SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
Amendment No. 2
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 25, 1999
-------------
( ) 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
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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
incorporation or organization) Identification No.)
60 Decibel Road
State College, Pennsylvania 16801
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (814) 238-2461
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
Series A Junior Participating Preferred Stock Purchase Rights
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ( )
As of March 2, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $1,392,938,015.
As of March 2, 2000, the Registrant had 30,975,689 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
1) 1999 Annual Report to Shareholders (Parts I, II and IV)
2) Proxy Statement dated September 21, 1999 (Part III)
<PAGE>
On July 9, 1999, C-COR.net Corp. acquired Convergence.com Corporation
("Convergence") pursuant to an Agreement and Plan of Merger whereby Convergence
became a wholly owned subsidiary of C-COR.net Corp. On September 17, 1999,
C-COR.net Corp. acquired Silicon Valley Communications, Inc. ("Silicon Valley
Communications" or "SVCI") pursuant to an Agreement and Plan of Merger whereby
SVCI became a wholly owned subsidiary of C-COR.net Corp. The acquisitions of
Convergence and SVCI were accounted for using the pooling-of-interests method of
accounting.
On December 7, 1999, C-COR.net Corp.'s Board of Directors declared a two-for-one
stock split of C-COR.net Corp'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 was reduced from $.10 to $.05 and the
authorized number of shares was proportionately increased from 50,000,000 to
100,000,000.
The purpose of this Amendment No. 2 on Form 10-K/A, is to amend the Annual
Report on Form 10-K dated June 25, 1999, and filed on September 23, 1999, (as
amended by Amendment No. 1 on Form 10K/A, dated June 25, 1999, and filed on
September 24, 1999), in order to file the restated financial statements of
C-Cor.net Corp. reflecting the pooling-of-interests combinations with
Convergence and Silicon Valley Communications, and the stock split in Part II -
Item 8 - Financial Statements and Supplementary Data and to amend Part II - Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations, Part II - Item 6 - Selected Financial Data and Item 14. Exhibits,
Financial Statements and Reports on Form 8-K to reflect such restated financial
statements, and to include certain additional schedules and exhibits.
<PAGE>
Part II
Item 6. Selected Financial Data
The selected data presented below under the captions "Statement of Operations
Data" and "Balance Sheet Data" as of June 27, 1997, June 26, 1998 and June 25,
1999 and for each of the years in the three-year period ended June 25, 1999 are
derived from restated consolidated financial statements, which give retroactive
effect to the mergers with Convergence.com Corporation on July 9, 1999 and
Silicon Valley Communications, Inc. on September 17, 1999, which have been
accounted for using the pooling-of-interests method of accounting. Such restated
consolidated financial statements have been audited. The information presented
for, and as of the end of, each of the fiscal years in the two-year period ended
June 28, 1996, are derived from the historical consolidated financial statements
of C-COR.net Corp., and have not been restated for the mergers. Such historical
financial statements, which have been audited, do not appear separately herein.
<TABLE>
<CAPTION>
Historical Restated
------------------------ -----------------------------------
June 30, June 28, June 27, June 26, June 25,
1995 1996 1997 1998 1999
---------- ---------- ----------- --------- -----------
(In thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales $ 121,269 $ 139,539 $ 133,780 $ 154,041 $ 183,425
Cost and expenses:
Cost of sales 88,373 104,852 106,485 121,986 138,793
Selling and administrative 15,949 15,917 18,521 19,724 27,153
Research and product development 3,786 4,857 7,706 9,988 11,833
Provision for restructuring costs - - - 625 -
Interest 706 960 380 399 1,384
Other expense (income), net (264) (341) (861) 19 110
---------- ---------- ----------- --------- ----------
108,550 126,245 132,231 152,741 179,273
---------- ---------- ----------- --------- ----------
Income from continuing operations before
income taxes 12,719 13,294 1,549 1,300 4,152
Income tax expense (benefit):
Current 4,977 3,875 1,299 3,565 7,133
Deferred (786) 405 (648) (3,183) (2,298)
---------- ---------- ----------- --------- ----------
4,191 4,280 651 382 4,835
---------- ---------- ----------- --------- ----------
Income (loss) from continuing operations 8,528 9,014 898 918 (683)
Discontinued operations:
Loss from operations of discontinued
business segment, net of tax (213) (3,095) (6,605) - -
Gain (loss) on disposal of discontinued
business segment, net of tax - - (3,830) 928 397
---------- ---------- ----------- --------- ----------
Net income (loss) $ 8,315 $ 5,919 $ (9,537) $ 1,846 $ (286)
========== ========== =========== ========= ==========
Net income (loss) per share - basic:
Continuing operations $ 0.46 $ 0.47 $ 0.04 $ 0.04 $ (0.06)
Discontinued operations:
Loss from operations (0.01) (0.16) (0.30) 0.00 0.00
Gain (loss) on disposal 0.00 0.00 (0.17) 0.04 0.02
---------- ---------- ----------- --------- ----------
Net income (loss) $ 0.45 $ 0.31 $ (0.43) $ 0.08 $ (0.04)
========== ========== =========== ========= ==========
Net income (loss) per share - diluted:
Continuing operations $ 0.43 $ 0.46 $ 0.04 $ 0.04 $ (0.06)
Discontinued operations:
Loss from operations (0.01) (0.16) (0.27) 0.00 0.00
Gain (loss) on disposal 0.00 0.00 (0.15) 0.04 0.02
========== ========== =========== ========= ==========
Net income (loss) $ 0.42 $ 0.30 $ (0.38) $ 0.08 $ (0.04)
Weighted average common shares and
common share equivalents:
Basic 18,664 19,109 22,144 21,459 21,451
Diluted 19,719 19,737 24,804 24,679 21,451
<CAPTION>
Historical Restated
---------------------- -----------------------------------
June 30, June 28, June 27, June 26, June 25,
Balance Sheet Data: 1995 1996 1997 1998 1999
---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
marketable securities $ 1,938 $ 1,838 $ 9,160 $ 3,386 $ 5,140
Working capital 24,442 35,452 33,247 27,584 32,246
Total assets 85,868 77,278 84,566 84,074 102,949
Total long-term obligations, including
current maturities 2,172 8,030 8,439 9,273 7,933
Shareholders' equity 44,725 53,317 53,266 55,880 56,521
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Some of the information presented in this report contains forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, among
others, statements regarding the Corporation's ability to provide complete
network solutions, the demand for network integrity, the trend toward more fiber
in the network, global demand for the Corporation's products and services,
statements relating to the Corporation's business strategy and the Corporation's
ability to integrate Convergence.com Corporation ("Convergence" or
"Convergence.com"), Silicon Valley Communications, Inc. ("SVCI" or "Silicon
Valley Communications") and Worldbridge Broadband Services, Inc.
("Worldbridge"). Forward-looking statements represent the Corporation's
judgement regarding future events. Although the Corporation believes it has a
reasonable basis for these forward-looking statements, the Corporation cannot
guarantee their accuracy and actual results may differ materially from those the
Corporation anticipated due to a number of uncertainties, many of which we are
not aware. Factors which could cause actual results to differ from expectations
include, among others, capital spending patterns of the communications industry,
the Corporation's ability to develop new and enhanced products, if the AT&T
field trials with the Corporation's fiber optic products are not successful,
continued industry consolidation, the development of competing technology, the
Corporation's ability to achieve its strategic objectives and the Corporation's
ability to assimilate Convergence, SVCI and Worldbridge. For additional
information concerning these and other important factors which may cause the
Corporation's actual results to differ materially from expectations and
underlying assumptions, please refer to the reports filed by the Corporation
with the Securities and Exchange Commission.
Overview
The Company designs, manufactures and markets cable network transmission
products and provides services and support to information service providers. The
Company's principal customers are cable operators who operate hybrid fiber coax
networks, commonly referred to as HFC networks, for delivering video, voice and
data services. Almost all of the Company's sales have been derived from the sale
of radio frequency amplifiers, commonly referred to as RF amplifiers, fiber
optic nodes and technical services to cable operators that are upgrading or
rebuilding their networks. With the acquisition of SVCI in September 1999, the
Company broadened its product line to include end-to-end fiber optic and RF
transmission equipment for cable operators continuing to upgrade their networks.
With the acquisition of Convergence.com in July 1999, the Company broadened its
service offering to include an integrated package of network management and
support services. The Company believes its acquisition of Worldbridge in
February 2000 will enable the Company to expand its customer and geographic base
for providing engineering and technical services to cable operators in several
locations in the United States, and will fulfill a key element of the Company's
business strategy to offer total network solutions to its customers, and
thereby improve its competitive position.
Subsequent Events
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 proportionately
increased from 50,000,000 to 100,000,000. All share and per share amounts have
been adjusted for the two-for-one stock split effective December 22, 1999, for
all periods presented.
Business Combinations:
On July 9, 1999, The Company consummated a merger with Convergence.com, a
Georgia corporation, whereby Convergence.com became the Company's wholly owned
subsidiary. The merger is intended to enable the Company to offer an integrated
package of network management and support services and products. The expertise
of Convergence.com in enabling high-speed digital data transmission and Internet
delivery over HFC networks by providing network design, activation and support
services will augment the Company's existing technical service capabilities. In
the merger, each outstanding share of common stock of Convergence.com was
converted into one share (two shares post stock split) of the Company's common
stock, resulting in the issuance of 2,866,646 shares (post stock split) of the
Company's common stock. Each outstanding warrant to acquire Convergence.com
common stock was converted into warrants to acquire the Company's common stock
for an aggregate of warrants to acquire 733,860 shares (post stock split) 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 SVCI, a California
corporation, whereby SVCI became the Company's wholly owned subsidiary. This
acquisition is expected to enable the Company to broaden and strengthen its
network transmission product offering by adding advanced fiber optic products to
the Company's existing RF and fiber optic products. In particular, the Company's
product offering will be strengthened with respect to headend fiber optic
equipment. As consideration in the merger, each outstanding share of common
stock of SVCI was converted into 0.094534 shares (.189068 shares post stock
split) of the Company's common stock, resulting in the issuance of 3,090,162
shares (post stock split) 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 767,688 shares (post stock split) 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 $3.7 million, ($3.1 million, net of
tax), related to the business combinations with Convergence.com and SVCI in the
Company's thirteen-week period ended September 24, 1999. The one-time charge
includes the 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.
On February 18, 2000, the Company consummated a merger with 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 accompanying
restated consolidated financial statements do not reflect the acquisition of
Worldbridge which was accounted for under the pooling-of-interests method, and
as such, has been excluded from further discussion in the remainder of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Shareholder Approval:
On October 19, 1999, the shareholders of the Company approved a proposal to
amend the Amended and Restated Articles of Incorporation to increase the number
of shares of common stock authorized from 24,000,000 to 50,000,000.
Public Offering:
On November 12, 1999, the Company completed a follow-on public offering of its
common stock, whereby 3,220,000 shares (6,440,000 shares on a post stock split
basis) of common stock were issued and sold at a price of $44.00 per share
($22.00 per share on a post stock split basis). This offering resulted in net
proceeds (after deducting issuance costs) to the Company of $133,370. 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.
Pooling-of-Interests Accounting
Both of the Company's recent acquisitions (Convergence and SVCI) were accounted
for using the pooling-of-interests method. This method 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 as if the
Convergence and SVCI mergers had occurred on June 28, 1996 although they are not
necessarily indicative of the results that would have occurred if the three
companies had actually been one entity during fiscal 1997, 1998 and 1999. The
acquisition of Worldbridge was also accounted for using the pooling-of-interests
method, however, the Company's restated financial statements in this report do
not reflect the acquisition of Worldbridge.
On an historical, separate company basis, the Company's income from continuing
operations grew from $4.3 million in fiscal 1997 to $7.3 million in fiscal 1998
and to $10.5 million in fiscal 1999. However, during this period both
Convergence.com and SVCI were investing in technology and capability development
and incurred net losses. Thus, on a combined basis the Company's financial
statements reflect significantly reduced income from continuing operations in
fiscal 1997 and fiscal 1998 and a net loss from continuing operations in fiscal
1999. In addition to the investment in technology and capability development
that occurred during this period, these results reflect operating expenses for
three separate companies that were higher than those that likely would have been
incurred if the three companies were actually one entity during this period. For
example, sales and administrative staffs could have been reduced to avoid
duplicative efforts.
Results of Discontinued Operations
On July 10, 1997, the Company announced the discontinuation of its Digital Fiber
Optics Transmission Products segment located in Fremont, California through a
nine-month wind-down process. Anticipated wind-down costs were recorded as a
loss on disposal of the discontinued segment in the results of discontinued
operations for fiscal 1997. The Company completed the wind-down of this
operation in March 1998. A gain on disposal of the discontinued business segment
of $397,000, net of tax expense, was recorded in fiscal 1999. This compared to a
gain on disposal of the discontinued business segment for fiscal 1998 of
$928,000, which included a net tax benefit. The gains in fiscal 1999 and 1998
represented adjustments of the estimated loss on the disposal of the business
segment of $3.8 million, net of tax recorded in fiscal 1997. The gain in fiscal
1999 resulted primarily from settlement of certain warranty claims. In fiscal
1998, the gain was derived primarily from higher than anticipated proceeds
associated with the disposal of assets, primarily inventory, and lower than
anticipated operating costs from the measurement date to the disposal date.
The after-tax loss from operations of the discontinued business segment was $6.6
million for fiscal 1997, which was primarily attributable to increased warranty
costs of $3.3 million and an impairment loss on goodwill of $571,000.
Results of Operations
The Company's restated consolidated statements of operations for continuing
operations for the fiscal years ended June 27, 1997, June 26, 1998 and June 25,
1999 as a percentage of net sales, on a restated basis, are as follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------
June 27, June 26, June 25,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 79.6 79.2 75.7
----- ----- -----
Gross margin 20.4 20.8 24.3
Operating expenses:
Selling and administrative 13.8 12.8 14.8
Research and product development 5.8 6.5 6.5
Provision for restructuring costs -- 0.4 --
----- ----- -----
Total operating expenses 19.6 19.7 21.3
Income from continuing operations 0.8 1.1 3.0
Interest and other expense (income), net (0.4) 0.3 0.8
----- ----- -----
Income before income taxes 1.2 0.8 2.2
Provision for income taxes 0.5 0.2 2.6
----- ----- -----
Net income (loss) from continuing operations 0.7% 0.6% (0.4)%
===== ===== =====
</TABLE>
The effect of the acquisitions on restated historical results is a slight
reduction in gross margins and significant reductions in operating and net
after-tax margins. Operating expenses as a percentage of sales increase by four
to six percentage points when the historical financial results of the three
companies are combined. This increase reflects the cost of the separate
corporate offices and sales organizations of the three companies, as well as the
investment in research and product development at SVCI.
