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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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Form 10-K

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the Fiscal Year Ended June 25,
    2004                                                 
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the transition period
    from           to                                             

Commission File Number: 0-10726



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C-COR Incorporated

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Pennsylvania                                                       |  | 24-0811591                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

60 Decibel Road

State College, Pennsylvania 16801


(Address of principal executive offices and
Zip Code)


Registrants telephone number, including
area code:

(814) 238-2461


Securities registered pursuant to
Section 12(b) of the Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|                    |  |                                          
|None                |  | Not Applicable                           

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.05 par value


Series A Junior Participating Preferred
Stock Purchase Rights


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K ((S)229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes þ          No o

As of December 26, 2003, the aggregate
market value of the voting stock held by non-affiliates of the
Registrant was $414,025,100.

Such aggregate market value was computed by
reference to the closing price of the Common Stock of the
Registrant as reported on the NASDAQ National Market on
December 26, 2003. For purposes of making this calculation
only, the Registrant has defined affiliates as including all
directors, executive officers and beneficial owners of more than
ten percent of the Common Stock of the Registrant.

As of August 18, 2004, the Registrant had
43,033,935 shares of Common Stock outstanding.

Documents Incorporated by Reference:

Proxy Statement expected to be dated on or about
September 8, 2004.



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PART I


Item 1.     Business

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. Forward-looking statements represent C-CORs
judgment regarding future events and are based on currently
available information. Although C-COR believes it has a
reasonable basis for these forward-looking statements, we cannot
guarantee their accuracy and actual results may differ
materially from those we anticipated due to a number of known
and unknown uncertainties.

Factors that could cause actual results to differ
from expectations include:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | capital spending patterns of the communications
    industry;                                                                                       
|
| |  | the global demand for C-CORs products and
    services;                                                                                            
|
| |  | risks associated with foreign operations;                                                                                                           
|
| |  | changes in the financial condition of significant
    customers;                                                                                    
|
| |  | the overall mix of our sales of particular
    products, services, and software, as our products and services
    have varying profit margins;      
|
| |  | our ability to develop new and enhanced hardware
    and software products to meet the rapidly evolving needs of our
    customers;                 
|
| |  | continued industry consolidation;                                                                                                                   
|
| |  | the effect of increased competition from
    satellite providers and telephone companies on the capital
    spending budgets of our cable customers;
|
| |  | the development of competing
    technologies; and                                                                                                  
|
| |  | our ability to complete and integrate
    acquisitions and to achieve our strategic objectives.                                                     

This listing of factors is not intended to
include all potential risk factors. The Company makes no
commitment to update these factors or to revise any
forward-looking statements for events or circumstances,
occurring after the statement is issued, except as required by
law.

Introduction

C-COR Incorporated (C-COR), headquartered in
State College, Pennsylvania, provides network transport
communications equipment, software solutions, and technical
services to the global market for the full network life cycle of
two-way broadband networks. C-COR was organized as a corporation
under the laws of the Commonwealth of Pennsylvania on
June 30, 1953. Our core strategy is to leverage our
reputation for quality and service, our strong customer
relationships, and our extensive installed base of equipment and
combine that with new capabilities, developed in-house or
acquired, to offer transport products overlaid by management
software and technical services for todays hybrid fiber
coax networks and tomorrows all-digital, packet-based
networks.

C-COR operates through three business segments:
Broadband Communications Products, Broadband Network Services,
and Broadband Management Solutions.

Broadband Communications Products (BCP) is
headquartered in Meriden, Connecticut, with engineering
facilities in State College, Pennsylvania, and Sunnyvale,
California; production facilities in Meriden, Connecticut,
Mexico and Austria; and sales support offices around the world.
BCP is responsible for the development, management, production,
support, and sale of our digital video transport, fiber optic,
radio frequency, and fiber-to-the-premises equipment for
todays hybrid fiber coax networks as well as our new
optical packet-ring technology solution for the all-digital
networks of the future.

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Broadband Network Services (BNS) is
headquartered in Lakewood, Colorado, with satellite offices
throughout the U.S. BNS provides services in broadband
network engineering and design, network integration, outside
plant technical services and construction, outsourced
operations, and consulting.

Broadband Management Solutions (BMS) is
headquartered in Pleasanton, California, with supporting
software production and sales facilities in State College,
Pennsylvania, and Sunnyvale, California. BMS is responsible for
the development, integration, management, implementation,
support, and sale of our operations support systems
(OSS) solutions to operate and manage reliable,
high-quality multi-service networks.

Our principal customers include many of the
largest cable operators in the United States, such as Adelphia
Communications, Charter Communications, Comcast Corporation, Cox
Communications, Insight Communications, Mediacom Communications,
and Time Warner Cable; a number of smaller domestic cable
operators; and numerous international cable operators. These
customers primarily operate hybrid fiber coax networks for
delivering video, voice, and data services to homes and
businesses. Our customer base also includes telephone companies
and broadcasters who purchase our digital video transport
equipment.

See Note 22 to the Consolidated Financial
Statements in Item 8 of this Form 10-K for financial
information relating to each of the business segments for fiscal
years 2004, 2003, and 2002.

Between 1998 and 2003, C-COR completed nine
acquisitions as part of our five-year strategic plan. The
successful implementation of that plan enabled us to expand our
markets and increase revenues through more rapid introduction of
new technologies, the broadening of our product offerings with
fiber optic and digital video equipment, software, and services,
and by expanding our customer base in the U.S. and abroad. In
fiscal year 2004, C-COR initiated a new five-year strategic plan
designed to take advantage of the emerging opportunities in the
global marketplace and grow by offering the enabling
capabilities  be it technology, software, or
services  required by our customers to deploy the
next generation of broadband networks. We believe these networks
will be fiber-based using digital technology and IP (Internet
Protocol) open standards, and will carry on-demand subscriber
services. To help achieve C-CORs strategic goals under our
new plan, we completed two acquisitions during our fiscal year
2004 and two acquisitions since the end of our fiscal year 2004.

On May 27, 2004, we acquired certain assets
and liabilities of Alopa Networks, Inc. (Alopa), a provider of
subscriber-centric software solutions for end-to-end activation,
management, and assurance of digital services over cable. The
acquisition of the Alopa assets added a key
component  subscriber management  to
C-CORs legacy OSS solutions for network and workforce
management.

On May 28, 2004, we acquired certain assets
and liabilities of Lantern Communications, Inc. (Lantern), an
innovator in Metropolitan Area Network (MAN) packetized
transport using Resilient Packet Ring (RPR) technology. RPR
is an emerging solution-of-choice for metro data transport
applications because it combines the high availability and
reliability of existing voice-optimized, circuit-switched
infrastructures with the superior bandwidth utilization,
simplicity, and cost advantages of Ethernet. Lanterns
product line will form the basis of a new generation of
C-CORs digital video transport offerings.

On July 16, 2004, we acquired Stargus, Inc.
(Stargus), an OSS provider to cable broadband network operators.
Stargus software products will add network optimization, network
security and abuse control, and bandwidth capacity planning
capabilities to C-CORs suite of OSS solutions.

On September 3, 2004, we acquired certain
assets and liabilities of Optinel Systems, Inc. (Optinel), a
provider of optical Ethernet transport solutions for residential
and business services.

See Notes 3 and 24 to the Consolidated
Financial Statements in Item 8 of this Form 10-K for
further information relating to business combinations and
subsequent events.

Industry Overview

According to the 2003 Year-End Industry
Overview prepared by the National Cable &
Telecommunications Association, between 1996 and 2003, United
States cable operators spent approximately $84 billion to
upgrade

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their networks to deliver digital video and
two-way services such as high speed data and telephony. We
believe that our business will be driven by the following
industry dynamics and trends:


Growth in Enhanced Broadband Services Requires
Continued Upgrades by Domestic and International Cable
Operators.Cable operators have begun
to offer enhanced broadband services, including high speed
Internet, voice-over-IP (VoIP), digital video, high definition
television, and interactive and on-demand video services. As
these enhanced broadband services continue to attract new
subscribers, we expect cable operators will be required to
further upgrade their networks to support increased customer
demand for these services. In the metro-access, or
last-mile of the network, operators will need to
upgrade headends, hubs, nodes, and radio frequency distribution
equipment. MANs are becoming another critical portion of
the network as operators are developing the migration path to
digital, packet-based networks capable of handling digital
broadcast video, IP data, and interactive services such as
video-on-demand and voice-over-IP. While many domestic cable
operators have substantially completed initial network upgrades
necessary to provide enhanced broadband services, they will need
to take a scalable approach to continue upgrades as new services
are deployed. In addition, many international cable operators
have not yet completed the initial upgrades necessary to offer
such services.

Growing Demand for Triple Play
Services  Video, Voice, and Data.In response to increased competition
from telecommunication service providers and direct broadcast
satellite operators, cable operators have not only upgraded
their networks to cost effectively support and deliver enhanced
video, voice, and data, but continue to invest significantly to
offer a triple play bundle of these services. The
ability to cost-effectively deliver bundled services helps cable
operators reduce subscriber churn and increase revenue per
subscriber. As a result, the focus on such services is driving
cable operators to continue to invest in network infrastructure
and operational support systems.

Cable Operators are Demanding Advanced Network
Technologies and Software Solutions.The increase in volume and complexity
of the signals transmitted through broadband networks as a
result of the migration to an all digital, on-demand network is
causing cable operators to deploy new technologies. For example,
transport technologies based on IP allow cable operators to more
cost-effectively transport video, voice, and data across a
common network infrastructure. Fiber-to-the-Premises
(FTTP) technology is also being used by some cable
operators, particularly in greenfield applications, as an
economic alternative to traditional hybrid fiber coaxial
networks. Cable operators are also demanding sophisticated
network and service management software products and technical
field services to minimize operating expenditures and support
the complexity of two-way broadband communications systems. As a
result, cable operators are emphasizing technologies and
products that are flexible, cost effective, compliant with open
industry standards, and scalable to meet subscriber growth and
effectively deliver reliable, enhanced services.

Improved Conditions for Many Large Cable
Operators.During the past few years,
the global communications industry experienced a downturn as a
result of a prolonged economic recession and financial
difficulties, including financial restructurings of large cable
operators such as Adelphia Communications, NTL, and UPC.
Additionally, consolidation in the cable industry, including the
merger of Comcast Corporation and AT&T Broadband, resulted
in a temporary reduction in capital spending as these cable
operators focused on integration efforts. We believe the
financial condition of many of our cable operator customers has
recently stabilized or improved and that they are now better
positioned to invest capital in their networks, particularly for
solutions that support deployment of advanced services and
reduce operating expenses.

Strategy Overview

Our core strategy is to leverage our reputation
for quality and service, our strong customer relationships, and
our extensive installed base of transmission equipment to
provide a broad, integrated offering of flexible,

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reliable, and cost-effective network transport
products and software and service solutions worldwide. Specific
aspects of our strategy include:


Providing a Comprehensive Network Transport
Product Line.We offer a full range of
radio frequency and fiber optic transmission products to
transmit signals in both directions over hybrid fiber coax
networks between the headend and the curb. In
addition, we offer digital video transport products, which are
used primarily by cable operators, telephone companies, and
broadcast companies to optically transport signals over extended
distances. Assets acquired from Lantern added a line of optical
packet transport products for use in the Metropolitan Area
Network portion of the network. This product line will provide
us with a transition path for the large installed base of legacy
digital video transport product currently being used by cable
operators, broadcasters, and telephone companies for carrying
high volume uncompressed digital signals over the metro-core
portion of the network. Our goal is to continue to deliver
network transport products that meet our customers
changing demands created by the increased deployment of video,
voice, and data services over broadband networks.

Providing Broadband Management Software
Solutions to Enhance Network
Integrity.Network integrity,
reliability, and operational support have become critical as
network traffic and complexity have grown and as these networks
are increasingly used by multiple service providers. We believe
our Integrated Services Management suite of software application
modules allows cable operators to automate and proactively
manage their network and operational support systems.
C-CORs legacy software capabilities, along with recent
acquisitions, now give C-COR a comprehensive OSS solution for
managing network services, subscriber activation, mobile
workforce, and capacity planning.

Leveraging Our Extensive Installed Base of
Network Products Worldwide.We have a
large installed base of transmission and digital video transport
products in broadband networks worldwide. Our goal is to
continue to leverage that installed base of equipment and our
extensive customer relationships as cable operators upgrade and
maintain their networks to enable the delivery of enhanced
services.

Increasing International
Sales.We are currently supplying
products and services to a number of international customers,
including cable operators in Europe, Asia, Canada, and Latin
America. Our acquisition of the assets of Philips Broadband
Networks (PBN) in 2002 expanded our customer base,
particularly in Europe and Asia. With our broad product and
services offerings, we are supplying comprehensive network
solutions to network operators in various international markets
who generally prefer to purchase products and services from
suppliers offering a complete product line. We intend to
continue to broaden our global customer base across all of our
product and software offerings.

Products, Software, and Services

C-COR provides broadband communications transport
equipment, management software solutions, and technical services
to support primarily cable operators (and as a secondary market,
telephone companies and broadcasters) as they plan, design,
build, maintain, and manage complex broadband communications
networks. These major market areas of equipment, software, and
services are formally represented within the C-COR organization
by the following three business segments:



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Broadband Communications Products provides our
    digital video transport, fiber optic, radio frequency, and
    fiber-to-the-premises equipment for hybrid fiber coax networks
    as well as our new optical packet ring technology for the
    all-digital networks of the future.
|
| | Broadband Network Services provides technical
    field services, covering broadband network engineering and
    design, outside plant technical services and construction,
    outsourced operations, and consulting.                                                                
|
| | Broadband Management Solutions provides our array
    of operations support systems solutions to operate and manage
    reliable, high-quality, multi-service networks.                                                                                                               

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Broadband Communications Products

For purposes of marketing our traditional product
lines, C-COR segments the cable network into two technology
tiers: metro-access and metro-core. The metro-access tier covers
the local hybrid fiber coax network infrastructure, delivering
signals from the operators local headend to the
subscribers home or the small and medium enterprise and
back. The metro-access tier encompasses technologies such as
analog video, quadrature amplitude modulation or QAM (a method
of combining two amplitude-modulated signals into a single
channel, thereby doubling the effective bandwidth), and, most
recently, fiber-to-the-premises solutions. The metro-core tier
interconnects the service providers local headend or
point-of-presence with other inter-city operator facilities or
with third-party operations. An example of metro-core
connections is the connections used for the transport of quality
video over long distances between a cable operators
headend and a broadcasters facility. With our radio
frequency, fiber optic, fiber-to-the-premises, and digital video
transport equipment, C-CORs Broadband Communications
Products segment has a market position in both the metro-access
and metro-core tiers.

Metro-Access
Product Families



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The traditional hybrid fiber coax network
    connects a local central content source, typically referred to
    as the headend, to individual residential or business users
    through a physical plant of fiber optic and coaxial cables and a
    variety of electrical and optical devices that modulate,
    transmit, receive, and amplify the signals as they move through
    the network. This local hybrid fiber coax network consists of
    three major components: the headend and hubs, nodes, and the
    radio frequency plant. C-COR offers product lines in all three
    components.

Headend
and Hubs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The headend receives information from a satellite
    transmission, Internet gateway, telephony network, or other
    source and converts this information to laser modulated optical
    signals for transmission across the local network. Larger
    networks feature both primary headends and a series of secondary
    headends or hubs. C-COR offers a broad range of headend and hub
    equipment under our CHP Max5000TM Converged Headend
    Platform that combines headend, hub, and compressed digital
    video transport onto one fully managed, scalable platform. The
    CHP Max5000 includes several transmission and access options,
    including analog and digital transmitters and receivers,
    packaged in a high density platform with a small footprint. A
    standard 6-foot rack holds up to 200 CHP Max5000 transmitters or
    400 return receivers, providing space efficiency in the headend
    area, while reducing power consumption and equipment cooling
    costs. The design of the CHP Max5000 lowers the capital costs of
    delivering more bandwidth per subscriber while enabling network
    operators to increase their bandwidth capacity for provisioning
    of advanced services, such as video-on-demand, high-speed
    Internet access, and voice-over-IP.

Nodes



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The general function of the node in the local
    hybrid fiber coax network is to convert information from optical
    signals to radio frequency signals for distribution to the home
    or business. C-CORs Opti MaxTM Optimum Node
    Series ranges from advanced, fully segmentable (Opti Max4000) to
    fiber deep (Opti Max1000) platforms offering the performance and
    cost efficiency required to meet the demands of the most
    advanced network architectures. The Opti Max Series also offers
    element management and digital return capabilities as well as a
    selection of optical transmission options and platforms, ranging
    from one-to-four coaxial outputs that provide solutions to
    optimize network operator flexibility. For fiber-challenged
    applications seeking maximum geographical reach, DWDM (Dense
    Wavelength Division Multiplexing), CWDM (Coarse Wavelength
    Division Multiplexing), and digital multiplexing technologies
    are incorporated to increase the volume of information
    transmitted over a single fiber. Opti Max nodes utilize space
    and cost-saving scalable technology that allows network
    operators to have a pay-as-they-grow approach in
    deploying their infrastructure, minimizing capital expenditures
    while maximizing network service availability and performance.

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Radio
Frequency Plant Equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The radio frequency plant comprises products that
    transmit information between the optical nodes and subscribers.
    These products are radio frequency amplifiers which come in
    various configurations such as trunks, bridgers, and line
    extenders. A trunk amplifier handles a large amount of
    information in a network when the node size is greater than 500
    homes. A bridger splits the signal to send it to a greater
    number of destinations. Line extenders move the information to
    the home or business. C-CORs Flex MaxTM Series
    of Flexible Amplifiers offers a variety of aerial and
    cabinet-mount amplifiers. Our aerial trunk, bridger, and line
    extender amplifiers provide forward and return path performance
    for architectures delivering both analog and digital channels.
    Our flexible cabinet-mount amplifiers include high-performance
    trunk and bridger amplifiers, high-output line extenders, and
    multi-dwelling unit (MDU) amplifiers. Representing one of
    the largest installed bases in the industry, the Flex Max Series
    uses drop-in replacement modules to provide cost-saving upgrade
    applications and complements our Opti Max line of optical nodes
    to provide a wide array of options for distribution to
    end-of-line.

Metro-Core
Product Family



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | C-CORs DV6000TM family of
    transport products is capable of digitally transporting over
    optical cables a wide variety of video, audio, and data signals
    to the service providers local headend or
    point-of-presence. DV6000 products support any broadband video
    transport application, including studio quality video,
    broadcaster interconnection, remote video collection/backhaul,
    cable television (CATV) backbones and headend consolidation,
    surveillance networks, and interactive distance learning. Known
    for its high signal quality and system flexibility and
    reliability, the DV6000 product family is used by major
    telecommunications providers around the world to carry prominent
    video programming.

New BCP Products and/or Developments

During fiscal year 2004, C-COR acquired
Lanterns Metro Packet Switched (MPS) System, a
next-generation product for packet-based, all digital networks,
launched its FTTmaX fiber-to-the-premises system, and introduced
three major capabilities to its CHP Max5000 converged headend
platform.

Metro Packet
Switched (MPS) System



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In acquiring Lantern and its MPS System, C-COR
    has positioned itself to be a technology solution provider to
    operators transitioning from predominantly analog networks,
    built to support single-service, broadcast video traffic, to
    digital, packet-based networks capable of concurrently handling
    digital broadcast video, IP data, and interactive services such
    as video-on-demand and voice-over-IP. The MPS System includes
    RPR (Resilient Packet Ring), an emerging network architecture
    and technology for connectivity of various computing, data, and
    telecommunications devices. An RPR network consists of a set of
    RPR switches connected together by two counter-rotating optical
    fiber rings. The ring functions as a shared transport medium
    with a unique protocol that controls access to the ring,
    arbitrates competing requests for use of ring bandwidth, and
    implements a service protection mechanism to protect against
    ring failures. Service subscribers connect to the RPR network
    primarily through high-speed, relatively inexpensive Ethernet
    interfaces on the RPR switches. Service providers and network
    operators seek RPR solutions to deliver multiple services on one
    network rather than the less efficient, more complex, and more
    costly alternative of having data, voice, and video delivered
    over separate parallel networks.

