2000 1999
------------- ------------ ------------- ------------
(000's omitted) (000's omitted)
<S> <C> <C> <C> <C>
Net income (loss) $ 5,415 $ 751 $10,092 $(1,765)
Other comprehensive loss, net of tax:
Unrealized loss on equity securities - - (2) (5)
Foreign currency translation loss (20) (31) (29) (5)
-------- -------- -------- --------
Other comprehensive loss (20) (31) (31) (10)
-------- -------- -------- --------
Comprehensive income (loss) $ 5,395 $ 720 $10,061 $(1,775)
======== ======== ======== ========
</TABLE>
9. NET INCOME (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income 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:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------- -----------------------------
March 24, March. 26, March 24, March. 26,
2000 1999 2000 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 4,635 $ 751 $ 9,270 $ (2,069)
Less:
Accretion of convertible preferred stock - (144) - (468)
------------- ------------- ------------ -------------
Continuing income (loss) available to common shareholders 4,635 607 9,270 (2,537)
Gain from discontinued operations 780 - 822 304
------------- ------------- ------------ -------------
Net income (loss) available to common shareholders $ 5,415 $ 607 $ 10,092 $ (2,233)
============= ============= ============ =============
Weighted average common shares outstanding 33,315 22,430 28,657 22,466
Common stock equivalents 3,683 4,493 4,594 -
------------- ------------- ------------ -------------
Dilutive potential common shares 36,998 26,923 33,251 22,466
============= ============= ============ =============
Basic:
Continuing operations $ 0.14 $ 0.03 $ 0.32 $ (0.11)
Discontinued operations 0.02 0.00 0.03 0.01
------------- ------------- ------------ -------------
Net income (loss) available to common shareholders $ 0.16 $ 0.03 $ 0.35 $ (0.10)
============= ============= ============ =============
Diluted:
Continuing operations $ 0.13 $ 0.03 $ 0.28 $ (0.11)
Discontinued operations 0.02 0.00 0.02 0.01
------------- ------------- ------------ -------------
Net income (loss) available to common shareholders $ 0.15 $ 0.03 $ 0.30 $ (0.10)
============= ============= ============ =============
</TABLE>
<PAGE>
10. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (Statement
131), in fiscal year 1999. For the thirteen-week and thirty-nine-week periods
ended March 24, 2000 and March 26, 1999, the Company operated in two industry
segments; the Electronic Distribution Products segment, which provides HFC
equipment for signal distribution applications, primarily to the cable
television market, and the Broadband Management Services segment, which provides
HFC technical services and Internet enabling technical services and support to
broadband operators.
Information about industry segments for the thirteen-week and the thirty-nine
week periods ended March 24, 2000, and March 26, 1999, are as follows:
<TABLE>
<CAPTION>
Continuing Operations
----------------------------
Electronic Broadband
Distribution Management
Products Services Total
----------------------------------------------
13 week period ended March 24, 2000
<S> <C> <C> <C>
Total revenue $ 53,564 $ 9,372 $ 62,936
Operating income (loss) (A) 6,462 (1,171) 5,291
Investment income 1,884
Interest expense 14
Income tax expense (benefit) (A) (1,310)
Identifiable assets at March 24, 2000 238,684 18,633 257,317
Capital expenditures 1,060 627 1,687
Depreciation and amortization 1,818 548 2,366
13 week period ended March 26, 1999
Total revenue $ 44,678 $ 7,141 $ 51,819
Operating income 2,022 26 2,048
Investment income 64
Interest expense 182
Income tax expense 1,246
Identifiable assets at March 26, 1999 87,454 13,358 100,812
Capital expenditures 1,954 474 2,428
Depreciation and amortization 1,285 275 1,560
39 week period ended March 24, 2000
Total revenue $174,400 $27,198 $201,598
Operating income (loss) (A) 21,277 (3,230) 18,047
Investment income 2,802
Interest expense 775
Income tax expense (A) 3,556
Identifiable assets at March 24, 2000 238,684 18,633 257,317
Capital expenditures 5,070 1,798 6,868
Depreciation and amortization 5,970 1,249 7,219
39 week period ended March 26, 1999
Total revenue $117,829 $17,172 $135,001
Operating income (loss) 3,019 (2,590) 429
Investment income 199
Interest expense 345
Income tax expense 2,210
Identifiable assets at March 26, 1999 87,454 13,358 100,812
Capital expenditures 4,504 1,097 5,601
Depreciation and amortization 5,285 487 5,772
<FN>
(A) Operating income and income tax expense exclude the impact of the one-time