Restated Fiscal Years Ended June 25, 1999, June 26, 1998 and June 27, 1997
Net sales increased 19.1% to $183.4 million in fiscal 1999 from $154.0 million
in fiscal 1998. The increase in sales was 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. Net sales increased 15.1% to $154.0
million in fiscal 1998 from $133.8 million in fiscal 1997. The increase in sales
was a result of increased demand for HFC equipment, as well as technical
services to both domestic and international customers, primarily to cable
operators.
Domestic sales increased by 35.0% to $163.9 million in fiscal 1999 from $121.4
million in fiscal 1998. Domestic sales increased 12.7% to $121.4 million in
fiscal 1998 from $107.7 million in fiscal 1997. Domestic sales of HFC network
transmission equipment and related services increased in fiscal 1999 and fiscal
1998 as a result of domestic cable operators continuing to upgrade and rebuild
their systems. Total domestic sales were 89.4% of consolidated net sales in
fiscal 1999, 78.8% in fiscal 1998 and 80.5% in fiscal 1997.
Convergence.com contributed $6.6 million to domestic sales in fiscal 1999, $1.1
million in fiscal 1998 and $889,000 in fiscal 1997. The growth in sales
reflected cable operators' increasing demand for network management products and
services. SVCI contributed $5.2 million to domestic sales in fiscal 1999,
$12,000 in fiscal 1998 and $49,000 in fiscal 1997. The increase in domestic
sales was based on the introduction of a new product line of fiber optic
equipment designed for cable networks.
International sales decreased 40.4% to $19.5 million in fiscal 1999 from $32.7
million in fiscal 1998. The decrease primarily reflected weaker sales in all
international markets, with the exception of Asia. International sales increased
25.3% to $32.7 million in fiscal 1998 from $26.1 million in fiscal 1997,
resulting primarily from increased sales to Canada, Europe and Latin America.
The Company expects international markets will represent a substantial portion
of its sales base, but the Company believes demand will continue to be highly
variable. The Company's total international sales were 10.6% of consolidated net
sales in fiscal 1999, 21.2% in fiscal 1998 and 19.5% in fiscal 1997.
Convergence.com contributed $17,000 to international sales in fiscal 1999,
$154,000 in fiscal 1998 and $215,000 in fiscal 1997. Silicon Valley
Communications contributed $350,000 to international sales in fiscal 1999,
$609,000 in fiscal 1998 and $686,000 in fiscal 1997. The decrease in
international sales primarily reflected the phasing out of a transmission
equipment product line that had been designed principally for the Asian market.
Gross margin was 24.3% in fiscal 1999, 20.8% in fiscal 1998 and 20.4% in fiscal
1997. Reductions in material costs, changes in customer and product mix, lower
manufacturing costs resulting from the Company's operation in Mexico and
efficiencies resulting from higher production volume and manufacturing
automation initiatives contributed to the increase in the gross margin in fiscal
1999 compared to fiscal 1998. The gross margin increase in fiscal 1998 compared
to fiscal 1997 was primarily attributable to material cost reductions, changes
in customer and product mix, and efficiencies resulting from higher production
volumes.
SVCI's gross margin was 12.6% in fiscal 1999. In fiscal 1998, SVCI incurred cost
of sales of $3.3 million on sales of $621,000. This large cost of sales was
primarily attributable to an inventory write-off due to obsolescence.
Convergence.com's gross margin was 26.9% in fiscal 1999, 10.8% in fiscal 1998
and 35.9% in fiscal 1997.
Selling and administrative expenses were $27.2 million (14.8% of net sales) in
fiscal 1999, $19.7 million (12.8% of net sales) in fiscal 1998 and $18.5 million
(13.8% of net sales) in fiscal 1997. The increase in selling and administrative
expenses in fiscal 1999 was due primarily to various selling and administrative
costs to support higher sales volumes, including personnel costs associated with
expansion of the Company's offering of technical services. In addition, SVCI
expanded its domestic sales force in conjunction with introducing a new product
line of fiber optic equipment designed for use in cable networks. Silicon Valley
Communications also added to its administrative and management headcount to
handle growing sales volume. Convergence.com increased selling and
administrative expenses in fiscal 1999 as its sales volume grew. The increase in
selling and administrative expenses for fiscal 1998 was due to an expected rise
in demand for SVCI's and Convergence.com's products and services. The increase
in expenses at SVCI and Convergence.com was partially offset by a decrease of
expenditures at preacquisition C-COR.net resulting from reconfiguration of its
worldwide sales territories and the consolidation of its sales organization
implemented in the fourth quarter of fiscal 1997. The Company anticipates
increased selling and administrative expenses in fiscal 2000, although these
expenses may vary as a percentage of net sales.
SVCI incurred selling and administrative expenses of $6.3 million in fiscal 1999
and $3.0 million in fiscal 1998. Convergence.com incurred selling and
administrative expenses of $4.3 million in fiscal 1999, $1.7 million in fiscal
1998 and $838,000 in fiscal 1997.
Research and product development expenses were $11.8 million (6.5% of net sales)
in fiscal 1999, $10.0 million (6.5% of net sales) in fiscal 1998 and $7.7
million (5.8% of net sales) in fiscal 1997. The increase in research and product
development expenses in fiscal 1999 was primarily due to the Company's continued
investment in new products and technologies. The increased expenditures resulted
from higher personnel costs and additional expenses primarily for development of
fiber optic and network management products, including continued development of
the Company's CNM System 2 software. The Company anticipates increased research
and product development expenditures in fiscal 2000 related to ongoing
initiatives, although these expenses may vary as a percentage of net sales.
SVCI incurred research and product development expenses of $2.8 million in
fiscal 1999 and $2.5 million in fiscal 1998. Convergence.com did not classify
any costs as research and product development during these fiscal years.
In fiscal 1998, the Company recorded a restructuring charge of $625,000 related
to its decision on June 25, 1998, to close its manufacturing plant located in
Reedsville, Pennsylvania in order to reduce costs and improve productivity and
asset utilization. The restructuring charge represented salaries and benefits
for approximately 143 employees affected by the plant closing.
Interest expense was $1.4 million in fiscal 1999, $399,000 in fiscal 1998 and
$380,000 in fiscal 1997. The increase in interest expense in fiscal 1999
resulted from increased borrowing at Silicon Valley Communications and the
amortization of the fair market value of warrants issued by SVCI in conjunction
with obtaining financing. This amortization resulted in $911,000 in interest
expense in fiscal 1999.
Other expense was $110,000 in fiscal 1999 and $19,000 in fiscal 1998 and other
income was $861,000 in fiscal 1997. The increased expense in fiscal 1999
resulted from a reduction in investment income for SVCI partially offset by
greater investment income and lower foreign currency transaction losses for
historical C-COR.net. The increased expense in fiscal 1998 resulted from costs
accrued in relation to the settlement of certain litigation and foreign exchange
losses resulting primarily from the weakened Canadian dollar as well as
reduction in investment income for Silicon Valley Communications.
The Company's effective income tax rate was 116.5% in fiscal 1999, 29.4% in
fiscal 1998 and 42.0% in fiscal 1997. The higher effective tax rate for fiscal
1999 resulted from a limited tax benefit from the operating losses at SVCI and
Convergence.com, and reduced tax benefits from the Company's Foreign Sales
Corporation and higher state income taxes. The lower effective tax rate for
fiscal 1998 resulted from tax benefits of approximately $3.1 million resulting
from the operating losses at Silicon Valley Communications and Convergence.com.
In addition, fluctuations in the effective income tax rate from period to period
reflect changes in permanent non-deductible amounts, the relative profitability
related to both domestic and international operations and differences in
statutory rates. For fiscal years after fiscal 1999, the Company expects to have
an effective annual tax rate that approximates statutory rates.
Liquidity and Capital Resources
As of June 25, 1999, cash and cash equivalents totaled $4.7 million up from $3.0
million at June 26, 1998. Net cash and cash equivalents provided by operating
activities were $4.5 million in fiscal 1999, $7.1 million in fiscal 1998 and
$4.7 million in fiscal 1997. The decrease in cash provided by operating
activities from fiscal 1998 to fiscal 1999 was primarily due to the losses
generated by Convergence.com and SVCI. The improvement in cash provided by
operating activities from fiscal 1997 to fiscal 1998 was primarily due to
operations discontinued in 1997.
Net cash used in investing activities was $6.1 million in fiscal 1999, $11.5
million in fiscal 1998 and $8.2 million in fiscal 1997. The increased cash used
in investing activities in fiscal 1998 was due primarily to higher purchases and
replacements of property, plant and equipment to expand and automate
manufacturing operations, including the start-up of the Company's manufacturing
operation in Tijuana, Mexico, as well as a loan to an affiliate by Silicon
Valley Communications. The decrease in cash used in investing activities in
fiscal 1999 was due primarily to the repayment of the loan.
Net cash generated from financing activities totaled $3.3 million in fiscal
1999, compared to net cash used of $1.4 million in fiscal 1998 and net cash
generated of $10.6 million in fiscal 1997. The increase in net cash generated
from financing activities from fiscal 1998 to fiscal 1999 was primarily due to
proceeds from loans received by SVCI. The decrease in net cash generated from
fiscal 1997 to fiscal 1998 was primarily due to the issuance of preferred stock
by SVCI in fiscal 1997. This amount was offset by the Company's repurchase of
1,000,000 shares (post stock split) of its common stock for $5.8 million in
fiscal 1997 under a stock repurchase program adopted in December 1996.
During fiscal 1998 and 1999 the Company had a line of credit which was committed
through December 31, 1999. On August 9, 1999, the Company entered into a new
credit agreement established with three banks under which the Company may borrow
up to $70.0 million for working capital, strategic acquisitions and investments.
Borrowing on this facility is unsecured, subject to a negative pledge on all
business assets, and the Company is required to maintain certain financial
ratios and meet certain indebtedness tests.
The Company anticipates that significant future uses of cash will include
increased working capital due to sales growth, capital expenditures, additional
investment in the infrastructure and technology required for network management
services and investment required to expand the Company's international business.
The Company believes that the proceeds from its secondary offering, operating
cash flow, and its $70.0 million line of credit agreement, will be adequate to
provide for all operating cash requirements for the next 12 to 24 months,
subject to requirements that additional growth or strategic development might
dictate.
Year 2000 Disclosure
With the changeover to the year 2000, the Company did not experience any
disruption to its operations, as a result of the issues associated with the
limitations of the programming code in many existing computer systems, whereby
the computer systems may not properly recognize or process date-sensitive
information. The Company's date-sensitive systems include 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. There can
be no assurance that there will not be future complications arising from Year
2000 issues.
The Company's program for addressing Year 2000 concerns included an assessment
and evaluation of internal systems, which resulted in testing and remediation
efforts for Year 2000 compliance. In addition, the Company evaluated its
customers, vendors and service providers to determine the extent to which the
Company was vulnerable to any failure by these third-party providers and to
ascertain their readiness for the Year 2000.
The total estimated cost of assessing Year 2000 issues is difficult to determine
with accuracy, but its total costs did not exceed $500,000 and did not have a
material adverse impact on its operating results or financial condition.
Although the Company believes that it has successfully addressed any significant
disruption from Year 2000, it will continue to monitor all critical systems for
the appearance of delayed complications or disruptions, as well as continue to
monitor its suppliers and customers.
Recent Accounting Changes
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" or Statement 130, which was effective
for fiscal years beginning after December 15, 1997. This Statement establishes
standards for reporting and classifying components of comprehensive income in
the financial statements and requires that the accumulated balance of other
comprehensive income be displayed separately from retained earnings and
additional paid-in-capital in the equity section of the financial statements. In
addition, the Company also adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
or Statement 131, which was effective for fiscal years beginning after December
15, 1997. This Statement establishes standards for providing disclosures related
to products and services, geographic area and major customers. Implementation of
these Statements did not have a material effect on the Company's restated
consolidated financial statements.
In 1998, the Financial Accounting Standards Board, or FASB, issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" or Statement 133, which was effective for fiscal years
beginning after June 15, 1999. In July 1999, the FASB announced it was delaying
the effective date of Statement 133 for one year to fiscal years beginning after
June 15, 2000. This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. The Company anticipates adopting
this Statement in its fiscal 2001 consolidated financial statements as required.
Implementation of this Statement is not expected to have a material effect on
the Company's consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Item 8. Financial Statements and Supplementary Data
C-COR.net Corp.
Restated Consolidated Balance Sheets
(In thousands, except share data)
June 25, June 26,
1999 1998
--------------- -------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $4,695 $3,030
Marketable securities 445 356
Accounts and notes receivables, less allowance of $1,007 on
June 25, 1999 and $923 on June 26, 1998 31,314 19,823
Inventories 23,565 17,809
Deferred taxes 6,335 2,797
Other current assets 3,457 2,575
Net current assets of discontinued operations 433 -
--------------- -------------
Total current assets 70,244 46,390
Property, plant, and equipment, net 27,792 29,853
Intangible assets, net of accumulated amortization of $172 on
June 25, 1999 and $-0- on June 26, 1998 1,131 1,295
Other long-term assets 3,782 6,536
--------------- -------------
Total assets $ 102,949 $ 84,074
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $16,286 $6,532
Accrued liabilities 16,242 10,831
Line-of-credit and short-term credit obligations 4,638 -
Current portion of long-term debt 832 926
Net current liabilities of discontinued operations - 517
--------------- -------------
Total current liabilities 37,998 18,806
Long-term debt, less current portion 3,708 5,567
Other long-term liabilities 1,329 1,041
Commitments and contingent liabilities
--------------- -------------
Total liabilities 43,035 25,414
--------------- -------------
Series A redeemable convertible preferred stock, no par 3,393 2,780
Shareholders' equity
Preferred stock, no par; authorized 2,000,000 shares; issued, none - -
Convertible preferred stock, no par 19,954 18,660
Common stock, $.05 par; authorized shares 48,000,000 at
June 25, 1999 and June 26, 1998; issued shares of
22,869,994 on June 25, 1999 and 22,609,356 on June 26, 1998 1,144 1,130
Additional paid-in capital 22,217 20,904
Accumulated other comprehensive loss (96) (99)
Unearned compensation - -
Retained earnings 20,282 21,181
Treasury stock at cost, 1,293,446 on June 25, 1999 and
1,112,684 on June 26, 1998 (6,980) (5,896)
--------------- -------------
Total shareholders' equity 56,521 55,880
--------------- -------------
Total liabilities and shareholders' equity $ 102,949 $ 84,074
=============== =============
</TABLE>
See notes to restated consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
C-COR.net Corp.