FTTmaX
System



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Although existing hybrid fiber coax networks are
    robust enough to accommodate the current lineup of digital
    services, pushing fiber closer to the home or business is a
    long-term trend in both the cable and telephone industries as
    more bandwidth-intensive services, such as high-definition
    television and video-on-demand, are deployed. Through a
    partnership with Alloptic, Inc., C-COR launched in fiscal year
    2004 the FTTmaX end-to-end fiber solution which uses PON
    (Passive Optical Network) technology and Gigabit connectivity to
    provide high-speed, high-capacity bandwidth, and a more
    efficient and less expensive

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | network access for the last mile to the home or
    business. By sending point-to-multipoint signals through a
    topology of fiber optic cables and passive splitters, PON
    technology taps into the higher bandwidth capacity of fiber for
    the local loop, while using passive devices to eliminate the
    maintenance and installation costs of traditional active
    electronics. The FTTmaX suite of products includes the
    edgeGearTM Optical Line Terminal for the headend,
    hub, or central office, and various optical network units
    located in the home, business, or apartment complexes.

Enhanced CHP
Max5000



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Enhancements to C-CORs CHP headend platform
    were also implemented to enable network operators to more
    efficiently use bandwidth and thus more rapidly deploy advanced
    services. These enhancements included:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A Gigabit Ethernet Transport Module, the GigE
    Max, that provides features and performance optimized
    specifically for MPEG transport between video-on-demand servers
    and remotely located hubs. By enabling low-cost video-on-demand
    (VOD) deployment with more than double the capacity of
    basic Gigabit Ethernet solutions, the GigE Max offers network
    operators the flexibility to combine a scalable
    pay-as-you-grow business model for todays
    video-on-demand deployment needs with a future-proof
    infrastructure strategy going forward.
|
| |  | A transmitter suite with one Gigahertz
    operational capabilities that enables network operators to
    increase forward capacity for high definition television over
    previous program offerings and allows over 60 additional HDTV
    channels in the operators lineup.                                                                                                                                                                                                                                                                                                       
|
| |  | Through a partnership with TANDBERG Television
    ASA, a high-density Edge QAM (Quadrature Amplitude Modulation)
    device, the Edge Max5500, for video-on-demand services. By
    combining the CHPs GigE Max with the Edge Max, operators
    can have a performance-optimized video-on-demand system
    engineered specifically for IP transport between servers of
    content and the hybrid fiber coax access plant.                                                                                                                                                         

Broadband Network Services

With offices located throughout the U.S.,
C-CORs Broadband Network Services offers technical
services for engineering, design, and deployment of advanced
subscriber services over broadband networks. The technical
services provided by Broadband Network Services include:

Outside Plant
Technical Services



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These services are comprised of hands-on
    technical services that are performed in the customers
    plant. These are highly complex tasks largely centered on the
    conversion of the cable operators plant from a one-way
    analog video medium to a two-way, fully interactive broadband
    pipe, and the continuing operation of it as such. Among the
    services provided are system sweep, reverse path activation,
    ingress mitigation, node certification, plant hardening, cable
    testing, cable repair, system maintenance, contract service
    calls, process design, personnel development and training,
    project management, installation, coaxial and fiber splicing,
    and aerial and underground construction.

Network
Integration Technical Services and Consulting



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These services consist of systems integration and
    installation services for data, telephony, and digital video
    platforms for both network operators and network equipment
    manufacturers. Consulting services, including process design
    advisory services, statistical process control system design,
    network design, and specification consulting, are also provided.
    Network systems integration technicians perform hands-on
    services covering rack and stack final assembly and
    deployment of cable modem termination systems, dense wavelength
    division multiplexing lasers, and hybrid fiber coax telephony
    systems, among others.

7



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Outsourced
Operational Services



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These services are comprised of full outsourcing
    services in handling field operations, including technical
    management, system maintenance, customer service calls, and
    installation activity.

Network
Design and Field Engineering Services



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These services consist of network design
    services, including walkout, strand digitizing, radio frequency
    and optical fiber network design, electronics network drafting,
    design quality control, drafting and documentation, engineering
    consultation, system data archiving, and project management.

Broadband Management Solutions

C-CORs Broadband Management Solutions group
develops operations support systems solutions that enable our
customers to automate and proactively manage their networks and
service delivery processes. C-CORs Integrated Services
Management (ISMTM) suite of OSS software applications
delivers a unified view of subscribers, quality of service, and
network performance. During fiscal year 2004, C-COR completed
the acquisition of Alopa and subsequent to the close of fiscal
year 2004, completed its acquisition of Stargus, both of whom
are OSS providers. The Alopa and Stargus acquisitions have added
key software components to our ISM offering.

C-CORs legacy ISM system incorporates the
following specific application modules:

Network
Service Manager (NSMTM)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The NSM is a cross-domain network surveillance
    and performance management solution that provides accurate
    discovery and status monitoring of enterprise-wide,
    multi-vendor, multi-functional network infrastructures.
    Information is integrated with customer service, workforce
    management, billing data sources, and other operations support
    system solutions to provide a real-time view of network,
    subscriber, and service status. Initially, the NSM managed the
    health of hybrid fiber coax-based digital video, high-speed
    data, and video-on-demand services. In May 2004, C-COR deployed
    a VoIP (Voice over Internet Protocol) management function as
    part of the NSM. This new product extension allows network
    operators to view critical health metrics for
    IP telephony-based applications and to proactively identify
    the cause and location of potential and actual service-impacting
    events across the entire service delivery infrastructure.



| |                                     
| | ------------------------------------
| | Mobile Workforce Manager
    (MWMTM)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The MWM is a suite of field service management
    applications designed to maximize the potential of each
    subscriber contact, improve operational efficiency, and enhance
    subscriber service. The Mobile Workforce Manager uses the
    simplicity and sophistication of browser-based business
    applications, combined with wireless data connectivity and
    mobile computing devices, to empower technical field
    representatives in more efficiently provisioning, maintaining,
    and selling broadband management services.



| |                                          
| | -----------------------------------------
| | Network Configuration Manager
    (NCMTM)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The NCM is a network information management
    software application that captures, edits, and displays both
    inside and outside hybrid fiber coax plant network information.
    Capturing the network topology data in a single information
    repository provides complete and timely access to network
    inventory data for planning, design, construction, and
    maintenance processes. The NCM represents the logical and
    physical connectivity of the network  a fundamental
    requirement for performing accurate fault management within the
    Network Service Manager application.
|
| | The product lines obtained through the
    acquisition of Alopa and Stargus will be integrated as modular
    components of the ISM system and will add key subscriber
    management and bandwidth capacity management capabilities to our
    legacy OSS offering. Alopas MetaServ platform automates
    the entire subscriber life cycle, from equipment qualification
    through service creation and activation to after-sale support.
    The Stargus CableEdgeTM product line provides a
    number of advanced management capabilities,                                                           

8



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| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | including subscriber usage reporting, network
    optimization analysis, security and abuse control, and capacity
    planning.

Significant Customers

During the past fiscal year, our customers have
included almost all of the largest cable system operators in the
United States, as well as a number of smaller domestic cable
operators, numerous international cable operators, and telephone
companies and broadcasters interested in digital video transport
products. Our largest customers during fiscal year 2004 were
Adelphia Communications and Time Warner Cable accounting for 20%
and 16%, respectively, of net sales. Our largest customers
during fiscal year 2003 were Comcast and Time Warner Cable,
accounting for 19% and 17%, respectively, of net sales. Our
largest customers during fiscal year 2002 were Adelphia
Communications, Charter Communications, and Time Warner Cable,
accounting for 30%, 11%, and 10%, respectively, of net sales.
All of these principal customers purchase both products and
services.

See Note 18 to the Consolidated Financial
Statements in Item 8 of this Form 10-K for further
information relating to concentration of credit risk.

Sales and Distribution

Our sales and distribution are corporate
functions focused on maximizing the synergies of C-CORs
three market offerings  products, services, and
software  as a comprehensive network solution. Sales
and distribution are organized into two major global regions:
the first covering the Americas, and the second covering the
EuroPacific area. Sales efforts are conducted from our
headquarters in Pennsylvania; from offices in Europe, Canada,
Asia, and Australia; from regional sales offices located
throughout the United States; and through numerous sales and
distribution channel partners around the world.

We sell our products and services in the United
States through our direct sales force, national account
representatives, and sales and distribution channel partners.
Our direct sales force is organized by geographic regions and
approaches the customer at the system level, and our national
account representatives approach the customer at the corporate
level. A technical staff supports our sales force. They work
closely with customers to design systems, develop technical
proposals, and assist with installation and post-sale support.

International sales in Europe, Asia, and Canada
are made both through our direct sales force and channel
partners, while sales in Latin America are made primarily
through channel partners. Sales management for Europe is located
in our Netherlands office, for Asia in our offices in Australia
and Mainland China, and for Canada and Latin America from our
headquarters in State College, Pennsylvania. For fiscal year
2004, our international sales represented 28% of consolidated
net sales. In fiscal years 2003 and 2002, international sales
were 28% and 13%, respectively, of net sales.

See Note 22 to the Consolidated Financial
Statements in Item 8 of this Form 10-K for further
information relating to sales by geographic region.

Additionally, we provide 24x7 technical
support, both directly and through channel partners, as well as
training for customers and channel partners, as required, both
in our facilities and at our customers sites.

Our product management function develops
strategies for product lines and, in conjunction with the sales
force, identifies evolving technical and application needs of
customers. In addition, the product management function is
responsible for demand forecasting and general support of the
sales force.

C-CORs corporate marketing department works
with the Companys product managers and sales force to
develop and implement a global marketing and communications
program.

C-COR utilizes a corporate-wide ERP (Enterprise
Resource Planning) system, accessible by C-COR personnel
worldwide. The ERP system automates and standardizes key
corporate functions in finance, manufacturing, purchasing, and
customer service management.

9



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Backlog

We schedule production of our Broadband
Communications Products equipment based on our backlog,
informal commitments from customers, and sales projections. Our
backlog consists of firm orders by customers for delivery within
the next 12 months. The majority of equipment backlog
typically is shipped within one to two quarters. In contrast,
backlog in the Broadband Management Solutions and Broadband
Network Services groups typically reflects longer-term systems
development and field service projects that convert into revenue
over a 12-month period.

At June 25, 2004, our backlog of orders was
$60.8 million, including $27.1 million for Broadband
Communications Products, $31.1 million for Broadband
Network Services, and $2.6 million for Broadband Management
Solutions. By comparison, backlog at the beginning of the fiscal
year (June 28, 2003) was $54.3 million, including
$25.8 million for Broadband Communications Products,
$20.8 million for Broadband Network Services, and
$7.7 million for Broadband Management Solutions.

Anticipated orders from customers may fail to
materialize and delivery schedules may be deferred or canceled
for a number of reasons, including reductions in capital
spending by network operators, customer financial difficulties,
annual capital spending budget cycles, and construction delays.

Research and Product Development

We operate in an industry that is subject to
rapid changes in technology. Our ability to compete successfully
depends in large part upon anticipating such changes.
Accordingly, we engage in ongoing research and development
activities that are intended to advance existing product lines
and develop or evaluate new products. Our current research and
product development focus is on optical equipment,
OSS software solutions, and emerging packet-based
technologies, architectures, and standards that affect critical
areas, such as bandwidth network capacity management for
multiple cable subscriber services.

Product managers in both the Broadband
Communications Products and Broadband Management Solutions
segments have responsibility for the product life cycle of
specific hardware or software products from concept through
development, expansion, and end-of-life. In this role, the
product managers coordinate with a variety of C-COR
professionals from sales, marketing, engineering, and technical
support to develop and implement product plans. Broadband
Communications Products utilizes a concurrent product
development program to enhance its capability to produce new
products within an optimal time frame. The program addresses a
number of key business activities, including portfolio
management, innovation, product selection, product definition,
electronic design and testing, selection of new product
components, prototyping and piloting, and the ability to rapidly
commercialize a new product.

During the past fiscal year, research and product
development expenditures were primarily directed at developing
new platforms for next-generation broadband applications and
expanding the capabilities of our operations support system
software applications. We also continued with product
development process improvements to reduce cycle time to design,
reduce manufacturing costs, and improve design quality.

During fiscal years 2004, 2003, and 2002, we
spent $21.5 million, $27.0 million, and
$27.1 million, respectively, on research and product
development. Research and product development expenses in the
Broadband Communications Products segment were
$16.6 million, $21.2 million and $17.9 million,
respectively, for fiscal years 2004, 2003, and 2002. Research
and product development expenses in the Broadband Management
Solutions segment were $4.3 million, $5.3 million, and
$8.3 million, respectively, for fiscal years 2004, 2003,
and 2002. Other research and product development expenses, not
allocated to segments, were $592,000, $544,000 and $900,000,
respectively, for fiscal years 2004, 2003, and 2002. All
research and product development expenditures have been
expensed. Anticipated product development initiatives are
expected to result in increased research and product development
expense in future years.

Competition

The broadband communications markets are dynamic
and highly competitive, requiring substantial resources of those
companies that compete in these markets, skilled and experienced
personnel, and a capability to

10



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anticipate and capitalize on change. Our
Broadband Communications Products group competes with other
companies, including Motorolas Broadband Communications
Sector (formerly General Instrument Corporation), Scientific
Atlanta, Inc., and Harmonic, Inc., some of which are large
publicly traded companies that may have greater financial,
technical, and marketing resources than we do.


Equipment from our Broadband Communications
Products segment is marketed with emphasis on quality, advanced
technology, differentiating features, flexibility, and business
solution, and is generally priced competitively with other
manufacturers product lines. Product reliability and
performance, technological innovation, responsive customer
service, breadth of product offering, and pricing are several of
the key criteria for competition.

Our Broadband Network Services segment competes
in the United States with several vendors that offer technical
field service support. Our Broadband Network Services segment
competes by offering high-end technical support expertise for
next-generation optical networks as well as the traditional
construction, installation, and maintenance operations, which
can be offered under a bundled solution with our equipment
and/or software. These bundled arrangements provide our
customers with a one-stop shopping solution.

With regard to our Broadband Management Solutions
group, there are several competing vendors offering network
management, mobile workforce management, network configuration
management, subscriber management, and network capacity
management systems in the United States, some of which may
currently have greater sales in these areas than we do. However,
we believe that we offer a more integrated solution that
supports the requirements of both todays hybrid fiber coax
networks and the emerging all-digital, packet-based networks of
the future. We believe our acquisition of Stargus and Alopa
solidifies C-CORs position as a provider of a
comprehensive OSS solution for broadband operators,
integrating network, subscriber, workforce, and bandwidth
capacity management under one modular umbrella offering.

Employees

We had approximately 1,440 employees as of
June 25, 2004.

Suppliers

We closely monitor supplier delivery performance
and quality. We employ a strategy of limiting the total number
of global suppliers to those who are quality leaders in their
respective specialties and who will work with us as partners in
the supply chain. Typical items purchased are die cast aluminum
housings, radio frequency hybrids, printed circuit boards, fiber
optic lasers, photo receivers, and standard electronic
components. Although some of the components we use are single
sourced, we have experienced no significant difficulties during
the past fiscal year in obtaining adequate quantities of raw
materials and component parts.

We outsource the manufacture and repair of
certain assemblies and modules where it is cost effective to do
so or where there are advantages with respect to delivery times.
Current outsourcing arrangements include certain power supplies,
accessories, optical modules, digital return modules, circuit
boards, repair services, and small-lot manufacturing.

Strategic Partnerships

During fiscal year 2004, we entered into
strategic agreements with two technology partners to implement
advanced solutions for the rapid and reliable delivery of
multiple, on-demand services to the subscriber.

In October 2003, C-COR entered into an agreement
with Alloptic, Inc., a pioneer in the development and deployment
of Ethernet Passive Optical Network (EPON) technology that
operates at Gigabit speeds, for exclusive rights to market an
FTTP (Fiber-to-the-Premises) system that incorporates
Alloptics technology to cable television MSOs (Multiple
System Operators) in the U.S. and certain other countries, as
well as other selected domestic and international market
segments. C-COR markets its FTTP solution under the
label FTTmaX.

11



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In February 2004, C-COR entered into a marketing
and sales agreement with TANDBERG Television ASA, a leading
supplier of open solutions for digital broadcasting and
broadband, to provide cable operators with a high-density Edge
QAM (Quadrature Amplitude Modulation) device, under the C-COR
label Edge Max5500, that is integrated with C-CORs GigE
Max optical transport module for a total system solution in
delivering video-on-demand.

Intellectual Property

We hold twenty-one (21) U.S. patents
and have twenty-six (26) patents pending in the
U.S. Patent and Trademark Office. In addition, we hold an
exclusive license, for use in our field, for thirty-one
(31) ADC Telecommunications, Inc. U.S. patents
and patent applications and a non-exclusive license for
forty-six (46) Philips U.S. patents, relating to fiber
optic and radio frequency transmission equipment and technology,
and network management techniques and services. We attempt to
protect our intellectual property through patents, trademarks,
copyrights, and a program of maintaining certain technology as
trade secrets.

Risks Related to Our Business



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Our business is dependent on the level of
    capital spending by cable network operators.

Historically, most of our sales have been network
distribution and transmission equipment and services to cable
network operators in the United States and internationally, and
we expect this to continue for the foreseeable future. Demand
for our products depends significantly upon the size and timing
of capital spending by cable network operators for constructing,
rebuilding, upgrading, or maintaining their systems. We cannot
accurately predict the patterns of cable network operators
spending, but we believe that these patterns will be affected in
the near future by a variety of factors, including:



| |   |                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a reassessment by cable operators of capital
    spending requirements with the objective of balancing subscriber
    demand for advanced services with the financial market
    expectation of solid financial results and, in particular, a
    renewed emphasis on generating positive cash flow and increasing
    revenue generated per subscriber;
|
| |  | the transition of most major domestic operations
    from large-scale network upgrades to more targeted capital
    investment tied to the roll-out of advanced services over small
    network segments;                                                                                                                                               
|
| |  | delayed spending due to economic conditions in
    the international markets for network upgrades to support
    two-way capability for advanced video, voice, and data
    services; and                                                                                                                                                               
|
| |  | consolidation of cable operators that could
    result in a reduction or temporary disruption in capital
    spending.                                                                                                                                                                                                                                  



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Our customer base consists primarily of a
    limited number of customers in a single industry.

Most of our sales have been to relatively few
customers. Sales to our ten largest customers accounted for
approximately 79% of net sales in fiscal year 2002, 64% of net
sales in fiscal year 2003 and 61% of net sales in fiscal year
2004. The loss of, or any reduction in orders from, a
significant customer would harm our business. For example, in
June 2002, our largest customer at the time, Adelphia
Communications (representing approximately 30% of our fiscal
year 2002 sales), filed a petition for protection under the
federal bankruptcy statutes. At the time of the petition, we had
outstanding accounts receivables of $44.9 million that were
written off in fiscal year 2002, which had a material adverse
effect on our financial condition.

In recent years, there has also been significant
consolidation of ownership of cable systems, particularly in the
United States. As a result, we expect that the concentration of
our sales among a limited number of customers will continue.
Almost all of our sales are made on a purchase order basis and
none of our customers have entered into long-term agreements
requiring them to purchase our products. We believe that any
further consolidation of our customer base could result in
delays in receiving new orders or a reduction in the size of
orders for our products, which may harm our business.

12



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| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | We could be adversely affected by
    advancement of technologies competing with hybrid fiber coax
    networks.

Our core products are network distribution and
transmission equipment for hybrid fiber coax networks. Hybrid
fiber coax networks can be used for high-speed internet access,
telephony, video-on-demand, and digital cable television. Demand
for our products depends primarily on our customers desire
and ability to upgrade their existing networks to offer
high-speed internet access, telephony, video-on-demand, and
digital cable television, in addition to basic video service.
There are, however, technologies that compete with hybrid fiber
coax networks in providing high speed internet access,
telephony, video-on-demand, and digital cable television to end
users, such as direct broadcast satellite, digital subscriber
line, and local multipoint distribution services. Improvements
in a competing technology could result in significant price
and/or performance advantages for that technology which, in
turn, could reduce demand for our products.

It is difficult for us to accurately predict the
future growth rate, size, and technological direction of the
broadband communications market. As this market evolves, it is
possible that hybrid fiber coax network operators, telephone
companies, or other suppliers of broadband wireless and
satellite services will decide to adopt alternative technologies
or standards that are incompatible with our products. If we are
unable to design, manufacture, and market products that
incorporate or are compatible with these new technologies or
standards, our business would suffer.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to increase our operations
    support systems software revenue to generate adequate
    profitability, our financial results could be adversely
    affected.

