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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the thirteen-week period ended: December 23, 2005



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



C-COR Incorporated

(Exact Name of Registrant as Specified in Charter)



|                                               |  |                          |  |                                  
|---------------------------------------------- |  | ------------------------ |  | ---------------------------------
|Pennsylvania                                   |  | 0-10726                  |  | 24-0811591                       
|(State or Other Jurisdiction of Incorporation) |  | (Commission File Number) |  | (IRS Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|60 Decibel Road State College, PA        |  | 16801     
|(Address of Principal Executive Offices) |  | (Zip Code)



(814) 238-2461

(Registrants Telephone Number, Including Area Code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes  x    No ̈



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes ̈No  x



APPLICABLE ONLY TO CORPORATE ISSUERS



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



Common Stock, $.05 Par Value  47,873,894 shares as of January 20,
2006.



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##### Table of Contents

C-COR Incorporated



|                                                                                                               |  |      
|-------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                               |  | Page 
|Part I  FINANCIAL INFORMATION                                                                                 |  |      
|Item 1. Financial Statements                                                                                   |  |      
|Report of Independent Registered Public Accounting Firm                                                        |  | 2    
|Condensed Consolidated Balance Sheets:As of December 23, 2005 and June 24, 2005                                |  | 3    
|Condensed Consolidated Statements of Operations:Thirteen Weeks Ended December 23, 2005 and December 24, 2004   |  | 4    
|Condensed Consolidated Statements of Operations:Twenty-Six Weeks Ended December 23, 2005 and December 24, 2004 |  | 5    
|Condensed Consolidated Statements of Cash Flows:Twenty-Six Weeks Ended December 23, 2005 and December 24, 2004 |  | 6    
|Notes to Condensed Consolidated Financial Statements                                                           |  | 7-19 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 20-27
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                             |  | 28   
|Item 4. Controls and Procedures                                                                                |  | 28   
|                                                                                                               | 
|Part II  OTHER INFORMATION                                                                                    |  |      
|Item 4. Submission of Matters to a Vote of Shareholders                                                        |  | 29   
|Item 6. Exhibits                                                                                               |  | 29   
|Signatures                                                                                                     |  | 30   



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Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

C-COR Incorporated:



We have reviewed the condensed consolidated balance sheet of C-COR Incorporated and subsidiaries as of December 23, 2005, and the
related condensed consolidated statements of operations for the thirteen week and twenty-six week periods ended December 23, 2005 and December 24, 2004, and the related condensed consolidated statements of cash flows for the twenty-six
week periods ended December 23, 2005 and December 24, 2004. These condensed consolidated financial statements are the responsibility of the Companys management.



We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of
interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



Based on our review, we are not aware of any material modifications that should be made to
the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.



As discussed in Note 3 to the condensed consolidated financial statements, the Company changed its method of accounting for stock based compensation effective
June 25, 2005.



We have previously audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of C-COR Incorporated and subsidiaries as of June 24, 2005, and the related consolidated statements of operations, cash flows, and
shareholders equity for the year then ended (not presented herein); and in our report dated September 7, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of June 24, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



Harrisburg, Pennsylvania

February 1, 2006



2



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##### Table of Contents

PART I FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



C-COR Incorporated

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)



|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                                                 |  | December 23, 2005 |          |   | June 24, 2005 |  
|ASSETS                                                                                                                                           |  |                   |          |   |               |   |          |  
|Current assets                                                                                                                                   |  |                   |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                                        |  | $                 | 35,755   |   |               | $ | 43,320   |  
|Restricted cash                                                                                                                                  |  |                   | 3,526    |   |               |   | 3,690    |  
|Marketable securities                                                                                                                            |  |                   | 5,645    |   |               |   | 9,327    |  
|Accounts receivable, net                                                                                                                         |  |                   | 42,103   |   |               |   | 52,148   |  
|Unbilled receivables                                                                                                                             |  |                   | 3,371    |   |               |   | 1,592    |  
|Inventories                                                                                                                                      |  |                   | 27,838   |   |               |   | 41,628   |  
|Deferred costs                                                                                                                                   |  |                   | 6,094    |   |               |   | 6,826    |  
|Other current assets                                                                                                                             |  |                   | 5,659    |   |               |   | 5,563    |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|Total current assets                                                                                                                             |  |                   | 129,991  |   |               |   | 164,094  |  
|Property, plant, and equipment, net                                                                                                              |  |                   | 21,749   |   |               |   | 21,533   |  
|Goodwill                                                                                                                                         |  |                   | 131,934  |   |               |   | 131,963  |  
|Other intangible assets, net                                                                                                                     |  |                   | 6,932    |   |               |   | 14,714   |  
|Deferred taxes                                                                                                                                   |  |                   | 1,416    |   |               |   | 1,449    |  
|Other long-term assets                                                                                                                           |  |                   | 4,428    |   |               |   | 4,002    |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|Total assets                                                                                                                                     |  | $                 | 296,450  |   |               | $ | 337,755  |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                             |  |                   |          |   |               |   |          |  
|Current liabilities                                                                                                                              |  |                   |          |   |               |   |          |  
|Accounts payable                                                                                                                                 |  | $                 | 22,349   |   |               | $ | 36,332   |  
|Accrued liabilities                                                                                                                              |  |                   | 25,622   |   |               |   | 25,299   |  
|Deferred revenue                                                                                                                                 |  |                   | 14,590   |   |               |   | 14,887   |  
|Deferred taxes                                                                                                                                   |  |                   | 1,861    |   |               |   | 1,339    |  
|Current portion of long-term debt                                                                                                                |  |                   | 219      |   |               |   | 162      |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|Total current liabilities                                                                                                                        |  |                   | 64,641   |   |               |   | 78,019   |  
|Long-term debt, less current portion                                                                                                             |  |                   | 35,736   |   |               |   | 35,617   |  
|Deferred revenue                                                                                                                                 |  |                   | 2,424    |   |               |   | 3,111    |  
|Deferred taxes                                                                                                                                   |  |                   | 1,112    |   |               |   | 478      |  
|Other long-term liabilities                                                                                                                      |  |                   | 3,699    |   |               |   | 3,491    |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|Total liabilities                                                                                                                                |  |                   | 107,612  |   |               |   | 120,716  |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|Commitments and contingencies                                                                                                                    |  |                   |          |   |               |   |          |  
|Shareholders equity                                                                                                                             |  |                   |          |   |               |   |          |  
|Preferred stock, no par value; authorized shares of 2,000,000; none issued                                                                       |  |                   |         |   |               |   |         |  
|Common stock, $.05 par; authorized shares of 100,000,000; issued shares of 51,514,912 as of December 23, 2005 and 51,394,422 as of
June 24, 2005 |  |                   | 2,576    |   |               |   | 2,570    |  
|Additional paid-in capital                                                                                                                       |  |                   | 381,086  |   |               |   | 378,334  |  
|Accumulated other comprehensive income                                                                                                           |  |                   | 4,799    |   |               |   | 5,387    |  
|Unearned compensation                                                                                                                            |  |                   |         |   |               |   | (161     | )
|Accumulated deficit                                                                                                                              |  |                   | (165,280 | ) |               |   | (134,741 | )
|Treasury stock at cost, 3,645,145 shares as of December 23, 2005 and 3,645,716 shares as of June 24, 2005                                        |  |                   | (34,343  | ) |               |   | (34,350  | )
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|Shareholders equity                                                                                                                             |  |                   | 188,838  |   |               |   | 217,039  |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  
|Total liabilities and shareholders equity                                                                                                       |  | $                 | 296,450  |   |               | $ | 337,755  |  
|                                                                                                                                                 |  |                   |          |   |               |   |          |  



See notes to condensed
consolidated financial statements.



3



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C-COR Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                      |         |   |                   |   |        |  
|------------------------------------------------------------ |  | -------------------- | ------- | - | ----------------- | - | ------ | -
|                                                             |  | Thirteen Weeks Ended |        
|                                                             |  | December 23, 2005    |         |   | December 24, 2004 |  
|Net sales:                                                   |  |                      |         |   |                   |   |        |  
|Products                                                     |  | $                    | 36,404  |   |                   | $ | 41,581 |  
|Services                                                     |  |                      | 12,647  |   |                   |   | 12,884 |  
|Content and operations management systems                    |  |                      | 17,617  |   |                   |   | 4,022  |  
|                                                             |  |                      |         |   |                   |   |        |  
|Total net sales                                              |  |                      | 66,668  |   |                   |   | 58,487 |  
|                                                             |  |                      |         |   |                   |   |        |  
|Cost of sales:                                               |  |                      |         |   |                   |   |        |  
|Products                                                     |  |                      | 23,719  |   |                   |   | 23,847 |  
|Services                                                     |  |                      | 10,859  |   |                   |   | 10,618 |  
|Content and operations management systems                    |  |                      | 9,444   |   |                   |   | 1,126  |  
|Excess and obsolete inventory charge                         |  |                      | 1,622   |   |                   |   |       |  
|                                                             |  |                      |         |   |                   |   |        |  
|Total cost of sales                                          |  |                      | 45,644  |   |                   |   | 35,591 |  
|                                                             |  |                      |         |   |                   |   |        |  
|Gross margin                                                 |  |                      | 21,024  |   |                   |   | 22,896 |  
|                                                             |  |                      |         |   |                   |   |        |  
|Operating expenses:                                          |  |                      |         |   |                   |   |        |  
|Selling and administrative                                   |  |                      | 18,160  |   |                   |   | 14,199 |  
|Research and product development                             |  |                      | 9,972   |   |                   |   | 8,600  |  
|Amortization of intangibles                                  |  |                      | 1,278   |   |                   |   | 1,200  |  
|Impairment of long-lived assets                              |  |                      | 5,330   |   |                   |   |       |  
|Restructuring charge                                         |  |                      | 1,367   |   |                   |   | 619    |  
|                                                             |  |                      |         |   |                   |   |        |  
|Total operating expenses                                     |  |                      | 36,107  |   |                   |   | 24,618 |  
|                                                             |  |                      |         |   |                   |   |        |  
|Loss from operations                                         |  |                      | (15,083 | ) |                   |   | (1,722 | )
|Other income (expense), net:                                 |  |                      |         |   |                   |   |        |  
|Interest expense                                             |  |                      | (329    | ) |                   |   | (25    | )
|Investment income                                            |  |                      | 317     |   |                   |   | 488    |  
|Foreign exchange gain (loss)                                 |  |                      | (113    | ) |                   |   | 265    |  
|Other income, net                                            |  |                      | 235     |   |                   |   | 229    |  
|                                                             |  |                      |         |   |                   |   |        |  
|Loss before income taxes                                     |  |                      | (14,973 | ) |                   |   | (765   | )
|Income tax expense                                           |  |                      | 738     |   |                   |   | 792    |  
|                                                             |  |                      |         |   |                   |   |        |  
|Net loss                                                     |  | $                    | (15,711 | ) |                   | $ | (1,557 | )
|                                                             |  |                      |         |   |                   |   |        |  
|Net loss per share:                                          |  |                      |         |   |                   |   |        |  
|Basic                                                        |  | $                    | (0.33   | ) |                   | $ | (0.04  | )
|Diluted                                                      |  | $                    | (0.33   | ) |                   | $ | (0.04  | )
|Weighted average common shares and common share equivalents: |  |                      |         |   |                   |   |        |  
|Basic                                                        |  |                      | 47,867  |   |                   |   | 43,128 |  
|Diluted                                                      |  |                      | 47,867  |   |                   |   | 43,128 |  



See notes to the
condensed consolidated financial statements.