Restated Consolidated Statements of Operations
(In thousands, except per share data)
Years Ended
-----------------------------------------
June 25, June 26, June 27,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 183,425 $ 154,041 $ 133,780
Cost and expenses:
Cost of sales 138,793 121,986 106,485
Selling and administrative 27,153 19,724 18,521
Research and product development 11,833 9,988 7,706
Merger-related costs - - -
Provision for restructuring costs - 625 -
Interest 1,384 399 380
Other expense (income), net 110 19 (861)
------------- ------------- -------------
179,273 152,741 132,231
------------- ------------- -------------
Income from continuing operations
before income taxes 4,152 1,300 1,549
Income tax expense 4,835 382 651
------------- ------------- -------------
Income (loss) from continuing operations (683) 918 898
------------- ------------- -------------
Discontinued operations:
Loss from operations of discontinued
business segment, net of tax - - (6,605)
Gain (loss) on disposal of discontinued
business segment, net of tax 397 928 (3,830)
------------- ------------- -------------
Net income (loss) (286) 1,846 (9,537)
Dividend requirements on preferred stocks (613) (122) (48)
--------------- ------------- -------------
Net income (loss) available to common shareholders $ (899) $ 1,724 $ (9,585)
=============== ============= =============
Net income (loss) per share - basic:
Continuing operations $ (0.06) $ 0.04 $ 0.04
Discontinued operations:
Loss from operations - - (0.30)
Gain (loss) on disposal 0.02 0.04 (0.17)
------------- ------------- -------------
Net income (loss) $ (0.04) $ 0.08 $ (0.43)
------------- ------------- -------------
Net income (loss) per share - diluted:
Continuing operations $ (0.06) $ 0.04 $ 0.04
Discontinued operations:
Loss from operations - - (0.27)
Gain (loss) on disposal 0.02 0.04 (0.15)
------------- ------------- -------------
Net income (loss) $ (0.04) $ 0.08 $ (0.38)
------------- ------------- -------------
Weighted average common shares and
common share equivalents
Basic 21,451 21,459 22,144
Diluted 21,451 24,679 24,804
</TABLE>
See notes to restated consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
C-COR.net Corp
Restated Consolidated Statements of Cash Flows
(In thousands)
Years Ended
----------------------------
June 25, June 26, June 27,
1999 1998 1997
-------- -------- --------
Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ (286) $ 1,846 $(9,537)
Adjustments to reconcile net income (loss) to
net cash and cash equivalents provided by
operating activities:
Depreciation and amortization 8,860 6,967 5,433
Amortization of debt discount 911 -- --
(Gain) loss on disposal of discontinued
operations, net of tax (397) (928) 3,830
Provision for deferred retirement salary plan 204 292 252
Loss (gain) on sale of property, plant, and
equipment 229 (14) 22
Changes in operating assets and liabilities:
Accounts receivable (11,491) (50) 1,127
Inventories (5,756) 2,748 (1,454)
Other assets (165) (2,793) (221)
Accounts payable 9,754 (2,574) 3,005
Accrued liabilities 5,493 3,801 (113)
Deferred income taxes (2,298) (3,189) (929)
Discontinued operations--working capital
changes and noncash charges (553) 1,051 3,236
-------- -------- -------
Net cash and cash equivalents provided by
operating activities 4,505 7,157 4,651
-------- -------- -------
Investing Activities:
Purchase of property, plant, and equipment (8,159) (10,053) (7,244)
Purchase of marketable securities (84) -- (200)
Proceeds from sale of marketable securities -- 15 258
Issuance of (payments on) notes receivable, net 1,972 (2,011) 7
Change in other assets 94 (146) (317)
Proceeds from sale of property, plant, and
equipment 28 14 15
Proceeds from (investing activities of)
discontinued operations -- 656 (698)
-------- -------- -------
Net cash and cash equivalents used in investing
activities (6,149) (11,525) (8,179)
-------- -------- -------
Financing Activities:
Payment of debt and capital lease obligations (5,050) (966) (941)
Proceeds from long-term debt borrowing 3,097 -- --
Proceeds from (payments on) short-term credit
facilities, net 5,019 (3,466) 1,127
Proceeds (adjustment) from issuance of
convertible preferred stock (45) 2,780 15,781
Tax benefit deriving from exercise and sale of
stock option shares 94 57 71
Issue common stock to employee stock purchase
plan 76 51 88
Proceeds from exercise of stock options 1,202 277 207
Purchase of treasury stock (1,084) (131) (5,765)
-------- -------- -------
Net cash and cash equivalents provided by (used
in) financing activities 3,309 (1,398) 10,568
-------- -------- -------
Increase (decrease) in cash and cash
equivalents 1,665 (5,766) 7,040
Elimination of duplicated activity (See Note B) - (6) -
Cash and cash equivalents at beginning of year 3,030 8,802 1,762
-------- -------- -------
Cash and cash equivalents at end of year $ 4,695 $ 3,030 $ 8,802
======== ======== =======
</TABLE>
See notes to restated consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
C-COR.net Corp
Restated Consolidated Statements of Shareholders' Equity
(In thousands)
Accumulated
Additional Other
Comprehensive Preferred Common Paid-in Comprehensive Retained Treasury
Income Stock Stock Capital Income (Loss) Earnings Stock
------------- --------- -------- --------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 28, 1996, as restated $ 3,900 $1,120 $19,876 $(55) $28,610 $ -
Net loss $ (9,537) - - - - (9,537) -
Other comprehensive income:
Net unrealized holding gains on
marketable securities 7 - - - - - -
Foreign currency translation (loss) (67) - - - - - -
-------------
Other comprehensive income (loss) (60) - - - (60) - -
-------------
Comprehensive loss $ (9,597) - - - - - -
-------------
Shares issued 14,760 - - - - -
Issuance of stock warrants - - 98 - - -
Accretion of discount on convertible
preferred stock - - - - (48) -
Exercise of stock options - 4 203 - - -
Tax benefit deriving from exercise
and sale of stock option shares - - 71 - - -
Issue shares to employee stock
purchase plan - 1 87 - - -
Purchase of treasury stock - - - - - (5,765)
--------- -------- --------- -------------- --------- --------
Balance, June 27, 1997 18,660 1,125 20,335 (115) 19,025 (5,765)
Net income $ 1,846 - - - - 1,846 -
Other comprehensive income:
Net unrealized holding gains on
marketable securities 7 - - - - - -
Foreign currency translation gain 9 - - - - - -
-------------
Other comprehensive income 16 - - - 16 - -
-------------
Comprehensive income $ 1,862 - - - - - -
-------------
Adjustment related to merger (Note A) - - - - 432 -
Shares issued - - - - - -
Issuance of stock warrants - - 189 - - -
Accretion of discount on convertible
preferred stock - - - - (122) -
Exercise of stock options - 5 272 - - -
Tax benefit deriving from exercise
and sale of stock option shares - - 57 - - -
Issue shares to employee stock
purchase plan - - 51 - - -
Purchase of treasury stock - - - - - (131)
--------- -------- --------- -------------- --------- --------
Balance, June 26, 1998 18,660 1,130 20,904 (99) 21,181 (5,896)
Net loss $ (286) - - - - (286) -
Other comprehensive income:
Net unrealized holding gains on
marketable securities 4 - - - - - -
Foreign currency translation loss (1) - - - - - -
-------------
Other comprehensive income 3 - - - 3 - -
-------------
Comprehensive loss $ (283) - - - - - -
-------------
Other adjustment - - (45) - - -
Issuance of stock warrants 1,294 - - - - -
Accretion of discount on convertible
preferred stock - - - - (613) -
Exercise of stock options - 13 1,189 - - -
Tax benefit deriving from exercise
and sale of stock option shares - - 94 - - -
Issue shares to employee stock
purchase plan - 1 75 - - -
Purchase of treasury stock - - - - - (1,084)
========= ======== ========= ============== ========= ========
Balance, June 25, 1999 $ 19,954 $ 1,144 $ 22,217 $ (96) $20,282 $ (6,980)
========= ======== ========= ============== ========= ========
</TABLE>
See notes to restated consolidated financial statements.
<PAGE>
Notes to Restated Consolidated Financial Statements
Description of Business
C-COR.net Corp. 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.
Restated Consolidated Financial Statements
The Company acquired Convergence.com Corporation ("Convergence") on July 9 1999
and Silicon Valley Communications, Inc. ("SVCI") on September 17, 1999, both of
which were accounted for under the pooling-of-interests method of accounting.
The restated consolidated financial statements for each of the years in the
three-year period ended June 25, 1999 and the accompanying notes reflect the
Company's financial position and results of operations as if the acquired
entities were wholly owned subsidiaries of the Company as of the beginning of
the earliest fiscal year presented. (See Note B)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying restated consolidated financial statements include the accounts
of the Company and its foreign and domestic subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation.
Reporting Periods
Management has adopted a fiscal year that ends on the last Friday in June. For
the 52-week reporting periods presented herein, the years ended on June 25,
1999, June 26, 1998, and June 27, 1997. (See Note B)
Use of Estimates
The preparation of the restated consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues derive principally from equipment sales, which are
generally recognized when the equipment has been shipped. Revenue from Internet
service is recognized monthly as services are provided to subscribers. Other
service revenues, consisting of system design, field services and other
consulting engagements, are generally recognized as services are rendered.
Fair Value of Financial Instruments
The carrying value of the Company's long-term borrowings approximates fair
value, after taking into consideration current rates offered to the Company for
similar debt instruments of comparable maturities. The fair values of financial
instruments have been determined through information obtained from quoted market
sources and management estimates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment, which includes leased property under capital
leases, is stated at cost. Depreciation or amortization is calculated on the
straight-line method for financial statement purposes based upon the following
estimated useful lives:
<TABLE>
<S> <C>
Building and improvements under capital lease 15 years
Buildings 15 to 25 years
Machinery and equipment under capital lease 5 years
Machinery and equipment 3 to 10 years
Leasehold improvements 7 to 15 years
</TABLE>
Computer Software
Under Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed", the
Company capitalizes certain internal and purchased software development and
production costs once technological feasibility has been achieved. For the
fiscal years ended 1999 and 1998, the Company capitalized $389 and $670,
respectively, of purchased software development costs, which is included in
other long-term assets in the restated consolidated financial statements. The
Company did not capitalize any software development costs during fiscal year
1997. Amortization will commence upon initial product release, which the Company
anticipates will occur during the first quarter of its fiscal year 2000, and as
such no amortization has been recorded in fiscal years 1999 and 1998.
Intangible Assets
Patents, trademarks and licenses are carried at cost less accumulated
amortization, which is calculated on a straight-line basis over the estimated
three year useful life of the asset. The patents, trademarks and license costs
relate to purchased and internally developed product lines. For fiscal years
ended 1999, 1998 and 1997, the Company recorded $172, $-0- and $-0- of
amortization, respectively.
Income Taxes
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (Statement 109), deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Shareholders' Equity
On October 19, 1999, the shareholders of the Company approved a proposal to
amend the Amended and Restated Articles of Incorporation to increase the number
of shares of common stock authorized from 24,000,000 to 50,000,000.
On November 12, 1999, the Company completed a follow-on public offering of its
common stock, whereby 3,220,000 shares (6,440,000 shares on a post stock split
basis) of common stock were issued and sold at a price of $44.00 per share
($22.00 per share on a post stock split basis). This offering resulted in net
proceeds (after deducting issuance costs) to the Company of $133,370. The
proceeds of the offering were used for repayment of debt, and will also be used
for strategic investments, capital expenditures, working capital, and other
general corporate purposes.
On December 7, 1999 the Company's board of directors declared a two-for-one
stock split of the Company's common stock. The stock split was effective for all
shares of record as of the close of business on December 22, 1999. The
additional shares were distributed on January 6, 2000. In connection with the
stock split, the par value per share of common stock was reduced from $.10 to
$.05 and the authorized number of shares of common stock was proportionately
increased from 50,000,000 to 100,000,000. All share and per share amounts have
been adjusted for the two-for-one stock split effective December 22, 1999, for
all periods presented.
At June 25, 1999 and June 26, 1998, treasury stock consisted of 1,293,446 and
1,112,684 shares of common stock, respectively. In fiscal years 1999 and 1998,
the Company repurchased 180,762 shares for $1,084 and 20,684 shares for $131,
respectively, of its common stock under a stock repurchase program adopted in
September 1997. In fiscal year 1997, the Company repurchased 1,000,000 shares of
its common stock for $5,765, under a stock repurchase program adopted in
December 1996. The Company used its available capital resources to fund the
purchases under both repurchase programs. The repurchased stock is being held by
the Company as treasury stock and is available to be used in meeting the
Company's obligations under its present and future stock option plans and for
other corporate purposes. In May 1999, the Company terminated the stock
repurchase program adopted in September 1997.
Cash Equivalents
The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. Cash equivalents are
reflected at the lower of cost or market.
Marketable Securities
Marketable securities at June 25, 1999, consisted of municipal bonds and equity
securities. The Company follows the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (Statement 115), in accounting for marketable securities.
Under Statement 115, the Company classifies all of its marketable securities as
available-for-sale and records them at fair value. Unrealized holding gains and
losses are excluded from income and are recorded directly to shareholders'
equity in accumulated other comprehensive income, net of related deferred income
taxes.
Net Income (Loss) Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
became effective for financial statements issued for periods ending after
December 15, 1997. The Company adopted this statement in the second quarter of
fiscal year 1998, and has restated prior periods presented as required.
Implementation of this Statement did not have a material effect on the Company's
restated consolidated financial statements.