Our ability to increase the revenue generated by
our operations support systems software depends on many factors
that are beyond our control. For example:



| |   |                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our customers may decide to continue to manage
    their hybrid fiber coax networks by focusing on limited,
    individual elements of the network rather than managing their
    entire network integrity and service delivery processes using a
    suite of software application modules such as our Integrated
    Services Management (ISMTM) system;
|
| |  | our customers may decide to use internally
    developed software tools to manage their networks rather than
    license software from us;                                                                                                                                                                                                                
|
| |  | the software business is volatile and we may not
    be able to effectively utilize our resources and meet the needs
    of our customers if we are unable to forecast the future demands
    of such customers;                                                                                                                                          
|
| |  | if our customers increase the amount of spending
    on operations support system software, new suppliers may enter
    the market and successfully capture market share; and                                                                                                                                                                             
|
| |  | we may be unable to hire and retain enough
    qualified technical and management personnel to support our
    growth plans.                                                                                                                                                                                                                              

Fluctuations in our software sales may
result in greater volatility in our operating
results.

The level of our software sales are likely to
fluctuate significantly quarter to quarter for the foreseeable
future and introduce greater volatility to our operating results
than has been typical in the past, when the main source of
volatility was the high proportion of quick-turn equipment
sales. A significant portion of our software business is in the
early stages of development and its sales are characterized by
large one-time system deployments where revenue has been
recognized using the completed contract method upon completion
of the deployment and subsequent customer acceptance. Because
the gross margins associated with software sales are
substantially higher than our average gross margins,
fluctuations in quarterly software sales have a disproportionate
effect on operating results and earnings per share and could
result in our operating results falling short of the
expectations of securities analysts and investors. In such
event, the price of our common stock could be adversely affected.

13



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We may be unable to accurately forecast
the demand level for our products in the long
term.

Many domestic cable operators have upgraded their
networks to enable two-way communications. While we expect to
generate additional sales in the coming quarters as the
remainder of the domestic cable networks, as well as
international cable networks, are upgraded and as new products
are introduced, we cannot accurately forecast the level of
demand for our products in the long term. We expect the future
level of demand for our products to be heavily influenced by the
penetration rates of such consumer offerings as video-on-demand,
digital television, high-speed internet access, and telephony
over hybrid fiber coax networks, which are beyond our control.
In addition, we expect a higher proportion of our revenues to
come from international customers in countries where the hybrid
fiber coax networks are being upgraded to enable these services
to be offered.

If we are unable to design, manufacture,
and market new products in a timely manner, we may not remain
competitive.

The broadband communications market is
characterized by continuing technological advancement, changes
in customer requirements, and evolving industry standards. To
compete successfully, we must design, manufacture, and market
new products that provide increasingly higher levels of
performance and reliability. Our inability to design,
manufacture, and market these products or to achieve broad
commercial acceptance of these products would have an adverse
effect on our business.

We may pursue acquisitions and investments
that could adversely affect our business.

In the past we have made, and in the future we
may make, acquisitions of and investments in businesses,
products, and technologies to complement or expand our business.
We recently completed four acquisitions and are in the process
of integrating them into our business. We have incurred
incremental costs associated with acquisitions in the past that
have adversely affected our financial results and expect to
incur such costs in the future. We have also recorded goodwill
associated with acquisitions that is subject to annual
impairment testing that could result in a write-down of goodwill
that would adversely affect our financial results. Future
acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent
liabilities, increased amortization expense, and write-downs of
acquired assets.

If we are unable to retain our key
personnel or recruit additional key personnel in the future, we
may be unable to effectively execute our business
strategy.

Our success depends on our ability to hire,
retain, and motivate highly qualified personnel. Competition for
qualified technical and other personnel is intense and we may
not successfully attract or retain such personnel. Competitors
and others in the past have recruited our employees and may do
so in the future. While we require our employees to sign
customary agreements concerning confidentiality and ownership of
inventions, we generally do not have employment contracts or
non-competition agreements with our personnel. If we lose any of
our key personnel, are unable to attract qualified personnel, or
are delayed in hiring required personnel, particularly engineers
and other technical personnel, our business could be negatively
affected.

Our reliance on several key components,
subassemblies and modules used in the manufacturing of our
products could restrict production.

We obtain many components, subassemblies, and
modules necessary for manufacturing our products from a sole
supplier or a limited group of suppliers. Our reliance on sole
or limited suppliers, particularly foreign suppliers, and our
increasing reliance on subcontractors, involves several risks.
These risks include the potential inability to obtain an
adequate supply of required components, subassemblies, or
modules and reduced control over pricing, quality, and timely
delivery of these components, subassemblies, or modules. We do
not generally maintain long-term agreements with any of our
suppliers or subcontractors. An inability to obtain adequate
deliveries, or any other circumstances requiring us to seek
alternative sources of supply, could affect our ability to ship
our products on a timely basis, which could damage our
relationships with current and prospective customers and harm
our business.

14



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In response to reduced visibility into future
customer capital spending plans and declines in capital spending
by our customers over the past several years, which in turn
resulted in a decline in demand for our products, we reduced our
level of commitments and future forecasts with our suppliers. As
a result, it may be more difficult in the future to obtain
components required for our products or to ramp up the volume of
components, subassemblies, or modules if demand for our products
increases.

Our ability to achieve our strategic
objective of delivering a full range of broadband network
services will depend upon our ability to effectively manage our
service workforce.

Our ability to provide broadband network services
required by our customers depends upon our ability to hire,
retain, motivate, and effectively manage a large service
workforce. Our inability to maintain and effectively manage such
personnel could affect our ability to meet our customer needs on
a timely basis, which could damage our relationships with
current customers and prevent us from achieving our strategic
objective.

Changes in international trade laws,
regulations, or the political climate in Mexico could hinder our
production capacity.

A substantial amount of the products that we sell
are made in our manufacturing facility in Tijuana, Mexico, where
optical nodes and RF amplifiers for the domestic market are
manufactured. This operation is exposed to certain risks as a
result of its location, including:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in international trade laws, such as the
    North American Free Trade Agreement, affecting our import and
    export activities;
|
| |  | changes in, or expiration of, the Mexican
    governments Maquiladora program, which provides economic
    benefits to us;              
|
| |  | changes in labor laws and regulations affecting
    our ability to hire and retain employees;                                            
|
| |  | fluctuations of foreign currency and exchange
    controls;                                                                              
|
| |  | potential political instability and changes in
    the Mexican government;                                                               
|
| |  | potential regulatory changes; and                                                                                                        
|
| |  | general economic conditions in Mexico.                                                                                                   

Any of these risks could interfere with the
operation of this facility and result in reduced production,
increased costs, or both. In the event that the production
capacity of this facility is reduced, we could fail to ship
products on schedule and could face a reduction in future orders
from dissatisfied customers. If our costs to operate this
facility increase, our margins would decrease. Reduced shipments
and margins would have an adverse effect on our financial
results and could lead to a decline in our stock price.

Changes in the regulatory, political, and
economic environments in Europe, Asia, and Australia could
adversely affect our manufacturing and sales and administrative
support operations in various countries in which we have
international operations.

We have operations in Austria, the Netherlands,
Spain, Portugal, the United Kingdom, France, Germany, Singapore,
Australia, China and India. These operations include
manufacturing, engineering, and sales and administrative
activities that support the delivery of localized versions of
products and services in Europe and Asia and software
development in the United States. These facilities and
operations are subject to certain risks as a result of their
location, including:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | changes in international trade laws that could
    affect doing business in the European Common Market;
|
| |  | changes in labor laws and regulations affecting
    our ability to hire and retain employees;          
|
| |  | potential political instability and changes in
    the government of the various countries;            
|
| |  | potential regulatory changes;                                                                          

15



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##### 





| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | foreign currency fluctuations; and                             
|
| |  | general economic conditions in Europe, Asia, and
    Australia.

Our competitors, some of whom are larger
and more established, may have a competitive advantage over
us.

The market for cable network transmission
equipment and services is extremely competitive and is
characterized by rapid technological change. Our current
competitors include significantly larger companies with greater
financial, technical, marketing, and other resources. Additional
competition could come from new entrants in the broadband
communications equipment and services market. These existing and
potential competitors may be in a better position to withstand
any significant reduction in capital spending by cable network
operators and to keep pace with changes in technology. We cannot
assure you that we will be able to compete successfully in the
future or that competition will not harm our business.

Competitive pressures are likely to increase in
the current environment of reduced customer capital spending as
our competitors attempt to maintain revenue levels by increasing
market share. This may result in increased price competition
that could adversely affect our margins. Also, it could result
in consolidation among our competitors which would have an
unpredictable effect on our competitive position.

We may need additional capital in the
future and may not be able to secure adequate funds on terms
acceptable to us.

We incurred operating losses in fiscal years 2002
and 2003 which resulted in negative cash flow from operations,
and we may experience similar results in the future. We
currently anticipate that our existing capital resources,
including cash and cash equivalent balances after funding the
acquisitions of Stargus and Optinel, our marketable securities,
and availability under our existing financing agreement, will be
sufficient to meet our operating needs for the next 12 to
24 months. If our cash flows are less than expected, we may
need to raise additional funds sooner to respond to unforeseen
technological or marketing hurdles, satisfy unforeseen
liabilities, or take advantage of unanticipated opportunities. A
future acquisition could require significant amounts of capital.
We may not be able to obtain funds at the time or times needed
on terms acceptable to us, or at all. If we are unable to obtain
adequate funds on acceptable terms, we may not be able to take
advantage of market opportunities, develop new products, or
otherwise respond to competitive pressures.

If our sales forecasts are not realized in
a given period or if our operating results fluctuate in any
given quarter, our stock price may fall.

While we receive periodic forecasts from our
customers as to their future requirements, these forecasts may
not accurately reflect future purchase orders for our products.
Sales of equipment are typically based on purchase orders and a
substantial proportion of equipment sales are quick-turn orders
that are received and filled in the same quarter. In addition,
the sales cycles of many of our products, particularly our
software products and our newer products sold internationally,
are typically unpredictable and usually involve:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | a significant technical evaluation by our
    customers;                                                          
|
| |  | a commitment of capital and other resources by
    cable network operators;                                       
|
| |  | delays associated with cable network
    operators internal procedures to approve large capital
    expenditures;
|
| |  | time required to engineer the deployment of new
    technologies or services within broadband networks; and       
|
| |  | testing and acceptance of new technologies that
    affect key operations.                                        

For these and other reasons, our sales cycles
generally last three to six months, but can last up to
12 months. In addition, because a limited number of large
customers account for a significant portion of our sales, the
timing of their orders can cause significant fluctuation in our
quarterly operating results. A substantial portion of our
expenses are fixed in the short term and are based on expected
sales. If sales are below expectations in any given quarter, the
negative impact on our operating results may be increased if we
are unable to adjust our

16



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##### 



spending to compensate for the lower sales.
Accordingly, variations in the timing of sales can cause
significant fluctuations in our quarterly operating results and
may result in a decline in the price of our common stock.


We may be harmed if we are unable to
adequately protect our proprietary rights.

We intend to continue to file patent applications
in the future, where we believe appropriate, and to pursue such
applications with U.S. and foreign patent authorities, but we
cannot be sure that patents will be issued on such applications
or that our patents will not be contested. Also, because
issuance of a valid patent does not prevent other companies from
using alternative, non-infringing technology, we cannot be sure
that any of our existing or future patents will provide
significant commercial protection. We also rely on trade
secrets, technical know-how, copyright, and other unpatented
proprietary information relating to our product development and
manufacturing activities. We try to protect this information
with confidentiality agreements with our employees and other
parties. We cannot be sure that these agreements will not be
breached, that we will have adequate remedies for any breach or
that our trade secrets and proprietary know-how will not
otherwise become known or independently discovered by others.

Particular aspects of our technology could be
found to infringe on the claims of other existing or future
patents. Other companies may hold or obtain patents on
inventions or may otherwise claim proprietary rights to
technology necessary to our business which could prevent us from
developing new products. We cannot predict the extent to which
we may be required to seek licenses, or the extent to which they
will be available to us on acceptable terms, if at all.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | We may experience increases in our tax
    expense as we become more profitable.

Our current income tax expense represents a
relatively low percentage of our taxable income because we have
a substantial amount of net operating loss carryforwards and
other deferred tax assets that are being utilized. In fiscal
year 2003, we established a full valuation allowance against our
domestic deferred tax assets as the operating losses realized in
fiscal years 2001 through 2003 raised doubts about our ability
to utilize those deferred tax assets in the future. As a result,
our operating cash flow, reported net income and earnings per
share reflect a relatively low effective tax rate. If we
generate taxable income on a consistent basis for multiple
consecutive quarters, it might be necessary for us to eliminate
or reduce the deferred tax asset valuation allowance which will
have the effect of increasing the amount of income tax expense
recorded in the future and decreasing the reported net income
and earnings per share.



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may incur significant liabilities if we
    fail to comply with stringent environmental regulations or if we
    did not comply with these regulations in the past.

We are subject to a variety of Federal, state,
and local governmental regulations related to the use, storage,
discharge, and disposal of toxic or otherwise hazardous
chemicals used in our manufacturing process. Although we believe
that our activities conform to environmental regulations, the
failure to comply with present or future regulations could
result in fines being imposed on us, suspension of production,
or a cessation of operations. We cannot assure you that we have
not in the past violated applicable laws or regulations which
could result in required remediation or other liabilities.

Our Internet Website

The address for our Internet website is
www.c-cor.net. Our electronic filings with the Securities and
Exchange Commission (including all annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to these reports),
including the exhibits, are available free of charge through our
website as soon as reasonably practicable after we
electronically file them with or furnish them to the Securities
and Exchange Commission.

17



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##### 





|        |           
|------- | ----------
|Item 2. | Properties

We operate the following principal facilities:

|                            |  |                                                                        |  |         |        |             |  |            |             |  |  |        
|--------------------------- |  | ---------------------------------------------------------------------- |  | ------- | ------ | ----------- |  | ---------- | ----------- |  |  | -------
|                            |  |                                                                        |  |         |        | Approximate |  | (O) Owned 
|Location                    |  | Principal Use                                                          |  | Segment |        | Square Feet |  | (L) Leased
|                            |  |                                                                        |  |         |        |             |  |           
|State College, Pennsylvania |  | Administrative Offices and
    Development Engineering                 |  |         | All    |             |  |            | 133,000     |  |  | O      
|Tijuana, Mexico             |  | Manufacturing                                                          |  |         | (1)    |             |  |            | 89,400      |  |  | L      
|Meriden, Connecticut        |  | Administrative Offices, Manufacturing, and
    Development Engineering |  |         | (1)    |             |  |            | 98,600      |  |  | L      
|Klagenfurt, Austria         |  | Administrative Offices, Manufacturing, and
    Development Engineering |  |         | (1)    |             |  |            | 21,700      |  |  | L      
|Almere, The Netherlands     |  | Administrative Offices                                                 |  |         | (1)(3) |             |  |            | 5,100       |  |  | L      
|Mulgrave, Australia         |  | Administrative Offices                                                 |  |         | (1)    |             |  |            | 16,725      |  |  | L      
|Lakewood, Colorado          |  | Administrative Offices                                                 |  |         | (2)    |             |  |            | 4,500       |  |  | L      
|Pleasanton, California      |  | Development and Administrative Offices                                 |  |         | (3)    |             |  |            | 18,700      |  |  | L      
|Sunnyvale, California       |  | Development and Administrative Offices                                 |  |         | (1)(3) |             |  |            | 13,8008,350 |  |  | L
    L



---

Segment:



| |     |                                  
| | --- | ---------------------------------
| | (1) | Broadband Communications Products
|
| | (2) | Broadband Network Services       
|
| | (3) | Broadband Management Solutions   

We are approved for ISO 9001:2000 registration at
our State College, Meriden, Klagenfurt, and Tijuana facilities.
C-CORs quality management system includes quality
assurance in design, development, production, installation, and
servicing. Criteria for registration are set by the
International Organization for Standardization, whose function
is to develop global standards in an effort to improve the
exchange of goods and services internationally. This designation
builds on our reputation as a high-quality, global provider of
transmission electronics.



|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Certain former security holders and employees of
Convergence.com Corporation, a company that we acquired in
fiscal year 2000, filed claims against the Company in March 2001
alleging violations of state securities laws and certain other
state law claims related to a stock option plan. The complaint
alleged that the damages suffered by the individuals
approximated $2.1 million, which was based on the number of
stock options multiplied by the highest price of the
Companys common stock since the acquisition, and did not
take into account the exercise price, which the plaintiffs would
have had to pay to the Company if the options were exercised.
The complaint also asserted claims for treble damages, an
undetermined amount of punitive damages, and reimbursement of
attorneys fees.

On January 23, 2004, the Superior Court of
Forsyth County, Georgia, granted the Companys motion for
summary judgment in full, thereby dismissing all claims against
the Company. The plaintiffs have filed a motion of their intent
to appeal the decision.



|        |                                                          
|------- | ---------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Securities
    Holders

There were no matters submitted to a vote of
security holders during the fourth quarter of the fiscal year
ended June 25, 2004.

18



---



##### 



Executive Officers of the Registrant

All executive officers of C-COR are elected
annually by the Board of Directors to serve in their offices for
the next succeeding year and until their successors are duly
elected and qualified. The listing immediately following this
paragraph gives certain information about our executive
officers, including age, present position and business
experience during the past five years.

|                      |  |     |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--------------------- |  | --- | -- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                  |  | Age |    | Position/Experience
|                      |  |     |    |                    
|David A. Woodle       |  |     | 48 |                     |  | Chairman since October 2000; Chief Executive
    Officer since July 20, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Mary G. Beahm         |  |     | 44 |                     |  | Corporate Vice President, Human Resources, since
    August 2001; Vice President, Human Resources from November 1998
    to August 2001. Board of Trustees, The Pennsylvania State
    University since 1990.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|John O. Caezza        |  |     | 46 |                     |  | President, Broadband Communications Products,
    since August 2001; Vice President and General Manager, Broadband
    Communications Division of ADC Telecommunications, Inc., a major
    manufacturer of uncompressed digital transport, opto-electronic,
    and radio frequency products for the broadband communications
    market, from May 2000 to August 2001; Vice President,
    Engineering, Philips Broadband Networks, Inc., a major
    international manufacturer of opto-electronic and radio
    frequency products for the broadband communications market, from
    June 1996 to May 2000.                                                                                                           
|Douglas W. Engerman   |  |     | 48 |                     |  | President, Broadband Management Solutions, since
    August 2001; Vice President and General Manager, Broadband
    Management Services from June 2001 to August 2001; Senior Vice
    President for Project Implementation and Customer Support at
    Mobile Data Solutions, Inc. (MDSI), a provider of wireless
    software application solutions to the energy, utility,
    telecommunications, cable, and insurance industries worldwide,
    from November 1999 to June 2001; Senior Vice President,
    Utilities Business Unit at MDSI from November 1998 to November
    1999.                                                                                                                                 
|Stephen Timothy Gropp |  |     | 50 |                     |  | Corporate Vice President, Americas Business,
    since June 2004; Vice President of Worldwide Sales, Alopa
    Networks, Inc., a provider of operations support software for
    use in cable television networks, from April 2003 to May 2004;
    Vice President of Sales, Broadband Services, Inc., a provider of
    outsourced supply chain management services for telecom service
    providers, from August 2001 to April 2003; Customer Team Vice
    President for Broadband Service Providers and Emerging Service
    Providers for the Western United States, Lucent Technologies,
    Inc., a provider of systems, services and software for
    communications networks, from November 1998 to August 2001.
|William T. Hanelly    |  |     | 48 |                     |  | Chief Financial Officer, Secretary, and Treasurer
    since August 2001; Vice President, Finance, Secretary, and
    Treasurer from October 1998 to August 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|David E. Levitan      |  |     | 43 |                     |  | President, Broadband Network Services, since
    August 2004; Senior Vice President and General Manager,
    CableMatrix Technologies, Inc., a provider of software solutions
    for managing quality of service in high-speed broadband data
    networks, from May 2003 to July 2004; Vice President and General
    Manager, SciCare Broadband Services Division of
    Scientific-Atlanta, Inc., a supplier of digital interactive
    subscriber systems, transmission networks and services to
    broadband network operators, from November 1998 to August 2002.                                                                                                                                                 

19



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##### 



|                    |  |     |    |                     |  |                                                                                                                                                                                                                                                                                                                 
|------------------- |  | --- | -- | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                |  | Age |    | Position/Experience
|                    |  |     |    |                    
|Gerhard B. Nederlof |  |     | 56 |                     |  | Corporate Vice President, EuroPacific Business
    since August 2001; Sr. Vice President, EuroPacific Business from
    February 2000 to August 2001; Sr. Vice President, Broadband
    Management Services from July 1999 to February 2000; Sr. Vice
    President, Marketing from September 1998 to July 1999.
|Kenneth A. Wright   |  |     | 48 |                     |  | Chief Technology Officer since October 2000;
    Chief Technology Officer, 21e.net from October 1999 to October
    2000; Chief Technical Officer, InterMedia Partners, a multiple
    cable system operator, from February 1995 to September 1999.                                                             

20



---



##### 



PART II



|        |                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common Stock,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

The Companys common stock is traded on The
Nasdaq National Market under the symbol of CCBL. The range of
high and low price information as reported by Nasdaq follows:

|              |                    |      |   |       |  |  |   |       | 
|------------- | ------------------ | ---- | - | ----- |  |  | - | ----- | 
|              |                    | High |   | Low  
|              |                    |      |   |      
|2003          |                    |      |   |       |  |  |   |      
|Quarter ended |                    |      |   |       |  |  |   |      
|              | September 27, 2002 |      | $ | 7.14  |  |  | $ | 3.45  | 
|              | December 27, 2002  |      | $ | 4.57  |  |  | $ | 2.75  | 
|              | March 28, 2003     |      | $ | 4.89  |  |  | $ | 2.57  | 
|              | June 27, 2003      |      | $ | 5.65  |  |  | $ | 2.94  | 
|2004          |                    |      |   |       |  |  |   |      
|Quarter ended |                    |      |   |       |  |  |   |      
|              | September 26, 2003 |      | $ | 7.60  |  |  | $ | 4.55  | 
|              | December 26, 2003  |      | $ | 12.47 |  |  | $ | 6.13  | 
|              | March 26, 2004     |      | $ | 18.63 |  |  | $ | 11.03 | 
|              | June 25, 2004      |      | $ | 15.31 |  |  | $ | 8.00  | 

We have never paid a cash dividend on our common
stock.