merger-related costs related to the Convergence.com, SVCI and Worldbridge
mergers. (See Note 3)
</FN>
</TABLE>
<PAGE>
The Company and subsidiaries operate in various geographic areas as indicated by
the following:
<TABLE>
<CAPTION>
U.S. Canada Europe Eliminations Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
13 week period ended March 24, 2000
Sales to unaffiliated customers:
Domestic $ 56,176 $ - $ 320 $ - $ 56,496
Export 6,440 - - - 6,440
Transfers between geographic areas 104 - - (104) -
Total revenue 62,720 - 320 (104) 62,936
Operating income (loss) (A) 4,820 203 268 - 5,291
Investment income 1,884
Interest expense 14
Income tax expense (A) (1,310)
Identifiable assets at March 24, 2000 256,284 212 821 - 257,317
Capital expenditures 1,687 - - - 1,687
Depreciation and amortization 2,361 - 5 - 2,366
13 week period ended March 26, 1999
Sales to unaffiliated customers:
Domestic $ 46,666 $ 50 $ 62 $ - $ 46,778
Export 5,041 - - - 5,041
Transfers between geographic areas 10 - - (10) -
Total revenue 51,717 50 62 (10) 51,819
Operating income (loss) 2,101 (88) 35 - 2,048
Investment income 64
Interest expense 182
Income tax expense 1,246
Identifiable assets at March 26, 1999 99,570 793 449 - 100,812
Capital expenditures 2,428 - - - 2,428
Depreciation and amortization 1,552 3 5 - 1,560
39 week period ended March 24, 2000
Sales to unaffiliated customers:
Domestic $ 180,057 $ 42 $ 497 $ - $ 180,596
Export 21,002 - - - 21,002
Transfers between geographic areas 136 - - (136) -
Total revenue 201,195 42 497 (136) 201,598
Operating income (loss) (A) 17,864 104 79 - 18,047
Investment income 2,802
Interest expense 775
Income tax expense (A) 3,556
Identifiable assets at March 24, 2000 256,284 212 821 - 257,317
Capital expenditures 6,867 - 1 - 6,868
Depreciation and amortization 7,204 - 15 - 7,219
39 week period ended March 26, 1999
Sales to unaffiliated customers:
Domestic $ 120,603 $ 366 $ 193 $ - $ 121,162
Export 13,839 - - - 13,839
Transfers between geographic areas 64 - - (64) -
Total revenue 134,506 366 193 (64) 135,001
Operating income (loss) 580 (214) 63 - 429
Investment income 199
Interest expense 345
Income tax expense 2,210
Identifiable assets at March 26, 1999 99,570 793 449 - 100,812
Capital expenditures 5,601 - - - 5,601
Depreciation and amortization 5,748 9 15 5,772
<FN>
(A) Operating income and income tax expense exclude the impact of the one-time
merger-related costs related to the Convergence.com, SVCI and Worldbridge
mergers. (See Note 3)
</FN>
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
General
The following discussion addresses the financial condition of the Company as of
March 24, 2000, and the results of operations for the thirteen-week and
thirty-nine-week periods ended March 24, 2000, 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 25,
1999, included in the Company's Annual Report on Form 10-K/A Amendment No. 2.
Management's Discussion and Analysis included in the Company's Annual Report on
Form 10-K/A Amendment No. 2 does not reflect the acquisition of Worldbridge.
Disclosure Regarding Forward-Looking Statements
Some of the information presented in this report, including, but not limited to
continuation of increased domestic spending for network upgrades, expectations
regarding international sales volume and investment in development of
international distribution channels, anticipated increased spending on product
development, the continued availability of capital resources, customer's demands
for network reliability, the Company's expectations in connection with the
mergers with Convergence.com, SVCI and Worldbridge, the Company's ability to
expand its capacity for providing network design and other technical services as
a result of the asset purchase of ACSI and merger with Worldbridge, constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that 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, among others, the
ability to integrate assets purchased from ACSI, the ability to integrate
Convergence.com, SVCI and Worldbridge's businesses, the timing of orders
received from customers, the gain or loss of significant customers, changes in
the mix of products sold, continued industry consolidation, the development of
competing technology, changes in the cost and availability of parts and
supplies, fluctuations in warranty costs, new product development activities,
the Company's ability to successfully implement new products and services and
enhance existing products and services, 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 and materials filed with the Securities and Exchange Commission.