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C-COR Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                        |         |   |                   |   |         |  
|------------------------------------------------------------ |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                                             |  | Twenty-Six Weeks Ended |        
|                                                             |  | December 23, 2005      |         |   | December 24, 2004 |  
|Net sales:                                                   |  |                        |         |   |                   |   |         |  
|Products                                                     |  | $                      | 77,187  |   |                   | $ | 86,392  |  
|Services                                                     |  |                        | 24,703  |   |                   |   | 28,081  |  
|Content and operations management systems                    |  |                        | 28,272  |   |                   |   | 6,113   |  
|                                                             |  |                        |         |   |                   |   |         |  
|Total net sales                                              |  |                        | 130,162 |   |                   |   | 120,586 |  
|                                                             |  |                        |         |   |                   |   |         |  
|Cost of sales:                                               |  |                        |         |   |                   |   |         |  
|Products                                                     |  |                        | 50,368  |   |                   |   | 51,105  |  
|Services                                                     |  |                        | 21,590  |   |                   |   | 22,690  |  
|Content and operation management systems                     |  |                        | 13,929  |   |                   |   | 2,216   |  
|Excess and obsolete inventory charge                         |  |                        | 7,736   |   |                   |   |        |  
|                                                             |  |                        |         |   |                   |   |         |  
|Total cost of sales                                          |  |                        | 93,623  |   |                   |   | 76,011  |  
|                                                             |  |                        |         |   |                   |   |         |  
|Gross margin                                                 |  |                        | 36,539  |   |                   |   | 44,575  |  
|                                                             |  |                        |         |   |                   |   |         |  
|Operating expenses:                                          |  |                        |         |   |                   |   |         |  
|Selling and administrative                                   |  |                        | 35,343  |   |                   |   | 26,150  |  
|Research and product development                             |  |                        | 20,572  |   |                   |   | 15,930  |  
|Amortization of intangibles                                  |  |                        | 2,794   |   |                   |   | 2,346   |  
|Acquired in-process technology charge                        |  |                        |        |   |                   |   | 1,850   |  
|Impairment of long-lived assets                              |  |                        | 5,330   |   |                   |   |        |  
|Restructuring charge                                         |  |                        | 1,750   |   |                   |   | 619     |  
|                                                             |  |                        |         |   |                   |   |         |  
|Total operating expenses                                     |  |                        | 65,789  |   |                   |   | 46,895  |  
|                                                             |  |                        |         |   |                   |   |         |  
|Loss from operations                                         |  |                        | (29,250 | ) |                   |   | (2,320  | )
|Other income (expense), net:                                 |  |                        |         |   |                   |   |         |  
|Interest expense                                             |  |                        | (649    | ) |                   |   | (44     | )
|Investment income                                            |  |                        | 623     |   |                   |   | 787     |  
|Foreign exchange gain (loss)                                 |  |                        | (247    | ) |                   |   | 8       |  
|Other income, net                                            |  |                        | 302     |   |                   |   | 278     |  
|                                                             |  |                        |         |   |                   |   |         |  
|Loss before income taxes                                     |  |                        | (29,221 | ) |                   |   | (1,291  | )
|Income tax expense                                           |  |                        | 1,318   |   |                   |   | 1,310   |  
|                                                             |  |                        |         |   |                   |   |         |  
|Net loss                                                     |  | $                      | (30,539 | ) |                   | $ | (2,601  | )
|                                                             |  |                        |         |   |                   |   |         |  
|Net loss per share:                                          |  |                        |         |   |                   |   |         |  
|Basic                                                        |  | $                      | (0.64   | ) |                   | $ | (0.06   | )
|Diluted                                                      |  | $                      | (0.64   | ) |                   | $ | (0.06   | )
|Weighted average common shares and common share equivalents: |  |                        |         |   |                   |   |         |  
|Basic                                                        |  |                        | 47,836  |   |                   |   | 43,081  |  
|Diluted                                                      |  |                        | 47,836  |   |                   |   | 43,081  |  



See notes to condensed
consolidated financial statements.



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C-COR Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited



|                                                                                 |  |                        |         |   |                   |   |         |  
|-------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                 |  | Twenty-Six Weeks Ended |        
|                                                                                 |  | December 23, 2005      |         |   | December 24, 2004 |  
|Operating Activities:                                                            |  |                        |         |   |                   |   |         |  
|Net loss                                                                         |  | $                      | (30,539 | ) |                   | $ | (2,601  | )
|Adjustments to reconcile net loss to net cash used in operating activities:      |  |                        |         |   |                   |   |         |  
|Depreciation and amortization                                                    |  |                        | 6,170   |   |                   |   | 5,484   |  
|Stock-based compensation                                                         |  |                        | 2,357   |   |                   |   | 80      |  
|Write-off of intangibles and other long-lived assets                             |  |                        | 5,330   |   |                   |   | 1,850   |  
|Other, net                                                                       |  |                        | 402     |   |                   |   | 19      |  
|Changes in operating assets and liabilities, net of effect of acquisitions:      |  |                        |         |   |                   |   |         |  
|Accounts receivable                                                              |  |                        | 7,906   |   |                   |   | (12,777 | )
|Inventories                                                                      |  |                        | 13,620  |   |                   |   | 5,913   |  
|Accounts payable                                                                 |  |                        | (13,971 | ) |                   |   | (7,090  | )
|Accrued liabilities                                                              |  |                        | (253    | ) |                   |   | (6,033  | )
|Deferred income taxes                                                            |  |                        | 1,195   |   |                   |   | 365     |  
|Other                                                                            |  |                        | (62     | ) |                   |   | (3,168  | )
|                                                                                 |  |                        |         |   |                   |   |         |  
|Net cash used in operating activities                                            |  |                        | (7,845  | ) |                   |   | (17,958 | )
|                                                                                 |  |                        |         |   |                   |   |         |  
|Investing Activities:                                                            |  |                        |         |   |                   |   |         |  
|Purchase of property, plant, and equipment                                       |  |                        | (3,796  | ) |                   |   | (2,462  | )
|Proceeds from the sale of property, plant and equipment                          |  |                        | 69      |   |                   |   |        |  
|Proceeds from the sale of marketable securities and other short-term investments |  |                        | 15,674  |   |                   |   | 8,796   |  
|Purchase of marketable securities and other short-term investments               |  |                        | (11,974 | ) |                   |   | (4,167  | )
|Acquisitions, net of cash acquired                                               |  |                        | (26     | ) |                   |   | (26,170 | )
|                                                                                 |  |                        |         |   |                   |   |         |  
|Net cash used in investing activities                                            |  |                        | (53     | ) |                   |   | (24,003 | )
|                                                                                 |  |                        |         |   |                   |   |         |  
|Financing Activities:                                                            |  |                        |         |   |                   |   |         |  
|Payment of debt and capital lease obligations                                    |  |                        | (81     | ) |                   |   | (82     | )
|Proceeds from issuance of common stock to employee stock purchase plan           |  |                        | 86      |   |                   |   | 123     |  
|Proceeds from exercise of stock options and stock warrants                       |  |                        | 477     |   |                   |   | 741     |  
|Issuance of treasury stock                                                       |  |                        | 8       |   |                   |   |        |  
|                                                                                 |  |                        |         |   |                   |   |         |  
|Net cash provided by financing activities                                        |  |                        | 490     |   |                   |   | 782     |  
|                                                                                 |  |                        |         |   |                   |   |         |  
|Effect of exchange rate changes on cash                                          |  |                        | (157    | ) |                   |   | 727     |  
|                                                                                 |  |                        |         |   |                   |   |         |  
|Decrease in cash and cash equivalents                                            |  |                        | (7,565  | ) |                   |   | (40,452 | )
|Cash and cash equivalents at beginning of period                                 |  |                        | 43,320  |   |                   |   | 63,791  |  
|                                                                                 |  |                        |         |   |                   |   |         |  
|Cash and cash equivalents at end of period                                       |  | $                      | 35,755  |   |                   | $ | 23,339  |  
|                                                                                 |  |                        |         |   |                   |   |         |  
|Supplemental cash flow information:                                              |  |                        |         |   |                   |   |         |  
|Non-cash investing and financing activities                                      |  |                        |         |   |                   |   |         |  
|Fair value adjustment of available-for-sale securities                           |  | $                      | 17      |   |                   | $ | 74      |  
|Capital lease obligation                                                         |  |                        | 258     |   |                   |   |        |  
|Unsettled trade of marketable securities                                         |  |                        |        |   |                   |   | 7,665   |  



See notes to condensed
consolidated financial statements



6



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C-COR Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands except share and per share data)

(Unaudited)



|1. | BASIS OF PRESENTATION
|-- | ---------------------



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, in the opinion of management
of C-COR Incorporated (the Company), contain all adjustments (consisting only of normal, recurring adjustments except as noted) necessary to fairly present the Companys consolidated financial position as of December 23, 2005 and the
consolidated results of operations for the thirteen-week and twenty-six week periods ended December 23, 2005 and December 24, 2004. Operating results for the thirteen-week and twenty-six week periods ended December 23, 2005 are not
necessarily indicative of the results that may be expected for the year ending June 30, 2006 due to the cyclical nature of the industry in which the Company operates, timing of recognizing revenues from the sale of certain content management
and operational support software systems, fluctuations in currencies related to intercompany foreign currency transactions where settlement is anticipated, and changes in overall conditions that could affect the carrying value of the Companys
assets and liabilities. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Form 10-K for the fiscal year ended June 24, 2005 (fiscal year 2005).



|2. | DESCRIPTION OF BUSINESS
|-- | -----------------------



The Company is a global provider of integrated network solutions that include access and transport products, technical services and content and operations management systems for broadband networks. The Company
operates in three industry segments: C-COR Access and Transport, C-COR Network Services, and C-COR Solutions.



The C-COR Access and Transport segment is responsible for the development, management, production, support and sale of network infrastructure products, including the Companys amplitude modulation headend/hub
optical platform and line of optical nodes, and a full offering of radio frequency amplifiers.



The C-COR Network Services segment provides technical services for engineering, design, and deployment of advanced applications over broadband networks, including outsourced operational services, network design and
engineering, network integration, outside plant and construction services, and consulting to a variety of customers.



The C-COR Solutions segment is responsible for development, integration, management, implementation, support, and sale of content management systems, including software
and hardware, for delivery of video on demand and digital advertising as well as application-oriented software for subscriber activation and retention, network and service assurance, and workforce management.



For additional information regarding the Companys reporting segments, see Note 14.



|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



The accounting and financial reporting policies of the Company are in conformity with U.S. generally accepted accounting principles. The preparation of financial
statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. Management has discussed the development and selection of the Companys critical accounting estimates with the Audit Committee of
the Companys Board of Directors and the Audit Committee has reviewed the Companys related disclosures. A detailed description of the Companys significant accounting policies is set forth below and in the Notes to Consolidated
Financial Statements in the Companys Form 10-K for fiscal year 2005.



As
of June 25, 2005, the Company adopted SFAS No. 123R, Share Based Payment (Statement 123R) as of June 25, 2005, which requires the Company to measure compensation cost for all outstanding unvested share-based awards at fair
value and recognize compensation over the service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment and, to the extent actual results differ from the Companys estimates, such amounts
will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results may differ
substantially from these estimates.



7



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##### Table of Contents

Accounting for Employee Stock Award Plans



Prior to June 25, 2005, the Company accounted for employee stock option plans based on the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related Interpretations and had adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation (Statement 123), as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure (Statement 148). Accordingly, compensation cost for stock options was 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. Stock options granted by the Company to employees and directors were generally at a price not less than 100% of
the fair market value of such shares on the date of grant.



In December 2004,
Statement 123 was revised. The Financial Accounting Standards Board (FASB) issued Statement 123R to require that compensation cost relating to share-based payment transactions be recognized in all financial statements. As of June 25, 2005, the
Company adopted Statement 123R using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards
expected to vest. The fair value of stock options was determined using the Black-Scholes valuation model, which is consistent with the Companys valuation techniques previously utilized for stock options in footnote disclosures required under
Statement 123, as amended by Statement 148. Under Statement 123R, such fair value is recognized as expense over the service period, net of estimated forfeitures.



Effect of Adoption of Statement 123R



Statement 123R resulted in a change in the Companys method of measuring and recognizing the fair value of stock options and estimating of forfeitures for all
unvested awards. Prior to the adoption of Statement 123R, the Company used the nominal vesting period approach for retirement eligible employees. Using this approach, the Company included in its Statement 123 disclosures compensation cost for
share-based awards granted prior to June 25, 2005 over the stated vesting period for retirement eligible employees and, if an employee retired before the end of the vesting period, the Company included any remaining unrecognized compensation
cost at the date of retirement. For stock options granted prior to April 13, 2004, employees were retirement eligible when employed by the Company for at least five years and were at least 55 years old. For stock options granted on or after
April 13, 2004, employees are retirement eligible when employed by the Company for at least five years and have a combination of age and service of sixty years or greater.



As a result of adopting Statement 123R, the Company has changed its accounting for recognizing compensation expense for new share-based
awards granted to retirement eligible employees. For all share-based awards granted on or after June 25, 2005, Statement 123R requires that the Company use the non-substantive vesting period approach to recognize compensation cost for
retirement eligible employees over the period from the date of grant to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period. Therefore, the Company recognized compensation expense of $96 and
$434 during the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, related to retirement eligible employees for awards granted subsequent to the adoption date of Statement 123R. Had the Company also applied the
non-substantive vesting period approach to awards granted prior to the adoption date, compensation expense would have been $ 62 and $147 lower for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively.



The adoption of Statement 123R resulted in no cumulative effect of change in accounting
principle, as of the date of adoption.



8



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##### Table of Contents

Classification of Stock-based Compensation Expense



On March 29, 2005, the Securities and Exchange Commission published Staff Accounting Bulletin No. 107 (SAB 107), which provides
the Staffs views on a variety of matters relating to stock-based payments. SAB 107 requires stock-based compensation to be classified in the same expense line items as cash compensation. Information about stock-based compensation included in
the results of operations for the thirteen-week and twenty-six week periods ended December 23, 2005 and December 24, 2004 is as follows:



|                                       |                   |                      |                   |                        |                   |    |                   |   |       |  |   |   
|-------------------------------------- | ----------------- | -------------------- | ----------------- | ---------------------- | ----------------- | -- | ----------------- | - | ----- |  | - | --
|                                       |                   | Thirteen Weeks Ended |                   | Twenty-Six Weeks Ended
|                                       | December 23, 2005 |                      | December 24, 2004 |                        | December 23, 2005 |    | December 24, 2004
|Stock-based compensation, included in: |                   |                      |                   |                        |                   |    |                   |   |       |  |   |   
|Cost of Sales                          |                   | $                    | 80                |                        | $                 |   |                   | $ | 204   |  | $ |  
|Operating Expenses:                    |                   |                      |                   |                        |                   |    |                   |   |       |  |   |   
|Selling and administrative             |                   |                      | 910               |                        |                   | 40 |                   |   | 1,785 |  |   | 80
|Research and product development       |                   |                      | 154               |                        |                   |   |                   |   | 368   |  |   |  
|                                       |                   |                      |                   |                        |                   |    |                   |   |       |  |   |   
|                                       |                   |                      | 1,064             |                        |                   | 40 |                   |   | 2,153 |  |   | 80
|                                       |                   |                      |                   |                        |                   |    |                   |   |       |  |   |   
|Total                                  |                   | $                    | 1,144             |                        | $                 | 40 |                   | $ | 2,357 |  | $ | 80
|                                       |                   |                      |                   |                        |                   |    |                   |   |       |  |   |   



Tax Effect related to Stock-based
Compensation Expense



Statement 123R provides that income tax effects of
share-based payments are recognized in the financial statements for those awards which will normally result in tax deductions under existing tax law. Under current U.S. federal tax law, C-COR would receive a compensation expense deduction
related to non-qualified stock options only when those options are exercised. Accordingly, the financial statement recognition of compensation cost for non-qualified stock options creates a deductible temporary difference which results in a deferred
tax asset and a corresponding deferred tax benefit in the income statement.