As of August 18, 2004, there were
626 shareholders of record of common stock.

Equity Compensation Plans

The following table sets forth additional
information as of June 25, 2004 with respect to our equity
compensation plans that provide for the issuance of stock
options, warrants or rights to purchase C-COR securities.

|                                                               |  |                      |  |                     |  |                           
|-------------------------------------------------------------- |  | -------------------- |  | ------------------- |  | --------------------------
|                                                               |  |                      |  |                     |  | Number of Securities      
|                                                               |  | Number of Securities |  |                     |  | Remaining Available for   
|                                                               |  | to be Issued upon    |  | Weighted Average    |  | Future Issuance under     
|                                                               |  | Exercise of          |  | Exercise Price of   |  | Equity Compensation Plans 
|                                                               |  | Outstanding Options  |  | Outstanding Options |  | (Excluding Securities     
|Plan Category                                                  |  | and Warrants         |  | and Warrants        |  | Reflected in First Column)
|                                                               |  |                      |  |                     |  |                           
|Equity compensation plans approved by security
    holders     |  | 5,307,442            |  | $9.97               |  | 1,833,818                 
|Equity compensation plans not approved by
    security holders |  | 186,123              |  | $4.28               |  |                          
|                                                               |  |                      |  |                     |  |                           
|Total                                                          |  | 5,493,565            |  | $9.78               |  | 1,833,818                 
|                                                               |  |                      |  |                     |  |                           

Equity compensation plans not approved by
security holders represent plans assumed in connection with the
acquisitions of Convergence.com Corporation (Convergence),
MobileForce Technologies, Inc. (MobileForce), and Lantern
Communications, Inc. (Lantern). Each of the assumed plans
covered warrants, stock options or a combination thereof. The
warrants or stock options covered by the assumed plans were
converted at applicable exchange ratios into warrants or stock
options to purchase C-COR common stock. No future awards may be
granted under these plans. Awards related to the Convergence and
Mobileforce plans vested immediately upon C-CORs
assumption of the plans. Awards related to the Lantern plan
retained their original vesting schedules.

21



---



##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Selected Financial Data

|                                                                |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |        | 
|--------------------------------------------------------------- | ----------------------- | ------------------------------------ | ------- | -------- |  | -------- | -------- | -------- | - | -------- | ------- | ------ | - | - | ------- | ------ | - | - | ------- | ------ | 
|                                                                |                         | June 25,                             |         | June 27, |  | June 28, |          | June 29, |   | June 30,
|Fiscal Year Ended                                               |                         | 2004                                 |         | 2003     |  | 2002     |          | 2001     |   | 2000    
|                                                                |                         |                                      |         |          |  |          |          |          |   |         
|                                                                |                         |                                     
|                                                                |                         | (In thousands except per share data)
|Statement of operations data:                                   |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|Net sales                                                       |                         | $                                    | 240,918 |          |  | $        | 200,662  |          |   | $        | 265,651 |        |   | $ | 223,295 |        |   | $ | 283,262 |       
|Income (loss) from continuing operations(1)                     |                         |                                      | 44,160  |          |  |          | (139,589 | )        |   |          | (41,924 | )      |   |   | (7,827  | )      |   |   | 14,461  |       
|Discontinued operations                                         |                         |                                      |        |          |  |          |         |          |   |          |        |        |   |   | 177     |        |   |   | 1,063   |       
|Net income (loss)                                               |                         |                                      | 44,160  |          |  |          | (139,589 | )        |   |          | (41,924 | )      |   |   | (7,650  | )      |   |   | 15,524  |       
|Net income (loss) per share  basic                             |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|                                                                | Continuing operations   |                                      | $       | 1.14     |  |          | $        | (3.84    | ) |          | $       | (1.24  | ) |   | $       | (0.24  | ) |   | $       | 0.48   | 
|                                                                | Discontinued operations |                                      |         |         |  |          |          |         |   |          |         |       |   |   |         | 0.01   |   |   |         | 0.04   | 
|                                                                |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|Net income (loss) per share  basic                             |                         | $                                    | 1.14    |          |  | $        | (3.84    | )        |   | $        | (1.24   | )      |   | $ | (0.23   | )      |   | $ | 0.52    |       
|                                                                |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|Net income (loss) per share  diluted
    Continuing operations |                         | $                                    | 1.10    |          |  | $        | (3.84    | )        |   | $        | (1.24   | )      |   | $ | (0.24   | )      |   | $ | 0.43    |       
|                                                                | Discontinued operations |                                      |         |         |  |          |          |         |   |          |         |       |   |   |         | 0.01   |   |   |         | 0.03   | 
|                                                                |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|Net income (loss) per share  diluted                           |                         | $                                    | 1.10    |          |  | $        | (3.84    | )        |   | $        | (1.24   | )      |   | $ | (0.23   | )      |   | $ | 0.46    |       
|                                                                |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|Weighted average common shares and
    common share equivalents |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|                                                                | Basic                   |                                      |         | 38,832   |  |          |          | 36,384   |   |          |         | 33,710 |   |   |         | 32,905 |   |   |         | 30,039 | 
|                                                                | Diluted                 |                                      |         | 40,223   |  |          |          | 36,384   |   |          |         | 33,710 |   |   |         | 32,905 |   |   |         | 33,968 | 
|Balance sheet data (at period end):                             |                         |                                      |         |          |  |          |          |          |   |          |         |        |   |   |         |        |   |   |         |       
|Working capital                                                 |                         | $                                    | 140,700 |          |  | $        | 37,597   |          |   | $        | 164,727 |        |   | $ | 153,001 |        |   | $ | 189,299 |       
|Cash and marketable securities(2)                               |                         |                                      | 116,725 |          |  |          | 22,611   |          |   |          | 111,860 |        |   |   | 100,893 |        |   |   | 137,533 |       
|Total assets                                                    |                         |                                      | 266,885 |          |  |          | 143,017  |          |   |          | 270,823 |        |   |   | 238,705 |        |   |   | 273,039 |       
|Total long-term debt obligations                                |                         |                                      | 930     |          |  |          | 1,113    |          |   |          | 1,896   |        |   |   | 1,765   |        |   |   | 1,752   |       
|Shareholders equity                                            |                         |                                      | 208,262 |          |  |          | 81,529   |          |   |          | 218,598 |        |   |   | 203,909 |        |   |   | 227,658 |       



---



|    |                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Income (loss) from continuing operations in
    fiscal years 2004 and 2003 includes a number of significant
    charges and recoveries, including charges associated with
    business combinations (see Notes 3 and 21 to the
    Consolidated Financial Statements in Item 8 of this
    Form 10-K).
|   
|(2) | Cash excludes $1,637 and $2,300 of restricted
    cash in fiscal years 2004 and 2003, respectively.                                                                                                                                                                                                   

22



---



##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

Business Overview

We design, manufacture, and market network
distribution and transmission products and provide services and
operational support systems to operators of advanced hybrid
fiber coax broadband networks. We operate in three industry
segments: Broadband Communications Products, Broadband Network
Services, and Broadband Management Solutions.

Our Broadband Communications Products segment is
responsible for research, development, management, production,
support, and sales of digital video transport, fiber optic,
radio frequency, and fiber-to-the-premises equipment for hybrid
fiber coax networks as well as the Companys new optical
packet-ring technology solution for the all-digital networks of
the future.

Our Broadband Network Services segment provides
outsourced technical services, including network engineering and
design, construction, activation, optimization, certification,
maintenance, and operations.

Our Broadband Management Solutions segment is
responsible for the development, integration, management,
implementation, support, and sale of operations support systems
(OSS) solutions to operate and manage reliable,
high-quality multi-service networks.

C-COR returned to profitability in fiscal year
2004 based upon a 20% growth in sales combined with the effect
of cost reduction actions implemented in the previous fiscal
year. Our sales to Adelphia increased substantially in fiscal
year 2004 as they resumed spending on the upgrade of their
networks. Gross margins improved from 15.9% in fiscal year 2003
to 37.5% in fiscal year 2004, reflecting the higher level of
sales in each of our operating segments, consolidation of
manufacturing operations, and lower charges associated with
excess and obsolete inventory. As a result, gross profit
increased from $31.9 million in fiscal year 2003 to
$90.3 million in fiscal year 2004.

We also substantially improved our liquidity in
fiscal year 2004 by generating $49.3 million in cash from
operations, which included $21.1 million in proceeds from
the sale of our Adelphia bankruptcy trade claims, and by
completing a follow-on offering of our common stock which raised
$69.5 million in net proceeds.

In fiscal year 2004, we invested
$33.4 million in the acquisitions of Alopa Networks, Inc.
and Lantern Communications, Inc., and subsequent to
June 25, 2004, we committed another $26.5 million,
plus an earnout of up to $6.0 million, to the acquisitions
of Stargus Inc. and Optinel Systems, Inc. We believe that these
acquisitions enhance our product and software offerings in key
areas and expect them to contribute to our financial results in
fiscal year 2005.

We are subject to various risks associated with
our business operations. For additional information concerning
risks, refer to Risks Related to Our Business, in
Part 1, Item 1 of this Form 10-K.

Critical Accounting Policies and
Estimates

Our consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of the
Companys consolidated financial statements requires
management to make estimates, assumptions, and judgments that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the applicable period. Management bases its
estimates, assumptions, and judgments on historical experience
and on various other factors that are believed to be reasonable
under the circumstances. On an ongoing basis, management
evaluates its estimates, assumptions, and judgments.

23



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##### 



The critical accounting policies requiring
estimates, assumptions, and judgments that we believe have the
most significant impact on our consolidated financial statements
are:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | Revenue recognition                                                      
|
| |  | Allowances for doubtful accounts                                         
|
| |  | Valuation of inventories                                                 
|
| |  | Valuation of goodwill, other intangible assets,
    and long-lived assets
|
| |  | Restructuring costs                                                      
|
| |  | Warranty liabilities                                                     
|
| |  | Accounting for foreign currency translation and
    transactions         
|
| |  | Accounting for income taxes                                              

Different assumptions and judgments would change
estimates used in the preparation of our consolidated financial
statements, which, in turn, could change the results from those
reported.

Revenue Recognition.We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered,
the sale price is fixed or determinable, and collectibility is
reasonably assured. Revenue from equipment sales and sales-type
leases is generally recognized when the equipment has been
shipped. In instances in which the agreement with the customer
contains a customer acceptance clause, revenue is deferred until
customer acceptance is obtained. Service revenues, consisting of
system design, field services, and other consulting engagements,
are generally recognized as services are rendered in accordance
with the terms of contracts. We also enter into contracts that
entail delivery of both products and services. Revenue from
these contracts is accounted for under the percentage of
completion method. Under the percentage of completion method, we
record revenue by reference to the costs incurred to date and
the estimated costs remaining to fulfill the contracts.
Provisions for losses on service contracts are recognized during
the period in which the loss first becomes apparent. For
contracts accounted for under the percentage of completion
method, we typically perform the services prior to billing the
customer which gives rise to unbilled receivables. In these
circumstances, billings usually occur shortly after the Company
performs a specified amount of the work, as outlined in the
contract. Unbilled receivables are expected to be billed and
collected generally within three to six months. For our software
licensing arrangements involving multiple elements, revenue is
allocated to each element based on vendor specific objective
evidence of fair values of the elements. License revenue
allocated to software products, in certain circumstances, is
recognized upon the delivery of the software products. For
certain of our software license arrangements where professional
services are being provided that are deemed to be essential to
the functionality or are for significant production,
modification, or customization of the software product, both the
software product revenue and the professional service revenue
are recognized on the completed-contract method, as the Company
previously did not have the ability to reasonably estimate
contract costs at the inception of the contracts. Under the
completed-contract method, revenue is recognized when the
contract is complete, and all direct costs and related revenues
are deferred until that time. Software maintenance fees are
generally billed and collected in advance of the associated
maintenance contract term. Maintenance fees collected are
recorded as deferred revenue and recognized ratably under the
straight-line method over the term of the contract. The entire
amount of an estimated loss on a contract is accrued at the time
a loss on a contract is projected. For new mobile workforce
software contracts entered into in fiscal year 2005, the Company
anticipates switching to the percentage of completion method of
accounting as we believe that we now have the ability to
reasonably estimate contract costs. Revenue recognition in each
period is dependent on the application of these accounting
policies.

Allowances for Doubtful
Accounts.We establish a general
allowance for doubtful accounts based on percentages applied to
certain aged receivable categories. These percentages are
determined by a variety of factors, including current economic
trends, contractual terms and conditions, and historical payment
experience. In addition, we establish allowances for
specifically identified doubtful accounts when a loss is

24



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##### 



deemed to be both probable and estimable. In the
event that we are not able to predict changes in the financial
condition of our customers, resulting in an unexpected problem
with collectibility of receivables and our actual bad debts
differ from estimates, or we adjust estimates in future periods,
our established allowances may be insufficient and we may be
required to record additional allowances. Alternatively, if we
provided more allowances than are ultimately required, we may
reverse a portion of such provisions in future periods based on
our actual collection experience. In the event we adjust our
allowance estimates, it could materially affect our operating
results and financial position.


Valuation of
Inventories.Inventories are stated at
the lower of cost or market. Cost is determined on the first-in,
first-out method. We establish provisions for excess and
obsolete inventories after evaluation of historical sales and
usage, current economic trends, market conditions, product
rationalization, forecasted sales, product lifecycles, and
current inventory levels. This evaluation requires us to make
estimates regarding future events in an industry where rapid
technological changes are prevalent. We experienced significant
changes in required reserves during fiscal year 2003 due
primarily to a decline in market conditions and product
rationalization resulting from acquisitions. It is possible that
increases in inventory reserves may be required in the future if
there is a decline in market conditions or if changes in
expected product lifecycles occur. Alternatively, if market
conditions improve or product lifecycles extend, we may have
greater success in selling inventory that had previously been
written-down. In either event, the actual value of our inventory
may be higher or lower and recognition of such difference will
affect our cost of sales in a future period, which could
materially affect our operating results and financial position.

Valuation of Goodwill, Other Intangible
Assets, and Other Long-lived Assets.We assess goodwill at least annually for impairment and more
frequently if circumstances warrant. We have chosen the end of
the third quarter of each fiscal year as the period for
performing our annual assessment. The impairment assessment is
performed in two steps: (i) we determine whether impairment
is indicated by comparing the fair value of each of our
reporting units with its carrying value and (ii) if there
is an indication of impairment, we measure the amount of
impairment loss by comparing the implied fair value of goodwill
with the carrying amount of that goodwill. We normally calculate
the fair value of our reporting units by using the projected
discounted cash flow method using a discount rate we determine
to be commensurate with the risk inherent in our current
business. If impairment is indicated, we allocate the fair value
of the reporting unit to the reporting units individual
assets and liabilities. The residual value is the implied fair
value of goodwill. The difference between the carrying amount of
the goodwill and the implied fair value of the goodwill is
recorded as an impairment loss. We also assess other intangible
assets and other long-lived assets for recoverability whenever
events or changes in circumstances indicate that their carrying
value may not be recoverable through the estimated undiscounted
future cash flows resulting from the use of the assets. When an
impairment of goodwill, intangible assets, or long-lived assets
is determined, it is recorded as a charge against earnings in
the period when recognized. For additional information regarding
goodwill and other intangible assets, refer to Note 9 of
our consolidated financial statements.

Restructuring Costs.For restructuring activities initiated prior to
December 31, 2002, we recorded restructuring costs in
accordance with the provisions of Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring) and Staff Accounting Bulletin No. 100,
Restructuring and Impairment Charges. Restructuring
costs were recorded when the Company committed to an exit plan
and significant changes to the exit plan were not likely. We
estimated the future amounts to be incurred as a result of exit
plans and recorded the amounts as a charge against earnings. For
restructuring activities initiated after December 31, 2002,
restructuring costs are recorded in accordance with Statement of
Financial Accounting Standards (SFAS) No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (Statement 146). The principal difference
between Statement 146 and EITF Issue No. 94-3 relates
to when an entity can recognize a liability related to exit or
disposal costs. Statement 146 requires that a liability be
recognized for a cost associated with an exit or disposal
activity when the liability is incurred, as opposed to EITF
Issue No. 94-3, which allowed a liability related to an
exit or disposal activity to be recognized on the date an entity
committed to an exit plan. For additional information regarding
restructuring costs, refer to

25



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##### 



Note 4 of our consolidated financial
statements. Revisions to our estimates could result in an
additional charge to earnings or a reversal of previously
recorded charges, which could materially affect our operating
results and financial position in future periods if anticipated
events and key assumptions change.


Warranty
Liabilities.We warranty our products
against defects in materials and workmanship, generally for two
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 our historical experience of known 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 if
unforeseen technical problems arise. In the event that our
historical experience of product failure rates and costs of
correcting product failures change, or our estimates relating to
probable losses resulting from specifically identified warranty
exposures change, we may be required to record additional
warranty reserves. Alternatively, if we provided more reserves
than we needed, we may reverse a portion of such provisions in
future periods. In the event we change our warranty reserve
estimates, the resulting charge against future cost of sales or
reversal of previously recorded charges may materially affect
our operating results and financial position.

Accounting for Foreign Currency Translation
and Transactions.We convert the
assets and liabilities of foreign operations into their
U.S. dollar equivalents at rates in effect at the balance
sheet dates, and record translation adjustments in
shareholders equity. The statements of operations of
foreign operations are translated from the operations
functional currency to U.S. dollar equivalents at average
rates for the period. Foreign currency transaction gains and
losses resulting from settlement of foreign receivables and
payables, including certain cross-currency intercompany
activities where payment is expected to be satisfied in the
normal course of business, are recorded in the consolidated
statements of operations. Other cross-currency intercompany
activities, where management has no intent to require payment in
the foreseeable future, are recorded in shareholders
equity as a component of other comprehensive income (loss). In
the event managements intent with respect to
cross-currency intercompany activities changes, such changes
could result in a foreign currency gain or loss that may
materially affect our operating results and financial position.

Accounting for Income
Taxes.We estimate our income taxes
for each of the jurisdictions in which we operate. This involves
estimating our 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. Deferred taxes arise due to temporary differences in
the bases of assets and liabilities and from net operating
losses and credit carryforwards. In general, deferred tax assets
represent future tax benefits to be received when certain
expenses previously recognized in the Companys
consolidated statement of operations become deductible expenses
under applicable income tax laws or loss or credit carryforwards
are utilized. Accordingly, realization of deferred tax assets is
dependent on future taxable income against which these
deductions, losses and credits can be utilized. In assessing the
realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Management
considers historical operating losses, scheduled reversals of
deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. As a result
of the cumulative losses in fiscal years 2001, 2002, and 2003,
we concluded during fiscal year 2003 that a valuation allowance
against our net deferred tax assets was necessary. As of
June 25, 2004, a full valuation allowance on our net
deferred tax assets has been recorded, with the exception of
certain net deferred tax assets in specific foreign
jurisdictions where we believe it is more likely than not that
such tax benefits will be realized. In addition, we expect to
provide a valuation allowance on any future tax benefits until
we can sustain a level of profitability that demonstrates our
ability to utilize these assets.