Business Combinations
On January 28, 2000, a wholly owned subsidiary of the Company purchased
substantially all the assets of ACSI, a provider of advanced network engineering
services, for $3,610,000. As a result of the acquisition, the Company recorded
goodwill in the amount of $2,461,000 related to the excess of the purchase price
over the fair value of net assets acquired. The allocation of the purchase price
to the net assets acquired is subject to finalization. Management does not
believe that the final purchase price allocation will produce materially
different results than those reflected herein. The goodwill is being amortized
on a straight-line basis over ten years. The Company did not assume any material
liabilities of ACSI in the transaction.
On February 18, 2000, the Company consummated a merger with Worldbridge, a
Delaware corporation, whereby Worldbridge became a wholly owned subsidiary of
the Company. This acquisition enables the Company to provide a broad range of
technical services to assist its customers in upgrading their networks and
rolling out new offerings. As consideration in the merger, each outstanding
share of common stock of Worldbridge was converted into the right to receive
.197249 shares of the Company's common stock, plus a right to receive a pro-rata
portion of 160,356 shares that were issued into escrow, resulting in the
issuance of 1,603,584 shares of the Company's common stock (including the
escrowed shares). Outstanding options to acquire Worldbridge common stock were
converted into options to acquire the Company's common stock, using a conversion
ratio of .219166 shares of the Company's common stock for each share of
Worldbridge common stock (with an appropriate adjustment to the exercise price)
for an aggregate of stock options to acquire 196,416 shares of the Company's
common stock. The merger was accounted for under the pooling-of-interests method
of accounting.
The Company recorded a one-time charge of $4,373,000 ($3,909,000, net of tax)
primarily related to the Worldbridge merger during the thirteen-week period
ended March 24, 2000. For the thirty-nine-week period ended March 24, 2000 the
Company recorded total one-time charges of $8,046,000 ($7,022,000, net of tax)
related to business combinations.
Results of Operations
Net sales for the thirteen-week period ended March 24, 2000, were $62,936,000,
an increase of 21% from the prior year's sales of $51,819,000 for the same
period. Net sales for the thirty-nine-week period ended March 24, 2000, were
$201,598,000, an increase of 49% from the prior year's sales of $135,001,000 for
the same period. The increased sales for the thirteen-week and thirty-nine-week
periods were primarily attributable to increased capital spending for cable
network transmission equipment by domestic cable operators and from increased
sales of technical services related to design, activation and support of cable
networks. In addition, the Company has broadened its hybrid fiber coax (HFC)
network product lines. These product line expansions include a full range of
fiber optics equipment, including the Company's Navicor (TM) family of node
products, as well as a broad complement of advanced fiber optic headend
equipment and optical transmitters and receivers. The Company has also increased
its capacity for providing full life cycle support for broadband networks,
including its technical customer services, as a result of the Company's asset
purchase of ACSI, and the merger with Worldbridge.
Net sales for the Company's Electronic Distribution Products and Broadband
Management Services business segments for the thirteen-week period ended March
24, 2000, were $53,564,000 and $9,372,000, respectively. This compares to net
sales of $44,678,000 and $7,141,000, respectively, for the same period of the
prior year. Net sales for the Company's Electronic Distribution Products and
Broadband Management Services business segments for the thirty-nine-week period
ended March 24, 2000, were $174,400,000 and $27,198,000, respectively. This
compares to net sales of $117,829,000 and $17,172,000, respectively, for the
same period of the prior year.
Domestic sales, as a percentage of total consolidated sales, were 90% for both
the thirteen-week and thirty-nine-week periods ended March 24, 2000,
respectively. This compares to 90% and 89% for the same respective periods of
the prior year. Sales to domestic customers increased 22% during the
thirteen-week period ended March 24, 2000 and 50% for the thirty-nine-week
period, compared to the same periods of the prior year. The increases were due
to sales of HFC transmission equipment and related services to domestic cable
operators for continuing upgrades and rebuilds of their systems, principally to
offer new services including two-way Internet access. Upgrades to existing cable
networks to provide two-way, interactive broadband services allow cable
operators to compete against other broadband communications technologies.
International sales, as a percentage of total consolidated sales, were 10% for
both the thirteen-week and thirty-nine-week periods ended March 24, 2000,
respectively. This compares to 10% and 11% for the same periods of the prior
year. Sales to international customers increased 15% during the thirteen-week
period ended March 24, 2000, and 43% for the thirty-nine-week period, compared
to the same periods of the prior year. The increases for the thirteen-week and
thirty-nine-week periods resulted primarily from demand from a customer in
Canada, as well as increased sales to Europe and Asia. The Company believes
further investment will be necessary in developing its international
distribution channels and to provide localized versions of its products, in
order to supply comprehensive network solutions to operators in various
international markets. The Company expects international markets will continue
to represent a substantial portion of its sales base, but believes demand will
remain highly variable.