As
discussed in Note 12, management has evaluated the deferred tax assets and, based on all available evidence, determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized. Therefore, the
Company has recognized a valuation allowance against substantially all deferred tax assets. The valuation allowance has the effect of eliminating the deferred tax benefit in the condensed consolidated statement of operations. Consequently,
the Company did not recognize any net income tax benefit related to share based compensation expense for the thirteen-week and twenty-six week periods ended December 23, 2005.



Valuation Assumptions for Stock Options Granted subsequent to Statement 123R Adoption



The fair value of each stock option granted during the thirteen-week periods ended
September 23, 2005 and December 23, 2005 were estimated at the date of grant using a Black-Scholes closed form option-pricing model (Black-Scholes), assuming no dividends and using the following valuation assumptions:



|                                     |                    |                      |                   |            
|------------------------------------ | ------------------ | -------------------- | ----------------- | -----------
|                                     |                    | Thirteen Weeks Ended
|                                     | September 23, 2005 |                      | December 23, 2005
|Expected Term                        |                    | 4.2 years            |                   | 4.2 years  
|Risk-free Interest Rate              |                    | 3.75%                |                   | 4.08%      
|Range of Expected Volatility         |                    | 46.1% - 81%          |                   | 46.1% - 81%
|Weighted Average Expected Volatility |                    | 63.5%                |                   | 63.5%      



The option term of each award granted
is based on the Companys historical and expected experience of employees exercise behavior. Expected volatilities are based on implied volatilities from recently traded options on the Companys common stock, historical volatility of
the Companys common stock, and other factors, such as expected changes in volatility arising from planned changes in the Companys business operations. The weighted average expected volatility was weighted evenly for both implied and
historical volatility. Risk free interest rate reflects the yield on the zero coupon U.S. Treasury in affect at the time of grant based on the expected term of the option.



The above assumptions were used to determine the weighted average per share fair value of $3.59 and $3.37 for stock options granted during
the thirteen-week periods ended September 23, 2005 and December 23, 2005, respectively.



Fair Value Disclosures  Prior to Statement 123R Adoption



Prior to June 25, 2005, the Company accounted for stock-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB 25, and related Interpretations. The
intrinsic value method of accounting resulted in compensation expense for stock options to the extent option exercise prices were set below market prices on the date of grant. To the extent stock awards were forfeited prior to vesting, the
corresponding previously recognized expense was reversed as an offset to operating expenses.



9



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##### Table of Contents

Had the Company adopted Statement 123R for the thirteen-week and twenty-six week periods ended December 24, 2004,
the impact of that standard would have approximated the impact of Statement 123 in the disclosure of proforma net loss and net loss per share described as follows:



|                                                                                                                                                     |  |                                     |        |   |                                       |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ------------------------------------- | - | ------ | -
|                                                                                                                                                     |  | Thirteen WeeksEndedDecember 24,2004 |        |   | Twenty-Six WeeksEndedDecember 24,2004 |  
|Net loss                                                                                                                                             |  | $                                   | (1,557 | ) |                                       | $ | (2,601 | )
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects if applicable                               |  |                                     | 40     |   |                                       |   | 80     |  
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects, if
applicable |  |                                     | (1,196 | ) |                                       |   | (2,467 | )
|                                                                                                                                                     |  |                                     |        |   |                                       |   |        |  
|Pro forma net loss                                                                                                                                   |  | $                                   | (2,713 | ) |                                       | $ | (4,988 | )
|                                                                                                                                                     |  |                                     |        |   |                                       |   |        |  
|Net loss per share:                                                                                                                                  |  |                                     |        |   |                                       |   |        |  
|Basic  as reported                                                                                                                                  |  | $                                   | (0.04  | ) |                                       | $ | (0.06  | )
|Basic  pro forma                                                                                                                                    |  | $                                   | (0.06  | ) |                                       | $ | (0.12  | )
|Diluted  as reported                                                                                                                                |  | $                                   | (0.04  | ) |                                       | $ | (0.06  | )
|Diluted  pro forma                                                                                                                                  |  | $                                   | (0.06  | ) |                                       | $ | (0.12  | )



The fair values for stock options
granted during the thirteen-week periods ended September 24, 2004 and December 24, 2004 were estimated at the dates of grant using the Black-Scholes option pricing model with the following valuation assumptions:



|                                                |                   |                      |   |                  |         |  
|----------------------------------------------- | ----------------- | -------------------- | - | ---------------- | ------- | -
|                                                |                   | Thirteen Weeks Ended |  
|                                                | September 24,2004 |                      |   | December 24,2004 |        
|Risk-free interest rate                         |                   | 3.23                 | % |                  | 3.10    | %
|Expected dividend yield                         |                   | 0.00                 | % |                  | 0.00    | %
|Expected stock price volatility factor          |                   | 91.5                 | % |                  | 86.0    | %
|Weighted average expected life of stock options |                   | 4 years              |   |                  | 4 years |  



The per share weighted-average fair
values of stock options granted during the thirteen-week periods ended September 24, 2004 and December 24, 2004 were $5.45 and $5.07, respectively.



Statement of Cash Flows Impact of SFAS 123R



Prior to the adoption of SFAS 123R, cash retained as a result of tax deductions relating to stock-based compensation was presented in operating cash flows, along with
other tax cash flows, in accordance with the provisions of the Emerging Issues Task Force (EITF) Issue No. 00-15, Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a
Nonqualified Employee Stock Option. SFAS 123R supersedes EITF 00-15, amends SFAS 95, Statement of Cash Flows, and requires tax benefits relating to excess stock-based compensation deductions to be prospectively presented in the
statement of cash flows as financing cash inflows. Management is in the process of evaluating the amount of excess stock-based compensation deductions included in additional paid-in capital. Therefore, no amounts have been presented as excess tax
benefits in the statement of cash flows for the period ended December 23, 2005.



Cash received from stock option exercises for the thirteen-week and twenty-six week periods ended December 23, 2005 was $6 and $477, respectively. Due to the Companys available net operating loss carryforwards, no tax benefit was
realized in the current period from these stock option exercises.



For
additional information regarding the Companys stock award plans and the related share-based compensation, see Note 15.



10



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##### Table of Contents

|4. | RESTRUCTURING COSTS
|-- | -------------------



In fiscal year 2005, the Company implemented restructuring initiatives to improve the Companys operating performance and eliminate redundancies resulting from acquisitions, which included settlement of certain
contractual obligations, as well as employee severance and termination benefits for 74 employees related to closing the Companys Pleasanton, California location, and the transition of the Companys manufacturing operation in Klagenfurt,
Austria to a contract manufacturer in the region.



For the thirteen-week and
twenty-six week periods ended December 23, 2005, the Company recorded $1,367 and $1,750, respectively, of restructuring charges related to implementing further restructuring initiatives to improve the Companys operating performance by
transferring research and development activities from Klagenfurt, Austria to the United States and closing the Companys Andover Massachusetts facility. Employee termination, relocation benefits for 17 people and contractual lease obligation
costs related to the Andover, Massachusetts facility were incurred during the thirteen-week period ended December 23, 2005.



The following table provides detail on the activity and remaining restructuring accrual balance by category as of December 23, 2005.



|                                            |  |                                        |     |                                          |   |               |  |   |                                            |   |  |   |      
|------------------------------------------- |  | -------------------------------------- | --- | ---------------------------------------- | - | ------------- |  | - | ------------------------------------------ | - |  | - | -----
|                                            |  | Restructuring Accrual at June 24, 2005 |     | RestructuringCharges in Fiscal Year 2006 |   | Net Cash Paid |  |   | Restructuring Accrual at December 23, 2005
|Employee severance and termination benefits |  | $                                      | 228 |                                          | $ | 1,251         |  | $ | (666                                       | ) |  | $ | 813  
|Contractual obligations and other           |  |                                        |    |                                          |   | 499           |  |   | (106                                       | ) |  |   | 393  
|                                            |  |                                        |     |                                          |   |               |  |   |                                            |   |  |   |      
|Total                                       |  | $                                      | 228 |                                          | $ | 1.750         |  | $ | (772                                       | ) |  | $ | 1,206
|                                            |  |                                        |     |                                          |   |               |  |   |                                            |   |  |   |      



Amounts accrued as of
December 23, 2005 for employee severance will be paid out over bi-weekly periods through the remainder of fiscal year 2006. Amounts related to contractual obligations and other will be paid out over their remaining term, unless terminated
earlier.



For additional information regarding Restructurings, see Note 16.



|5. | INVENTORIES
|-- | -----------



In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43 Chapter 4 (Statement 151). Statement 151 requires that items such as idle facility expense,
excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. In addition, Statement 151
requires that allocation of fixed production overheads to the costs of manufacturing be based on the normal capacity of the production facilities. The Company adopted Statement 151 on June 25, 2005; the adoption did not have a material impact
on the Companys financial condition or results of operation.



Inventories
as of December 23, 2005 and June 24, 2005 consisted of the following:



|                  |  |                  |        |              |   |       
|----------------- |  | ---------------- | ------ | ------------ | - | ------
|                  |  | December 23,2005 |        | June 24,2005
|Finished goods    |  | $                | 7,298  |              | $ | 10,616
|Work-in-process   |  |                  | 3,650  |              |   | 5,041 
|Raw materials     |  |                  | 16,890 |              |   | 25,971
|                  |  |                  |        |              |   |       
|Total inventories |  | $                | 27,838 |              | $ | 41,628
|                  |  |                  |        |              |   |       



For the thirteen-week and twenty-six
week periods ended December 23, 2006, the Company recorded a write-down in inventory of $1,622 and $7,736, respectively, associated with certain transport product lines, based upon managements assessment of market conditions for these
product lines.



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##### Table of Contents

|6. | OTHER INTANGIBLE ASSETS
|-- | -----------------------



Other intangible assets as of December 23, 2005 and June 24, 2005 consisted of the following:



|                                   |  |                   |         |   |               |   |         |  
|---------------------------------- |  | ----------------- | ------- | - | ------------- | - | ------- | -
|                                   |  | December 23, 2005 |         |   | June 24, 2005 |  
|Cost of intangibles:               |  |                   |         |   |               |   |         |  
|Purchased technology               |  | $                 | 13,412  |   |               | $ | 18,400  |  
|Customer relationships             |  |                   | 5,010   |   |               |   | 5,010   |  
|Covenants not-to-compete           |  |                   | 860     |   |               |   | 860     |  
|Patents and trademarks             |  |                   | 1,200   |   |               |   | 1,200   |  
|                                   |  |                   |         |   |               |   |         |  
|Total cost of intangibles          |  |                   | 20,482  |   |               |   | 25,470  |  
|                                   |  |                   |         |   |               |   |         |  
|Less accumulated amortization:     |  |                   |         |   |               |   |         |  
|Purchased technology               |  |                   | (7,971  | ) |               |   | (5,843  | )
|Customer relationships             |  |                   | (3,659  | ) |               |   | (3,160  | )
|Covenants not-to-compete           |  |                   | (720    | ) |               |   | (553    | )
|Patents and trademarks             |  |                   | (1,200  | ) |               |   | (1,200  | )
|                                   |  |                   |         |   |               |   |         |  
|Total accumulated amortization     |  |                   | (13,550 | ) |               |   | (10,756 | )
|                                   |  |                   |         |   |               |   |         |  
|Total other intangible assets, net |  | $                 | 6,932   |   |               | $ | 14,714  |  
|                                   |  |                   |         |   |               |   |         |  



|7. | IMPAIRMENT OF LONG-LIVED ASSETS
|-- | -------------------------------



Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144), the Company periodically evaluates long-lived assets
other than goodwill for indications of impairment and tests long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying value of a long-lived asset may not be recoverable. An impairment loss is
recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. During the thirteen-week period ended December 23, 2005, the Company recognized an impairment loss of $5,330 related to its decision to
cease sales and marketing activities associated with certain transport product lines. The impairment charge was comprised of $4,988 of other intangible assets associated with purchased technology and $342 associated with the write-down of property
and equipment. The fair value of these assets was measured based on an estimate of discounted cash flows expected to result from the use and disposition of these assets.



|8. | LETTER OF CREDIT AGREEMENT
|-- | --------------------------



Effective November 1, 2005, the Company amended its credit agreement of November 5, 2004 (the Agreement) with a bank for a $10,000 revolving letter of credit facility. Under the amended
Agreement, the $10,000 may be used solely for the issuance of letters of credit which must be fully cash collateralized at the time of issuance. The Company is required to maintain with the bank cash collateral of 102% of the amount that can be
drawn on the issued letters of credit. This collateral can be drawn on upon the occurrence of any event of default under the Agreement. The Agreement contains standard event of default provisions, but no financial covenants. The Agreement is
committed through November 4, 2006. The applicable margin under the Agreement is 0.65%, payable quarterly in arrears. In the event that a letter of credit is drawn upon, the interest rate for any unreimbursed drawing is the banks floating
prime rate.