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shareholders, by the weighted average number of common
shares outstanding. Dilutive net income (loss) per share is computed by dividing
net income (loss) available to common shareholders, by the weighted average
number of common shares outstanding plus the dilutive effect of options,
warrants and convertible preferred stock. The dilutive effect of options and
warrants is calculated under the treasury stock method using the average market
price for the period. The dilutive effect of the convertible preferred stock is
calculated under the if-converted method. Net income (loss) per share is
calculated as follows: <TABLE>
<CAPTION>
Year Ended
-------------------------------------------
June 25, June 26, June 27,
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Income (loss) from continuing operations $ (683) $ 918 $ 898
Less:
Accretion of convertible preferred stock (613) (122) (48)
------------ ------------- -------------
Continuing income (loss) available to common shareholders $ (1,296) $ 796 $ 850
Gain (loss) from discontinued operations 397 928 (10,435)
------------ ------------- -------------
Net income (loss) available to common shareholders $ (899) $ 1,724 $ (9,585)
============ ============= =============
Weighted average common shares outstanding 21,451 21,459 22,144
Common stock equivalents - 3,220 2,660
------------ ------------- -------------
Dilutive potential common shares 21,451 24,679 24,804
============ ============= =============
Basic:
Continuing operations (0.06) 0.04 0.04
Discontinued operations 0.02 0.04 (0.47)
------------ ------------- -------------
Net income (loss) available to common shareholders (0.04) 0.08 (0.43)
============ ============= =============
Diluted:
Continuing operations (0.06) 0.04 0.04
Discontinued operations 0.02 0.04 (0.42)
------------ ------------- -------------
Net income (loss) available to common shareholders (0.04) 0.08 (0.38)
============ ============= =============
</TABLE>
Product Warranty
The Company warrants its products against defects in materials and workmanship,
generally for three to five years depending upon product lines. A provision for
estimated future costs relating to warranty expense is recorded when product is
shipped, based upon historical claims history and specifically identified
warranty exposures.
Restructuring Costs
On June 25, 1998, the Company announced the closing of its manufacturing plant
located in Reedsville, Pennsylvania. As a result of this action, the Company
incurred restructuring charges in the fourth quarter of its fiscal year 1998 of
$625. The restructuring charge represented salaries and benefits for
approximately 143 employees affected by the plant closing. The work force
reduction occurred during the first quarter of fiscal year 1999, thereby
eliminating the restructuring accrual at June 25, 1999.
At June 26, 1998, the Company had a Lease/Option to Purchase Agreement with the
Mifflin County Industrial Development Corporation (MCIDC) for the building and
improvements located in Reedsville, Pennsylvania. On August 10, 1998, the
Company purchased the facility using its available capital resources and expects
to sell the facility at a price in excess of its net carrying value. The
facility has been reclassified from property, plant and equipment to property
held-for-sale, which is included in other current assets on the restated
consolidated balance sheet as of June 25, 1999, with a carrying value of $1,281.
Comprehensive Income
In fiscal year 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which requires net
unrealized investment gains or losses on the Company's available-for-sale
securities and net foreign exchange gains or losses on translation, which
previously were reported directly in shareholders' equity, to be included in
accumulated other comprehensive income in the restated consolidated balance
sheets and in the disclosure of comprehensive income. The totals of other
comprehensive income items and comprehensive income (which includes net income)
are displayed separately in the restated consolidated statements of
shareholders' equity. The adoption of this statement had no effect on net income
or shareholders' equity.
The components of other comprehensive income (loss) and the related tax effects
are as follows:
<TABLE>
<CAPTION>
Income
Amount Tax Amount
Before Expense Net of
Tax (Benefit) Taxes
------ --------- ------
Fiscal year ended June 25, 1999
<S> <C> <C> <C>
Unrealized holding gain during the fiscal year $ 7 $ 3 $ 4
Net foreign exchange loss (2) (1) (1)
----- ---- ----
Total other comprehensive income $ 5 $ 2 $ 3
===== ==== ====
Fiscal year ended June 26, 1998
Unrealized holding gain during the fiscal year $ 12 $ 5 $ 7
Net foreign exchange gain 15 6 9
----- ---- ----
Total other comprehensive income $ 27 $ 11 $ 16
===== ==== ====
Fiscal year ended June 27, 1997
Unrealized holding gain during the fiscal year $ 12 $ 5 $ 7
Net foreign exchange loss (112) (45) (67)
----- ---- ----
Total other comprehensive income (loss) $(100) $(40) $(60)
===== ==== ====
</TABLE>
Accounting and Disclosure Changes
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (Statement
133), which was effective for fiscal years beginning after June 15, 1999. In
July 1999, the FASB announced it was delaying the effective date of Statement
133 for one year, to fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company anticipates adopting this Statement in its
fiscal year 2001 consolidated financial statements as required. Implementation
of this Statement is not expected to have a material effect on the Company's
consolidated financial statements.
B. BUSINESS COMBINATIONS
On July 9, 1999, the Company consummated a merger with Convergence, a Georgia
corporation, whereby Convergence became a wholly owned subsidiary of the
Company. As consideration in the merger, each outstanding share of common stock
of Convergence was converted into one share (two shares post stock split) of the
Company's common stock, resulting in the issuance of 2,866,646 shares (post
stock split) of the Company's common stock. Each outstanding warrant to acquire
Convergence common stock was converted into warrants to acquire the Company's
common stock for an aggregate of warrants to acquire 733,860 shares (post stock
split) of the Company's common stock. The merger was accounted for under the
pooling-of-interests method of accounting.
Prior to the merger, Convergence had operated on a calendar year basis.
Operating results for the fiscal year ended June 25, 1999 and June 26, 1998,
include the operations of Convergence for the 12-month periods ended June 30,
1999 and June 30, 1998, respectively. Operating results for the fiscal year
ended June 27, 1997, include the operations of Convergence for the 12-month
period ended December 31, 1997. This results in an overlapping period (July 1997
through December 1997) for Convergence's results of operations being included in
the restated consolidated financial statements. Accordingly, the
restated consolidated statement of shareholders' equity for the year ended
June 26, 1998 includes a $432 adjustment to eliminate the impact on retained
earnings for the overlap period.
On September 17, 1999, the Company consummated a merger with 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 .094534 shares (.189068 shares post stock split) of the Company's
common stock, resulting in the issuance of 3,090,162 shares (post stock split)
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
767,688 shares (post stock split) of the Company's common stock. The merger was
accounted for under the pooling-of-interests method of accounting.
Prior to the merger, SVCI had operated on a fiscal year ending in June.
Operating results for the fiscal years ended June 25, 1999, June 26, 1998, and
June 27, 1997 include the operations of SVCI for the 12-month periods ended June
25, 1999, June 30, 1998, and June 30, 1997, respectively.
The Company recorded a one-time charge of $3,673, ($3,113, net of tax), related
to the business combinations with Convergence and SVCI in the Company's
twenty-six-week period ended December 24, 1999. The one-time charge includes the
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.
Net sales and net income (loss) for the Company, Convergence, and SVCI, prior to
the combinations are as follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------
June 25, June 26, June 27,
1999 1998 1997
---------- ---------- ---------
Net sales:
<S> <C> <C> <C>
C-COR.net Corp. $ 171,281 $ 152,144 $ 131,941
Convergence 6,635 1,276 1,104
SVCI 5,509 621 735
---------- ---------- ---------
Combined $ 183,425 $ 154,041 $ 133,780
========== ========== =========
Net income (loss):
C-COR.net Corp. $ 10,852 $ 8,245 $ (6,178)
Convergence (2,516) (979) (305)
SVCI (8,622) (5,420) (3,054)
---------- ---------- ---------
Combined $ (286) $ 1,846 $ (9,537)
========== ========== =========
</TABLE>
C. DISCONTINUED OPERATIONS
On July 10, 1997, the Company announced that it would discontinue its Digital
Fiber Optics Transmission Products segment located in Fremont, California, in a
nine-month wind-down process. An estimated loss on disposal, including
write-offs of inventory and fixed assets and other costs from the measurement
date to the disposal date, were recorded in fiscal year 1997. The estimated
loss, net of tax benefit of $1,974 on the disposal of the discontinued business
segment, was $3,830 in fiscal year 1997.
The Company completed the phase-down of this operation as of March 1998. A gain
on disposal of the discontinued business segment of $397, net of tax expense of
$477, was recorded during the fiscal year ended 1999. The gain in fiscal year
1999 resulted primarily from settlement of certain warranty claims. The Company
recorded a gain of $928, which includes a net tax benefit of $94 on the disposal
of the discontinued segment in fiscal year 1998. In fiscal year 1998, the gain
derived primarily from higher than anticipated proceeds associated with the
disposal of assets, primarily inventory, and lower than anticipated operating
costs from the measurement date to the disposal date.
The after-tax loss from operations of the discontinued business segment was
$6,605 for fiscal year 1997. The primary factors contributing to the loss from
operations of the discontinued business segment in fiscal year 1997 were
increased warranty costs of $3,300 and an impairment loss on goodwill of $571,
recorded in the fourth quarter of fiscal year 1997.
Operating results for the discontinued business segment are segregated and
reported as discontinued operations in the accompanying restated consolidated
statements of operations. Summarized information relating to the discontinued
operation for fiscal year 1997 is as follows:
June 27,
1997
------------
Net sales $ 7,994
Costs and expenses (17,351)
------------
Loss before income taxes (9,357)
Income tax benefit 2,752
------------
Net loss $ (6,605)
============
The assets and liabilities of the discontinued operations have been reclassified
in the accompanying restated consolidated financial statements to separately
identify them as net current assets (liabilities) related to the discontinued
operations. These net assets consist of net working capital and other assets,
less related liabilities as follows as of June 25, 1999, and June 26, 1998:
June 25, June 26,
1999 1998
----------- -------------
Current assets:
Accounts receivable $ 16 $ 150
Notes receivable 796 981
Deferred tax assets 474 1,602
Other assets - 156
----------- -------------
1,286 2,889
----------- -------------
Current liabilities:
Accrued warranty and other (728) (2,806)
Allowance for disposal of
discontinued operations (125) (600)
----------- -------------
(853) (3,406)
----------- -------------
Net current assets (liabilities)
of discontinued operations $ 433 $ (517)
=========== =============
D. MARKETABLE SECURITIES
Marketable securities as of June 25, 1999, and June 26, 1998, consisted of the
following:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
June 25, 1999
Available for sale:
Municipal bonds $ 351 $ -- $ (9) $ 342
Equity securities 101 2 -- 103
--------- ---------- ---------- ----------
$ 452 $ 2 $ (9) $ 445
========= ========== ========== ==========
June 26, 1998
Available for sale:
Municipal bonds $ 366 $ -- $ (12) $ 354
Equity securities 2 -- -- 2
--------- ---------- ---------- ----------
$ 368 $ -- $ (12) $ 356
========= ========== ========== ==========
Maturities of investment securities classified as available-for-sale at June 25,
1999, were as follows:
Amortized Fair
Cost Value
----------- -------
Available for sale:
Due after one year through five years $ 351 $ 342
Equity securities 101 103
----------- -------
$ 452 $ 445
=========== =======
E. INVENTORIES
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------- --------
<S> <C> <C>
Finished goods $ 3,287 $ 2,850
Work-in-process 3,038 1,874
Raw materials 17,240 13,085
------- -------
$23,565 $17,809
======= =======
</TABLE>
Included in the amounts above were reserves of $2,231 at June 25, 1999, and
$3,213 at June 26, 1998.
F. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------- --------
<S> <C> <C>
Land $ 468 $ 468
Building and improvements under capital lease -- 1,727
Buildings 10,760 10,683
Machinery and equipment under capital lease 343 217
Machinery and equipment 50,874 44,393
Leasehold improvements 1,326 1,123
------- -------
63,771 58,611
Less accumulated depreciation and amortization 35,979 28,758
------- -------
$27,792 $29,853
======= =======
</TABLE>
G. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------- --------
Cost of intangibles:
<S> <C> <C>
Patents and trademarks $1,045 $1,045
Licensing costs 258 250
------ ------
1,303 1,295
------ ------
Less accumulated amortization:
Patents and trademarks $ (116) $ --
Licensing costs (56) --
------ ------
(172) --
------ ------
Net book value $1,131 $1,295
====== ======
</TABLE>
H. CREDIT FACILITIES
The Company has a line-of-credit with a bank, whereby the Company may borrow
the lesser of $25,000, net of outstanding letters of credit up to a $2,000 sub-
limit, or a percentage of eligible accounts receivable and inventory. The
borrowings bear interest at various rates generally equal to the London
Interbank Offered Rate (LIBOR) plus 1.00% and require compliance with certain
covenants. Interest is payable in 30 days as billed. The line-of-credit
agreement is committed through December 31, 1999. Accounts receivable and
inventory collateralize the borrowings. At June 25, 1999, and June 26, 1998,
the Company had no short-term borrowings outstanding on this revolving line-of-
credit. Based upon the Company's analysis of eligible accounts receivable and
inventory, approximately $23,300 was available to borrow as of June 25, 1999.
On August 9, 1999, the Company replaced this revolving line-of-credit agreement
with a new credit agreement (Reference Note U).
As a result of the Company's merger with SVCI, the Company has an additional
line of credit with a bank, which provided for borrowings of up to $3,000, a
bank bridge loan, which provided for borrowings of up to $1,000, and a bank
equipment term loan of $300. The line of credit and term loan bear annual
interest at the bank's prime rate plus 0.50% (8.25% as of June 25, 1999), with
maturity dates of June 30, 1999, and August 30, 2000, respectively. The bridge
loan bears interest at the bank's prime rate plus 1.5% (9.25% as of June 25,
1999), with a maturity date of September 4, 1999. The outstanding balances on
the line of credit, bridge loan, and the term loan are $2,515, $500, and $188,
respectively, as of June 25, 1999. The line of credit and loans are fully
collateralized by a continuing security interest in substantially all assets
presently owned or subsequently acquired by SVCI. The line of credit and loans
contain certain restrictive financial covenants. As of June 25, 1999, SVCI
was not in compliance with certain of the covenants. The bank agreed to defer
action on the noncompliance event pending the signing of a merger agreement. A
merger agreement was signed with the Company on July 13, 1999.
From March to May 1999, SVCI borrowed $1,817 from certain founders and
shareholders of SVCI under promissory notes payable. As of June 25, 1999, the
balance was $1,435. The notes bear interest at an annual rate of 9% and are due
in July 1999. In connection with these notes, SVCI issued warrants to purchase
its common stock (See Note K). In connection with the merger, these warrants
were converted into warrants to acquire the Company's common stock.