The Company's backlog of sales orders at March 24, 2000, was approximately $88.4
million, consisting of backlog from domestic and international customers of 94%
and 6%, respectively. The Company's backlog was approximately $53.3 million at
the end of the prior thirteen-week period ended December 24, 1999, which
consisted of backlog from domestic and international customers of 93% and 7%,
respectively. The Company booked approximately $98.0 million of new sales orders
during the thirteen-week period ended March 24, 2000, resulting in a
book-to-bill ratio for the thirteen-weeks of 1.56. The bookings during the
quarter include a significant order from a domestic multiple system operator
(MSO) valued at approximately $33.0 million, for equipment to be delivered over
calendar year 2000. As a result of consolidation of ownership of domestic cable
systems, the Company's bookings and sales levels are dependent upon the timing
of orders from a limited number of large customer accounts. The Company believes
bookings from these customers can be influenced by a variety of factors,
including overall demand for cable services and the acceptance of new broadband
services, competitive pressures, cable operators' access to financing and cable
operators' annual budget cycles. Variations in the timing of bookings and sales
can cause significant fluctuations in thirteen-week operating results.
Gross profit percentage for the thirteen-week period ended March 24, 2000, was
25.1% versus 23.0% for the same period of the prior year. Gross profit
percentage for the thirty-nine-week period ended March 24, 2000, was 24.9%
versus 22.0% for the same period of the prior year. Changes in product and
services mix, efficiencies resulting from higher production volume and ongoing
efforts to improve manufacturing automation initiatives contributed to the
increase in the gross profit percentage.
Selling, general and administrative expenses for the thirteen-week period ended
March 24, 2000, were $6,214,000, a decrease of 16% over the prior year's total
of $7,366,000 for the same period. The decrease was due to reductions in various
selling and administrative costs, including lower personnel costs, resulting
from the consolidation of certain positions and administrative functions, as a
result of the mergers with Convergence.com and SVCI. Selling, general and
administrative expenses for the thirty-nine-week period ended March 24, 2000,
were $21,087,000, an increase of 1% over the prior year's total of $20,823,000
for the same period. The increase was due to various selling and administrative
costs, including personnel costs, associated with higher sales volumes and other
sales and marketing costs associated with support for new products. Selling,
general and administrative expenses increased in absolute dollars, for the
year-to-date period, but decreased as a percentage of total net sales.
Research and product development costs for the thirteen-week period ended March
24, 2000, were $4,323,000, an increase of 74% over the prior year's total of
$2,481,000 for the same period. Research and product development costs for the
thirty-nine-week period ended March 24, 2000, were $11,006,000, an increase of
30% over the prior year's total of $8,442,000 for the same period. The increased
expenditures resulted from higher personnel costs and additional expenses
primarily for development of fiber optic transmission products, including
transmitters, receivers and Erbium-Doped Fiber Amplifiers, for advanced HFC
networks. In addition, the Company continues to develop network management
products and capabilities. In March 2000, the Company announced it had entered
into an agreement with Time Warner Communications, to develop and pilot test
over incremental phases an Integrated Services Management System (ISMS). The
ISMS will integrate data collected by various back-office information systems,
to enable effective management of operations to specific performance levels. The
Company believes the increasing size, complexity, and traffic over cable
networks requires consistent, reliable network performance to meet customer
demands. As a result, the Company believes network operators will need to
increase their investment in network management services and software to address
the various types of equipment and unique characteristics of the different
information types that will be delivered over future HFC networks. The Company
anticipates 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), excluding merger related costs, for the Company's
Electronic Distribution Products and Broadband Management Services business
segments for the thirteen-week period ended March 24, 2000, were $6,462,000 and
($1,171,000), respectively. This compares to operating income of $2,022,000 and
$26,000, respectively, for the same period of the prior year. Operating income
(loss) for the Company's Electronic Distribution Products and Broadband
Management Services business segments for the thirty-nine-week period ended
March 24, 2000, were $21,277,000 and $(3,230,000), respectively. This compares
to operating income (loss) of $3,019,000 and $(2,590,000), respectively, for the
same period of the prior year. The increase in operating income from the
Company's Electronic Distribution Products segment was due to increased volume
and improved gross margins, as well as efficiencies resulting from post-merger
consolidation of business activities, with respect to its merger with SVCI. The
losses recorded for the thirteen-week and thirty-nine-week periods for the
Company's Broadband Management Services segment reflect the Company's strategic
investment for expansion of its Network Operating Center, increased expenditures
for network management development and ramp-up of the Company's technical
services activities and capabilities.