Business Combinations

In fiscal year 2004, we acquired certain assets
and liabilities of Alopa Networks, Inc. (Alopa), a provider of
infrastructure software solutions for end-to-end activation,
management, and assurance of digital services over cable, and
Lantern Communications, Inc. (Lantern), a provider of
Metropolitan Area Network packet-based transport solutions,
which incorporate advanced bandwidth management and switching
capabilities for the

26



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##### 



delivery of services such as voice, video, and
data over a packet-based infrastructure. Alopa became part of
our Broadband Management Solutions segment and Lantern became
part of our Broadband Communications Products segment.


The total consideration for the acquisitions was
$34.4 million, consisting of cash payments of
$33.2 million, direct transaction costs of $270,000, and
the assumption of Lantern stock options to
purchase 119,920 shares of the Companys common
stock having a fair market value of $940,000, calculated using
the Black-Scholes option-pricing model. The stock options
assumed included both vested and unvested stock options. The
unvested stock options require future employee service after the
acquisition date to vest, and as such, $516,000 has been
allocated to unearned compensation based on their intrinsic
value as of the acquisition date. Such costs will be recognized
over the remaining vesting period.

The acquisitions resulted in additional goodwill
and other identifiable intangible assets being recorded during
fiscal year 2004.

See Notes 3 and 9 to the Consolidated
Financial Statements in Item 8 of this Form 10-K for
additional information regarding business combinations.

Subsequent Events

We completed two acquisitions subsequent to
June 25, 2004.

On July 16, 2004, we acquired all the
outstanding securities of Stargus, Inc. (Stargus), a privately
held company headquartered in Andover, Massachusetts. Stargus is
a provider of comprehensive network and service management
solutions for cable broadband networks. Stargus became part of
the Companys Broadband Management Solutions segment. The
purchase price for the acquisition was approximately
$17.0 million, subject to certain adjustments.

On September 3, 2004, we acquired certain
assets and liabilities of Optinel Systems, Inc. (Optinel), a
privately held company located in Elkridge, Maryland. Optinel is
a provider of optical Ethernet transport solutions for
residential and business services. Optinel became part of the
Companys Broadband Communications Products segment. The
purchase price for the acquisition was approximately
$9.5 million, subject to certain adjustments. Additional
cash payments of up to $6.0 million are required to be made
to Optinel shareholders if certain sales objectives are achieved
within thirteen months from the date of acquisition.

We anticipate using a third-party appraisal firm
to perform a valuation of identifiable intangible assets,
including in-process research and development that was commenced
but not yet completed at the date of these acquisitions, and
which if unsuccessful, would have no alternative use. The fair
value (if any) ascribed to in-process research and development
will be charged to expense in the first quarter of fiscal year
2005. The fair value ascribed to other identifiable intangibles
will result in higher amortization expense in future periods, in
amounts unknown at this time. Any excess of the purchase price
and related costs over the fair value of the acquired net assets
of the businesses will be recorded as goodwill.

27



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Results of Operations

The Companys consolidated statements of
operations for fiscal years 2004, 2003, and 2002 as a percentage
of net sales, are as follows:

|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |      |       | 
|--------------------------------- | ---------------------------------------------------------- | ------------------------ | ---- | -------- | ----- | -------- | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                                  |                                                            |                         
|                                  |                                                            | Year Ended              
|                                  |                                                            |                         
|                                  |                                                            | June 25,                 |      | June 27, |       | June 28,
|                                  |                                                            | 2004                     |      | 2003     |       | 2002    
|                                  |                                                            |                          |      |          |       |         
|Net sales:                        |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|                                  | Products                                                   |                          |      | 76.7     | %     |          |       | 86.1 | %     |  |       | 84.4 | %    
|                                  | Services                                                   |                          |      | 23.3     |       |          |       | 13.9 |       |  |       | 15.6 |      
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|                                  |                                                            | Total net sales          |      |          | 100.0 |          |       |      | 100.0 |  |       |      | 100.0 | 
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|Cost of sales:                    |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|                                  | Products                                                   |                          |      | 45.8     |       |          |       | 63.0 |       |  |       | 57.8 |      
|                                  | Services                                                   |                          |      | 16.7     |       |          |       | 11.3 |       |  |       | 12.8 |      
|                                  | Excess and obsolete inventory charge                       |                          |      | 0.0      |       |          |       | 9.8  |       |  |       | 0.0  |      
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|                                  |                                                            | Total cost of sales      |      |          | 62.5  |          |       |      | 84.1  |  |       |      | 70.6  | 
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|Gross margin                      |                                                            |                          | 37.5 |          |       |          | 15.9  |      |       |  | 29.4  |     
|Operating expenses:               |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|                                  | Selling and administrative                                 |                          |      | 18.0     |       |          |       | 24.4 |       |  |       | 35.1 |      
|                                  | Research and product development                           |                          |      | 8.9      |       |          |       | 13.5 |       |  |       | 10.2 |      
|                                  | Amortization of goodwill and other intangibles             |                          |      | 1.0      |       |          |       | 1.0  |       |  |       | 3.2  |      
|                                  | Goodwill and other intangible asset impairment
    charges |                          |      | 0.0      |       |          |       | 22.9 |       |  |       | 5.1  |      
|                                  | Acquired in-process technology charge                      |                          |      | 0.4      |       |          |       | 0.4  |       |  |       | 0.3  |      
|                                  | Restructuring costs (recovery)                             |                          |      | (0.1     | )     |          |       | 0.2  |       |  |       | 1.0  |      
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|                                  |                                                            | Total operating expenses |      |          | 28.2  |          |       |      | 62.4  |  |       |      | 54.9  | 
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|Income (loss) from operations     |                                                            |                          | 9.3  |          |       |          | (46.5 | )    |       |  | (25.5 | )   
|                                  | Interest expense                                           |                          |      | (0.0     | )     |          |       | (0.2 | )     |  |       | (0.1 | )    
|                                  | Investment income                                          |                          |      | 0.5      |       |          |       | 0.5  |       |  |       | 0.7  |      
|                                  | Foreign exchange gain (loss)                               |                          |      | 0.1      |       |          |       | (0.4 | )     |  |       | 1.0  |      
|                                  | Gain on sale of bankruptcy trade claims                    |                          |      | 8.7      |       |          |       | 0.0  |       |  |       | 0.0  |      
|                                  | Other income (expense), net                                |                          |      | 0.1      |       |          |       | 0.5  |       |  |       | (0.6 | )    
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|Income (loss) before income taxes |                                                            |                          | 18.7 |          |       |          | (46.1 | )    |       |  | (24.5 | )   
|                                  | Income tax expense (benefit)                               |                          |      | 0.4      |       |          |       | 23.4 |       |  |       | (8.7 | )    
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     
|Net income (loss)                 |                                                            |                          | 18.3 | %        |       |          | (69.5 | )%   |       |  | (15.8 | )%  
|                                  |                                                            |                          |      |          |       |          |       |      |       |  |       |     

The table below sets forth our net sales for
fiscal years 2004, 2003, and 2002 for each of our reportable
segments described in Note 22 of our consolidated financial
statements.

|                                  |              |                          |       |        |  |        |    |           |  |   |     |        |  |           |       |       |  |  |    |     |  |  |     |     |   |   |       |       |  |  |    |     | 
|--------------------------------- | ------------ | ------------------------ | ----- | ------ |  | ------ | -- | --------- |  | - | --- | ------ |  | --------- | ----- | ----- |  |  | -- | --- |  |  | --- | --- | - | - | ----- | ----- |  |  | -- | --- | 
|                                  |              |                         
|                                  |              | Fiscal Year Ended       
|                                  |              |                         
|                                  |              |                          |       | Change |  |        |    | Change    |  |  
|                                  |              | June 25,                 |       |        |  | from   |    | June 27,  |  |   |     | from   |  | June 28,  |       |      
|                                  |              | 2004                     |       |        |  | Prior  |    | 2003      |  |   |     | Prior  |  | 2002      |       |      
|Operating Segment                 |              | Net Sales                |       | %      |  | Year % |    | Net Sales |  | % |     | Year % |  | Net Sales |       | %    
|                                  |              |                          |       |        |  |        |    |           |  |   |     |        |  |           |       |      
|                                  |              |                         
|                                  |              | (In millions of dollars)
|Broadband Communications Products |              | $                        | 184.9 |        |  |        | 77 |           |  |   | 7   |        |  | $         | 172.8 |       |  |  | 86 |     |  |  | (23 | )   |   | $ | 224.3 |       |  |  | 84 |    
|Broadband Network Services        |              |                          | 45.4  |        |  |        | 19 |           |  |   | 94  |        |  |           | 23.4  |       |  |  | 12 |     |  |  | (39 | )   |   |   | 38.1  |       |  |  | 14 |    
|Broadband Management Solutions    |              |                          | 10.6  |        |  |        | 4  |           |  |   | 136 |        |  |           | 4.5   |       |  |  | 2  |     |  |  | 36  |     |   |   | 3.3   |       |  |  | 2  |    
|                                  |              |                          |       |        |  |        |    |           |  |   |     |        |  |           |       |       |  |  |    |     |  |  |     |     |   |   |       |       |  |  |    |    
|                                  | Consolidated |                          | $     | 240.9  |  |        |    | 100       |  |   |     | 20     |  |           | $     | 200.7 |  |  |    | 100 |  |  |     | (24 | ) |   | $     | 265.7 |  |  |    | 100 | 
|                                  |              |                          |       |        |  |        |    |           |  |   |     |        |  |           |       |       |  |  |    |     |  |  |     |     |   |   |       |       |  |  |    |    

28



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The table below sets forth our net sales for
fiscal years 2004, 2003, and 2002 by geographic region.

|                  |              |                          |       |        |  |       |    |           |  |   |     |       |  |           |       |       |  |  |    |     |  |  |     |     |   |   |       |       |  |  |    |     | 
|----------------- | ------------ | ------------------------ | ----- | ------ |  | ----- | -- | --------- |  | - | --- | ----- |  | --------- | ----- | ----- |  |  | -- | --- |  |  | --- | --- | - | - | ----- | ----- |  |  | -- | --- | 
|                  |              |                         
|                  |              | Fiscal Year Ended       
|                  |              |                         
|                  |              |                          |       | Change |  |       |    | Change    |  |  
|                  |              |                          |       | from   |  |       |    | from      |  |  
|                  |              | June 25,                 |       |        |  | Prior |    | June 27,  |  |   |     | Prior |  | June 28,  |       |      
|                  |              | 2004                     |       |        |  | Year  |    | 2003      |  |   |     | Year  |  | 2002      |       |      
|Geographic Region |              | Net Sales                |       | %      |  | %     |    | Net Sales |  | % |     | %     |  | Net Sales |       | %    
|                  |              |                          |       |        |  |       |    |           |  |   |     |       |  |           |       |      
|                  |              |                         
|                  |              | (In millions of dollars)
|United States     |              | $                        | 173.7 |        |  |       | 72 |           |  |   | 20  |       |  | $         | 144.8 |       |  |  | 72 |     |  |  | (38 | )   |   | $ | 232.1 |       |  |  | 87 |    
|Europe            |              |                          | 33.3  |        |  |       | 14 |           |  |   | 16  |       |  |           | 28.7  |       |  |  | 14 |     |  |  | 163 |     |   |   | 10.9  |       |  |  | 4  |    
|Asia              |              |                          | 22.3  |        |  |       | 9  |           |  |   | 17  |       |  |           | 19.1  |       |  |  | 10 |     |  |  | 161 |     |   |   | 7.3   |       |  |  | 3  |    
|Canada            |              |                          | 4.7   |        |  |       | 2  |           |  |   | (13 | )     |  |           | 5.4   |       |  |  | 3  |     |  |  | (51 | )   |   |   | 11.1  |       |  |  | 4  |    
|Latin America     |              |                          | 6.9   |        |  |       | 3  |           |  |   | 156 |       |  |           | 2.7   |       |  |  | 1  |     |  |  | (37 | )   |   |   | 4.3   |       |  |  | 2  |    
|                  |              |                          |       |        |  |       |    |           |  |   |     |       |  |           |       |       |  |  |    |     |  |  |     |     |   |   |       |       |  |  |    |    
|                  | Consolidated |                          | $     | 240.9  |  |       |    | 100       |  |   |     | 20    |  |           | $     | 200.7 |  |  |    | 100 |  |  |     | (24 | ) |   | $     | 265.7 |  |  |    | 100 | 
|                  |              |                          |       |        |  |       |    |           |  |   |     |       |  |           |       |       |  |  |    |     |  |  |     |     |   |   |       |       |  |  |    |    

Fiscal 2004 Compared to Fiscal 2003

Net Sales.The
increase in consolidated net sales for fiscal year 2004 was the
result of capital spending and system upgrades by certain
customers, primarily Adelphia, which positively affected both
product and technical services revenues during the year, and
increased spending on operational support software solutions.
Our largest customers for fiscal year 2004 were Adelphia
Communications and Time Warner Cable, accounting for 20% and
16%, respectively, of net sales.

The increase in Broadband Communications Products
segment sales during fiscal year 2004 was primarily driven by
increased capital spending by Adelphia and growth in our
international sales. Sales of radio frequency amplifiers
increased 15%, to $111.1 million in fiscal year 2004 from
$96.8 million in fiscal year 2003. Optical product sales
declined 3%, to $73.8 million in fiscal year 2004, compared
to $76.0 million in fiscal year 2003. Shifts in product mix
resulted from new build and upgrade requirements, which depend
on the network architecture deployed by our customers.

The increase in Broadband Network Services
segment sales during fiscal year 2004 resulted from increased
spending by domestic cable operators, primarily Adelphia, on
technical services, primarily related to our outside plant
technical services operations, which include system sweep,
reverse path activation, ingress mitigation, node certification,
and system maintenance.

The increase in Broadband Management Solutions
segment sales during fiscal year 2004 was a result of customer
acceptance of various network and workforce management software
projects during the year. Our software revenues during fiscal
year 2004 were primarily recognized using the completed-contract
method. For new mobile workforce software contracts entered into
in fiscal year 2005, we anticipate switching to the percentage
of completion method of accounting.

Domestic sales increased in all three of our
operating segments during fiscal year 2004. For our Broadband
Communications Products segment and our Broadband Network
Services segment, the increase was driven by spending for both
capital equipment and technical services by certain cable
operators, primarily Adelphia. The increase for our Broadband
Management Solutions segment was driven by increased deployments
of network and workforce management software.

International sales increased in all geographic
regions with the exception of Canada during fiscal year 2004.
Our international sales derive primarily from Broadband
Communications Products segment sales. We expect the demand for
our products in international markets will continue to be highly
variable. The international markets represent distinct markets
in which capital spending decisions for hybrid fiber coax
network distribution equipment can be affected by a variety of
factors, including access to financing and general economic
conditions.

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The table below sets forth our backlog by
industry segment as of June 25, 2004, compared to
June 27, 2003:

|                                  |              |                          |      |      |  |          |    |         |  |   |     |    |  |   |      |      |  |  |    |     | 
|--------------------------------- | ------------ | ------------------------ | ---- | ---- |  | -------- | -- | ------- |  | - | --- | -- |  | - | ---- | ---- |  |  | -- | --- | 
|                                  |              |                         
|                                  |              | Fiscal Year Ended       
|                                  |              |                         
|                                  |              | June 25,                 |      |      |  | June 27, |    |        
|                                  |              | 2004                     |      |      |  | Change   |    | 2003    |  |  
|Operating Segment                 |              | Backlog                  |      | %    |  | %        |    | Backlog |  | %
|                                  |              |                          |      |      |  |          |    |         |  |  
|                                  |              |                         
|                                  |              | (In millions of dollars)
|Broadband Communications Products |              | $                        | 27.1 |      |  |          | 45 |         |  |   | 5   |    |  | $ | 25.8 |      |  |  | 48 |    
|Broadband Network Services        |              |                          | 31.1 |      |  |          | 51 |         |  |   | 50  |    |  |   | 20.8 |      |  |  | 38 |    
|Broadband Management Solutions    |              |                          | 2.6  |      |  |          | 4  |         |  |   | (66 | )  |  |   | 7.7  |      |  |  | 14 |    
|                                  |              |                          |      |      |  |          |    |         |  |   |     |    |  |   |      |      |  |  |    |    
|                                  | Consolidated |                          | $    | 60.8 |  |          |    | 100     |  |   |     | 12 |  |   | $    | 54.3 |  |  |    | 100 | 
|                                  |              |                          |      |      |  |          |    |         |  |   |     |    |  |   |      |      |  |  |    |    

Our backlog increased for Broadband
Communications Products primarily due to increased bookings from
international customers during the period. Our backlog increased
in Broadband Network Services due to increased bookings of
system upgrade work, primarily from Adelphia, during the period.
The decline in backlog for Broadband Management Solutions
resulted from the completion of several contracts during the
year and lower new software bookings during the period. The
Company includes in backlog customer orders that are anticipated
to result in revenue being recognized over the next twelve
months. The majority of orders in backlog for Broadband
Communications Products 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 for fiscal year 2004 compared to fiscal year 2003.

|                                  |              |                   |      |        |  |                |      |      |  |  |      |      | 
|--------------------------------- | ------------ | ----------------- | ---- | ------ |  | -------------- | ---- | ---- |  |  | ---- | ---- | 
|                                  |              |                  
|                                  |              | Fiscal Year Ended
|                                  |              |                  
|                                  |              | June 25, 2004     |      | Change |  | June 27, 2003 
|Operating Segment                 |              | Gross Margin %    |      | Points |  | Gross Margin %
|                                  |              |                   |      |        |  |               
|Broadband Communications Products |              |                   | 40.2 |        |  |                | 24.7 |      |  |  | 15.5 |     
|Broadband Network Services        |              |                   | 19.5 |        |  |                | 1.5  |      |  |  | 18.0 |     
|Broadband Management Solutions    |              |                   | 66.0 |        |  |                | 44.1 |      |  |  | 21.9 |     
|                                  |              |                   |      |        |  |                |      |      |  |  |      |     
|                                  | Consolidated |                   |      | 37.5   |  |                |      | 21.6 |  |  |      | 15.9 | 
|                                  |              |                   |      |        |  |                |      |      |  |  |      |     

Our gross margin increased in fiscal year 2004 as
a result of increased gross margins in all operating segments.
Gross margin for our Broadband Communications Products segment
was positively affected in fiscal year 2004 by higher volume and
reduced costs resulting from the closing of our Manlius, New
York manufacturing facility in fiscal year 2003. The gross
margin for our Broadband Communications Products segment for
fiscal year 2003 was affected by a $19.6 million charge for
an excess and obsolete inventory provision resulting from
significant reductions in demand levels, product line
rationalization decisions for overlapping product lines
resulting from acquisitions, transition to an outsourced
manufacturer of product lines determined to be at the end of
their product lifecycle, and a refinement of the Companys
reserve estimation process to quantify reserve requirements for
inventory levels in excess of our forecasted demand. The
increase in Broadband Network Services segment gross margin was
due primarily to increased volume levels and labor and overhead
efficiencies. Broadband Management Solutions segment gross
margin increased as a result of the higher revenue recognized on
network and workforce management software projects, due to the
timing of customer acceptances. 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 operational support software solutions.

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Selling and
Administrative.Selling and
administrative expenses were $43.3 million (18.0% of net
sales) in fiscal year 2004, compared to $49.0 million
(24.4% of net sales) in fiscal year 2003. The decrease resulted
from reductions in our workforce implemented in fiscal year 2003
to achieve a more favorable cost structure, the collection of
$2.2 million in delinquent accounts receivable that were
previously reserved for, and the settlement of a liability
related to certain marketing costs for $700,000 less than its
recorded value.

Research and Product
Development.Research and product
development expenses were $21.5 million (8.9% of net sales)
in fiscal year 2004, compared to $27.0 million (13.5% of
net sales) in fiscal year 2003. Research and product development
expenses in the Broadband Communications Products segment were
$16.6 million for fiscal year 2004, compared to
$21.2 million for fiscal year 2003. The decrease was
primarily due to lower personnel costs resulting from workforce
reductions and the closing of our Louvier, France operation in
fiscal year 2003. Research and product development expenses in
the Broadband Management Solutions segment were
$4.3 million in fiscal year 2004, compared to
$5.3 million in fiscal year 2003. The decrease was
primarily due to lower personnel costs resulting from workforce
reductions and lower expenses for the development of operational
support solutions. Other research and product development
expenses, not charged to segments, were $592,000 in fiscal year
2004, compared to $544,000 in fiscal year 2003. We believe
continued commitment to product development efforts will be
required for us to remain competitive, and anticipate increased
investments in research and product development in future
periods related to ongoing initiatives in the development of
network distribution and transmission products and operational
support software solutions.