In connection with the bridge loan, warrants to purchase 9,454 shares of the
Company's common stock were issued at an exercise price of $21.16 per share.
These warrants have a fair value of $41 and are being amortized over the life
of the bridge loan.
In fiscal year 1998, in connection with the line of credit and term loan,
warrants to purchase 6,050 shares of the Company's common stock were issued at
an exercise price of $6.56 per share. The purchase rights represented by these
warrants expire on January 4, 2002. The warrants have a fair value of $13 and
are being amortized over the life of the related debt instruments.
On October 21, 1998, a then existing bank line of credit and term loan was
restructured. In consideration for the restructuring, warrants to purchase 1,890
shares of the Company's common stock were issued at an exercise price of $6.56
per share. The warrants are exercisable upon issuance and expire on January 4,
2002. The warrants have a fair value of $4 and are being amortized over the life
of the related debt instruments.
I. LONG-TERM DEBT
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------- --------
<S> <C> <C>
Notes payable $4,392 $4,909
Capital lease obligations 148 1,584
------ ------
4,540 6,493
Less current portion 832 926
------ ------
$3,708 $5,567
====== ======
</TABLE>
Notes Payable: The Company obtained funding through the Pennsylvania Industrial
Development Authority (PIDA) of $539 for construction of the Tipton,
Pennsylvania, manufacturing facility. The PIDA borrowing has an interest rate of
3%, which is contingent upon meeting certain job creation commitments. Monthly
payments of principal and interest of $4 are required through 2006. Certain
property, plant and equipment collateralize the borrowing. The principal balance
at June 25, 1999, was $264.
The Company obtained funding through the PIDA of $1,952 for 40% of the cost of
building expansion at its manufacturing facility in State College, Pennsylvania.
The PIDA borrowing has an interest rate of 2%, which is contingent upon meeting
certain job creation commitments. Monthly payments of principal and interest of
$13 are required through 2010. Certain property, plant and equipment
collateralize the borrowing. The principal balance at June 25, 1999, was $1,528.
On October 19, 1998, the Company borrowed $3,000 under a term loan facility with
a bank. The term loan requires monthly principal payments of $50, plus interest
based on a one-to-three month variable rate at LIBOR plus 1.15%, through 2003.
The Company is using a derivative financial instrument to reduce its exposure to
market risk resulting from interest rates. On October 20, 1998, the Company
entered into an interest rate swap agreement that fixes the interest rate at
6.14% on the notional amount of floating rate debt through October 21, 2003. The
financial institution, as counterparty to the agreement, will pay the Company a
floating interest rate based on a one-month LIBOR rate during the term of the
agreement in exchange for the Company paying the fixed interest rate. Interest
payments are made monthly. The Company is at risk of loss from this swap
agreement in the event of nonperformance by the counterparty. The Company
believes this risk to be minimal. The principal balance under this term loan at
June 25, 1999, was $2,600.
On August 20, 1998, the Company paid off the remaining balances of two loans
obtained from the Pennsylvania Sunny Day Fund. The original principal balance of
the loans totaled $4,500, which partially funded the expansion and renovation of
the Company's State College facility. The two notes evidencing the funding had
an interest rate of 2%, which was contingent upon meeting certain job creation
commitments. The first note was for $488 with an original maturity of 15 years,
and the second was for $4,012 with an original maturity of 7 years. Monthly
payments of principal and interest of $3 and $51, respectively, were required on
these notes through the years 2010 and 2002, respectively. Certain equipment
collateralized the borrowing. The loan balances were paid off in order to
eliminate certain restrictive covenants associated with the loan agreements. The
principal balances of the two loans paid off were $409 and $2,506, respectively.
Capital Lease Obligations: As a result of the Company's decision on June 25,
1998, to close its manufacturing facility located in Reedsville, Pennsylvania,
the Company executed its option to purchase the building and improvements for
approximately $1,454, plus closing costs, under the Lease/Option to Purchase
Agreement it had with the MCIDC on August 10, 1998. The Company was the
guarantor of several borrowing commitments by the MCIDC for financing the $1,727
cost of the project. The lease called for a monthly payment of $14, which was
equal to the monthly principal and interest of the various borrowing commitments
by the MCIDC through 2010. The original term of the lease was for 15 years with
the option to purchase the leased premises at any time during the lease term for
the outstanding balance of the borrowing commitments plus closing costs. The
borrowing commitments carried a weighted-average interest rate of 4.7%. For
financial accounting purposes, the lease was accounted for during fiscal year
1998 as a capital lease and, accordingly, an asset and liability were recorded.
As of June 25, 1999, the building and improvements were reclassified as property
held-for-sale as part of other current assets in the restated consolidated
balance sheet.
As a result of the mergers with Convergence and SVCI, the Company acquired
various capital leases for machinery and equipment, office equipment and
furniture and fixtures that expire through 2003.
Long-term debt at June 25, 1999, had scheduled maturities as follows:
<TABLE>
Fiscal year ending:
<S> <C>
2000 $ 832
2001 788
2002 796
2003 789
2004 173
Thereafter 1,162
------
$4,540
======
</TABLE>
At June 25, 1999, the future minimum payments required under capital lease
arrangements are as follows:
<TABLE>
Fiscal year ending:
<S> <C>
2000 $ 91
2001 36
2002 36
2003 22
----
$185
Less amount representing interest 37
----
Present value of future minimum lease payments 148
Less current portion of obligation under capital leases 73
----
Long-term obligations under capital lease $ 75
====
</TABLE>
Total interest paid on the short-term credit facilities (Reference Note H) and
long-term debt was $387, $372 and $341 for fiscal years ended 1999, 1998 and
1997, respectively.
J. STOCK AWARD PLANS
In October 1998, the Company adopted a Stock Incentive Plan ("1998 Incentive
Plan"), which provides for several types of equity-based incentive compensation
awards. Awards, when made, may be in the form of stock options, restricted
shares, performance shares and performance units. Stock options granted to
employees and directors are at a price not less than 100% of the fair market
value of such shares on the date of grant. Stock options granted to certain
employees begin vesting in cumulative annual installments of 25% per year
beginning one year after the date of grant. Options granted to non-employee
directors are exercisable one year after grant. During fiscal year 1999, 4,000
restricted shares and 22,000 performance shares were awarded under the 1998
Incentive Plan. The restricted shares had an aggregate value of $22, which is
being amortized over a vesting period through June 2001. The performance shares
represent a right to receive common stock of the Company based upon achievement
of certain performance criteria over a performance period through June 2000.
Compensation expense related to the performance shares is based on the current
market price of the Company's common stock at the time the performance criteria
is satisfied.
The Company's previous stock option plans provided for the grant of options to
employees with an exercise price per share of at least the fair market value of
such shares on the date prior to grant, and to directors with an exercise price
equal to the fair market value on the date of grant. Stock options granted to
certain employees vest in cumulative annual installments of either 20% or 25%
per year beginning one year after the date of grant. Options granted to
non-employee directors were exercisable one year after grant. Certain options
held by the Chairman were exercisable immediately.
In connection with the acquisition of SVCI, outstanding incentive and
nonqualified stock options to acquire SVCI common stock were converted into
stock options to acquire the Company's common stock at a conversion ratio of
.094534 (.189068 on a post stock split basis), with appropriate adjustment to
the exercise price. Incentive stock options generally vest over 4 or 5 years,
with 25% or 20% vesting after one year and the remainder monthly thereafter, and
expire 10 years from the date of grant. Nonqualified options are generally fully
vested upon issuance and expire 10 years from date of grant.
The Company adopted the disclosure requirements of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123). As
allowed by Statement 123, the Company has chosen to continue to account for
stock based compensation using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the grant date over
the amount an employee must pay to acquire the stock. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Company's
plans been determined under Statement 123, the Company's net income (loss) and
net income (loss) per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
June 25, June 26, June 27,
1999 1998 1997
------------------ -------------- --------------
Net income (loss)
<S> <C> <C> <C>
As reported $ (286) $ 1,846 $ (9,537)
Pro forma $ (3,392) $ 381 $ (9,789)
Net income (loss) per share:
Basic
As reported $ (0.04) $ 0.08 $ (0.43)
Pro forma $ (0.19) $ 0.01 $ (0.44)
Diluted
As reported $ (0.04) $ 0.08 $ (0.38)
Pro forma $ (0.19) $ 0.01 $ (0.39)
Shares:
Basic 21,451 21,459 22,144
Diluted 21,451 24,679 24,804
</TABLE>
The per share weighted-average fair values of stock options granted during
fiscal years 1999, 1998 and 1997, were $8.25, $5.46 and $2.18, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following weighed-average assumptions:
Fiscal year 1999-expected dividend yield of 0%, risk-free interest rate of
5.00%, a volatility factor of the expected market price of the Company's common
stock of .7395, and a weighted-average expected life of approximately 4 years.
Fiscal year 1998-expected dividend yield of 0%, risk-free interest rate of
5.72%, a volatility factor of the expected market price of the Company's common
stock of .4913, and a weighted-average expected life of approximately 4 years.
Fiscal year 1997-expected dividend yield of 0%, risk-free interest rate of
6.38%, a volatility factor of the expected market price of the Company's common
stock of .5941, and a weighted-average expected life of approximately 4 years.
The fair value of stock options included in the pro forma amounts for fiscal
years 1999, 1998 and 1997 is not necessarily indicative of future effects on net
income and net income per share.
A summary of the status of the Company's stock option plans, as of June 25,
1999, June 26, 1998, and June 27, 1997, and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------------------------------
June 25, 1999 June 26, 1998 June 27, 1997
------------------------- ------------------------- ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 3,130,332 $ 6.31 1,609,248 $ 6.87 1,746,096 $ 6.71
Granted 1,639,556 $ 9.20 2,062,336 $ 5.42 236,000 $ 7.50
Exercised (256,438) $ 4.77 (91,758) $ 2.90 (89,786) $ 2.54
Canceled (339,352) $ 3.76 (449,494) $ 4.96 (283,062) $ 7.80
--------- --------- --------
Outstanding at end of
year 4,174,098 $ 7.74 3,130,332 $ 6.31 1,609,248 $ 6.87
========= ========= ========
Options exercisable at
end of year 1,292,394 997,316 902,294
</TABLE>
The following table summarizes information about the Company's stock option
plans as of June 25, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Number Weighted-Avg. Number
Range of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Prices at 6/25/99 Contractual Life Exercise Price at 6/25/99 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.055 to $ 4.19 658,136 6.0 years $ 2.36 446,082 $ 2.98
$ 4.25 to $ 7.065 772,418 6.2 years $ 5.30 205,604 $ 5.43
$ 7.1875to $ 9.875 1,175,398 7.0 years $ 7.62 312,374 $ 7.50
$10.06 to $12.75 1,424,726 7.7 years $10.95 224,598 $10.95
$12.875 to $15.625 143,420 6.1 years $13.66 103,736 $13.66
--------- --------- ------ ------- ------
4,174,098 6.9 years $ 7.74 1,292,394 $ 6.70
========= ========= ====== ======= ======
</TABLE>
K. Shareholders' Equity
(a) Classes of Capital Stock
The authorized, issued and outstanding shares of the Company's classes of
capital stock are as follows:
<TABLE>
<CAPTION>
Authorized Issued and outstanding at:
Shares -------------------------------------
As of June 25, June 25, June 26,
1999 1999 1998
--------------------- ----------------- -----------------
<S> <C> <C> <C>
Preferred stock, no par 2,000,000 - -
Series A redeemable convertible preferred stock, no par 500,000 300,000 295,000
Series B convertible preferred stock, no par 378,136 378,136 378,136
Series C convertible preferred stock, no par 945,340 694,352 694,352
Common stock, $.05 par value per share,
net of treasury stock 100,000,000 21,576,548 21,496,672
</TABLE>
Shares presented in the table above have been adjusted based upon the applicable
exchange ratios associated with the acquisitions of Convergence and SVCI (See
Note B). The preferred stock is convertible into an aggregate of 2,744,976
shares of common stock as of June 25, 1999.
(b) Warrants
As a result of the consummated mergers with Convergence and SVCI, warrants to
acquire Convergence and SVCI preferred and common stock were converted into
warrants to acquire common stock of the Company. These warrants have been issued
in connection with various financing and employment arrangements.
The following table summarizes information about warrants issued and outstanding
as of June 25, 1999:
<TABLE>
<CAPTION>
Warrants issued in connection with:
Warrants Range of Fiscal Year --------------------------------------
Issued Exercise Warrants Debt Equity Employment
Issued as of 6/25/99 Prices Expire Financing Financing Services
- ---------------- -------------- ---------------- ---------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1997 264,696 $10.58 2001 264,696
Fiscal Year 1998 6,050 $6.56 2002 6,050
600,000 $5.00 2005 600,000
Fiscal Year 1999 1,890 $6.56 2002 1,890
9,454 $21.16 2002 9,454
207,030 $15.87 2002 207,030
10,398 $37.02 2002 10,398
133,860 $ 0 .38 to $5.00 2003 133,860
-------------- --------------------------------------
1,233,378 234,822 864,696 133,860
============== ======================================
</TABLE>
Warrants presented in the table above have been adjusted for the stock-split and
applicable exchange ratios associated with the acquisitions of Convergence and
SVCI. (See Notes A and B)
The fair value of the warrants issued in fiscal years 1998 and 1999, in
connection with debt financing transactions, were calculated by the Company
using the Black-Scholes pricing model. In fiscal year 1999, warrants to purchase
228,772 shares of the Company's stock, in connection these debt financing
arrangements, had a fair value of $1,293 which is being amortized over the life
of the related loans. Amortization in fiscal year 1999 totaled $911, which is
included in interest expense in the accompanying restated consolidated statement
of operations. No separate fair values were calculated in connection with the
864,696 warrants in fiscal years 1997 and 1998, as these were issued in
connection with an equity financing transaction. Also in fiscal year 1999, the
Company recognized compensation expense of $248 in connection with the issuance
of warrants to an employee, as the exercise price was less than the fair value
of the stock on the date of grant.
L. INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------
June 25, June 26, June 27,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income from continuing operations $4,835 $382 $ 651
Results of discontinued operations -- -- (2,752)
Gain (loss) on disposal of discontinued
operation 477 (94) (1,974)
Stockholders' equity, for tax benefit derived
from exercise and sale of stock option shares (94) (57) (71)
------ ---- -------
$5,218 $231 $(4,146)
====== ==== =======
</TABLE>
Income tax expense (benefit) attributable to continuing operations consisted of
the following components:
<TABLE>
<CAPTION>
Years Ended
----------------------------
June 25, June 26, June 27,
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Current:
Federal $ 6,459 $ 3,262 $1,493
State 615 264 (96)
Foreign 59 39 (98)
------- ------- ------
7,133 3,565 1,299
------- ------- ------
Deferred:
Federal (1,910) (2,675) (531)
State (388) (508) (117)
------- ------- ------
(2,298) (3,183) (648)
------- ------- ------
$ 4,835 $ 382 $ 651
======= ======= ======
</TABLE>
A reconciliation of the effective income tax rate from continuing operations
with the U.S. federal income tax rate of 35 percent applied to pretax income
from continuing operations was as follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------
June 25, June 26, June 27,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax (10.7) (26.5) (19.8)
Tax effect of foreign income and losses -- -- (10.3)
Tax effect of foreign sales corporation (0.4) (24.6) (42.7)
Loss of net operating loss attributable to S
corporation period -- 1.6 3.6
Increase in the valuation allowance for deferred
tax assets 92.3 66.2 55.0
Permanent differences 0.3 1.9 11.0
Other -- (24.2) 10.2
----- ----- -----
116.5% 29.4% 42.0%
===== ===== =====
</TABLE>
A tax benefit of $593, deriving from the Company's Foreign Sales Corporation
(FSC), was recorded in the third quarter of fiscal year 1997. The tax benefit
resulted from reassessment of the Company's foreign sales transactions for
fiscal years 1994, 1995 and 1996.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 25, 1999, and
June 26, 1998, relating to continuing operations are presented below:
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------- --------
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts $ 391 $ 255
Inventories, principally due to additional costs for
tax purposes 220 168
Inventories, principally due to accrual for
obsolescence 809 628
Compensated absence, principally due to accrual for
financial reporting purposes 837 483
Workers' compensation expense accrual for financial
reporting purposes 689 449
Warranty expense accrual for financial reporting
purposes 650 583
Employee benefit plan accrual for financial reporting
purposes 375 224
Deferred research and development for tax purposes 3,180 2,286
Net operating loss carryforwards 8,676 4,647
Alternative minimum tax credit carryforwards 600 228
Other 392 142
------- -------
Total gross deferred tax assets 16,819 10,093
------- -------
Less valuation allowance (7,433) (2,740)
------- -------
Net total deferred tax assets 9,386 7,353
------- -------
Gross deferred tax liabilities
Plant and equipment, principally due to differences in
depreciation (1,707) (1,850)
Other (96) (218)
------- -------
Total gross deferred tax liabilities (1,803) (2,068)
------- -------
Net deferred tax assets $ 7,583 $ 5,285
------- -------
Reflected on attached restated consolidated balance sheets as:
Current deferred tax assets $ 6,335 $ 2,797
Non-current deferred tax assets 1,248 2,488
------- -------
Net deferred tax assets, pertaining to continuing
operations $ 7,583 $ 5,285
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of the beginning of the
fiscal year was $2,740 and $1,957 in 1999 and 1998, respectively. The net change
in valuation allowance for the years ended June 25, 1999 and June 26, 1998 was
an increase of $4,693 and $783, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. In order to fully realize the net total deferred tax
assets, the Company will need to generate future taxable income prior to the
expiration of the net operating loss carryforwards which expire at various years
through 2019. Based upon the level of historical taxable income and projections
for future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the valuation
allowance at June 25, 1999. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of June 25, 1999 will be allocated to income tax benefit
that would be reported in the consolidated statements of operations.
At June 25, 1999, the Company had a federal net operating loss carryforward of
approximately $20,850 and state net operating loss carryforwards of
approximately $26,650, which are available to offset future federal and state
taxable income, and expire at various dates through fiscal year 2019. In
addition, at June 25, 1999, the Company has research and development credit
carryovers for federal and state income tax purposes of approximately $400 and
$200, respectively. The federal credit carryforwards expire in the years 2010
and 2019, and the state carryforwards can be carried forward indefinitely.
The Company has not recognized a deferred tax liability for the basis
differences and the undistributed earnings related to its foreign subsidiaries
since the investment is essentially permanent in duration. Undistributed
earnings were approximately $720 at June 25, 1999.
Cash paid for income taxes was $2,897, $1,915, and $1,072 in fiscal years 1999,
1998, and 1997, respectively.
M. RETIREMENT PLANS
The Company has a retirement savings and profit sharing plan, which qualifies
under Section 401(k) of the Internal Revenue Code. Participation is available to
all employees meeting minimum service and age requirements.
The Company has a deferred compensation plan that does not qualify under section
401 of the Internal Revenue Code, which provides officers and key executives
with the opportunity to participate in an unqualified deferred compensation
plan. The total of net participant deferrals, which is reflected in other
long-term liabilities, was $464 and $382 at June 25, 1999, and June 26, 1998,
respectively.
The Company also has a deferred retirement salary plan, which is limited to
certain officers. The Company has accrued the present value of the estimated
future retirement benefit payments over the periods from the date of the
agreements. The accrued balance of these plans, included in other long-term
liabilities, was $865 and $659 at June 25, 1999, and June 26, 1998,
respectively.
Total expenses for these plans were $1,158, $1,349 and $1,375 for fiscal years
ended 1999, 1998 and 1997, respectively.
N. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------- --------
<S> <C> <C>
Accrued incentive plan expense $ 2,285 $ 1,716
Accrued vacation expense 2,000 1,512
Accrued salary expense 1,297 835
Accrued payroll and sales tax expense 1,519 917
Accrued sales commissions and rebates payable 951 789
Accrued warranty expense 1,742 1,733
Accrued workers compensation self-insurance expense 1,724 1,319
Accrued restructuring costs -- 625
Accrued income tax payable 3,304 473
Accrued other 1,420 912
------- -------
$16,242 $10,831
======= =======
</TABLE>
O. OTHER EXPENSE (INCOME)
<TABLE>
<CAPTION>
Years Ended
--------------------------
June 25, June 26, June 27,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Investment income $(259) $(392) $(721)
Loss (gain) on foreign currency transactions 4 164 (58)
Other, net 365 247 (82)
----- ----- -----
$ 110 $ 19 $(861)
===== ===== =====
</TABLE>
P. CONCENTRATION OF CREDIT RISK
The Company's customers are primarily in the cable television ("CATV") industry.
The Company performs periodic credit evaluations of its customers' financial
conditions and generally does not require collateral. At June 25, 1999 and June
26, 1998, accounts receivables from customers in the CATV industry were
approximately $31,240 and $19,705, respectively. Receivables are generally due
within 30 days. Credit losses are provided for in the restated consolidated
financial statements and have consistently been within management's
expectations.
Sales to two customers were $47,700 (26%) and $31,304 (17%), respectively, in
fiscal year 1999. Sales to one customer were $47,098 (31%) in fiscal year 1998.
Sales to one customer were $48,026 (36%) in fiscal year 1997.
Q. COMMITMENTS AND CONTINGENCIES
The Company had an established letter of credit of $1,700 at June 25, 1999, for
its self-insured workers' compensation program.
The Company leases real property and other equipment under operating leases.
Certain leases are renewable and provide for the payment of real estate taxes
and other occupancy expenses. At June 25, 1999, the future minimum lease
payments for noncancelable leases with remaining lease terms in excess of one
year were as follows:
<TABLE>
Fiscal year ending:
<S> <C>
2000 $2,096
2001 2,123
2002 2,090
2003 861
2004 572
Thereafter 1,129
------
$8,871
======
</TABLE>
Rent expense relating to continuing operations was $2,132, $1,226 and $866 for
fiscal years ended 1999, 1998 and 1997, respectively.
R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter 1999
------- ------- ------- -------- ----------
Fiscal Year 1999
<S> <C> <C> <C> <C> <C>
Net sales $34,654 $39,651 $47,291 $61,829 $183,425
Gross profit 7,526 9,599 10,878 16,629 44,632
Income (loss) from continuing operations (1,116) (992) 588 837 (683)
Discontinued operations 288 16 - 93 397
------- ------- ------- -------- ----------
Net income (loss) $ (828) $ (976) $ 588 $ 930 $ (286)
======= ======= ======= ======== ==========
Net income (loss) per share - basic:
Continuing operations $ (0.06) $ (0.05) $ 0.02 $ 0.03 $ (0.06)
Discontinued operations 0.01 0.00 - 0.00 0.02
------- ------- ------- -------- ----------
Net income (loss) $ (0.05) $ (0.05) $ 0.02 $ 0.03 $ (0.04)
======= ======= ======= ======== ==========
Net income (loss) per share - diluted:
Continuing operations $ (0.06) $ (0.05) $ 0.02 $ 0.03 $ (0.06)
Discontinued operations 0.01 0.00 - 0.01 0.02
------- ------- ------- -------- ----------
Net income (loss) $ (0.05) $ (0.05) $ 0.02 $ 0.04 $ (0.04)
======= ======= ======= ======== ==========
<CAPTION>
First Second Third Fourth
Fiscal Year 1998 Quarter Quarter Quarter Quarter (1) 1998
------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C>
Net sales $37,559 $37,758 $40,607 $38,117 $154,041
Gross profit 8,334 7,957 8,318 7,446 32,055
Income (loss) from continuing operations 1,175 672 847 (1,776) 918
Discontinued operations - - 363 565 928
------- ------- ------- -------- ----------
Net income (loss) $ 1,175 $ 672 $ 1,210 $ (1,211) $ 1,846
------- ------- ------- -------- ----------
Net income (loss) per share - basic:
Continuing operations $ 0.05 $ 0.03 $ 0.04 $ (0.09) $ 0.04
Discontinued operations - - 0.01 0.03 0.04
------- ------- ------- -------- ----------
Net income (loss) $ 0.05 $ 0.03 $ 0.05 $ (0.06) $ 0.08
------- ------- ------- -------- ----------
Net income (loss) per share - diluted:
Continuing operations $ 0.05 $ 0.03 $ 0.04 $ (0.09) $ 0.04
Discontinued operations - - 0.01 0.03 0.04
------- ------- ------- -------- ----------
Net income (loss) $ 0.05 $ 0.03 $ 0.05 $ (0.06) $ 0.08
------- ------- ------- -------- ----------
</TABLE>
- --------
(1) Results from continuing operations for the fourth quarter of fiscal year
1998 include a provision for restructuring costs of $625.
S. LITIGATION
As previously reported in the Company's Annual Report for the fiscal year ended
June 27, 1997, on or about March 31, 1995, certain shareholders of the Company
filed a complaint in the United States District Court for the Eastern District
of Pennsylvania against the Company and its Chief Executive Officer alleging
violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934
and common law. On September 27, 1997, a tentative settlement was reached with
respect to this litigation and the settlement amount was recorded in the
financial statements during the first quarter of fiscal year 1998. On July 14,
1998, the United States District Court for the Eastern District of Pennsylvania
approved the settlement reached by the parties and dismissed the case with
prejudice.
T. SEGMENT INFORMATION
The Company adopted the Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (Statement
131), in fiscal year 1999. In fiscal year 1999 and 1998, the Company operated in
two industry segments; the Electronic Distribution Products segment, which
provides HFC equipment for signal distribution applications and technical
services primarily to the CATV market and the Broadband Management Services
segment, which provides Internet enabling technical services and support to
broadband operators in the United States. In fiscal year 1997, the Company
operated in three industry segments: the Electronic Distribution Products
segment, the Broadband Management Services segment, and the Digital Fiber Optics
Transmission Products segment, which has been reported as a discontinued
business segment and provided products for long-distance, point-to-point video,
voice and data signal transmission applications, primarily for telephony,
distance-learning and other non-CATV markets. On July 10, 1997, the Company
announced the discontinuation of its Digital Fiber Optics Transmission Products
segment.
Information about industry segments for fiscal years 1999, 1998, and 1997 is as
follows:
<TABLE>
<CAPTION>
Discontinued
Continuing Operations Operations
----------------------------------------- ---------------------
Digital
Electronic Broadband Fiber Optics
Distribution Management Transmission
Products Services Products Total
-------------------- ------------------- --------------------- ----------------
Year ended June 25, 1999
<S> <C> <C> <C> <C>
Total revenue $ 176,790 $ 6,635 $ - $183,425
Operating income (loss) 8,154 (2,508) - 5,646
Investment income 150 109 - 259
Interest expense 1,376 8 - 1,384
Income tax expense 4,835 - 477 5,312
Identifiable assets at June 25, 1999 95,672 6,844 1,286 103,802
Capital expenditures 6,828 1,331 - 8,159
Depreciation and amortization 8,496 364 - 8,860
Year ended June 26, 1998
Total revenue $ 152,765 $ 1,276 $ - $154,041
Operating income (loss) 3,278 (1,560) - 1,718
Investment income 369 23 - 392
Interest expense 390 9 - 399
Income tax expense (benefit) 972 (590) (94) 288
Identifiable assets at June 26, 1998 82,319 1,755 2,889 86,963
Capital expenditures 9,287 766 - 10,053
Depreciation and amortization 6,792 175 - 6,967
Year ended June 27, 1997
Total revenue $ 132,676 $ 1,104 $ 7,994 $141,774
Operating income (loss) 1,501 (433) (9,357) (8,289)
Investment income 712 9 - 721
Interest expense 371 9 - 380
Income tax expense (benefit) 788 (137) (2,752) (2,101)
Identifiable assets at June 27, 1997 82,099 952 7,530 90,581
Capital expenditures 6,989 255 698 7,942
Depreciation and amortization 5,371 62 1,388 6,821
</TABLE>
<PAGE>
The Company and subsidiaries operate in various geographic areas. The table
below presents the Company's continuing operations in each of the geographic
areas as indicated by the following:
<TABLE>
<CAPTION>
U.S. Canada Europe Eliminations Total
--------------- ------------- ---------- ------------------- ----------------
Year ended June 25, 1999
Sales to unaffiliated customers:
<S> <C> <C> <C> <C> <C>
Domestic $ 163,889 $ 421 $236 $ - $ 164,546
Export 18,879 - - - 18,879
Transfers between geographic areas 162 - - (162) -
Total revenue 182,930 421 236 (162) 183,425
Operating income (loss) 5,958 (280) (32) - 5,646
Investment income 259 - - - 259
Interest expense 1,384 - - - 1,384
Income tax expense 4,835 - - - 4,835
Identifiable assets at June 25, 1999 101,524 509 483 - 102,516
Capital expenditures 8,159 - - - 8,159
Depreciation and amortization 8,824 12 24 - 8,860
Year ended June 26, 1998
Sales to unaffiliated customers:
Domestic $ 121,371 $1,635 $146 $ - $ 123,152
Export 30,889 - - - 30,889
Transfers between geographic areas 798 - - (798) -
Total revenue 153,058 1,635 146 (798) 154,041
Operating income 1,239 290 189 - 1,718
Investment income 390 - 2 - 392
Interest expense 398 - 1 - 399
Income tax expense 405 8 (31) - 382
Identifiable assets at June 26, 1998 82,839 954 281 - 84,074
Capital expenditures 10,052 1 - - 10,053
Depreciation and amortization 6,931 12 24 - 6,967
Year ended June 27, 1997
Sales to unaffiliated customers:
Domestic $ 107,723 $1,523 $751 $ - $ 109,997
Export 23,783 - - - 23,783
Transfers between geographic areas (95) - - 95 -
Total revenue 131,411 1,523 751 95 133,780
Operating income 889 162 17 - 1,068
Investment income 716 - 5 - 721
Interest expense 379 - 1 - 380
Income tax expense 553 100 (2) - 651
Identifiable assets at June 27, 1997 80,911 1,542 598 - 83,051
Capital expenditures 7,212 6 26 - 7,244
Depreciation and amortization 5,370 12 51 - 5,433
</TABLE>
U. SUBSEQUENT EVENT
In December 1999, the Company amended its credit agreement established with
three banks under which it may borrow up to $70,000. The agreement has two
parts. First, $20,000 is available as a revolving line-of-credit, subject to an
aggregate sub-limit of $2,000 for issuance of letters of credit, which is
committed through November 30, 2000. The second part is a standby acquisition
facility, which enables the Company to borrow up to $50,000, for strategic
acquisitions and/or investments, which is also committed through November 30,
2000. A pricing matrix has been established for credit pricing on these
facilities which is a function of the Company's total funded indebtedness to
earnings before interest, taxes, depreciation and amortization (EBITDA) ratio.