As of December 23, 2005, the aggregate amount of letters of
credit issued under the Agreement was $3,439. A cash compensating balance of $3,526 (includes interest earned on account) is maintained to secure the letters of credit. The cash compensating balance is classified as part of restricted cash on the
condensed consolidated balance sheet.



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##### Table of Contents

|9. | ACCRUED LIABILITIES
|-- | -------------------



Accrued liabilities as of December 23, 2005 and June 24, 2005 consisted of the following:



|                                      |  |                   |        |               |   |       
|------------------------------------- |  | ----------------- | ------ | ------------- | - | ------
|                                      |  | December 23, 2005 |        | June 24, 2005
|Accrued vacation expense              |  | $                 | 4,050  |               | $ | 4,170 
|Accrued salary expense                |  |                   | 4,353  |               |   | 4,597 
|Accrued salary benefits               |  |                   | 1,002  |               |   | 891   
|Accrued sales tax expense             |  |                   | 859    |               |   | 840   
|Accrued warranty expense              |  |                   | 5,535  |               |   | 6,575 
|Accrued workers compensation expense |  |                   | 803    |               |   | 616   
|Accrued restructuring costs           |  |                   | 1,206  |               |   | 228   
|Accrued income taxes payable          |  |                   | 791    |               |   | 1,007 
|Accrued other                         |  |                   | 7,023  |               |   | 6,375 
|                                      |  |                   |        |               |   |       
|                                      |  | $                 | 25,622 |               | $ | 25,299
|                                      |  |                   |        |               |   |       



|10. | NET LOSS PER SHARE
|--- | ------------------



Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per share is computed by dividing net loss by the weighted average number of
common shares outstanding and potential common shares outstanding. Potential common shares result from the assumed exercise of outstanding stock options and warrants having a dilutive effect, calculated under the treasury stock method using the
average market price for the period, and from the potential conversion of the Companys 3.5% senior convertible notes, calculated under the if-converted method. In addition, in computing the dilutive effect of the convertible debt, the net
income (loss) is adjusted to add back the after-tax amount of interest and amortized debt issuance costs recognized in the period associated with the convertible debt. Any potential shares that are antidilutive are excluded from the effect of
dilutive securities.



For the thirteen-week periods ended December 23,
2005 and December 24, 2004, total potential common shares of 9,027,395 and 5,839,899, respectively, were excluded from the diluted net loss per share calculation because they were antidilutive. For the twenty-six week periods ended
December 23, 2005 and December 24, 2004, total potential common shares of 9,058,823 and 5,640,780, respectively, were excluded from the diluted net loss per share calculation because they were antidilutive.



|11. | COMPREHENSIVE INCOME (LOSS)
|--- | ---------------------------



The components of accumulated other comprehensive income, net of tax, if applicable, are as follows:



|                                                |  |                  |       |              |   |       |  
|----------------------------------------------- |  | ---------------- | ----- | ------------ | - | ----- | -
|                                                |  | December 23,2005 |       | June 24,2005 |  
|Unrealized gain (loss) on marketable securities |  | $                | 16    |              | $ | (1    | )
|Foreign currency translation gain               |  |                  | 4,783 |              |   | 5,388 |  
|                                                |  |                  |       |              |   |       |  
|Accumulated other comprehensive income          |  | $                | 4,799 |              | $ | 5,387 |  
|                                                |  |                  |       |              |   |       |  



The components of comprehensive loss
for the thirteen-week and twenty-six week periods ended December 23, 2005 and December 24, 2004 are as follows:



|                                                |                  |                      |         |                  |  |   |        |  
|----------------------------------------------- | ---------------- | -------------------- | ------- | ---------------- |  | - | ------ | -
|                                                |                  | Thirteen Weeks Ended |        
|                                                | December 23,2005 |                      |         | December 24,2004 | 
|Net loss                                        |                  | $                    | (15,711 | )                |  | $ | (1,557 | )
|Other comprehensive income (loss):              |                  |                      |         |                  |  |   |        |  
|Unrealized gain (loss) on marketable securities |                  |                      | (6      | )                |  |   | 12     |  
|Foreign currency translation gain (loss)        |                  |                      | (706    | )                |  |   | 3,059  |  
|                                                |                  |                      |         |                  |  |   |        |  
|Other comprehensive income (loss)               |                  |                      | (712    | )                |  |   | 3,071  |  
|                                                |                  |                      |         |                  |  |   |        |  
|Comprehensive income (loss)                     |                  | $                    | (16,423 | )                |  | $ | 1,514  |  
|                                                |                  |                      |         |                  |  |   |        |  



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|                                         |                  |                        |         |                  |  |   |        |  
|---------------------------------------- | ---------------- | ---------------------- | ------- | ---------------- |  | - | ------ | -
|                                         |                  | Twenty-Six Weeks Ended |        
|                                         | December 23,2005 |                        |         | December 24,2004 | 
|Net loss                                 |                  | $                      | (30,539 | )                |  | $ | (2,601 | )
|Other comprehensive income (loss):       |                  |                        |         |                  |  |   |        |  
|Unrealized gain on marketable securities |                  |                        | 17      |                  |  |   | 74     |  
|Foreign currency translation gain (loss) |                  |                        | (605    | )                |  |   | 3,436  |  
|                                         |                  |                        |         |                  |  |   |        |  
|Other comprehensive income (loss)        |                  |                        | (588    | )                |  |   | 3,510  |  
|                                         |                  |                        |         |                  |  |   |        |  
|Comprehensive income (loss)              |                  | $                      | (31,127 | )                |  | $ | 909    |  
|                                         |                  |                        |         |                  |  |   |        |  



The Company accounts for certain
intercompany loans that are denominated in various foreign currencies as being permanent in nature, as settlement is not planned or anticipated in the foreseeable future. As such, foreign currency translation gains and losses related to these loans
are excluded from net income (loss) and reported as a component of other comprehensive income (loss).



|12. | INCOME TAXES
|--- | ------------



The Company determines income taxes for each of the jurisdictions in which it operates. This involves estimating the Companys actual current income tax payable and assessing temporary differences resulting from
differing treatment of items, such as reserves and accruals, for tax and accounting purposes. Earnings of foreign operations are reinvested in the business and no provision for domestic income tax or foreign withholding tax is made on such earnings
until distributed. Deferred taxes arise due to temporary differences in the bases of assets and liabilities and from net operating loss and tax credit carryforwards. In general, deferred tax assets represent future tax benefits to be received when
certain expenses previously recognized in the Companys statement of operations become deductible expenses under applicable income tax laws or net operating loss or tax credit carryforwards are utilized. Accordingly, realization of deferred tax
assets is dependent on future taxable income against which these deductions, net operating losses and tax credits can be utilized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Historical operating losses, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies are considered in making this assessment.



Management concluded during the third quarter of fiscal year 2003 that a
valuation allowance against net deferred tax assets was appropriate, primarily as a result of the cumulative losses during fiscal years 2001, 2002 and 2003, and recorded a valuation allowance as of that date. The Company expects to maintain the
valuation allowance on deferred tax assets until a level of profitability is achieved and sustained in the applicable tax jurisdictions that demonstrates it is more likely than not that the Company will be able to realize all or part of the deferred
tax assets. As of December 23, 2005, a valuation allowance on substantially all of the deferred tax assets remains, except in certain foreign jurisdictions where the Company is profitable. Income tax expense for the thirteen-week and twenty-six
week periods ended December 23, 2005 arose primarily from the recognition of valuation allowance during the periods. Income tax expense for the thirteen-week and twenty-six week periods ended December 23, 2005 also included deferred taxes
and current taxes paid or payable in those foreign jurisdictions where the Company is profitable.



Under recent changes in United States tax law, the American Jobs Creation Act of 2004 provides, under certain circumstances, for an 85% dividends received deduction for qualified cash dividends received from
controlled foreign corporations if the funds are reinvested in the U.S. The deduction can result in a much lower rate of U.S. tax on those earnings than the U.S. statutory rate of 35%. The Company has not yet completed its evaluation of the effect
of the new tax law on its plans for reinvestment or repatriation of foreign earnings; therefore, it is uncertain whether the Company will repatriate these earnings. If foreign earnings were repatriated, the effect would likely be to reduce the
Companys U.S. net operating loss carryforwards and corresponding valuation allowance, provide foreign tax credit carryforwards that would be offset with a valuation allowance and, to the extent the dividends were subject to withholding tax in
the foreign jurisdiction, result in additional foreign tax expense. The range of these income tax effects has not been determined. The Company expects to complete its evaluation during the current fiscal year.



14



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##### Table of Contents

|13. | GUARANTEES
|--- | ----------



As of December 23, 2005, the Company did not have any outstanding guarantees, except for product warranties. The Company warrants its products against defects in materials and workmanship, generally for
one-to-five years depending upon product lines and geographic regions. A provision for estimated future costs related to warranty activities is recorded when the product is shipped, based upon historical experience of product failure rates and
historical costs incurred in correcting product failures. In addition, from time to time, the recorded amount is adjusted for specifically identified warranty exposures where unforeseen technical problems arise.



Changes in the Companys warranty liability during the twenty-six week period ended
December 23, 2005 are as follows:



|                                                                       |  |   |        |  
|---------------------------------------------------------------------- |  | - | ------ | -
|Balance as of June 24, 2005                                            |  | $ | 6,575  |  
|Warranties issued during the period                                    |  |   | 838    |  
|Settlements made during the period                                     |  |   | (1,085 | )
|Changes in the liability for pre-existing warranties during the period |  |   | (793   | )
|                                                                       |  |   |        |  
|Balance as of December 23, 2005                                        |  | $ | 5,535  |  
|                                                                       |  |   |        |  



The Companys C-COR Solutions
segment licenses software to its customers under written agreements. Each agreement contains the relevant terms of the contractual arrangement with the customer, and generally includes provisions for indemnifying the customer against losses,
expenses, and liabilities from damages that may be awarded against the customer in the event the software is found to infringe upon certain intellectual property rights of a third party. Each agreement generally limits the scope of and remedies for
such indemnification obligations in a variety of industry-standard respects. The Company has not identified any losses that are probable under these provisions and, accordingly, no liability related to these indemnification provisions has been
recorded.



|14. | SEGMENT INFORMATION
|--- | -------------------



The Company operates in three industry segments: C-COR Access and Transport, C-COR Network Services, and C-COR Solutions.



The management approach required under SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, has been used to
present the following segment information. This approach is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions and assessing performance.



The following costs and asset categories are not allocated to segments and are reflected in
the table as unallocated items:



| |  |  | Corporate selling, general and administrative expenses, and technology oversight functions;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Certain restructuring costs;
| | - |  | ----------------------------



| |  |  | Goodwill and other intangible asset impairment charges;
| | - |  | -------------------------------------------------------



| |  |  | Income tax expense (benefit); and
| | - |  | ---------------------------------



| |  |  | Identifiable assets of cash and cash equivalents, marketable securities and other short-term investments, and certain other long-term corporate assets
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Information about industry segments for the thirteen-week and twenty-six week periods ended December 23, 2005 and
December 24, 2004 is as follows:



|                                               |  |                          |         |                      |   |                |  |   |             |   |  |       |         |   |  |   |         |  
|---------------------------------------------- |  | ------------------------ | ------- | -------------------- | - | -------------- |  | - | ----------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                               |  | C-CORAccess andTransport |         | C-CORNetworkServices |   | C-CORSolutions |  |   | Unallocated |   |  | Total |        
|Thirteen-week period ended December 23, 2005   |  |                          |         |                      |   |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                      |  | $                        | 36,404  |                      | $ | 12,647         |  | $ | 17,617      |   |  | $     |        |   |  | $ | 66,668  |  
|Depreciation and amortization                  |  |                          | 1,193   |                      |   | 116            |  |   | 1,167       |   |  |       | 520     |   |  |   | 2,996   |  
|Income (loss) from operations                  |  |                          | 3,611   |                      |   | 1,073          |  |   | (576        | ) |  |       | (19,191 | ) |  |   | (15,083 | )
|Income tax expense                             |  |                          |        |                      |   |               |  |   |            |   |  |       | 738     |   |  |   | 738     |  
|Identifiable assets at December 23, 2005       |  |                          | 79,517  |                      |   | 23,514         |  |   | 137,432     |   |  |       | 55,987  |   |  |   | 296,450 |  
|Capital expenditures                           |  |                          | 112     |                      |   | 133            |  |   | 418         |   |  |       | 873     |   |  |   | 1,536   |  
|                                               |  |                          |         |                      |  
|Thirteen-week period ended December 24, 2004   |  |                          |         |                      |   |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                      |  | $                        | 41,581  |                      | $ | 12,884         |  | $ | 4,022       |   |  | $     |        |   |  | $ | 58,487  |  
|Depreciation and amortization                  |  |                          | 1,530   |                      |   | 132            |  |   | 419         |   |  |       | 404     |   |  |   | 2,485   |  
|Income (loss) from operations                  |  |                          | 7,657   |                      |   | 1,599          |  |   | (462        | ) |  |       | (10,516 | ) |  |   | (1,722  | )
|Income tax expense                             |  |                          |        |                      |   |               |  |   |            |   |  |       | 792     |   |  |   | 792     |  
|Identifiable assets at December 24, 2004       |  |                          | 112,269 |                      |   | 43,435         |  |   | 53,754      |   |  |       | 49,959  |   |  |   | 259,417 |  
|Capital expenditures                           |  |                          | 852     |                      |   | 176            |  |   | 64          |   |  |       | 152     |   |  |   | 1,244   |  
|                                               |  |                          |         |                      |  
|Twenty-six week period ended December 23, 2005 |  |                          |         |                      |   |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                      |  | $                        | 77,187  |                      | $ | 24,703         |  | $ | 28,272      |   |  | $     |        |   |  | $ | 130,162 |  
|Depreciation and amortization                  |  |                          | 2,593   |                      |   | 224            |  |   | 2,315       |   |  |       | 1,038   |   |  |   | 6,170   |  
|Income (loss) from operations                  |  |                          | 4,443   |                      |   | 1,801          |  |   | (2,301      | ) |  |       | (33,193 | ) |  |   | (29,250 | )
|Income tax expense                             |  |                          |        |                      |   |               |  |   |            |   |  |       | 1,318   |   |  |   | 1,318   |  
|Identifiable assets at December 23, 2005       |  |                          | 79,517  |                      |   | 23,514         |  |   | 137,432     |   |  |       | 55,987  |   |  |   | 296,450 |  
|Capital expenditures                           |  |                          | 870     |                      |   | 396            |  |   | 846         |   |  |       | 1,684   |   |  |   | 3,796   |  
|                                               |  |                          |         |                      |  
|Twenty-six week period ended December 24, 2004 |  |                          |         |                      |   |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                      |  | $                        | 86,392  |                      | $ | 28,081         |  | $ | 6,113       |   |  | $     |        |   |  | $ | 120,586 |  
|Depreciation and amortization                  |  |                          | 3,532   |                      |   | 262            |  |   | 870         |   |  |       | 820     |   |  |   | 5,484   |  
|Income (loss) from operations                  |  |                          | 17,306  |                      |   | 4,206          |  |   | (2,472      | ) |  |       | (21,360 | ) |  |   | (2,320  | )
|Income tax expense                             |  |                          |        |                      |   |               |  |   |            |   |  |       | 1,310   |   |  |   | 1,310   |  
|Identifiable assets at December 24, 2004       |  |                          | 112,269 |                      |   | 43,435         |  |   | 53,754      |   |  |       | 49,959  |   |  |   | 259,417 |  
|Capital expenditures                           |  |                          | 1,577   |                      |   | 221            |  |   | 221         |   |  |       | 443     |   |  |   | 2,462   |  



The Company and its subsidiaries
operate in various geographic areas. The table below presents the Companys operations in the following geographic areas:



|              |                  |                      |                  |  |   |       
|------------- | ---------------- | -------------------- | ---------------- |  | - | ------
|              |                  | Thirteen Weeks Ended
|              | December 23,2005 |                      | December 24,2004
|Sales:        |                  |                      |                  |  |   |       
|United States |                  | $                    | 46,744           |  | $ | 39,396
|Europe        |                  |                      | 14,005           |  |   | 14,816
|Asia          |                  |                      | 3,561            |  |   | 1,853 
|Canada        |                  |                      | 721              |  |   | 748   
|Latin America |                  |                      | 1,637            |  |   | 1,674 
|              |                  |                      |                  |  |   |       
|Total         |                  | $                    | 66,668           |  | $ | 58,487
|              |                  |                      |                  |  |   |       



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|              |                  |                        |                  |  |   |        
|------------- | ---------------- | ---------------------- | ---------------- |  | - | -------
|              |                  | Twenty-Six Weeks Ended
|              | December 23,2005 |                        | December 24,2004
|Sales:        |                  |                        |                  |  |   |        
|United States |                  | $                      | 88,571           |  | $ | 78,496 
|Europe        |                  |                        | 28,267           |  |   | 29,451 
|Asia          |                  |                        | 8,522            |  |   | 5,599  
|Canada        |                  |                        | 1,545            |  |   | 1,416  
|Latin America |                  |                        | 3,257            |  |   | 5,624  
|              |                  |                        |                  |  |   |        
|Total         |                  | $                      | 130,162          |  | $ | 120,586
|              |                  |                        |                  |  |   |        



|15. | STOCK AWARD PLANS
|--- | -----------------



The Company has an Incentive Plan (the 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 employees generally 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.



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 are exercisable one year after grant.



In connection with the acquisition of Lantern Communications, Inc. (Lantern) in June 2004, outstanding incentive and nonqualified stock options to acquire Lantern common
stock were converted into stock options to acquire the Companys common stock. The incentive and nonqualified stock options expire upon the earlier of three months after the date of termination of employment or ten years from the date of grant.
Awards related to the Lantern plan retained their original vesting schedules.



In connection with the acquisition of MobileForce Communications, Inc. (MobileForce) in April 2001, outstanding incentive and nonqualified stock options to acquire MobileForce common stock were converted into stock options to acquire the
Companys common stock. The incentive and nonqualified stock options expire upon the earlier of three months after the date of termination of employment or ten years from the date of grant. The options vested immediately upon assumption by the
Company.



The Companys primary type of share-based compensation consists
of non-qualified stock options issued under its Incentive Plan. The total number of shares authorized to be granted under all share-based plans is 2,325,259. The Company funds shares issued upon exercise out of available authorized shares.



A summary of the status of the Companys stock option plans as of
December 23, 2005 is presented below:



|                                         |  |                 |   |  |                              |       |                          |     |                                |      
|---------------------------------------- |  | --------------- | - |  | ---------------------------- | ----- | ------------------------ | --- | ------------------------------ | -----
|                                         |  | Number ofShares |   |  | Weighted-Avg. Exercise Price |       | RemainingContractualTerm |     | Intrinsic Value (in thousands)
|Outstanding at June 24, 2005             |  | 5,812,582       |   |  | $                            | 9.72  |                          |    |                                |     
|Granted                                  |  | 685,850         |   |  | $                            | 6.84  |                          |    |                                |     
|Exercised                                |  | (104,197        | ) |  | $                            | 4.52  |                          |    |                                | 334  
|Expired                                  |  | (154,299        | ) |  | $                            | 11.21 |                          |    |                                |     
|Forfeited                                |  | (46,688         | ) |  | $                            | 12.23 |                          |    |                                |     
|                                         |  |                 |   |  |                              |       |                          |     |                                |      
|Outstanding at September 23, 2005        |  | 6,193,248       |   |  | $                            | 9.16  |                          | 4.9 |                                | 2,318
|Granted                                  |  | 174,500         |   |  | $                            | 6.39  |                          |    |                                |     
|Exercised                                |  | (1,860          | ) |  | $                            | 2.05  |                          |    |                                | 4    
|Expired                                  |  | (178,777        | ) |  | $                            | 10.89 |                          |    |                                |     
|Forfeited                                |  | (70,432         | ) |  | $                            | 7.35  |                          |    |                                |     
|                                         |  |                 |   |  |                              |       |                          |     |                                |      
|Outstanding at December 23, 2005         |  | 6,116,679       |   |  | $                            | 9.05  |                          | 4.8 |                                | 1,091
|Options exercisable at December 23, 2005 |  | 3,728,213       |   |  | $                            | 10.11 |                          | 3.6 |                                | 761  
|                                         |  |                 |   |  |                              |       |                          |     |                                |      



The total intrinsic value of options
exercised for the thirteen-week and twenty-six week periods ended December 24, 2004 was $260 and $348, respectively.



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The following table summarizes information about the Companys outstanding stock options as of December 23,
2005:



|                         |                                |                     |                                                 |                     |                              |   |                                |  |                              |  |   |      
|------------------------ | ------------------------------ | ------------------- | ----------------------------------------------- | ------------------- | ---------------------------- | - | ------------------------------ |  | ---------------------------- |  | - | -----
|                         |                                | Options Outstanding |                                                 | Options Exercisable
|                         | Number Outstanding at 12/23/05 |                     | Weighted-Avg. RemainingContractual Life (Years) |                     | Weighted-Avg. Exercise Price |   | Number Exercisable at 12/23/05 |  | Weighted-Avg. Exercise Price
|Range of Exercise Prices |                                |                     |                                                 |                     |                              |   |                                |  |                              |  |   |      
|$ 0.80                   |                                | 21,278              |                                                 | 7.6                 |                              | $ | 0.80                           |  | 8,001                        |  | $ | 0.80 
|$ 1.50                   |                                | 22,793              |                                                 | 4.4                 |                              | $ | 1.50                           |  | 22,793                       |  | $ | 1.50 
|$ 3.05 to $4.51          |                                | 706,619             |                                                 | 5.0                 |                              | $ | 3.68                           |  | 497,273                      |  | $ | 3.69 
|$ 4.75 to $7.12          |                                | 1,725,203           |                                                 | 5.4                 |                              | $ | 6.47                           |  | 871,703                      |  | $ | 6.22 
|$ 7.17 to $10.69         |                                | 2,228,995           |                                                 | 5.7                 |                              | $ | 8.24                           |  | 937,573                      |  | $ | 8.00 
|$10.94 to $16.41         |                                | 897,645             |                                                 | 2.7                 |                              | $ | 12.50                          |  | 880,231                      |  | $ | 12.46
|$17.56 to $22.94         |                                | 426,165             |                                                 | 2.4                 |                              | $ | 21.87                          |  | 422,665                      |  | $ | 21.90
|$26.44 to $39.13         |                                | 87,231              |                                                 | 2.1                 |                              | $ | 30.07                          |  | 87,224                       |  | $ | 30.07
|$39.94                   |                                | 750                 |                                                 | 2.3                 |                              | $ | 39.94                          |  | 750                          |  | $ | 39.94
|                         |                                |                     |                                                 |                     |                              |   |                                |  |                              |  |   |      
|                         |                                | 6,116,679           |                                                 | 4.8                 |                              | $ | 9.05                           |  | 3,728,213                    |  | $ | 10.11
|                         |                                |                     |                                                 |                     |                              |   |                                |  |                              |  |   |      



The following table presents
information regarding unvested share activity during the thirteen week periods ended September 23, 2005 and December 23, 2005:



|                               |  |                         |   |  |                                        |     
|------------------------------ |  | ----------------------- | - |  | -------------------------------------- | ----
|                               |  | UnvestedNumber ofShares |   |  | Weighted-Average Grant Date Fair Value
|Unvested at June 25, 2005      |  | 2,032,390               |   |  | $                                      | 5.04
|Granted                        |  | 685,850                 |   |  | $                                      | 3.59
|Vested                         |  | (56,656                 | ) |  | $                                      | 7.67
|Forfeited                      |  | (122,523                | ) |  | $                                      | 4.84
|                               |  |                         |   |  |                                        |     
|Unvested at September 23, 2005 |  | 2,539,061               |   |  | $                                      | 4.60
|Granted                        |  | 174,500                 |   |  | $                                      | 3.37
|Vested                         |  | (254,663                | ) |  | $                                      | 3.63
|Forfeited                      |  | (70,432                 | ) |  | $                                      | 4.96
|                               |  |                         |   |  |                                        |     
|Unvested at December 23, 2005  |  | 2,388,466               |   |  | $                                      | 4.59



As of December 23, 2005, there
was $5,410 of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to stock options granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.08
years.



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|16. | SUBSEQUENT EVENTS
|--- | -----------------



Restructuring:



On January 3,
2006, the Companys management approved and initiated a plan to further restructure its operations, which will result in workforce reductions of approximately 225 employees and the closure and downsizing of certain facilities. The Company will
relocate certain processes from Wallingford, Connecticut, to its Tijuana, Mexico facility as well as close its Sunnyvale, California, facility. The restructuring is intended to reduce costs and maximize operational efficiency and is anticipated to
be completed over the second half of fiscal year 2006.



In connection with the
restructuring, the Company currently expects to incur restructuring charges of approximately $5.0 to $6.0 million which is comprised of cash expenditures for employee severance and termination costs in the range of between $4.0 million to $5.0
million and certain contract termination and other associated costs of up to $1.0 million in the second half of fiscal year 2006. It is anticipated that employee severance and termination benefit payments will be made on a bi-weekly basis, and as
such the Company anticipates payments to extend through the first half of fiscal year 2007. Amounts related to contract termination and other associated costs will be paid out over their remaining term, unless terminated earlier.



Sale of Assets:



On January 13, 2006, the Company announced it had reached an understanding on the principal terms with Newfound Technology Inc., a
privately held, Massachusetts-based supplier of electronic hardware, under which Newfound Technology would acquire the assets and intellectual property of the Companys DV6000® product line. The transaction is subject to negotiation and execution of a definitive purchase agreement as well as
customary closing conditions and is expected to be completed in the third quarter of fiscal year 2006.



Litigation and Contingencies:



nCUBE
Corporation, which was acquired by C-COR Incorporated on December 31, 2004, initiated litigation against SeaChange International, Inc. (SeaChange) for patent infringement on January 8, 2001 in the United
States Federal District Court in Delaware. The complaint alleged that SeaChange was violating nCUBEs U.S. patent 5,805,804 entitled Method and Apparatus for Scalable, High Bandwidth Storage, Retrieval, and Transportation
of Multimedia Data on a Network (the 804 patent). Following a week-long trial, the jury returned a verdict finding that: (1) SeaChange infringed the 804 patent both literally and under the doctrine of equivalents;
(2) SeaChanges infringement was willful; (3) the asserted claims were not invalid; and (4) Company was entitled to damages of $1.7 million plus a running royalty of 7% on all of SeaChanges sales of the infringing product.
In April 2004, the district court entered judgment on the jury verdict and awarded nCUBE 2/3 of its attorney fees and enhanced damages by a factor of two. SeaChange appealed the jurys verdict and the district courts award to the United
States Court of Appeals for the Federal Circuit.