Interest expense for the thirteen-week period ended March 24, 2000, was $14,000
compared to $182,000, for the same period of the prior year. Interest expense
for the thirty-nine-week period ended March 24, 2000, was $775,000 compared to
$345,000, for the same period of the prior year. Interest expense decreased for
the thirteen-week period, compared to the same period of the prior year, due to
lower borrowings on the Company's short-term credit facilities. Interest expense
increased for the thirty-nine-week period, compared to the same period of the
prior year primarily due to $381,000 of amortization related to the fair market
value of warrants issued in fiscal year 1999 in connection with certain debt
financing arrangements.
Investment income for the thirteen-week period ended March 24, 2000, was
$1,884,000 compared to $64,000, for the same period of the prior year.
Investment income for the thirty-nine-week period ended March 24, 2000, was
$2,802,000 compared to $199,000, for the same period of the prior year. The
increase in investment income for the quarter and year-to-date periods resulted
from short-term investments of funds received in the Company's follow-on public
offering completed on November 12, 1999. (See Note 4).
Other income for the thirteen-week period ended March 24, 2000, was $73,000,
compared to $67,000 for the same period of the prior year. Other expense for the
thirty-nine-week period ended March 24, 2000 was $226,000, compared to other
expense of $142,000 for the same period of the prior year. The increase in other
expense for the thirty-nine-week period resulted primarily from adjustment of
the carrying value of property held-for-sale, and losses on disposal of
property, plant, and equipment incurred in the first quarter of fiscal year
2000.
For the thirteen-week period ended March 24, 2000, the Company recorded an
income tax benefit of $1,774,000, on pre-tax income of $2,861,000. The benefit
resulted from adjustment to the valuation allowance on deferred tax assets
related to certain tax benefits from the acquisitions of both Convergence.com
and SVCI, which the Company now believes, will be realized, and was offset by
permanent differences for non-deductible business combination costs incurred in
relation to the merger with Worldbridge. This compares to income tax expense of
$1,246,000, on pre-tax income of $1,997,000, for the same period of the prior
year. The higher effective income tax resulted from limited tax benefits related
to operating losses for both Convergence.com and SVCI. For the thirty-nine-week
period ended March 24, 2000, the Company recorded income tax expense of
$2,532,000, on pre-tax income of $11,802,000, compared to income tax expense of
$2,210,000, on pre-tax income of $141,000 for the same period of the prior year.
Income tax recorded for the year-to-date period ended March 24, 2000, was also
impacted by the adjustment to the valuation allowance on deferred tax assets
related to certain tax benefits from the acquisitions of Convergence.com and
SVCI, and was offset by permanent differences for non-deductible business
combination costs incurred in relation to the mergers with Convergence.com, SVCI
and Worldbridge, during fiscal year 2000.
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
on disposal of the discontinued business segment of $780,000, net of tax
expense, was recorded during the thirteen-week-period ended March 24, 2000. The
gain resulted primarily from settlement of certain litigation with a supplier. A
gain on disposal of the discontinued business segment of $822,000, net of tax,
has been recorded during the thirty-nine-week period ended March 24, 2000,
compared to $304,000, net of tax, for the same period of the prior year. The
gain in the prior year resulted primarily from settlement of certain warranty
liabilities and royalties resulting from licensing the digital fiber optic
technology.
Liquidity and Capital Resources
As of March 24, 2000, cash and cash equivalents totaled $ 75,547,000, up from
$5,805,000 at June 25, 1999. The increase in cash and cash equivalents resulted
from net proceeds received from the follow-on public offering of common stock
completed on November 12, 1999. Net cash and cash equivalents used in operating
activities were $1,492,000 for the thirty-nine-week period ended March 24, 2000.
This compares to cash and cash equivalents provided by operating activities of
$3,790,000, for the same period of the prior year. The increase in cash and cash
equivalents used in operating activities for the thirty-nine-week period ended
March 24, 2000 compared to the same period of the prior year, was primarily due
to business combination costs associated with the mergers of Convergence.com,
SVCI, and Worldbridge, and increased inventory purchases and accounts
receivables resulting from a higher level of production and sales volume during
the thirty-nine-week period.