Operating Income (Loss) By
Segment.Operating income (excluding
unallocated items) for the Broadband Communications Products
segment in fiscal year 2004 was $50.6 million, compared to
an operating loss of $7.8 million in fiscal year 2003. The
increased operating income for fiscal year 2004 was primarily
attributable to increased gross margins and lower operating
expenses resulting from an improvement in our cost structure due
to restructuring efforts completed during the prior fiscal year.
In addition, the loss in fiscal year 2003 included increased
provisions for excess and obsolete inventory compared to the
current year. Operating income (excluding unallocated items) for
the Broadband Network Services segment in fiscal year 2004 was
$5.3 million, compared to $79,000 in fiscal year 2003. The
increase in operating income for fiscal year 2004 was due to a
94% increase in sales volume, primarily related to upgrade work
for Adelphia, which resulted in improved labor efficiencies and
higher gross margins. Operating loss (excluding unallocated
items) for the Broadband Management Solutions segment in fiscal
year 2004 was $611,000, compared to an operating loss of
$7.9 million in fiscal year 2003. The decreased operating
loss for this segment resulted from a 136% increase in revenue
recognized due to customer acceptance of various network and
workforce management software projects, and lower research and
development costs for operational support solutions.

Interest Expense and Investment
Income.Interest expense was $87,000
in fiscal year 2004, compared to $317,000 in fiscal year 2003.
The difference in interest expense resulted primarily from a
$200,000 imputed interest charge incurred in the prior year
period related to our Philips Broadband Networks
(PBN) acquisition.

Investment income was $1.1 million in fiscal
year 2004, compared to $999,000 in fiscal year 2003. The
increase in investment income resulted from higher average
investment balances compared to fiscal year 2003, offset by
lower interest rates. Our increased investment balances are a
result of our common stock offering in February 2004, cash
received in the sale of our trade claims against Adelphia and
affiliates, and cash provided by operating and other financing
activities during the year.

Foreign Exchange Gain
(Loss).Foreign exchange gain was
$205,000 in fiscal year 2004, compared to a loss of $803,000 in
fiscal year 2003. The foreign exchange gain has resulted
primarily from a further weakening of the U.S. dollar
against the Euro over the year. In addition, the loss in the
prior year included a $1.6 million loss related to the
settlement of a foreign exchange forward contract.

Gain on Sale of Bankruptcy Trade
Claims.We filed unsecured claims in
the bankruptcy cases of Adelphia and affiliates related to
accounts receivable which were previously written-off in fiscal
year 2002. In October

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2003, we entered into an agreement to sell
substantially all of our pre-petition bankruptcy trade claims
against Adelphia and affiliates. Under the terms of the
agreement, we received $21.1 million on November 4,
2003 in an initial cash payment. Additional amounts are being
held in escrow pending the resolution of certain contingencies
and we anticipate that we could receive an additional
approximately $10 million in the first half of fiscal year
2005.


Other Income, Net.Other income, net was $371,000 in fiscal year 2004, compared to
other income, net of $905,000 in fiscal year 2003. Other income,
net for fiscal year 2003 included $800,000 as a partial recovery
on a note receivable from a third party that had been fully
reserved for by the Company in fiscal year 2002.

Income Tax Expense.Income tax expense was $1.0 million for fiscal year 2004,
compared with income tax expense for fiscal year 2003 of
$47.0 million. Income taxes for fiscal year 2004 include
current taxes payable for federal alternative minimum tax,
state, and foreign income taxes in certain jurisdictions where
the Company is profitable, and generally reflect cash taxes
payable. The Company has assessed the realizability of its
deferred tax assets, giving consideration to historical
operating losses, scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning
strategies. Management concluded during the third quarter of
fiscal year 2003, as a result of the cumulative losses over the
previous three years, that a valuation allowance against net
deferred tax assets was appropriate and recorded an allowance as
of that date. As of June 25, 2004, realization of any
future benefit from deductible temporary differences, net
operating loss and tax credit carryforwards is uncertain.
Therefore, the Company has continued to maintain a valuation
allowance for the amount of its net deferred tax assets. We
expect to maintain valuation allowances related to net tax
benefits arising from temporary differences and operating loss
carryforwards until a level of profitability is sustained that
demonstrates it is more likely than not that the Company will be
able to realize all or part of the tax benefits represented by
the deferred tax assets. In the event that the Company reverses
the valuation allowance in the future, reported tax expense
subsequent to such action will increase and will likely
approximate the statutory rates in the various jurisdictions in
which we operate.

Fiscal 2003 Compared to Fiscal 2002

Net Sales.Net sales
decreased by 24% to $200.7 million in fiscal year 2003 from
$265.7 million in fiscal year 2002.

The decrease in Broadband Communications Products
segment sales during fiscal year 2003 was largely attributable
to reduced or deferred capital spending by customers in the
cable industry for network build-outs and expansion of existing
networks. The Company believes the reduced capital spending
levels were the result of financial difficulties of certain
cable customers, challenges in gaining access to capital
markets, and a focus by cable operators on reducing debt and
increasing cash flow. The decline in sales affected our optical
product lines and, to a lesser extent, our radio frequency
product lines. Optical product sales declined 33%, to
$76.0 million in fiscal year 2003, compared to
$113.8 million in fiscal year 2002. Sales of radio
frequency amplifiers decreased 12%, to $96.8 million in
fiscal year 2003 from $110.5 million in fiscal year 2002.

The decrease in Broadband Network Services
segment sales during fiscal year 2003 also resulted from reduced
spending by domestic cable operators on technical services,
primarily related to our outside plant technical services
operations.

The increase in Broadband Management Solutions
segment sales during fiscal year 2003 resulted from increased
deployments of both our Network Service Manager (NSM) and
Mobile Workforce Manager (MWM) software products.

Domestic sales decreased during fiscal year 2003
in both our Broadband Communications Products segment and
Broadband Network Services segment due to reduced spending by
certain domestic multiple system operators.

International sales increased during fiscal year
2003 due to higher Broadband Communications Products segment
sales, primarily in Europe and Asia. Our acquisition of the PBN
assets and operations in fiscal year 2003 increased our customer
base and installed equipment base in the markets of Europe and
Asia.

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Gross Margin.The
following table sets forth our gross margins by operating
segment for fiscal year 2003 compared to fiscal year 2002.

|                                  |              |                   |      |        |  |                |       |       |   |  |       |      | 
|--------------------------------- | ------------ | ----------------- | ---- | ------ |  | -------------- | ----- | ----- | - |  | ----- | ---- | 
|                                  |              |                  
|                                  |              | Fiscal Year Ended
|                                  |              |                  
|                                  |              | June 27, 2003     |      | Change |  | June 28, 2002 
|Operating Segment                 |              | Gross Margin %    |      | Points |  | Gross Margin %
|                                  |              |                   |      |        |  |               
|Broadband Communications Products |              |                   | 15.5 |        |  |                | (16.1 | )     |   |  | 31.6  |     
|Broadband Network Services        |              |                   | 18.0 |        |  |                | (5.8  | )     |   |  | 23.8  |     
|Broadband Management Solutions    |              |                   | 21.9 |        |  |                | 79.9  |       |   |  | (58.0 | )   
|                                  |              |                   |      |        |  |                |       |       |   |  |       |     
|                                  | Consolidated |                   |      | 15.9   |  |                |       | (13.5 | ) |  |       | 29.4 | 
|                                  |              |                   |      |        |  |                |       |       |   |  |       |     

Our gross margin decreased in fiscal year 2003
due primarily to the decrease in gross margin in the Broadband
Communications Products segment. The decrease in Broadband
Communications Products segment gross margin for fiscal year
2003 was due primarily to lower volumes and an increase in our
provision for excess and obsolete inventory. The increase in the
excess and obsolete inventory provision was the result of
significant reductions in demand levels, product line
rationalization decisions for overlapping product lines
resulting from acquisitions, transition to an outsourced
manufacturer of product lines determined to be at the end of
their product lifecycle, and a refinement of the Companys
reserve estimation process to quantify reserve requirements for
inventory levels in excess of our forecasted demand. In
addition, lower volumes resulted in higher manufacturing costs
per unit due to allocating higher fixed factory overhead costs
which contributed to lower gross margins during the year. The
decrease in Broadband Network Services segment gross margin was
due primarily to reduced volume levels without a corresponding
level of reduction in fixed overhead costs and services mix.
Broadband Management Solutions segment gross margin increased as
a result of increased deployments of NSM and MWM software
solutions, whereby the operation began absorbing certain fixed
personnel and other costs.

Selling and
Administrative.Selling and
administrative expenses were $49.0 million (24.4% of net
sales) in fiscal year 2003, compared to $93.3 million
(35.1% of net sales) in fiscal year 2002. Included in selling
and administrative expense for fiscal year 2002 was bad debt
expense of $47.3 million, which included $44.9 million
for a specific charge-off of accounts receivables from Adelphia
Communications and affiliates, and $2.4 million related to
customers in Latin America, where economic conditions affected
the collection of certain outstanding accounts receivable. In
addition, costs of $1.9 million associated with the
implementation of a fully integrated ERP system were incurred
during fiscal year 2002. Excluding the aforementioned costs
relating to fiscal year 2002, the Company increased selling and
administrative expenses during fiscal year 2003 for personnel
costs and administrative expenses due to our acquisition of PBN
assets and operations, which were partially offset by recovery
of $1.4 million on certain accounts previously deemed
uncollectible.

Research and Product
Development.Research and product
development expenses were $27.0 million (13.5% of net
sales) in fiscal year 2003, compared to $27.1 million
(10.2% of net sales) in fiscal year 2002. Research and product
development expenses in the Broadband Communications Products
segment were $21.2 million for fiscal year 2003, compared
to $17.9 million for fiscal year 2002. The increase was
primarily due to higher personnel costs resulting from our
acquisition of PBN assets and operations. Research and product
development expenses in the Broadband Management Solutions
segment were $5.3 million in fiscal year 2003, compared to
$8.3 million in fiscal year 2002. The decrease was
primarily due to lower personnel costs resulting from reductions
in the workforce and lower expenses for the development of MWM
software solutions. Other research and product development
expenses, not charged to segments, were $544,000 in fiscal year
2003, compared to $900,000 in fiscal year 2002. The decrease was
primarily due to lower personnel and other costs associated with
technology investigation and oversight functions.

Operating Income (Loss) By
Segment.Operating loss (excluding
unallocated items) for the Broadband Communications Products
segment in fiscal year 2003 was $7.8 million, compared to a
loss of $461,000 in fiscal year 2002. Included in the operating
loss for fiscal year 2002 was a charge of $37.7 million for
a specific charge-off of accounts receivable from Adelphia
Communications and affiliates, and $2.4 million related to

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customers in Latin America. Excluding these
charges from the prior year, the change in our operating results
from year to year was a result of lower sales volumes, lower
gross margins, and an increased provision for excess and
obsolete inventory during fiscal year 2003. Operating income
(excluding unallocated items) for the Broadband Network Services
segment in fiscal year 2003 was $79,000 compared to an operating
loss of $2.4 million in fiscal year 2002. The operating
loss in fiscal year 2002 was primarily a result of a charge to
bad debt expense of $7.2 million related to Adelphia.
Excluding this charge, operating income decreased as a result of
lower sales volumes and lower gross margins during fiscal year
2003. Operating loss (excluding unallocated items) for the
Broadband Management Solutions segment in fiscal year 2003 was
$7.9 million, compared to an operating loss of
$19.1 million in fiscal year 2002. Included in the
operating loss for fiscal year 2002 was $5.0 million in
amortization of intangibles related to our acquisition of
MobileForce. Based upon the projected recoverability of these
intangible assets, an impairment charge for the remaining
carrying value of these assets was recorded as of June 28,
2002, but not allocated to the Broadband Management Solutions
segment. Excluding the aforementioned amortization, the
reduction in operating loss for fiscal year 2003 derives
primarily from increased volume during the fiscal year, as a
result of increased deployments, and an improved cost structure.


Goodwill and Other Intangible Asset Impairment
Charges.The Company adopted the
provisions of SFAS No. 142, Goodwill and Other
Intangible Assets (Statement 142) effective
June 29, 2002. Under Statement 142, we are required to
evaluate whether goodwill is impaired on at least an annual
basis. As a result of completing each step in our evaluation of
goodwill in fiscal year 2003, we determined that goodwill
associated with our Broadband Communications Products reporting
unit was impaired. The decline in the fair value of the
Broadband Communications Products reporting unit was largely
attributable to the weakness in capital spending by cable
operators. In fiscal year 2003, we recorded a goodwill
impairment charge of $46.1 million. This compared to an
impairment charge of $13.6 million in fiscal year 2002 for
goodwill and intangible assets related to MobileForce, which is
part of our Broadband Management Solutions segment (see
Note 9 to the Consolidated Financial Statements in
Item 8 of this Form 10-K).

Restructuring
Charges.We implemented various
initiatives during fiscal year 2003 to improve our operating
performance and align our cost structure with business levels.
As a result, we recorded restructuring charges of $935,000
during fiscal year 2003. These were partially offset by a
reversal of $475,000 for previously recorded restructuring
charges incurred in prior fiscal years. The result was a net
charge in fiscal year 2003 of $460,000. This compared to a net
charge in fiscal year 2002 of $2.7 million, associated with
initiatives to consolidate our manufacturing operations, improve
our operating performance, and align our cost structure with
current business levels (see Note 4 to the Consolidated
Financial Statements in Item 8 of this Form 10-K).

Interest Expense and Investment
Income.Interest expense was $317,000
in fiscal year 2003, compared to $146,000 in fiscal year 2002.
The increase in interest expense in fiscal year 2003 resulted
primarily from an imputed interest charge of $200,000 related to
the PBN acquisition.

Investment income was $999,000 in fiscal year
2003, compared to $1.8 million in fiscal year 2002. The
decrease in investment income resulted from reduced investment
balances and lower interest rates. Operating cash and short-term
investments were used to fund the PBN acquisition and operating
losses during fiscal year 2003.

Foreign Exchange Gain
(Loss).Foreign exchange loss was
$803,000 in fiscal year 2003, compared to a gain of
$2.5 million in fiscal year 2002. The foreign exchange loss
for fiscal year 2003 includes a $1.6 million loss related
to the settlement of a foreign exchange forward contract. In
fiscal year 2002, we recorded a gain of $1.6 million
related to this foreign exchange forward contract.

Other Income (Expense),
Net.Other income, net was $905,000 in
fiscal year 2003, compared to other expense, net of
$1.5 million in fiscal year 2002. Other income, net for
fiscal year 2003 included $800,000 as a partial recovery on a
note receivable from a third party that had been fully reserved
for by the Company in fiscal year 2002.

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Income Tax Expense
(Benefit).Income tax expense was
$47.0 million for fiscal year 2003, compared with an income
tax benefit for fiscal year 2002 of $23.2 million. During
fiscal year 2003, the Company assessed the realizability of its
deferred tax assets, giving consideration to historical
operating losses, scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning
strategies. As a result of the cumulative losses over the past
three years, we determined that realization of any future
benefit from deductible temporary differences, net operating
losses and tax credit carryforwards was uncertain as of
June 27, 2003. Therefore, the Company recorded a valuation
allowance for the full amount of its net deferred tax assets,
with the exception of certain net deferred tax assets in
specific foreign jurisdictions.

Liquidity and Capital Resources

As of June 25, 2004, cash and cash
equivalents totaled $63.8 million, up from
$22.6 million at June 27, 2003. Marketable securities
increased to $52.9 million as of June 25, 2004, up
from $2,000 at June 27, 2003. Working capital was
$140.7 million at June 25, 2004, compared to
$37.6 million at June 27, 2003.

On February 26, 2004, we sold in a public
offering 5,060,000 shares of our common stock at a price of
$14.50 per share. This offering resulted in net proceeds
(after deducting issuance costs) to us of $69.5 million. In
addition, cash proceeds received on the sale of our bankruptcy
trade claims against Adelphia and its affiliates in November
2003, as well as increased cash generated from operations and
other financing activities, contributed to the increase in cash,
cash equivalents, and marketable securities during the fiscal
year ended June 25, 2004.

As of June 25, 2004, we had restricted cash
of $1.6 million. Our restricted cash represents an
arrangement with a bank whereby a cash compensating balance is
maintained to secure certain letters of credit issued on behalf
of the Company. The total cash compensating balance has been
classified as a current asset as of June 25, 2004 as the
terms for the letters of credit expire in less than one year. We
are entitled to the interest earnings on our restricted cash
balance.

Net cash provided by operating activities was
$49.3 million in fiscal year 2004, compared with cash used
in operating activities of $11.8 million in fiscal year
2003. The major elements of the change for fiscal year 2004
include net income for the period of $44.2 million, which
included $21.1 million from the sale of our bankruptcy
trade claims against Adelphia and its affiliates, reductions in
inventory, and increased accounts payable, which were partially
offset by increases in accounts receivables and reductions in
accrued liabilities. The net loss for fiscal year 2003 included
a number of non-cash charges such as the $46.9 million
intangible asset impairment charge, a $45.3 million change
in deferred tax assets related to recording a valuation
allowance, and a $19.6 million increase in inventory
reserves.

Net cash used in investing activities was
$87.7 million in fiscal year 2004, compared to
$79.1 million used in fiscal year 2003. Net cash used in
investing activities in fiscal year 2004 was due primarily to
utilizing $56.4 million for the purchase of marketable
securities and $33.4 million for the acquisitions of Alopa
and Lantern. Other cash uses were for property, plant, and
equipment acquisitions. The major element of cash used in
investing activities for the same period of the prior year was
$77.1 million used for acquisitions.

Net cash provided by financing activities was
$79.2 million in fiscal year 2004, compared with cash used
in financing activities of $253,000 in fiscal year 2003. The
major elements of cash provided by financing activities for
fiscal year 2004 were net proceeds of $69.5 million
received from our follow-on public offering of stock in February
2004 and $9.9 million in proceeds from the exercise of
stock options and warrants. The prior year activity primarily
represented payments on long-term debt, which were partially
offset by proceeds from the exercise of stock options and
warrants.

The Company has a two-year secured revolving
credit financing agreement with a commercial lender. Borrowings
under the financing agreement may be used for working capital
and general corporate purposes. The financing agreement provides
a commitment of up to an aggregate amount of $20.0 million.
The financing

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agreement allows for the issuance of letters of
credit and cash borrowings. Letters of credit outstanding are
limited to no more than $6.0 million. Cash borrowings are
limited by certain availability reserves and a borrowing base,
primarily a percentage of eligible domestic trade accounts
receivable, up to the facilitys maximum availability less
letters of credit outstanding.


As security for the financing agreement, the
Company has pledged the following collateral: trade accounts
receivable, inventory, general intangibles, real estate,
equipment, life insurance policies, and a portion of the stock
of a wholly owned foreign subsidiary. The financing agreement
contains a number of restrictive covenants, including covenants
limiting incurrence of subordinated debt, disposal of
collateral, and the payment of dividends (except stock
dividends). The financing agreement contains no financial
covenants.

The financing agreement is committed through
November 6, 2004. Borrowings under the financing agreement
bear interest at an applicable bank rate or LIBOR plus two and
three-quarters percent (2.75%) per annum, payable monthly. The
financing agreement required the payment of a facility fee of
$150,000 at execution and requires a fee on the unused
commitment of 0.375% per annum payable monthly, and an
administrative fee of $36,000 per annum. As of
June 25, 2004, the Company had no borrowings outstanding on
the financing agreement and letters of credit for
$1.5 million have been issued related to requirements under
our workers compensation policies and facility lease
obligations. Based upon the eligible borrowing base at
June 25, 2004, available borrowings under the financing
agreement were $8.2 million. We are in the process of
evaluating alternatives to the current financing agreement.

As a condition to closing on the financing
agreement, the Company terminated its prior credit agreement
with a bank, except that the Company continues to maintain
letters of credit provided by the bank related to our
workers compensation program, customer obligations, and
equipment lease obligations. As of June 25, 2004, the
aggregate amount of the letters of credit was $1.6 million.
We are required to maintain cash deposits of $1.6 million
as collateral for these letters of credit.