On January 9, 2006, the
U.S. Court of Appeals for the Federal Circuit affirmed the jurys finding that SeaChange infringed the 804 patent and that such infringement was willful. The appellate court also affirmed the district courts award
of 2/3 of nCUBEs attorney fees and the award of enhanced damages. On January 24, 2006, SeaChange filed a Consolidated Petition for Panel Rehearing and Rehearing En Banc.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



General



The following discussion addresses the financial condition of C-COR Incorporated as of December 23, 2005, and the results of our operations for the thirteen-week and
twenty-six week periods ended December 23, 2005, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the Managements Discussion and Analysis section for the fiscal year ended
June 24, 2005, included in the Companys Annual Report on Form 10-K.



Disclosure Regarding Forward-Looking Statements



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, our ability to
develop and expand our product offerings, our continued investment in research and product development, fluctuations in network upgrade activity and the level of future network upgrade activity, both domestically and internationally, the migration
of hybrid fiber coax networks to networks based on all-digital Internet Protocol (IP) packet technology, fluctuations in the global demand for our products, services and software, future sales revenue of our segments, both domestically and
internationally, demand for our product line offerings in international markets, anticipated software sales and associated gross margins in future quarters, the effect of revenue levels in general, sales mix, competitive pricing, the timing of new
product introductions and the timing of deployments of our content management and operational support software systems on our future overall gross margin, our expectation to maintain valuation allowances related to net tax benefits arising from
temporary differences and operating loss carryforwards, the deductibility of goodwill recorded by the Company in connection with acquisitions, our intention to continue our initiatives to achieve cost-effective operations, including undertaking
additional restructuring initiatives and implementing current restructuring and cost reduction plans, statements relating to our business strategy and the effect of accounting pronouncements required to be adopted by the Company. Forward-looking
statements represent our judgment regarding future events. Although we believe we have a reasonable basis for these forward-looking statements, we cannot guarantee their accuracy and actual results may differ materially from those anticipated due to
a number of known and unknown uncertainties. Factors that could cause actual results to differ from expectations include, among others, capital spending patterns of the communications industry, our ability to develop new and enhanced products, the
timing for scheduled completion of certain projects and customer acceptance requirements, continued industry consolidation, the development of competing technologies, the effect of increased competition from satellite providers and telephone
companies on the capital spending budgets of our cable customers, changes in the credit profiles of major customers that would lead us to restrict new product shipments or record an increase in the allowance for doubtful accounts, timing of
recognizing software revenues, changes in our sales mix, the effect of competitive pricing, an impairment of goodwill recorded on our balance sheet, the success of our initiatives to achieve cost-effective operations, our ability to integrate our
operations and the operations of companies we have acquired, our ability to convert our backlog into sales, and our ability to achieve our strategic objectives. For additional information concerning these and other important factors that may cause
our actual results to differ materially from expectations and underlying assumptions, please refer to the reports filed by us with the Securities and Exchange Commission.



Business Overview



We are a global provider of communications equipment, technical services and software solutions for two-way hybrid fiber coax broadband networks delivering video, voice
and data. We operate in three industry segments: C-COR Access and Transport, C-COR Network Services, and C-COR Solutions.



The C-COR Access and Transport segment is responsible for the development, management, production, support and sale of our network infrastructure products, including our
amplitude modulation headend/hub optical platform and line of optical nodes, and a full offering of radio frequency amplifiers.



The C-COR Network Services segment provides technical services for engineering, design, and deployment of advanced applications over broadband networks, including
outsourced operational services, network design and engineering, network integration, outside plant and construction services, and consulting to a variety of customers.



The C-COR Solutions segment is responsible for development, integration, management, implementation, support, and sale of content management
systems, including software and hardware, for delivery of video on demand and digital advertising as well as application-oriented software for subscriber activation and retention, network and service assurance, and workforce management.



Net sales for the thirteen-week period ended December 23, 2005 were $66.7 million, an
increase of 14% over the $58.5 million recorded in the same period of the prior year, reflecting higher revenues from the sale of content and operations management systems. Content and operations management systems revenues increased 338% to $17.6
million for the thirteen-week period ended December 23, 2005



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##### Table of Contents

compared to $4.0 million for the same period of the prior year, primarily due to customer acceptances during the period on systems and software applications
for advertising insertion and video on demand (VOD) product lines. These revenues were partially offset by lower revenues for both access and transport products and technical services. Our largest customers during the quarter were Time Warner Cable
and Adelphia Communications, Inc. accounting for 22% and 12%, respectively, of net sales. Gross margins declined to 31.5% during the thirteen-week period ended December 23, 2005, compared to gross margins of 39.1% for the same period of the
prior year. The decline resulted primarily from product mix and a $1.6 million write-down in inventory associated with certain transport product lines due to the Companys decision to cease selling certain product lines. In addition, gross
margins for the prior year period were favorably impacted due to settlement of specific warranty liabilities for amounts below their recorded values. Operating expense levels, for both selling and administrative expense and research and product
development expense, increased during the thirteen-week period ended December 23, 2005 compared to the same period of the prior year as a result of growth in personnel and administrative expense from acquisitions completed in the prior fiscal
year. In addition, operating expenses increased due to recording stock based compensation associated with our adoption of Statement of Financial Accounting Standards No. 123R  Share-Based Payment (Statement 123R) as of
June 25, 2005. (See Note 3). During the quarter, the Company recorded an impairment of $5.3 million related to its decision to cease sales and marketing activities associated with certain transport product lines. The impairment charge was
comprised of $4.9 million of other intangible assets associated with purchased technology and $342,000 associated with the write-down of property and equipment. The fair value of these assets was measured based on an estimate of discounted cash
flows expected to result from the use and disposition of these assets.



At
December 23, 2005, we had recorded $131.9 million of goodwill and $6.9 million of other intangible assets, net. While goodwill is no longer amortized, we are required to assess whether goodwill is impaired at least annually and more frequently
if circumstances warrant. Any impairment of goodwill could result in a substantial charge to earnings, which would have a material adverse effect on our results of operation and financial position in the period in which such impairment is recorded.



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Results of Operations



The following table contains information regarding the percentage of net sales of our condensed consolidated statements of operations for the thirteen-week and twenty-six
week periods ended December 23, 2005 and December 24, 2004.



|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|----------------------------------------- |  | ------------------------ | -- |  | ---------------------- | -- |  | ---------------- | -- |  | ---------------- | --
|                                          |  | Percentages of Net Sales |   
|                                          |  | Thirteen Weeks Ended     |    |  | Twenty-Six Weeks Ended |   
|                                          |  | December 23,2005         |    |  | December 24,2004       |    |  | December 23,2005 |    |  | December 24,2004 |   
|Net sales:                                |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Products                                  |  | 54.6                     | %  |  | 71.1                   | %  |  | 59.3             | %  |  | 71.6             | % 
|Services                                  |  | 19.0                     |    |  | 22.0                   |    |  | 19.0             |    |  | 23.3             |   
|Content and operations management systems |  | 26.4                     |    |  | 6.9                    |    |  | 21.7             |    |  | 5.1              |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Total net sales                           |  | 100.0                    |    |  | 100.0                  |    |  | 100.0            |    |  | 100.0            |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Cost of sales:                            |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Products                                  |  | 35.6                     |    |  | 40.8                   |    |  | 38.7             |    |  | 42.4             |   
|Services                                  |  | 16.3                     |    |  | 18.2                   |    |  | 16.6             |    |  | 18.8             |   
|Content and operations management systems |  | 14.2                     |    |  | 1.9                    |    |  | 10.7             |    |  | 1.8              |   
|Excess and obsolete inventory charge      |  | 2.4                      |    |  | 0.0                    |    |  | 5.9              |    |  | 0.0              |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Total cost of sales                       |  | 68.5                     |    |  | 60.9                   |    |  | 71.9             |    |  | 63.0             |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Gross margin                              |  | 31.5                     |    |  | 39.1                   |    |  | 28.1             |    |  | 37.0             |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Operating expenses:                       |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Selling and administrative                |  | 27.2                     |    |  | 24.3                   |    |  | 27.2             |    |  | 21.7             |   
|Research and product development          |  | 15.0                     |    |  | 14.7                   |    |  | 15.8             |    |  | 13.2             |   
|Amortization of intangibles               |  | 1.9                      |    |  | 2.0                    |    |  | 2.1              |    |  | 2.0              |   
|Acquired in-process technology charge     |  | 0.0                      |    |  | 0.0                    |    |  | 0.0              |    |  | 1.5              |   
|Impairment of long-lived assets           |  | 8.0                      |    |  | 0.0                    |    |  | 4.1              |    |  | 0.0              |   
|Restructuring charge                      |  | 2.1                      |    |  | 1.1                    |    |  | 1.3              |    |  | 0.5              |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Total operating expenses                  |  | 54.2                     |    |  | 42.1                   |    |  | 50.5             |    |  | 38.9             |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Loss from operations                      |  | (22.7                    | )  |  | (3.0                   | )  |  | (22.4            | )  |  | (1.9             | ) 
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Interest expense                          |  | (0.5                     | )  |  | 0.0                    |    |  | (0.5             | )  |  | 0.0              |   
|Investment income                         |  | 0.5                      |    |  | 0.8                    |    |  | 0.5              |    |  | 0.6              |   
|Foreign exchange gain (loss)              |  | (0.2                     | )  |  | 0.5                    |    |  | (0.2             | )  |  | 0.0              |   
|Other income, net                         |  | 0.4                      |    |  | 0.4                    |    |  | 0.2              |    |  | 0.2              |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Loss before income taxes                  |  | (22.5                    | )  |  | (1.3                   | )  |  | (22.4            | )  |  | (1.1             | ) 
|Income tax expense                        |  | 1.1                      |    |  | 1.4                    |    |  | 1.0              |    |  | 1.1              |   
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   
|Net loss                                  |  | (23.6                    | )% |  | (2.7                   | )% |  | (23.4            | )% |  | (2.2             | )%
|                                          |  |                          |    |  |                        |    |  |                  |    |  |                  |   



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##### Table of Contents

The tables below set forth our net sales for the thirteen-week and twenty-six week periods ended December 23, 2005
and December 24, 2004, for each of our reportable segments.



|                           |  |                          |      |                            |     |  |                  |   |   |   |      |  |    
|-------------------------- |  | ------------------------ | ---- | -------------------------- | --- |  | ---------------- | - | - | - | ---- |  | ---
|                           |  | Thirteen Weeks Ended    
|                           |  | (in millions of dollars)
|                           |  | December 23,2005         |      | Change from Prior Period % |     |  | December 24,2004
|                           |  | Net Sales                |      | %                          |     |  | Net Sales        |   | %
|Operating Segment          |  |                          |      |                            |     |  |                  |   |   |   |      |  |    
|C-COR Access and Transport |  | $                        | 36.4 |                            | 55  |  | (13              | ) |   | $ | 41.6 |  | 71 
|C-COR Network Services     |  |                          | 12.7 |                            | 19  |  | (2               | ) |   |   | 12.9 |  | 22 
|C-COR Solutions            |  |                          | 17.6 |                            | 26  |  | 340              |   |   |   | 4.0  |  | 7  
|                           |  |                          |      |                            |     |  |                  |   |   |   |      |  |    
|                           |  | $                        | 66.7 |                            | 100 |  | 14               |   |   | $ | 58.5 |  | 100
|                           |  |                          |      |                            |     |  |                  |   |   |   |      |  |    



|                           |  |                          |       |                            |     |  |                  |   |   |   |       |  |    
|-------------------------- |  | ------------------------ | ----- | -------------------------- | --- |  | ---------------- | - | - | - | ----- |  | ---
|                           |  | Twenty-Six Weeks Ended  
|                           |  | (in millions of dollars)
|                           |  | December 23,2005         |       | Change from Prior Period % |     |  | December 24,2004
|                           |  | Net Sales                |       | %                          |     |  | Net Sales        |   | %
|Operating Segment          |  |                          |       |                            |     |  |                  |   |   |   |       |  |    
|C-COR Access and Transport |  | $                        | 77.2  |                            | 59  |  | (11              | ) |   | $ | 86.4  |  | 72 
|C-COR Network Services     |  |                          | 24.7  |                            | 19  |  | (12              | ) |   |   | 28.1  |  | 23 
|C-COR Solutions            |  |                          | 28.3  |                            | 22  |  | 364              |   |   |   | 6.1   |  | 5  
|                           |  |                          |       |                            |     |  |                  |   |   |   |       |  |    
|                           |  | $                        | 130.2 |                            | 100 |  | 8                |   |   | $ | 120.6 |  | 100
|                           |  |                          |       |                            |     |  |                  |   |   |   |       |  |    



The table below sets forth our net
sales for the thirteen-week and twenty-six week periods ended December 23, 2005 and December 24, 2004 by geographic region.