Borrowings under this credit agreement bear interest at various rates, at the
Company's option. Borrowings on these facilities are unsecured, subject to a
negative pledge on all business assets, and the Company is required to maintain
certain financial ratios and indebtedness tests.
<PAGE>
FINANCIAL REPORT
To the Shareholders:
The management of C-COR.net Corp. is responsible for the preparation of all
financial statements in this Annual Report on Form 10-K. These statements were
prepared in accordance with generally accepted accounting principles from the
books and records maintained by the Company. Adequate accounting systems and
financial controls are maintained to assure that these records reflect the
transactions of the Company and that its assets are protected from loss or
unauthorized use. In addition, the Audit Committee of the Board of Directors
meets periodically with management and KPMG LLP to discuss financial reporting
matters, the internal controls, and the scope and results of the audit.
/s/ William T. Hanelly
William T. Hanelly
Vice President - Finance,
Secretary and Treasurer
March 15, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
C-COR. net Corp. and Subsidiaries:
We have audited the accompanying restated consolidated balance sheets of
C-COR.net Corp. and Subsidiaries as of June 25, 1999, and June 26, 1998, and the
related restated consolidated statements of operations, cash flows and
shareholders' equity for each of the years in the three-year period ended June
25, 1999. These restated consolidated financial statements and the restated
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these restated consolidated
financial statements and the restated financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the restated consolidated financial statements referred to above
present fairly, in all material respects, the financial position of C-COR.net
Corp. and Subsidiaries as of June 25, 1999, and June 26, 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended June 25, 1999, in conformity with generally accepted accounting
principles. Also in our opinion the related restated financial statement
schedule, when considered in relation to the basic restated consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
- ---------------------------
KPMG LLP
State College, Pennsylvania
March 10, 2000
<PAGE>
Part IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
(1) The following financial statement schedule of the Registrant is filed as a
part of this report:
Schedule II--Valuation and Qualifying Accounts
Schedules other than the one listed above, have been omitted because they
are not applicable or the required information is shown in the restated
consolidated financial statements or notes thereto.
(2) Exhibits*
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
(2) (a) Agreement and Plan of Merger dated May 15, 1999 among C-COR
Electronics, Inc., C-COR Acquisition Corp. and Convergence.com
Corporation (incorporated by reference to the Registrant's 8-K
filed on July 26, 1999).
(2) (b) Agreement and Plan of Merger dated July 13, 1999 among C-COR.net
Corp., C-COR.net Acquisition Corp. and Silicon Valley
Communications, Inc.
(3) (a) Amended and Restated Articles of Incorporation of Registrant (the
"Articles of Incorporation") filed with the Secretary of State of
the Commonwealth of Pennsylvania on February 19, 1981.
(3) (b) Amendment to the Articles of Incorporation of Registrant filed with
the Secretary of State of the Commonwealth of Pennsylvania on
November 14, 1986.
(3) (c) Amendment to the Articles of Incorporation filed with the Secretary
of State of the Commonwealth of Pennsylvania on September 21, 1995.
(3) (d) Amendment to the Articles of Incorporation filed with the Secretary
of State of the Commonwealth of Pennsylvania on July 9, 1999.
(3) (e) Bylaws of Registrant, as amended through August 17, 1999.
(4) (a) Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4 to Amendment No. 1 of Form S-1 Registration Statement,
File No. 2-70661).
(4) (b) Rights Agreement, dated as of August 17, 1999, between C-COR.net
Corp. and American Stock Transfer and Trust Co, as Rights Agent,
including the Form of Statement with Respect to Shares as Exhibit
A, the Form of Right Certificate as Exhibit B, and the Summary of
Rights as Exhibit C (incorporated by Reference to Registrant's 8-K
filed on August 30, 1999.
(10) (a) Deferred Compensation Plan between the Registrant and Richard E.
Perry dated December 6, 1989, (incorporated by reference to Exhibit
(10) (y) to the Registrant's Form 10-K for the year ended June 30,
1990, Securities and Exchange Commission File No. 0-10726).
(10) (b) 1989 Non-Employee Directors' Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 28 to Form S-8 Registration
Statement, File No. 33-35208).
(10) (c) Indemnification Agreement dated February 3, 1992, between the
Registrant and Gerhard B. Nederlof (incorporated by reference to
Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended
June 26, 1992, Securities and Exchange Commission File No. 0-
10726).
(10) (d) Supplemental Retirement Plan Participation Agreement dated April
20, 1993, between the Registrant and Gerhard B. Nederlof
(incorporated by reference to Exhibit (10) (bb) to the Registrant's
Form 10-K for the year ended June 25, 1993, Securities and Exchange
Commission File No. 0-10726).
(10) (e) Change of Control Agreement dated May 21, 1993, between the
Registrant and Gerhard B. Nederlof (incorporated by reference to
Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended
June 25, 1993, Securities and Exchange Commission File No. 0-
10726).
(10) (f) Change of Control Agreement dated August 22, 1994, between the
Registrant and David J. Eng (incorporated by reference to Exhibit
(10) (oo) to the Registrant's Form 10-K for the year ended June 24,
1994, Securities and Exchange Commission File No. 0-10726).
(10) (g) Form of Indemnification Agreement dated August 22, 1994, between
the Registrant and David J. Eng (incorporated by reference to
Exhibit (10) (pp) to the Registrant's Form 10-K for the year ended
June 24, 1994, Securities and Exchange Commission File No.
0-10726).
(10) (h) Supplemental Retirement Plan Participation Agreement dated August
22, 1994, between the Registrant and David J. Eng (incorporated by
reference to Exhibit (10) (qq) to the Registrant's Form 10-K for
the year ended June 24, 1994, Securities and Exchange Commission
File No. 0-10726).
(10)(i) Change of Control Agreement dated May 23, 1995, between the
Registrant and Joseph E. Zavacky (incorporated by reference to
Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended
June 30, 1995, Securities and Exchange Commission File No.
0-10726).
(10) (j) Form of Indemnification Agreement dated May 23, 1995, between the
Registrant and Joseph E. Zavacky (incorporated by reference to
Exhibit (10) (hh) to the Registrant's Form 10-K for the year ended
June 30, 1995, Securities and Exchange Commission File No.0-10726).
(10) (k) Supplemental Retirement Plan Participation Agreement dated May 22,
1995, between the Registrant and Chris A. Miller (incorporated by
reference to Exhibit (10) (ii) to the Registrant's Form 10-K for
the year ended June 30, 1995, Securities and Exchange Commission
File No. 0-10726).
(10) (l) Change of Control Agreement dated May 22, 1995, between the
Registrant and Chris A. Miller (incorporated by reference to
Exhibit (10) (jj) to the Registrant's Form 10-K for the year ended
June 30, 1995, Securities and Exchange Commission File No. 0-
10726).
(10) (m) Form of Indemnification Agreement dated May 22, 1995, between the
Registrant and Chris A. Miller (incorporated by reference to
Exhibit (10) (kk) to the Registrant's Form 10-K for the year ended
June 30, 1995, Securities and Exchange Commission File No. 0-
10726).
(10) (n) Supplemental Retirement Plan Participation Agreement dated August
24, 1995, between the Registrant and Donald F. Miller (incorporated
by reference to Exhibit (10) (ll) to the Registrant's Form 10-K for
the year ended June 30, 1995, Securities and Exchange Commission
File No. 0-10726).
(10) (o) Change of Control Agreement dated August 24, 1995, between the
Registrant and Donald F. Miller (incorporated by reference to
Exhibit (10) (mm) to the Registrant's Form 10-K for the year ended
June 30, 1995, Securities and Exchange Commission File No.
0-10726).
(10) (p) Form of Indemnification Agreement dated August 24, 1995, between
the Registrant and Donald F. Miller (incorporated by reference to
Exhibit (10) (nn) to the Registrant's Form 10-K for the year ended
June 30, 1995, Securities and Exchange Commission File No. 0-
10726).
(10) (q) Registrant's Retirement Savings and Profit Sharing Plan as Amended
July 1, 1989, and including amendments through April 19, 1994
(incorporated by reference to Exhibit 99.B14 to Form S-8
Registration Statement, File No. 333-02505).
(10) (r) Supplemental Retirement Plan Participation Agreement dated August
13, 1996, between the Registrant and Lawrence R. Fisher, Jr.
(incorporated by reference to Exhibit (10) (aa) to the Registrant's
Form 10-K for the year ended June 28, 1996, Securities and Exchange
Commission File No.0-10726).
(10) (s) Change of Control Agreement dated August 13, 1996, between the
Registrant and Lawrence R. Fisher, Jr. (incorporated by reference
to Exhibit (10) (bb) to the Registrant's Form 10-K for the year
ended June 28, 1996, Securities and Exchange Commission File No.
0-10726).
(10) (t) Form of Indemnification Agreement dated August 13, 1996, between
the Registrant and Lawrence R. Fisher, Jr. (incorporated by
reference to Exhibit (10) (cc) to the Registrant's Form 10-K for
the year ended June 28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10) (u) Amended and Restated Employment Agreement dated October 16, 1995,
between the Registrant and Richard E. Perry (incorporated by
reference to Exhibit (10) (dd) to the Registrant's Form 10-K for
the year ended June 28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10) (v) Registrant's Supplemental Executive Retirement Plan effective
May 1, 1996 (incorporated by reference to Exhibit (10) (ff) to
the Registrant's Form 10-K for the year ended June 28, 1996,
Securities and Exchange Commission File No. 0-10726).
(10) (w)(i) 1988 Stock Option Plan (incorporated by reference to Exhibit
(10) (kk) (i) to the Registrant's Form 10-K for the year ended
June 28, 1996, Securities and Exchange Commission File No. 0-
10726).
(10) (w)(ii) Amendment to 1988 Stock Option Plan (incorporated by reference
to Exhibit (10) (kk) (ii) to the Registrant's Form 10-K for the
year ended June 28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10) (x)(i) 1992 Stock Purchase Plan (incorporated by reference to Exhibit
(10) (ll) (i) to the Registrant's Form 10-K for the year ended
June 28, 1996, Securities and Exchange Commission File No. 0-
10726).
(10) (x)(ii) Amendment to 1992 Stock Purchase Plan (incorporated by reference
to Exhibit (10) (ll) (ii) to the Registrant's Form 10-K for the
year ended June 28, 1996, Securities and Exchange
Commission File No. 0-10726).
(10) (y) Amended and Restated Employment Agreement dated July 21, 1997,
between the Registrant and Richard E. Perry (incorporated by
reference to Exhibit (10) (nn) to the Registrant's Form 10-K for
the year ended June 27, 1997, Securities and Exchange Commission
File No. 0-10726).
(10) (z) Amended and Restated Employment Agreement dated July 30, 1997,
between the Registrant and Gerhard B. Nederlof (incorporated by
reference to Exhibit (10) (oo) to the Registrant's Form 10-K for
the year ended June 27, 1997, Securities and Exchange Commission
File No. 0-10726).
(10) (aa) Note and Security Agreement effective December 30, 1997, between
the Registrant and Mellon Bank, N.A. (incorporated by reference
to Exhibit (10) (a) to the Registrant's Form 10-Q for the
thirteen-week period ended December 26, 1997, Securities and
Exchange Commission File No.0-10726).
(10) (bb) Supplement to Note and Security Agreement effective December 30,
1997, between the Registrant and Mellon Bank, N.A. (incorporated
by reference to Exhibit (10) (b) to the Registrant's Form 10-Q
for the thirteen-week period ended December 26, 1997, Securities
and Exchange Commission File No. 0-10726).
(10) (cc) Revolving Line of Credit Agreement effective December 30, 1997,
between the Registrant and Mellon Bank, N.A. (incorporated by
reference to Exhibit (10) (c) to the Registrant's Form 10-Q for
the thirteen-week period ended December 26, 1997, Securities and
Exchange Commission File No. 0-10726).
(10) (dd) Supplement to Revolving Line of Credit Agreement effective
December 30, 1997, between the Registrant and Mellon Bank, N.A.
(incorporated by reference to Exhibit (10) (d) to the
Registrant's Form 10-Q for the thirteen-week period ended
December 26, 1997, Securities and Exchange Commission File No.