Information regarding our contractual obligations
is as follows:

|                                   |  |                        |        |           |  |       |        |       |  |           |       |  |  |   |       |  |  |   |       | 
|---------------------------------- |  | ---------------------- | ------ | --------- |  | ----- | ------ | ----- |  | --------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                   |  |                       
|                                   |  | Payments due by period
|                                   |  |                       
|                                   |  |                        |        | Less than |  | 1-3   |        | 3-5   |  | More than
|                                   |  | Total                  |        | 1 Year    |  | Years |        | Years |  | 5 Years  
|                                   |  |                        |        |           |  |       |        |       |  |          
|                                   |  |                       
|                                   |  | (In thousands)        
|Contractual Obligations:           |  |                        |        |           |  |       |        |       |  |           |       |  |  |   |       |  |  |   |       | 
|Long-term debt                     |  | $                      | 930    |           |  | $     | 158    |       |  | $         | 287   |  |  | $ | 287   |  |  | $ | 198   | 
|Operating leases                   |  |                        | 10,716 |           |  |       | 3,135  |       |  |           | 3,025 |  |  |   | 1,273 |  |  |   | 3,283 | 
|Purchase obligations               |  |                        | 25,053 |           |  |       | 24,517 |       |  |           | 536   |  |  |   |      |  |  |   |      | 
|                                   |  |                        |        |           |  |       |        |       |  |           |       |  |  |   |       |  |  |   |       | 
|Total contractual cash obligations |  | $                      | 36,699 |           |  | $     | 27,810 |       |  | $         | 3,848 |  |  | $ | 1,560 |  |  | $ | 3,481 | 
|                                   |  |                        |        |           |  |       |        |       |  |           |       |  |  |   |       |  |  |   |       | 

Information regarding our commitments is as
follows:

|                          |  |                                             |       |           |  |       |       |       |  |           |     |  |  |   |   |  |  |   |   | 
|------------------------- |  | ------------------------------------------- | ----- | --------- |  | ----- | ----- | ----- |  | --------- | --- |  |  | - | - |  |  | - | - | 
|                          |  |                                            
|                          |  | Amount of commitments expiration per period
|                          |  |                                            
|                          |  |                                             |       | Less than |  | 1-3   |       | 3-5   |  | More than
|                          |  | Total                                       |       | 1 Year    |  | Years |       | Years |  | 5 Years  
|                          |  |                                             |       |           |  |       |       |       |  |          
|                          |  |                                            
|                          |  | (In thousands)                             
|Other Commitments:        |  |                                             |       |           |  |       |       |       |  |           |     |  |  |   |   |  |  |   |   | 
|Standby letters of credit |  | $                                           | 3,055 |           |  | $     | 2,555 |       |  | $         | 500 |  |  | $ |  |  |  | $ |  | 
|                          |  |                                             |       |           |  |       |       |       |  |           |     |  |  |   |   |  |  |   |   | 
|Total commitments         |  | $                                           | 3,055 |           |  | $     | 2,555 |       |  | $         | 500 |  |  | $ |  |  |  | $ |  | 
|                          |  |                                             |       |           |  |       |       |       |  |           |     |  |  |   |   |  |  |   |   | 

Working Capital Outlook

Our main source of liquidity is our unrestricted
cash on hand and future cash generated by operations. Cash
provided by or used in operations can vary substantially based
on our level of business activity. We believe that during fiscal
year 2004 we benefited from restructuring efforts completed in
the prior fiscal year, which resulted in an improved operating
cost structure. We intend to continue our initiatives to achieve
more cost-

36



---



##### 



effective operations throughout fiscal year 2005.
Although no specific restructuring actions are planned at the
present time, if a decline in spending occurs in the cable
industry, we may undertake additional restructuring initiatives
and incur expenses in amounts that have not yet been determined.


Subsequent to the fiscal year ended June 25,
2004, we acquired Stargus and Optinel, resulting in initial cash
payments of $26.5 million. Additional earnout payments of
up to $6.0 million are required to be made if certain
performance targets are met within 13 months of the closing
date. In the short-term, we expect to incur integration and
start-up costs during the first half of fiscal year 2005. In
addition, we anticipate moderate growth in our operating
expenses as a result of the acquisitions.

Taking into account the funding of the
acquisitions of Stargus and Optinel, including potential
contingent earnout payments and start-up costs, we believe
remaining cash and cash equivalents balances, our marketable
securities and our financing agreement or alternative
arrangement will be adequate to cover our operating cash
requirements over the next 12 to 24 months. However, we may
find it necessary or desirable to seek other sources of
financing to support our capital needs and provide funds for
financing 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. There are no assurances that third-party financing
will be available on acceptable terms.

Accounting Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
No. 46 (FIN 46), Consolidation of Variable
Interest Entities, which requires companies to consolidate
certain types of variable interest entities. A variable interest
entity is an entity that has inadequate invested equity at risk
to meet expected future losses, or whose holders of the equity
investments lack any of the following three characteristics:
(i) the ability to make decisions about the entitys
activities; (ii) the obligation to absorb the entitys
losses if they occur; or (iii) the right to receive the
entitys future returns if they occur. FIN 46 is
applicable immediately for all variable interests created after
January 31, 2003. For all variable interest entities
created before February 1, 2003, the provisions of
FIN 46 are effective for financial statements issued for
the first period ending after December 15, 2003. The
adoption of FIN 46 had no effect on the Companys
financial position, results of operations, or cash flows.

In December 2003, the FASB issued a revision to
FIN 46 (FIN 46R) to address various technical
corrections and implementation issues that have arisen since
issuance. The provisions of FIN 46R are effective for
financial periods ending after March 15, 2004. The adoption
of the new provisions had no effect on the Companys
financial position, results of operations, or cash flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (Statement 150). Statement 150 requires
that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for
as liabilities. The financial instruments affected include
mandatorily redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares
in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. The FASB subsequently
issued FASB Staff Position 150-3, which indefinitely deferred
certain classification and measurement requirements of
Statement 150. Statement 150 is effective for all
financial instruments entered into or modified after
May 31, 2003 and must be applied to existing instruments
for the first interim period beginning after June 15, 2003.
The adoption of Statement 150 had no effect on the
Companys financial position, results of operations, or
cash flows.

37



---



##### 





|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | 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 U.S. dollar. We attempt to
minimize exposure to currencies by managing our operating
activities and net asset positions. As of June 25, 2004,
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
its 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, if applicable. 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 8. | Financial Statements and Supplementary
    Data

Consolidated financial statements and financial
statement schedule of C-COR Incorporated meeting the
requirements of Regulation S-X are filed on the following
pages of this Item 8 of this Annual Report on
Form 10-K, as listed below:

|                                   |                                                                                                                                   |      |  |       | 
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ----- | 
|                                   |                                                                                                                                   | Page
|                                   |                                                                                                                                   |     
|Consolidated Financial Statements: |                                                                                                                                   |      |  |      
|                                   | Report of Independent Registered Public
    Accounting Firm                                                                       |      |  | 39    | 
|                                   | Consolidated Balance Sheets as of June 25,
    2004 and June 27, 2003                                                             |      |  | 40    | 
|                                   | Consolidated Statements of Operations for the
    Fiscal Years Ended June 25, 2004, June 27, 2003
    and June 28, 2002           |      |  | 41    | 
|                                   | Consolidated Statements of Cash Flows for the
    Fiscal Years Ended June 25, 2004, June 27, 2003
    and June 28, 2002           |      |  | 42    | 
|                                   | Consolidated Statements of Shareholders
    Equity for the Fiscal Years Ended June 25, 2004,
    June 27, 2003 and June 28, 2002 |      |  | 43    | 
|                                   | Notes to Consolidated Financial Statements                                                                                        |      |  | 44-74 | 
|Financial Statement Schedule:      |                                                                                                                                   |      |  |      
|                                   | Schedule II  Valuation and
    Qualifying Accounts                                                                               |      |  | 82-83 | 

38



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

C-COR Incorporated:


We have audited the accompanying consolidated
balance sheets of C-COR Incorporated and subsidiaries as of
June 25, 2004 and June 27, 2003, and the related
consolidated statements of operations, cash flows, and
shareholders equity for each of the three fiscal years in
the period ended June 25, 2004. In connection with our
audits of the consolidated financial statements, we also have
audited the financial statement schedule as of June 25,
2004, and for each of the three fiscal years in the period ended
June 25, 2004. These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of C-COR Incorporated and
subsidiaries as of June 25, 2004 and June 27, 2003,
and the results of their operations and their cash flows for
each of the three fiscal years in the period ended June 25,
2004, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible
Assets, effective June 29, 2002.

(KPMG SIG)

Harrisburg, Pennsylvania 
 August 13, 2004, except as to

Note 24, which is as of


September 3, 2004


39



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##### 



C-COR Incorporated



CONSOLIDATED BALANCE SHEETS


|                                                                                                                                   |                                            |                             |          |          |  |   |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------- | -------- | -------- |  | - | -------- | ------- | 
|                                                                                                                                   |                                            | June 25,                    |          | June 27,
|                                                                                                                                   |                                            | 2004                        |          | 2003    
|                                                                                                                                   |                                            |                             |          |         
|                                                                                                                                   |                                            |                            
|                                                                                                                                   |                                            | (In thousands, except share
|                                                                                                                                   |                                            | and per share data)        
|ASSETS                                                                                                                            
|Current assets                                                                                                                     |                                            |                             |          |          |  |   |          |        
|Cash and cash equivalents                                                                                                          |                                            | $                           | 63,791   |          |  | $ | 22,609   |        
|Restricted cash                                                                                                                    |                                            |                             | 1,637    |          |  |   | 2,300    |        
|Marketable securities                                                                                                              |                                            |                             | 52,934   |          |  |   | 2        |        
|Accounts receivable, less allowance of $3,204 in
    2004 and $4,063 in 2003                                                       |                                            |                             | 43,785   |          |  |   | 34,436   |        
|Unbilled receivables                                                                                                               |                                            |                             | 3,494    |          |  |   | 1,314    |        
|Inventories                                                                                                                        |                                            |                             | 25,680   |          |  |   | 30,438   |        
|Other current assets                                                                                                               |                                            |                             | 4,849    |          |  |   | 4,932    |        
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|                                                                                                                                   | Total current assets                       |                             |          | 196,170  |  |   |          | 96,031  | 
|Property, plant, and equipment, net                                                                                                |                                            |                             | 17,697   |          |  |   | 24,418   |        
|Goodwill                                                                                                                           |                                            |                             | 38,312   |          |  |   | 15,034   |        
|Other intangible assets, net                                                                                                       |                                            |                             | 10,752   |          |  |   | 3,936    |        
|Deferred taxes                                                                                                                     |                                            |                             | 754      |          |  |   | 507      |        
|Other long-term assets                                                                                                             |                                            |                             | 3,200    |          |  |   | 3,091    |        
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|                                                                                                                                   | Total assets                               |                             | $        | 266,885  |  |   | $        | 143,017 | 
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|                                                                                                                                  
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                          
|Current liabilities                                                                                                                |                                            |                             |          |          |  |   |          |        
|Accounts payable                                                                                                                   |                                            | $                           | 23,571   |          |  | $ | 20,299   |        
|Accrued liabilities                                                                                                                |                                            |                             | 31,274   |          |  |   | 37,432   |        
|Deferred taxes                                                                                                                     |                                            |                             | 467      |          |  |   | 528      |        
|Current portion of long-term debt                                                                                                  |                                            |                             | 158      |          |  |   | 175      |        
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|                                                                                                                                   | Total current liabilities                  |                             |          | 55,470   |  |   |          | 58,434  | 
|Long-term debt, less current portion                                                                                               |                                            |                             | 772      |          |  |   | 938      |        
|Other long-term liabilities                                                                                                        |                                            |                             | 2,381    |          |  |   | 2,116    |        
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|                                                                                                                                   | Total liabilities                          |                             |          | 58,623   |  |   |          | 61,488  | 
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|Commitments and contingencies                                                                                                      |                                            |                             |          |          |  |   |          |        
|Shareholders equity                                                                                                               |                                            |                             |          |          |  |   |          |        
|Preferred stock, no par value; authorized shares
    of 2,000,000; none issued                                                     |                                            |                             |         |          |  |   |         |        
|Common stock, $.05 par value; authorized
    shares of 100,000,000; issued shares of 46,662,652 in 2004 and
    40,210,226 in 2003 |                                            |                             | 2,333    |          |  |   | 2,011    |        
|Additional paid-in capital                                                                                                         |                                            |                             | 344,821  |          |  |   | 264,662  |        
|Accumulated other comprehensive income                                                                                             |                                            |                             | 5,013    |          |  |   | 2,432    |        
|Unearned compensation                                                                                                              |                                            |                             | (504     | )        |  |   |         |        
|Accumulated deficit                                                                                                                |                                            |                             | (109,051 | )        |  |   | (153,211 | )      
|Treasury stock at cost, 3,645,850 shares in
    2004 and 3,647,509 shares in 2003                                                  |                                            |                             | (34,350  | )        |  |   | (34,365  | )      
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|                                                                                                                                   | Total shareholders equity                 |                             |          | 208,262  |  |   |          | 81,529  | 
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        
|                                                                                                                                   | Total liabilities and shareholders equity |                             | $        | 266,885  |  |   | $        | 143,017 | 
|                                                                                                                                   |                                            |                             |          |          |  |   |          |        

See accompanying notes to consolidated financial
statements.

40



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##### 



C-COR Incorporated



CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |         |         | 
|---------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------- | ------- | -------- | ------ | -------- | -------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                 |                                                            |                                      
|                                                                 |                                                            | Fiscal Year Ended                    
|                                                                 |                                                            |                                      
|                                                                 |                                                            | June 25,                              |         | June 27, |        | June 28,
|                                                                 |                                                            | 2004                                  |         | 2003     |        | 2002    
|                                                                 |                                                            |                                       |         |          |        |         
|                                                                 |                                                            |                                      
|                                                                 |                                                            | (In thousands, except per share data)
|Net sales:                                                       |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|                                                                 | Products                                                   |                                       | $       | 184,880  |        |          | $        | 172,750 |         |   | $       | 224,331 |        
|                                                                 | Services                                                   |                                       |         | 56,038   |        |          |          | 27,912  |         |   |         | 41,320  |        
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Total net sales                                                  |                                                            |                                       | 240,918 |          |        |          | 200,662  |         |         |   | 265,651 |        
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Cost of sales:                                                   |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|                                                                 | Products                                                   |                                       |         | 110,488  |        |          |          | 126,392 |         |   |         | 153,407 |        
|                                                                 | Services                                                   |                                       |         | 40,163   |        |          |          | 22,707  |         |   |         | 34,127  |        
|                                                                 | Excess and obsolete inventory charge                       |                                       |         |         |        |          |          | 19,625  |         |   |         |        |        
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Total cost of sales                                              |                                                            |                                       | 150,651 |          |        |          | 168,724  |         |         |   | 187,534 |        
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Gross margin                                                     |                                                            |                                       | 90,267  |          |        |          | 31,938   |         |         |   | 78,117  |        
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Operating expenses:                                              |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|                                                                 | Selling and administrative                                 |                                       |         | 43,260   |        |          |          | 49,015  |         |   |         | 93,255  |        
|                                                                 | Research and product development                           |                                       |         | 21,495   |        |          |          | 27,007  |         |   |         | 27,089  |        
|                                                                 | Amortization of goodwill and other intangibles             |                                       |         | 2,394    |        |          |          | 1,961   |         |   |         | 8,340   |        
|                                                                 | Goodwill and other intangible asset impairment
    charges |                                       |         |         |        |          |          | 46,051  |         |   |         | 13,642  |        
|                                                                 | Acquired in-process technology charge                      |                                       |         | 900      |        |          |          | 800     |         |   |         | 870     |        
|                                                                 | Restructuring costs (recovery)                             |                                       |         | (272     | )      |          |          | 460     |         |   |         | 2,660   |        
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|                                                                 |                                                            | Total operating expenses              |         |          | 67,777 |          |          |         | 125,294 |   |         |         | 145,856 | 
|Income (loss) from operations                                    |                                                            |                                       | 22,490  |          |        |          | (93,356  | )       |         |   | (67,739 | )      
|Other income (expense), net:                                     |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|                                                                 | Interest expense                                           |                                       |         | (87      | )      |          |          | (317    | )       |   |         | (146    | )      
|                                                                 | Investment income                                          |                                       |         | 1,128    |        |          |          | 999     |         |   |         | 1,750   |        
|                                                                 | Foreign exchange gain (loss)                               |                                       |         | 205      |        |          |          | (803    | )       |   |         | 2,535   |        
|                                                                 | Gain on sale of bankruptcy trade claims                    |                                       |         | 21,075   |        |          |          |        |         |   |         |        |        
|                                                                 | Other income (expense), net                                |                                       |         | 371      |        |          |          | 905     |         |   |         | (1,476  | )      
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Income (loss) before income taxes                                |                                                            |                                       | 45,182  |          |        |          | (92,572  | )       |         |   | (65,076 | )      
|Income tax expense (benefit)                                     |                                                            |                                       | 1,022   |          |        |          | 47,017   |         |         |   | (23,152 | )      
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Net income (loss)                                                |                                                            | $                                     | 44,160  |          |        | $        | (139,589 | )       |         | $ | (41,924 | )      
|                                                                 |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|Net income (loss) per share:                                     |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|                                                                 | Basic                                                      |                                       | $       | 1.14     |        |          | $        | (3.84   | )       |   | $       | (1.24   | )      
|                                                                 | Diluted                                                    |                                       | $       | 1.10     |        |          | $        | (3.84   | )       |   | $       | (1.24   | )      
|Weighted average common shares and common share
    equivalents: |                                                            |                                       |         |          |        |          |          |         |         |   |         |        
|                                                                 | Basic                                                      |                                       |         | 38,832   |        |          |          | 36,384  |         |   |         | 33,710  |        
|                                                                 | Diluted                                                    |                                       |         | 40,223   |        |          |          | 36,384  |         |   |         | 33,710  |        

See accompanying notes to consolidated financial
statements.

41



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##### 



C-COR Incorporated



CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | ----------------- | ------- | -------- | - | -------- | -------- | ------- | - | - | ------- | ------- | -
|                                                                                                       |                                                                           |                  
|                                                                                                       |                                                                           | Fiscal Year Ended
|                                                                                                       |                                                                           |                  
|                                                                                                       |                                                                           | June 25,          |         | June 27, |   | June 28,
|                                                                                                       |                                                                           | 2004              |         | 2003     |   | 2002    
|                                                                                                       |                                                                           |                   |         |          |   |         
|                                                                                                       |                                                                           |                  
|                                                                                                       |                                                                           | (In thousands)   
|Operating Activities:                                                                                  |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Net income (loss)                                                                                      |                                                                           | $                 | 44,160  |          |   | $        | (139,589 | )       |   | $ | (41,924 | )      
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Depreciation and amortization                                                                          |                                                                           |                   | 11,208  |          |   |          | 13,401   |         |   |   | 17,680  |        
|Write-off of goodwill, intangibles and long-lived
    assets                                           |                                                                           |                   | 900     |          |   |          | 46,851   |         |   |   | 14,512  |        
|Other, net                                                                                             |                                                                           |                   | 155     |          |   |          | 155      |         |   |   | 457     |        
|Tax benefit deriving from exercise and sale of
    stock option shares                                 |                                                                           |                   |        |          |   |          |         |         |   |   | 1,292   |        
|Changes in operating assets and liabilities, net
    of effect of acquisitions:                        |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|                                                                                                       | Accounts and notes receivable                                             |                   |         | (10,168  | ) |          |          | 12,628  |   |   |         | 2,619   |  
|                                                                                                       | Inventories                                                               |                   |         | 6,336    |   |          |          | 23,048  |   |   |         | 15,811  |  
|                                                                                                       | Accounts payable                                                          |                   |         | 2,684    |   |          |          | (7,939  | ) |   |         | 1,812   |  
|                                                                                                       | Accrued liabilities                                                       |                   |         | (6,847   | ) |          |          | (14,085 | ) |   |         | (3,609  | )
|                                                                                                       | Deferred income taxes                                                     |                   |         | (307     | ) |          |          | 45,323  |   |   |         | (15,374 | )
|                                                                                                       | Other                                                                     |                   |         | 1,129    |   |          |          | 8,389   |   |   |         | (4,227  | )
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Net cash provided by (used in) operating
    activities                                                |                                                                           |                   | 49,250  |          |   |          | (11,818  | )       |   |   | (10,951 | )      
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Investing Activities:                                                                                  |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Purchase of property, plant, and equipment                                                             |                                                                           |                   | (1,545  | )        |   |          | (4,156   | )       |   |   | (7,990  | )      
|Proceeds from sale of property, plant, and
    equipment                                               |                                                                           |                   | 315     |          |   |          | 2,184    |         |   |   | 1,306   |        
|Proceeds from sale of marketable securities and
    other short-term investments                       |                                                                           |                   | 3,251   |          |   |          |         |         |   |   | 24,154  |        
|Purchase of marketable securities and other
    short-term investments                                 |                                                                           |                   | (56,363 | )        |   |          |         |         |   |   | (11,154 | )      
|Acquisitions, net of cash acquired                                                                     |                                                                           |                   | (33,373 | )        |   |          | (77,080  | )       |   |   | (26,499 | )      
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Net cash used in investing activities                                                                  |                                                                           |                   | (87,715 | )        |   |          | (79,052  | )       |   |   | (20,183 | )      
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Financing Activities:                                                                                  |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Payment of debt and capital lease obligations                                                          |                                                                           |                   | (197    | )        |   |          | (783     | )       |   |   | (231    | )      
|Proceeds from issuance of common stock to
    employee stock purchase plan                             |                                                                           |                   | 32      |          |   |          | 173      |         |   |   | 201     |        
|Proceeds from exercise of stock options and stock
    warrants                                         |                                                                           |                   | 9,896   |          |   |          | 463      |         |   |   | 5,312   |        
|Proceeds from issuance of common stock, net                                                            |                                                                           |                   | 69,482  |          |   |          |         |         |   |   | 52,193  |        
|Issuance (purchase) of treasury stock                                                                  |                                                                           |                   | 15      |          |   |          | (106     | )       |   |   | (3,062  | )      
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Net cash provided by (used in) financing
    activities                                                |                                                                           |                   | 79,228  |          |   |          | (253     | )       |   |   | 54,413  |        
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Effect of exchange rate changes on cash                                                                |                                                                           |                   | 419     |          |   |          | 1,874    |         |   |   | 688     |        
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Increase (decrease) in cash and cash equivalents                                                       |                                                                           |                   | 41,182  |          |   |          | (89,249  | )       |   |   | 23,967  |        
|Cash and cash equivalents at beginning of fiscal
    year                                              |                                                                           |                   | 22,609  |          |   |          | 111,858  |         |   |   | 87,891  |        
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Cash and cash equivalents at end of fiscal year                                                        |                                                                           | $                 | 63,791  |          |   | $        | 22,609   |         |   | $ | 111,858 |        
|                                                                                                       |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Supplemental cash flow information:                                                                    |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|Non-cash investing and financing activities                                                            |                                                                           |                   |         |          |   |          |          |         |   |   |         |        
|                                                                                                       | Fair value adjustment of available-for-sale
    securities                |                   | $       | (161     | ) |          | $        | 11      |   |   | $       | (11     | )
|                                                                                                       | Fair value of stock options assumed in connection
    with an acquisition |                   |         | 940      |   |          |          |        |   |   |         |        |  

See accompanying notes to consolidated financial
statements.