|                  |  |                          |      |                            |     |  |                  |   |   |   |      |  |    
|----------------- |  | ------------------------ | ---- | -------------------------- | --- |  | ---------------- | - | - | - | ---- |  | ---
|                  |  | Thirteen Weeks Ended    
|                  |  | (in millions of dollars)
|                  |  | December 23,2005         |      | Change from Prior Period % |     |  | December 24,2004
|                  |  | Net Sales                |      | %                          |     |  | Net Sales        |   | %
|Geographic Region |  |                          |      |                            |     |  |                  |   |   |   |      |  |    
|United States     |  | $                        | 46.8 |                            | 70  |  | 19               |   |   | $ | 39.4 |  | 68 
|Europe            |  |                          | 14.0 |                            | 21  |  | (6               | ) |   |   | 14.8 |  | 25 
|Asia              |  |                          | 3.6  |                            | 5   |  | 90               |   |   |   | 1.9  |  | 3  
|Canada            |  |                          | .7   |                            | 1   |  |                 |   |   |   | .7   |  | 1  
|Latin America     |  |                          | 1.6  |                            | 3   |  | (6               | ) |   |   | 1.7  |  | 3  
|                  |  |                          |      |                            |     |  |                  |   |   |   |      |  |    
|Consolidated      |  | $                        | 66.7 |                            | 100 |  | 14               |   |   | $ | 58.5 |  | 100
|                  |  |                          |      |                            |     |  |                  |   |   |   |      |  |    



|                  |  |                          |       |                            |     |  |                  |   |   |   |       |  |    
|----------------- |  | ------------------------ | ----- | -------------------------- | --- |  | ---------------- | - | - | - | ----- |  | ---
|                  |  | Twenty-Six Weeks Ended  
|                  |  | (in millions of dollars)
|                  |  | December 23,2005         |       | Change from Prior Period % |     |  | December 24,2004
|                  |  | Net Sales                |       | %                          |     |  | Net Sales        |   | %
|Geographic Region |  |                          |       |                            |     |  |                  |   |   |   |       |  |    
|United States     |  | $                        | 88.6  |                            | 68  |  | 13               |   |   | $ | 78.5  |  | 65 
|Europe            |  |                          | 28.3  |                            | 22  |  | (4               | ) |   |   | 29.5  |  | 24 
|Asia              |  |                          | 8.5   |                            | 6   |  | 52               |   |   |   | 5.6   |  | 5  
|Canada            |  |                          | 1.5   |                            | 1   |  | 7                |   |   |   | 1.4   |  | 1  
|Latin America     |  |                          | 3.3   |                            | 3   |  | 41               |   |   |   | 5.6   |  | 5  
|                  |  |                          |       |                            |     |  |                  |   |   |   |       |  |    
|Consolidated      |  | $                        | 130.2 |                            | 100 |  | 8                |   |   | $ | 120.6 |  | 100
|                  |  |                          |       |                            |     |  |                  |   |   |   |       |  |    



Net Sales. Net sales increased
14% and 8% for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to the same periods of the prior year. The higher revenues for the thirteen-week and twenty-six week periods resulted from increased
sales of content and operational support systems, including product lines acquired from nCUBE Corporation (nCUBE) in the third quarter of fiscal year 2005. The increases were partially offset by a decline in revenue from access and transport
products, primarily in international regions, and technical services sales to Adelphia.



C-COR Access and Transport segment sales decreased 13% and 11% for the thirteen-week and twenty-six week periods ended



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December 23, 2005, respectively, compared to the same periods of the prior year. The decreases were primarily driven by reduced shipments to
international regions, primarily Latin America and Europe, which were partially offset by increased shipments to certain domestic customers. Sales of radio frequency amplifiers were $19.1 million and $43.3 million for the thirteen-week and
twenty-six week periods ended December 23, 2005, respectively, compared with $21.0 million and $48.1 million for the same periods of the prior year. Optical product sales were $17.3 million and $33.9 million for the thirteen-week and twenty-six
week periods ended December 23, 2005, respectively, compared with $20.6 million and $38.3 million for the same periods of the prior year. Shifts in product mix resulted from new build and upgrade requirements, which depend on the network
architecture deployed by our customers. We anticipate sales of C-COR Access and Transport will be higher in the third quarter of fiscal year 2006.



C-COR Network Services segment sales decreased 2% and 12% for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to the
same periods of the prior year. The lower sales were the result of the wind-down of Adelphia upgrade projects, which had accounted for a substantial portion of revenues in this segment in the first half of fiscal year 2005, which was partially
offset with increased recurring services projects with Time Warner Cable during the current quarter and year-to-date periods. We expect C-COR Network Services sales to be higher in the third quarter of fiscal year 2006.



C-COR Solutions segment sales increased 338% and 363% for the thirteen-week and twenty-six
week periods ended December 23, 2005, respectively, compared to the same periods of the prior year. Our C-COR Solutions segment results reflect the sales of our content management and operations support systems. The increases for the periods
resulted primarily from increased sales of systems and software applications for advertising insertion and VOD products deriving from the acquisition of nCUBE in the third quarter of fiscal year 2005. The majority of revenues in this segment are
derived from sales under multiple element arrangements, whereby revenues are recognized using the completed contract method of accounting or, in some cases, are recognized ratably over the delivery period. As a result, revenues in the C-COR
Solutions segment are affected by the timing of new orders and customer acceptance requirements. Software license and associated professional services revenue for our mobile workforce software product line is recognized using the percentage of
completion method of accounting due to our ability to reliably estimate contract costs at the inception of those contracts. We expect C-COR Solutions sales to decrease in the third quarter of fiscal year 2006 as a result of the timing for scheduled
completion of certain projects and customer acceptance requirements.



Domestic
sales increased for both the thirteen-week and twenty-six week periods ended December 23, 2005 due primarily to increased C-COR Solutions systems and software applications for advertising insertion and VOD product lines which were acquired from
nCUBE in the third quarter of fiscal year 2005. Domestic sales of C-COR Access and Transport and C-COR Network Services segments declined during the thirteen-week and twenty-six week periods ended December 23, 2005, due to lower spending for
both products and technical services by certain cable operators.



International
sales increased for C-COR Solutions segment during the thirteen-week and twenty-six week periods ended December 23, 2005, due primarily to increased systems and software applications for VOD which were acquired from nCUBE in the third quarter
of fiscal year 2005. International sales decreased for the C-COR Access and Transport segment, as increased sales in Asia were more than offset by decreased sales in Latin America and Europe. We believe that capital spending in European markets is
primarily driven by increased competition for enhanced broadband services requiring telecommunication providers to upgrade their networks to support these enhanced services. Our international sales have been primarily C-COR Access and Transport
segment sales, but we anticipate growth in our international C-COR Solutions segment sales. We expect demand for our product line offerings in international markets will continue to be highly variable. The international markets represent distinct
markets in which capital spending decisions for network equipment and solutions are affected by a variety of factors, including access to financing and general economic conditions.



The table below sets forth our backlog by industry segment as of December 23, 2005 compared to September 23, 2005:



|                           |  |                           |      |   |     |          |    |   |                            |   |      |  |    
|-------------------------- |  | ------------------------- | ---- | - | --- | -------- | -- | - | -------------------------- | - | ---- |  | ---
|                           |  | Thirteen Weeks Ended     
|                           |  | (In millions of dollars) 
|                           |  | December 23, 2005 Backlog |      | % |     | Change % |    |   | September 23, 2005 Backlog |   | %   
|Operating Segment          |  |                           |      |   |     |          |    |   |                            |   |      |  |    
|C-COR Access and Transport |  | $                         | 21.7 |   | 23  |          | (7 | ) |                            | $ | 23.3 |  | 27 
|C-COR Network Services     |  |                           | 29.8 |   | 32  |          | 3  |   |                            |   | 28.9 |  | 33 
|C-COR Solutions            |  |                           | 41.8 |   | 45  |          | 18 |   |                            |   | 35.5 |  | 40 
|                           |  |                           |      |   |     |          |    |   |                            |   |      |  |    
|Consolidated               |  | $                         | 93.3 |   | 100 |          | 6  |   |                            | $ | 87.7 |  | 100
|                           |  |                           |      |   |     |          |    |   |                            |   |      |  |    



As of December 23, 2005, the
backlog for our C-COR Access and Transport segment decreased for both domestic and international customers. Our backlog of C-COR Network Services increased due to new services projects during the quarter. The increase in backlog for C-COR Solutions
resulted from both increased domestic and international software license and maintenance bookings during the quarter. The Company includes in backlog customer orders that are anticipated to result in revenue being recognized over



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the next twelve months. The majority of orders in backlog for C-COR Access and Transport will result in revenue over the next six months while orders in
backlog of the other two segments typically include a portion that will result in revenue over the latter part of the twelve month period.



We make management decisions based on our backlog, including hiring of personnel, purchasing of materials, and other matters that may increase our production capabilities
and costs. Cancellations, delays or reductions of orders could adversely affect our results of operations and financial condition.



Gross Margin. The following table sets forth our gross margins by operating segment during the thirteen-week and twenty-six week periods ended December 23,
2005 compared to the same periods of the prior year.



|                           |  |                                  |  |               |   |  |                                 
|-------------------------- |  | -------------------------------- |  | ------------- | - |  | --------------------------------
|                           |  | Thirteen Weeks Ended            
|                           |  | December 23, 2005 Gross Margin % |  | Change Points |   |  | December 24, 2004 Gross Margin %
|Operating Segment          |  |                                  |  |               |   |  |                                 
|C-COR Access and Transport |  | 30.4                             |  | (12.2         | ) |  | 42.6                            
|C-COR Network Services     |  | 14.1                             |  | (3.5          | ) |  | 17.6                            
|C-COR Solutions            |  | 46.4                             |  | (25.6         | ) |  | 72.0                            
|                           |  |                                  |  |               |   |  |                                 
|Consolidated               |  | 31.5                             |  | (7.6          | ) |  | 39.1                            
|                           |  |                                  |  |               |   |  |                                 



|                           |  |                                  |  |               |   |  |                                 
|-------------------------- |  | -------------------------------- |  | ------------- | - |  | --------------------------------
|                           |  | Twenty-six weeks Ended          
|                           |  | December 23, 2005 Gross Margin % |  | Change Points |   |  | December 24, 2004 Gross Margin %
|Operating Segment          |  |                                  |  |               |   |  |                                 
|C-COR Access and Transport |  | 24.7                             |  | (16.1         | ) |  | 40.8                            
|C-COR Network Services     |  | 12.6                             |  | (6.6          | ) |  | 19.2                            
|C-COR Solutions            |  | 50.7                             |  | (13.0         | ) |  | 63.7                            
|                           |  |                                  |  |               |   |  |                                 
|Consolidated               |  | 28.1                             |  | (8.9          | ) |  | 37.0                            
|                           |  |                                  |  |               |   |  |                                 



Consolidated gross margins were 31.5%
and 28.1% for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to 39.1% and 37.0% for the same periods of the prior year. For the C-COR Access and Transport segment, gross margins were 30.4% and
24.7% for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to 42.6% and 40.8% for the same periods of the prior year. The decreases in gross margins were primarily due to the $1.6 million and $7.7
million dollar write-down in inventory for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, associated with certain transport product lines, based on managements assessment of market conditions for
these product lines. In addition, lower volumes and product mix also contributed to the decline in gross margin for the periods. For the C-COR Network Services segment, gross margins were 14.1% and 12.6% for the thirteen-week and twenty-six week
periods ended December 23, 2005, respectively, compared to 17.6% and 19.2% for the same periods of the prior year. The decreases in gross margins were due to higher project costs associated with upgrade projects and the lower sales volume. For
the C-COR Solutions segment, gross margins were 46.4% and 50.7% for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to 72.0% and 63.7% for the same periods of the prior year. The decreases in gross
margins were due to the mix of lower margin sales. We anticipate that our future gross margins in all of our business segments will continue to be affected by many factors, including revenue levels in general, sales mix, competitive pricing
pressures, the timing of new product introductions and the timing of deployments for certain of our content management and operational support software solutions.



Selling and Administrative. Selling and administrative expenses were $18.2 million and $35.3 million for the thirteen-week and
twenty-six week periods ended December 23, 2005, respectively, compared to $14.2 million and $26.2 million for the same periods of the prior year. This represents an increase of 28% and 35% during the thirteen-week and twenty-six week periods
ended December 23, 2005, respectively, over the comparable periods of the prior year. Selling and administrative expenses increased primarily as a result of personnel and administrative expense associated with the acquisition of nCUBE in the
third quarter of fiscal year 2005, and stock-based compensation associated with the adoption of Statement of Financial Accounting Standards No. 123R  Share-Based Payment (Statement 123R), effective as of June 25, 2005.
See Supplemental Information about Stock-Based Compensation below.



Research and Product Development. Research and product development expenses were $10.0 million and $20.6 million for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to $8.6 million
and $15.9 million for the same periods of the prior year. This represents an increase of 16% and 30% during the thirteen-week and twenty-six week periods ended December 23, 2005 over the comparable periods of the prior year. Research and
product development expenses in the C-COR Access and Transport segment were $4.7 million and $9.7 million for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to $6.1 million and $11.0 million for
the same periods of the prior year. The decreases were due primarily to lower personnel costs resulting from reductions in personnel. Research and product development expenses in the C-COR Solutions segment were $5.0 million and $10.4 million for
the thirteen-week and twenty-six week periods ended December 23, 2005,



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respectively, compared to $2.3 million and $4.6 million for the same periods of the prior year. The increases were primarily due to higher personnel costs
resulting from the acquisitions of Stargus, Inc. and nCUBE during fiscal year 2005. Other research and product development expenses, not charged to segments, were $249,000 and $511,000 for the thirteen-week and twenty-six week periods ended
December 23, 2005, respectively, compared to $229,000 and $412,000 for the same periods of the prior year. The increases relates to various general operating costs. We believe sustained commitment to product development efforts will be required
for us to remain competitive, and anticipate continuing investments in research and product development in future periods related to network infrastructure products and content and operations management systems.