0-10726).
(10) (ee) Supplemental Retirement Plan Participation Agreement dated
February 23, 1998, between the Registrant and Lynn D. Hutcheson
(incorporated by reference to Exhibit (10) (oo) to the
Registrant's Form 10-K for the year ended June 26, 1998,
Securities and Exchange Commission File No. 0-10726).
(10) (ff) Employment Agreement dated June 22, 1998, between the Registrant
and David A. Woodle (incorporated by reference to Exhibit (10)
(rr) to the Registrant's Form 10-K for the year ended June 26,
1998, Securities and Exchange Commission File No. 0-10726).
(10) (gg) Fiscal Year 1999 Profit Incentive Plan (incorporated by
reference to Exhibit (10) (ss) to the Registrant's Form 10-K for
the year ended June 26, 1998, Securities and Exchange Commission
File No. 0-10726).
(10) (hh) C-COR Electronics, Inc. Incentive Plan (incorporated by
reference to Exhibit (10) (tt) to the Registrant's Form 10-K for
the year ended June 26, 1998, Securities and Exchange Commission
File No. 0-10726).
(10) (ii) Supplemental Retirement Plan Participation Agreement dated
November 9, 1998, between the Registrant and Mary G. Beahm.
(10) (jj) Change of Control Agreement dated November 9, 1998, between the
Registrant and Mary G. Beahm.
(10) (kk) Form of Indemnification Agreement dated November 9, 1998,
between the Registrant and Mary G. Beahm.
(10) (ll) Supplemental Retirement Plan Participation Agreement dated
October 19, 1998, between the Registrant and William T. Hanelly.
(10) (mm) Change of Control Agreement dated October 19, 1998, between the
Registrant and William T. Hanelly.
(10) (nn) Form of Indemnification Agreement dated October 19, 1998,
between the Registrant and William T. Hanelly.
(10) (oo) Credit Agreement dated August 9, 1999, between the Registrant
and Broadband Capital Corporation as borrowers, and The Banks
Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent.
(10) (pp) Fiscal Year 2000 Profit Incentive Plan (PIP).
(10) (qq) Amended and Restated Employment Agreement dated September 14,
1999 between the Registrant and David A. Woodle.
(10) (rr) Employment Agreement dated July 9, 1999 between the Registrant
and David R. Ames.
(10) (ss) Employment Agreement dated July 9, 1999 between the Registrant
and Terry L. Wright.
(11) Statement re Computation of Earnings Per Share.
(13) Annual Report to Shareholders for the year ended June 25, 1999.
(21) Subsidiaries of the Registrant.
(23) (a) Consent of Independent Accountant of C-COR.net Corp.
(27.1) Restated Financial Data Schedule
(27.2) Restated Financial Data Schedule
(27.3) Restated Financial Data Schedule
* All exhibits listed herein, other than Exhibit - 23(a) Consent of
Independent Auditors of C-COR.net Corp. and Exhibits - 27.1 through 27.3
Restated Financial Data Schedules, and not otherwise incorporated by
reference to reports or registration statements of the Registrant were
filed with the Registrant's report on Form 10-K for the fiscal ended June
25,1999. Such exhibits are incorporated herein by reference and made a
part hereof.
<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)
March 15, 2000 By: /s/ William T. Hanelly
---------------------------
William T. Hanelly
Vice President-Finance,
Secretary and Treasurer
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C
- ----------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Balance at Charged Charged to
Beginning to Costs Costs Accounts-
Description of Period and Expenses Describe
- ----------------------------------------------------------------------------------------------------------
Year ended June 25, 1999
Reserves deducted from assets to which they apply:
<S> <C> <C> <C>
Allowance for Doubtful Accounts $ 923,000 $ 325,000 $0
Inventory Reserve - Continuing Operations 3,213,000 1,757,000 0
Inventory Reserve - Discontinued Operations 845,000 0 0
--------------- ------------- -------------
$ 4,981,000 $ 2,082,000 $0
============== ============= =============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,733,000 $ 1,184,000 $0
Product Warranty Reserve - Discontinued Operations 2,291,000 (301,000) 0
Workers' compensation self-insurance 1,319,000 837,000 0
Allowance for Discontinued Operations 600,000 (475,000) 0
--------------- ------------- -------------
$ 5,943,000 $ 1,245,000 $0
============== ============= =============
Year ended June 26, 1998
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 756,000 $ 168,000 $0
Inventory Reserve - Continuing Operations 1,233,000 2,900,000 0
Inventory Reserve - Discontinued Operations 3,630,000 (1,573,000) 0
--------------- ------------- -------------
$ 5,619,000 $ 1,495,000 $0
============== ============= =============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 2,185,000 $ 983,000 $0
Product Warranty Reserve - Discontinued Operations 3,429,000 1,283,000 0
Workers' compensation self-insurance 1,162,000 921,000 0
Allowance for Discontinued Operations 3,375,000 0 0
--------------- ------------- -------------
$ 10,151,000 $ 3,187,000 $0
============== ============= =============
Year ended June 27, 1997
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 601,000 $ 181,000 $0
Inventory Reserve - Continuing Operations 1,112,000 1,323,000 0
Inventory Reserve - Discontinued Operations 305,000 3,418,000 0
--------------- ------------- -------------
$ 2,018,000 $ 4,922,000 $0
============== ============= =============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,724,000 $ 2,310,000 $0
Product Warranty Reserve - Discontinued Operations 0 4,028,000 0
Workers' compensation self-insurance 704,000 1,068,000 0
Allowance for Discontinued Operations 0 3,375,000 0
--------------- ------------- -------------
$ 2,428,000 $10,781,000 $0
============== ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Col. A Col. D Col. E
- ------------------------------------------------------------------------------------------------
Balance at
Deductions- End
Description Describe of Period
- ------------------------------------------------------------------------------------------------
Year ended June 25, 1999
Reserves deducted from assets to which they apply:
<S> <C> <C>
Allowance for Doubtful Accounts $ 241,000 (1) $ 1,007,000
Inventory Reserve - Continuing Operations 2,739,000 (2) 2,231,000
Inventory Reserve - Discontinued Operations 845,000 (2) 0
------------- -------------
$ 3,825,000 $ 3,238,000
============ =============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,175,000 (3) $ 1,742,000
Product Warranty Reserve - Discontinued Operations 1,580,000 (3) 410,000
Workers' compensation self-insurance 432,000 (4) 1,724,000
Allowance for Discontinued Operations 0 (5) 125,000
------------ -------------
$ 3,187,000 $ 4,001,000
============ =============
Year ended June 26, 1998
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 1,000 (1) $ 923,000
Inventory Reserve - Continuing Operations 920,000 (2) 3,213,000
Inventory Reserve - Discontinued Operations 1,212,000 (2) 845,000
------------- -------------
$ 2,133,000 $ 4,981,000
============= =============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,435,000 (3) $ 1,733,000
Product Warranty Reserve - Discontinued Operations 2,421,000 (3) 2,291,000
Workers' compensation self-insurance 764,000 (4) 1,319,000
Allowance for Discontinued Operations 2,775,000 (5) 600,000
------------- -------------
$ 7,395,000 $ 5,943,000
============= =============
Year ended June 27, 1997
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 2,000 (1) $ 780,000
Inventory Reserve - Continuing Operations 1,202,000 (2) 1,233,000
Inventory Reserve - Discontinued Operations 93,000 (2) 3,630,000
------------ -------------
$ 1,297,000 $ 5,643,000
============ =============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,849,000 (3) $ 2,185,000
Product Warranty Reserve - Discontinued Operations 599,000 (3) 3,429,000
Workers' compensation self-insurance 610,000 (4) 1,162,000
Allowance for Discontinued Operations 0 3,375,000
------------ -------------
$ 3,058,000 $10,151,000
============ =============
</TABLE>
[FN]
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory disposals.
(3) Warranty claims honored during year.
(4) Workers compensation claims paid.
(5) Expenses for Discontinued Operations incurred from measurement date to
disposal date.
Note: Unless otherwise indicated, reserves relate to continuing operations.
</FN>
Consent of Independent Accountants
The Board of Directors
C-COR.net Corp.:
We consent to the incorporation by reference in the registration statements
(Nos. 2-95959, 33-27440, 33-35208, 33-66590, 333-65805, 333-02505, 333-89067 and
333-30982) on Form S-8 and (Nos. 333-82697, 333-87909, 333-90011 and 333-90589)
on Form S-3 of C-COR.net Corp. of our report dated March 10, 2000, with respect
to the restated consolidated balance sheets of C-COR.net Corp. as of June 25,
1999 and June 26, 1998, and the related restated consolidated statements of
operations, cash flows and shareholders' equity for each of the years in the
three-year period ended June 25, 1999, and the related restated financial
statement schedule, which report appears in the June 25, 1999 annual report on
Form 10-K/A (Amendment No. 2) of C-COR.net Corp.
/s/ KPMG LLP
- ------------------
KPMG LLP
State College, Pennsylvania
March 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-26-1997 JUN-26-1998 JUN-25-1999
<PERIOD-END> JUN-26-1997 JUN-26-1998 JUN-25-1999
<CASH> 8,801 3,030 4,695
<SECURITIES> 359 356 445
<RECEIVABLES> 20,744 20,746 32,321
<ALLOWANCES> 780 923 1,007
<INVENTORY> 20,557 17,809 23,565
<CURRENT-ASSETS> 55,021 46,390 70,244
<PP&E> 49,231 58,611 63,771
<DEPRECIATION> 22,382 28,758 35,979
<TOTAL-ASSETS> 84,566 84,074 102,949
<CURRENT-LIABILITIES> 21,775 18,806 37,998
<BONDS> 0 0 0
979 2,780 3,393
18,660 18,660 19,954
<COMMON> 1,125 1,130 1,144
<OTHER-SE> 33,480 36,090 35,423
<TOTAL-LIABILITY-AND-EQUITY> 84,566 84,074 102,949
<SALES> 133,780 154,041 183,425
<TOTAL-REVENUES> 133,780 154,041 183,425
<CGS> 106,485 121,986 138,793
<TOTAL-COSTS> 26,227 29,712 38,986
<OTHER-EXPENSES> (861) 644 110
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 380 399 1,384
<INCOME-PRETAX> 1,549 1,300 4,152
<INCOME-TAX> 651 382 4,835
<INCOME-CONTINUING> 898 918 (683)
<DISCONTINUED> (10,435) 928 397
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (9,537) 1,846 (286)
<EPS-BASIC> (0.43) 0.08 (0.04)
<EPS-DILUTED> (0.38) 0.08 (0.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-26-1998 JUN-26-1998 JUN-26-1998 JUN-26-1998
<PERIOD-END> SEP-26-1997 DEC-26-1997 MAR-27-1998 JUN-26-1998
<CASH> 7,837 3,833 6,047 3,030
<SECURITIES> 363 352 351 356
<RECEIVABLES> 21,861 23,083 22,323 20,746
<ALLOWANCES> 553 860 895 923
<INVENTORY> 20,982 23,945 22,846 17,809
<CURRENT-ASSETS> 55,385 55,346 55,688 46,390
<PP&E> 50,646 53,919 57,414 58,611
<DEPRECIATION> 24,107 25,986 27,659 28,758
<TOTAL-ASSETS> 83,653 85,926 89,158 84,074
<CURRENT-LIABILITIES> 20,566 22,261 23,083 18,806
<BONDS> 0 0 0 0
0 979 1,028 2,780
18,660 18,660 18,660 18,660
<COMMON> 1,322 1,323 1,326 1,130
<OTHER-SE> 36,003 35,758 38,276 36,090
<TOTAL-LIABILITY-AND-EQUITY> 83,653 85,926 89,158 84,074
<SALES> 37,559 37,758 40,607 38,117
<TOTAL-REVENUES> 37,559 37,758 40,607 38,117
<CGS> 29,224 29,801 32,289 30,672
<TOTAL-COSTS> 6,493 7,048 7,391 8,780
<OTHER-EXPENSES> 181 64 (184) 583
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 92 87 132 88
<INCOME-PRETAX> 1,569 758 979 (2,006)
<INCOME-TAX> 394 86 132 (230)
<INCOME-CONTINUING> 1,175 672 847 (1,776)
<DISCONTINUED> 0 0 363 565
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,175 672 1,210 (1,211)
<EPS-BASIC> 0.05 0.03 0.05 (0.06)
<EPS-DILUTED> 0.05 0.03 0.05 (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-25-1999 JUN-25-1999 JUN-25-1999 JUN-25-1999
<PERIOD-END> SEP-25-1998 DEC-25-1998 MAR-26-1999 JUN-25-1999
<CASH> 959 4,773 4,434 4,695
<SECURITIES> 356 399 383 445
<RECEIVABLES> 19,929 26,546 26,238 32,321
<ALLOWANCES> 1,076 1,147 1,162 1,007
<INVENTORY> 18,051 19,503 22,580 23,565
<CURRENT-ASSETS> 47,193 59,474 62,055 70,244
<PP&E> 58,051 59,517 62,073 63,771
<DEPRECIATION> 30,467 32,233 33,947 35,979
<TOTAL-ASSETS> 78,781 91,003 94,538 102,949
<CURRENT-LIABILITIES> 18,099 29,570 32,537 37,998
<BONDS> 0 0 0 0
3,126 3,102 3,248 3,393
18,660 18,660 18,660 19,954
<COMMON> 1,332 1,332 1,133 1,144
<OTHER-SE> 34,608 32,939 33,719 35,423
<TOTAL-LIABILITY-AND-EQUITY> 78,781 91,003 94,538 102,949
<SALES> 34,654 39,651 47,291 61,829
<TOTAL-REVENUES> 34,654 39,651 47,291 61,829
<CGS> 27,128 30,052 36,412 45,201
<TOTAL-COSTS> 8,144 9,656 8,992 12,194
<OTHER-EXPENSES> (26) 140 (122) 118
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 53 104 180 1,047
<INCOME-PRETAX> (645) (301) 1,829 3,269
<INCOME-TAX> 471 691 1,241 2,432
<INCOME-CONTINUING> (1,116) (992) 588 837
<DISCONTINUED> 288 16 0 93
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (828) (976) 588 930
<EPS-BASIC> (0.05) (0.05) 0.02 0.03
<EPS-DILUTED> (0.05) (0.05) 0.02 0.04
</TABLE>