Net cash and cash equivalents used in investing activities was $65,051,000 for
the thirty-nine-week period ended March 24, 2000, compared to $5,523,000 for the
same period of the prior year. The increase in cash and cash equivalents used in
investing activities was primarily due to purchases of marketable securities and
other short-term investments, as well as increased purchases of property, plant
and equipment to expand and automate the Company's manufacturing operations. On
January 19, 2000, a wholly owned subsidiary of the Company purchased
substantially all the assets of ACSI, a provider of advanced network engineering
services, for $3,610,000, of which $3,246,000 was disbursed during the quarter,
with the remaining balance subject to certain escrow requirements. On January
11, 2000, the Company increased its investment in Fortress Technologies, Inc.
("Fortress Technologies"), a security networking company, from $501,000 to
$3,501,000. The investment in Fortress Technologies represents approximately a 5
percent ownership interest. In connection with the investment, the Company and
Fortress Technologies 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 Technologies is
being carried at cost, as the Company's 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".
Net cash and cash equivalents provided by financing activities totaled
$136,285,000 for the thirty-nine-week period ended March 24, 2000. This compares
to net cash and cash equivalents provided by financing activities of $2,977,000
for the same period of the prior year. The increase in cash provided by
financing activities resulted primarily from net proceeds received through a
follow-on public offering of the Company's common stock. The Company's other
financing activities consisted primarily of borrowings and payments on
short-term and long-term debt, proceeds and tax benefits from the exercise of
employee stock options, and proceeds from the exercise of warrants.
The Company has a credit agreement with three banks under which it may borrow up
to $70,000,000. Under the credit agreement, $20,000,000 is available as a
revolving line-of-credit, subject to an aggregate sub-limit of $2,000,000 for
issuance of letters of credit, which is committed through November 30, 2000. The
credit agreement also permits the Company to borrow up to $50,000,000, for
strategic acquisitions and/or investments, which is also committed through
November 30, 2000. Credit pricing on these facilities is a function of the
Company's total funded indebtedness to earnings before interest, taxes,
depreciation and amortization (EBITDA) ratio. Borrowings under the credit
agreement bear interest at various rates, at the Company's option. Borrowings on
these facilities are unsecured, subject to a negative pledge on all business
assets, and the Company is required to maintain certain financial ratios and
indebtedness tests. As of March 24, 2000, the Company had no borrowings
outstanding under the credit agreement.
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 additional growth or strategic development might
dictate.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
(Not Applicable)
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
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.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(27) Financial Data Schedule
Reports on Form 8-K
On January 18, 2000, the Registrant, filed a Form 8-K dated January 12, 2000,
which included a press release reporting it had invested $3,500,000 in Fortress
Technologies, Inc., a security networking company.
On January 20, 2000, the Registrant, filed a Form 8-K dated January 20, 2000,
which included a press release reporting it had entered into a definitive
agreement with Advanced Communications Services, Inc. (ACSI) under which a
wholly owned subsidiary of the Registrant will acquire substantially all of the
assets of ACSI.
On January 20, 2000, the Registrant, filed a Form 8-K dated January 20, 2000,
which included a press release reporting it had entered into an Agreement and
Plan of Merger providing, upon the satisfaction of certain conditions contained
therein, for the merger of C-COR.net Services Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of the Registrant, with and into
Worldbridge Broadband Services, Inc., a Delaware corporation ("Worldbridge"),
with Worldbridge being the surviving entity and becoming a wholly owned
subsidiary of the Registrant.
On February 24, 2000, the Registrant, filed a Form 8-K dated February 18, 2000,
which included a press release reporting the consummation of the merger with
Worldbridge Broadband Services, Inc.
On March 3, 2000, the Registrant, filed a Form 8-K dated February 18, 2000, to
report the consummation of the merger with Worldbridge Broadband Services, Inc.
On March 16, 2000, the Registrant, filed a Form 8-K/A to amend the Current
Report filed on March 3, 2000, to provide the historical financial statements of
Worldbridge Broadband Services, Inc., and to provide supplemental consolidated
financial statements giving effect to the merger.
<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.net Corp.
(Registrant)
Date: May 8, 2000 /s/ William T. Hanelly
----------------------------------
Vice President-Finance,
Secretary & Treasurer
(Principal Financial Officer)
Date: May 8, 2000 /s/ Joseph E. Zavacky
----------------------------------
Controller & Assistant
Secretary
(Principal Accounting Officer)
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