Operating Income (Loss) By Segment. Operating income (excluding unallocated items) for
the C-COR Access and Transport segment was $3.6 million and $4.4 million for the thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to operating income of $7.7 million and $17.3 million for the same
periods of the prior year. The decreases in operating income for the thirteen-week and twenty-six week periods ended December 23, 2005 were primarily attributable to lower revenues and gross margins, which included a write-down of inventory
associated with certain transport product lines. Operating income (excluding unallocated items) for the C-COR Network Services segment was $1.1 million and $1.8 million for the thirteen-week and twenty-six week periods ended December 23, 2005,
respectively, compared to operating income of $1.6 million and $4.2 million for the same periods of the prior year. The decreases in operating income for the thirteen-week and twenty-six week periods resulted primarily from the lower gross margin
associated with higher costs related to upgrade projects during the periods. Operating losses (excluding unallocated items) for the C-COR Solutions segment were $576,000 and $2.3 million for the thirteen-week and twenty-six week periods ended
December 23, 2005, respectively, compared to operating losses of $462,000 and $2.5 million for the same periods of the prior year. Although revenues increased in this segment during the periods, operating losses for the thirteen-week and
twenty-six week periods ended December 23, 2005, were still incurred as result of higher operating expenses, including higher amortization of intangibles associated with the nCUBE acquisition in fiscal year 2005, and restructuring costs.



Interest Expense. Interest expense was $329,000 and $649,000 for the
thirteen-week and twenty-six week periods ended December 23, 2005, respectively, compared to $25,000 and $44,000 for the same periods of the prior year. The increases in interest expense resulted primarily from interest expense and debt
issuance costs associated with our 3.5% senior unsecured convertible notes issued on December 31, 2004, in the acquisition of nCUBE.



Foreign Exchange Loss.Foreign exchange losses were $113,000 and $247,000 for the thirteen-week and twenty-six week periods ended December 23, 2005,
respectively, compared to gains of $265,000 and $8,000 for the same periods of the prior year. The loss for the thirteen-week and twenty-six week periods ended December 23, 2005 were primarily due to remeasurement of U.S. dollar denominated
balances held by our foreign operations.



Income Tax Expense. Income tax
expense was $738,000 and $1.3 million for the thirteen-week and twenty six week periods ended December 23, 2005, respectively, compared to income tax expense of $792,000 and $1.3 million for the same periods of the prior year. Income taxes for
the thirteen-week and twenty-six week periods ended December 23, 2005 include deferred tax benefit, deferred tax expense and current taxes paid or payable in certain foreign jurisdictions where the Company is profitable.



Liquidity and Capital Resources



|                                          |  |                          |      |   |                   |   |       |  
|----------------------------------------- |  | ------------------------ | ---- | - | ----------------- | - | ----- | -
|                                          |  | December 23, 2005        |      |   | June 24, 2005     |  
|                                          |  | (In millions of dollars) |     
|Balance sheet data (at period end)        |  |                          |      |   |                   |   |       |  
|Cash and cash equivalents                 |  | $                        | 35.8 |   |                   | $ | 43.3  |  
|Marketable securities                     |  |                          | 5.6  |   |                   |   | 9.3   |  
|                                          | 
|                                          |  | Twenty-Six Weeks Ended   |     
|                                          |  | December 23, 2005        |      |   | December 24, 2004 |  
|                                          |  | (In millions of dollars) |     
|Statements of cash flows data:            |  |                          |      |   |                   |   |       |  
|Net cash used in operating activities     |  | $                        | (7.8 | ) |                   | $ | (18.0 | )
|Net cash used in investing activities     |  |                          | (0.1 | ) |                   |   | (24.0 | )
|Net cash provided by financing activities |  |                          | 0.5  |   |                   |   | 0.8   |  



As of December 23, 2005, cash and
cash equivalents totaled $35.8 million, down from $43.3 million at June 24, 2005, primarily due to the funding of operating activities and the purchase of capital equipment during the twenty-six week period. Marketable securities decreased to
$5.6 million as of December 23, 2005, from $9.3 million at June 24, 2005. Working capital was $65.4 million at December 23, 2005 compared to $86.1 million at June 24, 2005.



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As of December 23, 2005, we had restricted cash of $3.5 million. Under the terms of our letter of credit agreement
with a bank, we are required to maintain cash collateral of 102% of the amount that can be drawn on issued letters of credit. The total restricted cash balance has been classified as a current asset as of December 23, 2005 as the terms of the
letters of credit expire in less than one year. We are entitled to the interest earnings on the restricted cash balance.



Net cash used in operating activities was $7.8 million for the twenty-six week period ended December 23, 2005, compared with net cash used of $18.0 million for the
same period of the prior year. The major elements of the use of cash for the twenty-six week period ended December 23, 2005 include a net loss for the period of $30.5 million, which is adjusted for non-cash items such as depreciation and
amortization, write-off of intangibles and long-lived assets and stock-based compensation. In addition, cash was used for reduction of accounts payable during the period, which were partially offset by reductions in accounts receivable and
inventory.



Net cash used in investing activities was $53,000 for the
twenty-six week period ended December 23, 2005 compared to cash used in investing activities of $24.0 million for the same period of the prior year. The cash used in investing activities during the twenty-six week period was comprised primarily
of $15.7 million of proceeds from the sale of marketable securities, which was partially offset by $12.0 million for the purchase of marketable securities and $3.8 million for the purchase of property, plant and equipment.



Net cash provided by financing activities was $490,000 for the twenty-six week period ended
December 23, 2005, compared with $782,000 for the same period of the prior year. Cash provided by financing activities during the twenty six week period resulted primarily from proceeds from the exercise of stock options and warrants.



Working Capital Outlook



Our main source of liquidity is our unrestricted cash on hand and short-term marketable
securities. In fiscal year 2005, we issued $35.0 million aggregate principal amount of Notes requiring semi-annual interest payments at an annual rate of 3.5% on June 30 and December 30, which mature on December 30, 2009 as part of
the consideration in the nCUBE acquisition. In addition, earn-out payments related to the acquisition of Optinel Systems, Inc. (Optinel) of $120,000 have been accrued related to achievement of certain performance targets within 13 months of the
closing date. The earnout will be paid in the third quarter of fiscal year 2006. The Company also anticipates additional restructuring charges to be incurred in the second half of fiscal year 2006 of approximately $5.0 to $6.0 million which is
comprised of cash expenditures for employee severance and termination costs in the range of between $4.0 million to $5.0 million and certain contract termination and other associated costs of up to $1.0 million. It is anticipated that employee
severance and termination benefit payments will be made on a bi-weekly basis, and as such the Company anticipates payments to extend through the first half of fiscal year 2007. Amounts related to contract termination and other associated costs will
be paid out over their remaining term, unless terminated earlier.



Taking into
account the fixed charges associated with our long-term debt obligations, the earn-out payment from the Optinel acquisition, and anticipated restructuring charges, we believe remaining cash and cash equivalents balances, and our marketable
securities will be adequate to cover our operating cash requirements over the next 12 to 18 months. However, we may find it necessary or desirable to seek financing to support our capital needs and provide funds for additional strategic initiatives
including acquiring or investing in complementary business, products, services, or technologies. Accordingly, this may require third-party financing or equity-based financing, such as issuance of common stock, preferred stock, or subordinated
convertible debt securities and warrants, which would be dilutive to existing shareholders. We do not currently have any committed lines of credit or other available credit facilities that could be utilized for capital requirements, and it is
uncertain whether such facilities could be obtained in sufficient amounts or on acceptable terms.



Recent Accounting Pronouncements



In
March 2005, the Financial Accounting Standards Board (FASB) published FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47), which will result in (a) more consistent recognition of
liabilities relating to asset retirement obligations, (b) more information about expected future cash outflows associated with those obligations, and (c) more information about investments in long-lived assets because additional asset
retirement costs will be recognized as part of the carrying amounts of the assets. FIN 47 clarifies that the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers
to a legal obligation to perform an asset retirement activity in which the time and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Uncertainty about the time and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of
the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal
years ending after December 15, 2005. Retrospective application of interim financial information is permitted but is not required. Early adoption of this Interpretation is encouraged. We do not anticipate adopting FIN 47 early. We do not expect
the adoption of FIN 47 to have a significant adverse effect on our financial position or results of operations.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



Market risk represents the risk of loss that may impact the financial position, results of operations, or cash flow of the Company due to adverse changes in market
prices, foreign currency exchange rates, and interest rates. The Company is exposed to market risk because of changes in foreign currency exchange rates and interest rates, and changes in the fair market value of its marketable securities portfolio.



The Company is exposed to foreign currency exchange rate risks inherent in its
sales commitments, anticipated sales, and assets and liabilities denominated in currencies other than the United States dollar. We attempt to minimize exposure to currencies by managing our operating activities and net asset positions. As of
December 23, 2005, our exposure to foreign currencies related primarily to intercompany foreign currency transactions where settlement is anticipated.



The Company does not use derivative instruments in its marketable securities portfolio. The Company classifies investments in its marketable securities portfolio as
either available-for-sale or trading, and records them at fair value. For the Companys available-for-sale securities, 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. For the Companys trading securities, unrealized holding gains and losses are included in the statement of operations in the period they arise. Changes in interest
rates are not expected to have a material effect on our financial condition or results of operations.



|Item 4. | Controls and Procedures
|------- | -----------------------



|(a) | Evaluation of disclosure controls and procedures
|--- | ------------------------------------------------



Our chief executive officer and our chief financial officer have evaluated the effectiveness of our disclosure controls and procedures related to our reporting and
disclosure obligations as of December 23, 2005, which is the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are sufficient to provide that material information relating to us, including our consolidated subsidiaries, is (a) made known to them by our other employees and the employees of our consolidated subsidiaries,
particularly material information related to the period for which this periodic report is being prepared; and (b) recorded, processed, summarized, evaluated, and reported, as applicable, within the time period specified in the rules and forms
promulgated by the Securities and Exchange Commission.



|(b) | Changes in Internal Control over Financial Reporting
|--- | ----------------------------------------------------



There were no changes that occurred during the fiscal quarter ended December 23, 2005 that materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.



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PART II. OTHER INFORMATION



|Item 4. | Submission of Matters to a Vote of Shareholders
|------- | -----------------------------------------------



The Companys annual meeting of shareholders was held on October 18, 2005. The record date was August 19, 2005, at which time there were 47,823,425 shares
outstanding and entitled to vote at the annual meeting. The following items were submitted to a vote by shareholders.



1. The election of three directors to serve for terms of three years expiring in 2008.



2. Ratification of KPMG LLP as independent auditors for the 2006 fiscal year.



James E. Carnes, I.N. Rendall Harper, Jr. and David A. Woodle were re-elected as directors to serve until the 2008 annual meeting of
shareholders. The other members of the Companys Board of Directors, Anthony A. Ibargüen, John J. Omlor, James J. Tietjen, Michael J. Farrell, Rodney M. Royse, and Steven B. Fink were not up for reelection at the 2005 annual meeting.
Effective October 21, 2005, Michael J. Farrell resigned from the Companys Board of Directors.



The voting results for the matters noted above are set forth as follows:



1. The election of three directors to serve for a term of three years expiring in 2008.



|                         |  |            |  |               
|------------------------ |  | ---------- |  | --------------
|Name of Nominee          |  | Votes For  |  | Votes Withheld
|James E. Carnes          |  | 33,575,065 |  | 14,109,395    
|I.N. Rendall Harper, Jr. |  | 42,413,777 |  | 5,270,683     
|David A. Woodle          |  | 46,947,781 |  | 736,679       



2. Ratification of
KPMG LLP as independent auditors for the 2005 fiscal year.



|           |  |               |  |          
|---------- |  | ------------- |  | ---------
|Votes For  |  | Votes Against |  | Abstained
|46,488,286 |  | 1,144,244     |  | 51,930   



|Item 6. | Exhibits
|------- | --------



The following exhibits are included herein:



|        |  |                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10)(1) |  | Amendment to Revolving Line of Credit Facility with Citizens Bank, effective as of November 1, 2005                                                           
|        | 
|(10)(2) |  | Agreement of Separation between the Registrant and its wholly owned subsidiary, C-COR Broadband Europe B.V. with Gerhard Nederlof, dated as December 31, 2005.
|        | 
|(15)    |  | Letter re: Unaudited Interim Financial Information.                                                                                                           
|        | 
|(31)(1) |  | Rule 13a-14(a) and 15d-14(a) Certification of Chief Executive Officer                                                                                         
|        | 
|(31)(2) |  | Rule 13a-14(a) and 15d-14(a) Certification of Chief Financial Officer                                                                                         
|        | 
|(32)(1) |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350                                                               
|        | 
|(32)(2) |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350                                                               



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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 Incorporated (Registrant)                                
|                       |  | 
|Date: February 1, 2006 |  |  |  | /s/    DAVID A. WOODLE                                         
|                       |  |  |  | Chief Executive Officer                                        
|                       |  | 
|Date: February 1, 2006 |  |  |  | /s/    WILLIAM T.
HANELLY                                      
|                       |  |  |  | Chief Financial Officer (Principal Financial Officer)          
|                       |  | 
|Date: February 1, 2006 |  |  |  | /s/    JOSEPH E. ZAVACKY                                       
|                       |  |  |  | Controller & Assistant Secretary (Principal Accounting Officer)



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