42



---



##### 



C-COR Incorporated



CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY


|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|---------------------------------------------------------------------- |  | -------------- | -------- | --------- |  | ------ | - | ---------- |  | ------------- | ----- | ------------ |  | ------------ | ------- | -------- |  | - | ----- | - |  | - | ---- | - |  | - | -------- | - |  | - | ------- | -
|                                                                       |  |                |          |           |  |        |   |            |  | Accumulated   |       |              |  |              |         |         
|                                                                       |  |                |          |           |  |        |   |            |  | Other         |       |              |  | Retained     |         |         
|                                                                       |  | Comprehensive  |          |           |  |        |   | Additional |  | Comprehensive |       |              |  | Earnings     |         |         
|                                                                       |  | Income         |          | Preferred |  | Common |   | Paid-In    |  | Income        |       | Unearned     |  | (Accumulated |         | Treasury
|                                                                       |  | (Loss)         |          | Stock     |  | Stock  |   | Capital    |  | (Loss)        |       | Compensation |  | Deficit)     |         | Stock   
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |         
|                                                                       |  |               
|                                                                       |  | (In thousands)
|Balance, June 30, 2001                                                 |  |                |          |           |  | $      |  |            |  | $             | 1,781 |              |  | $            | 205,154 |          |  | $ | (131  | ) |  | $ |     |   |  | $ | 28,302   |   |  | $ | (31,197 | )
|Net loss                                                               |  | $              | (41,924  | )         |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   |     |   |  |   | (41,924  | ) |  |   |        |  
|Other comprehensive loss:                                              |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Net unrealized holding loss on marketable
    securities               |  |                | (11      | )         |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Foreign currency translation gain                                      |  |                | 688      |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Other comprehensive income                                             |  |                | 677      |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   | 677   |   |  |   |     |   |  |   |         |   |  |   |        |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Comprehensive loss                                                     |  | $              | (41,247  | )         |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Shares issued in secondary public offering                             |  |                |          |           |  |        |  |            |  |               | 172   |              |  |              | 52,021  |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Exercise of stock options                                              |  |                |          |           |  |        |  |            |  |               | 43    |              |  |              | 5,232   |          |  |   |      |   |  |   |      |   |  |   |         |   |  |   |        |  
|Exercise of stock warrants                                             |  |                |          |           |  |        |  |            |  |               |      |              |  |              | 37      |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Tax benefit deriving from exercise and sale of
    stock option shares |  |                |          |           |  |        |  |            |  |               |      |              |  |              | 1,292   |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Issue shares to employee stock purchase plan                           |  |                |          |           |  |        |  |            |  |               | 1     |              |  |              | 200     |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Purchase of treasury stock                                             |  |                |          |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   | (2,963  | )
|Purchase of treasury stock for deferred
    compensation plan          |  |                |          |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   | (99     | )
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Balance, June 28, 2002                                                 |  |                |          |           |  |        |  |            |  |               | 1,997 |              |  |              | 263,936 |          |  |   | 546   |   |  |   |     |   |  |   | (13,622  | ) |  |   | (34,259 | )
|Net loss                                                               |  | $              | (139,589 | )         |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   |     |   |  |   | (139,589 | ) |  |   |        |  
|Other comprehensive loss:                                              |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Net unrealized holding gain on marketable
    securities               |  |                | 11       |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Foreign currency translation gain                                      |  |                | 1,875    |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Other comprehensive income                                             |  |                | 1,886    |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   | 1,886 |   |  |   |     |   |  |   |         |   |  |   |        |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Comprehensive loss                                                     |  | $              | (137,703 | )         |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Exercise of stock options                                              |  |                |          |           |  |        |  |            |  |               | 11    |              |  |              | 452     |          |  |   |      |   |  |   |      |   |  |   |         |   |  |   |        |  
|Stock-based compensation expense                                       |  |                |          |           |  |        |  |            |  |               |      |              |  |              | 104     |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Issue shares to employee stock purchase plan                           |  |                |          |           |  |        |  |            |  |               | 3     |              |  |              | 170     |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Purchase of treasury stock for deferred
    compensation plan          |  |                |          |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   | (106    | )
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Balance, June 27, 2003                                                 |  |                |          |           |  |        |  |            |  |               | 2,011 |              |  |              | 264,662 |          |  |   | 2,432 |   |  |   |     |   |  |   | (153,211 | ) |  |   | (34,365 | )
|Net income                                                             |  | $              | 44,160   |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   |     |   |  |   | 44,160   |   |  |   |        |  
|Other comprehensive income:                                            |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Net unrealized holding loss on marketable
    securities               |  |                | (161     | )         |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Foreign currency translation gain                                      |  |                | 2,742    |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Other comprehensive income                                             |  |                | 2,581    |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   | 2,581 |   |  |   |     |   |  |   |         |   |  |   |        |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Comprehensive income                                                   |  | $              | 46,741   |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Shares issued in secondary public offering                             |  |                |          |           |  |        |  |            |  |               | 253   |              |  |              | 69,229  |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Fair value of stock options assumed in acquisition                     |  |                |          |           |  |        |  |            |  |               |      |              |  |              | 940     |          |  |   |      |   |  |   | (516 | ) |  |   |         |   |  |   |        |  
|Exercise of stock options                                              |  |                |          |           |  |        |  |            |  |               | 68    |              |  |              | 9,828   |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Stock-based compensation expense                                       |  |                |          |           |  |        |  |            |  |               |      |              |  |              | 131     |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Amortization of unearned compensation                                  |  |                |          |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   | 12   |   |  |   |         |   |  |   |        |  
|Issue shares to employee stock purchase plan                           |  |                |          |           |  |        |  |            |  |               | 1     |              |  |              | 31      |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   |        |  
|Issuance of treasury stock from deferred
    compensation plan         |  |                |          |           |  |        |  |            |  |               |      |              |  |              |        |          |  |   |      |   |  |   |     |   |  |   |         |   |  |   | 15      |  
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  
|Balance, June 25, 2004                                                 |  |                |          |           |  | $      |  |            |  | $             | 2,333 |              |  | $            | 344,821 |          |  | $ | 5,013 |   |  | $ | (504 | ) |  | $ | (109,051 | ) |  | $ | (34,350 | )
|                                                                       |  |                |          |           |  |        |   |            |  |               |       |              |  |              |         |          |  |   |       |   |  |   |      |   |  |   |          |   |  |   |         |  

See accompanying notes to consolidated financial
statements.

43



---



##### 



C-COR Incorporated



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(In thousands, except share and per share
data)




|        |                        
|------- | -----------------------
|Note 1. | Description of Business

C-COR Incorporated (the Company) designs,
manufactures, and markets network distribution and transmission
products and provides services and operational support systems
to operators of advanced hybrid fiber coax broadband networks.
The Company operates in three industry segments: Broadband
Communications Products, Broadband Network Services, and
Broadband Management Solutions.

The Broadband Communications Products division is
responsible for the development, management, production,
support, and sales of digital video transport, fiber optic,
radio frequency, and fiber-to-the-premises equipment for hybrid
fiber coax networks as well as the Companys new optical
packet-ring technology solution for the all-digital networks of
the future. The Broadband Network Services division provides
outsourced technical services, including network engineering and
design, construction, activation, optimization, certification,
maintenance, and operations. The Broadband Management Solutions
division is responsible for the development, integration,
management, implementation, support, and sale of operations
support systems (OSS) solutions to operate and manage
reliable, high-quality multi-service networks.



|        |                                               
|------- | ----------------------------------------------
|Note 2. | Summary of Significant Accounting
    Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The accompanying consolidated financial
statements include the accounts of the Company and its wholly
owned foreign and domestic subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation.



| |             
| | ------------
| | Fiscal Years

The Companys fiscal year ends on the last
Friday in June. The fiscal years ended June 25, 2004,
June 27, 2003, and June 28, 2002 contained
52 weeks.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Estimates
are used in determining such items as allowances, depreciation
and amortization lives, allocation of revenue in multiple
element arrangements, valuation of intangible assets and
goodwill, and amounts recorded for contingencies and other
reserves. Future events and their effects cannot be predicted
with certainty; accordingly, the Companys accounting
estimates require the exercise of judgment by management. The
accounting estimates used in the preparation of the consolidated
financial statements will change as new events occur, as more
experience is acquired, as additional information is obtained
and as the Companys operating environment changes. Actual
results could differ from those estimates.



| |                  
| | -----------------
| | Reclassifications

Certain prior year amounts in the financial
statements and notes have been reclassified to conform to the
fiscal year 2004 presentation.



| |                    
| | -------------------
| | Revenue Recognition

The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the sale price is fixed or
determinable, and collectibility is reasonably assured.

44



---



##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |           
| | ----------
| | Equipment:

Revenue from equipment sales and sales-type
leases is generally recognized when the equipment has been
shipped to the customer. Unbilled receivables associated with
transactions accounted for as a sales-type lease were $322 and
$601 at June 25, 2004 and June 27, 2003, respectively.
In instances in which the agreement with the customer contains a
customer acceptance clause, revenue is deferred until customer
acceptance is obtained. Deferred revenue recorded under these
arrangements was $204 and $196 at June 25, 2004 and
June 27, 2003, respectively.



| |          
| | ---------
| | Services:

Service revenues, consisting of system design,
field services, and other consulting engagements, are recognized
as services are rendered in accordance with the terms of
contracts. At times, the Company enters into multiple element
contracts that entail delivery of both products and services.
These contracts are accounted for under the percentage of
completion method in accordance with the provisions of
Accounting Research Bulletin No. 45, Long-Term
Construction-Type Contracts (ARB No. 45) using the
relevant guidance in AICPA Statement of Position 81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts (SOP 81-1). Under
the percentage of completion method, the Company records revenue
by reference to the costs incurred to date and the estimated
costs remaining to fulfill the contracts. Provisions for losses
on services contracts are recognized in the period in which the
loss first becomes apparent. For contracts accounted for under
the percentage of completion method, the Company typically
performs the service prior to billing the customer which gives
rise to unbilled receivables. Unbilled receivables totaled
$3,172 and $713 at June 25, 2004 and June 27, 2003,
respectively. In these circumstances, billings usually occur
shortly after the Company performs specific intervals of work,
as outlined in the contract. Unbilled receivables are expected
to be billed and collected generally within three to six months.
In some of the Companys other service contracts, the
Company bills the customer prior to performing services which
gives rise to deferred revenue. Deferred revenue under these
service contracts was $502 and $86 at June 25, 2004 and
June 27, 2003, respectively.



| |          
| | ---------
| | Software:

The Company applies the revenue recognition
guidance of AICPA Statement of Position 97-2, Software
Revenue Recognition (SOP 97-2), as amended, to its
software licensing arrangements. SOP 97-2 requires revenue
earned on software arrangements involving multiple elements to
be allocated to each element based on vendor specific objective
evidence of fair values of the elements. License revenue
allocated to software products, in certain circumstances, is
recognized upon the delivery of the software products. For
certain of its software license arrangements where professional
services are being provided that are deemed to be essential to
the functionality or are for significant production,
modification, or customization of the software product, both the
software product revenue and the professional service revenue
are recognized in accordance with the provisions of ARB
No. 45 using the relevant guidance in SOP 81-1. These
software license arrangements are being recognized using the
completed-contract method as the arrangements represent the
Companys initial installations, and the Company did not
have the ability to reasonably estimate contract costs at the
inception of the contracts. Under the completed-contract method,
revenue is recognized when the contract is complete, and all
direct costs and related revenues are deferred until that time.
Software maintenance fees are generally billed and collected in
advance of the associated maintenance contract term. Maintenance
fees collected are recorded as deferred revenue and recognized
ratably under the straight-line method over the term of the
contract. Deferred revenue under these contracts represents only
amounts billed, and totaled $1,437 and $2,210 at June 25,
2004 and June 27, 2003, respectively. Contract costs
consist primarily of direct labor and applicable benefits,
travel and other direct costs, and equipment costs. The entire
amount of an estimated loss on a contract is accrued at the time
a loss on a contract is projected. Actual losses may differ from
these estimates. Deferred costs under these contracts were $15
and $172 as of June 25, 2004 and June 27, 2003,

45



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

respectively. For new mobile workforce software
contracts entered into in fiscal year 2005, the Company
anticipates switching to the percentage of completion method of
accounting.



| |                            
| | ---------------------------
| | Shipping and Handling Costs

The Company classifies shipping and handling
costs as a component of selling and administrative expenses in
the consolidated statements of operations. Shipping and handling
costs included in selling and administrative expense for fiscal
years 2004, 2003, and 2002 were $2,851, $1,828, and $1,579,
respectively.



| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

The carrying value of the Companys
long-term borrowings approximates fair value, after taking into
consideration current rates offered to the Company for similar
debt instruments of comparable maturities. The fair value of the
Companys marketable securities is determined through
information obtained from quoted market sources.



| |                 
| | ----------------
| | Cash Equivalents

The Company considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents. Cash equivalents are reflected
at the lower of cost or market.



| |                      
| | ---------------------
| | Marketable Securities

Marketable securities at June 25, 2004
consisted of corporate obligations, municipal securities,
collateralized mortgage obligations, asset-backed securities,
mutual funds, equity securities, and certificates of deposit.
The Company classifies its marketable securities portfolios 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 the
statement of operations and are recorded directly to
shareholders equity in accumulated other comprehensive
income (loss), net of related deferred income taxes, if
applicable. For the Companys trading securities,
unrealized holding gains and losses are included in the
statement of operations in the period they arise. The Company
classifies marketable securities that are available for current
operations as a current asset. Marketable securities which are
classified as non-current assets represent investments that are
available to fund certain long-term liabilities.



| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts

The Company establishes a general allowance for
doubtful accounts based on percentages applied to certain aged
receivable categories. These percentages are determined by a
variety of factors including, but not limited to, current
economic trends, contractual terms and conditions, and
historical payment experience. In addition, the Company
establishes allowances for specifically identified doubtful
accounts for the amount deemed worthless when a loss is
determined to be both probable and estimable.



| |            
| | -----------
| | Inventories

Inventories include material, labor, and overhead
and are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method. In assessing the
ultimate realization of inventories, the Company is required to
make estimates regarding future events in an industry where
rapid technological changes are prevalent. Provisions are
established for excess and obsolete inventories after evaluation
of historical sales and usage, current economic trends, market
conditions, product rationalization, forecasted sales, product
lifecycles, and current inventory levels.

46



---



##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                               
| | ------------------------------
| | Property, Plant, and Equipment

Property, plant, and equipment, which include
leased property under capital leases, is stated at cost.
Depreciation or amortization is calculated on the straight-line
method for financial statement purposes based upon the following
estimated useful lives:

|                                            |  |  |                 | 
|------------------------------------------- |  |  | --------------- | 
|Buildings                                   |  |  | 15 to 25  years | 
|Machinery and equipment under capital lease |  |  | 5 years         | 
|Machinery and equipment                     |  |  | 2 to 10 years   | 
|Leasehold improvements                      |  |  | 6 to 15 years   | 



| |                  
| | -----------------
| | Computer Software

Under the provisions of AICPA Statement of
Position SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use
(SOP 98-1), the Company capitalizes costs associated with
internally developed and/or purchased software systems for new
products and enhancements to existing products that have reached
the application development stage and meet recoverability tests.
Capitalized costs include external direct costs of materials and
services utilized in developing or obtaining internal-use
software and payroll and payroll-related expenses for employees
who are directly associated with and devote time to the
internal-use software project. Capitalization of such costs
begins when the preliminary project stage is complete and ceases
no later than the point at which the project is substantially
complete and ready for its intended purpose. These capitalized
costs are amortized on a straight-line basis over periods of two
to seven years, beginning when the asset is ready for its
intended use.

Under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed (Statement 86), the Company capitalizes
certain internal and purchased software development and
production costs once technological feasibility has been
achieved. Amortization is provided on a product-by-product basis
on the straight-line method over the remaining economic life of
the product.

Software costs capitalized under SOP 98-1
and Statement 86 were $336, $2,902, and $4,535 during
fiscal years 2004, 2003, and 2002, respectively. Capitalized
costs are included in property, plant, and equipment on the
consolidated balance sheets. Amortization expense for fiscal
years 2004, 2003, and 2002 was $1,510, $1,432, and $1,023,
respectively. The carrying value of the software is reviewed
regularly and an impairment is recognized if the value of the
estimated undiscounted cash flow benefits related to the asset
is less than the remaining unamortized costs.



| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets

Goodwill represents the excess of acquisition
cost over the fair value of the net assets, including
identifiable intangible assets, of businesses acquired. The
Company adopted the provisions of SFAS No. 141,
Business Combinations effective July 1, 2001,
and adopted SFAS No. 142, Goodwill and Other
Intangible Assets, (Statement 142) effective
June 29, 2002. Statement 142 requires that goodwill
and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least
annually in accordance with the provisions of Statement 142
(see Note 9).

Goodwill acquired in purchase business
combinations completed after June 30, 2001, but before
Statement 142 was adopted in full, was not amortized.
Goodwill acquired in purchase business combinations prior to
June 30, 2001 continued to be amortized through
June 28, 2002.

47



---



##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Other intangible assets represent purchased
intangible assets, which include purchased technology, customer
relationships, covenants not-to-compete, patents and trademarks.
Amounts allocated to other identifiable intangible assets are
amortized on a straight-line basis over their estimated useful
lives as follows:

|                         |  |  |               | 
|------------------------ |  |  | ------------- | 
|Purchased technology     |  |  | 3 to 5  years | 
|Customer relationships   |  |  | 3 years       | 
|Covenants not-to-compete |  |  | 1 to 2  years | 
|Patents and trademarks   |  |  | 3 years       | 

The weighted-average life remaining on the
Companys identifiable intangible assets as of
June 25, 2004 is 28 months.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The Company converts the assets and liabilities
of foreign operations to their U.S. dollar equivalents at
rates in effect at the balance sheet dates, and records
translation adjustments in shareholders equity. Statements
of operations of foreign operations are translated from the
entitys functional currency to U.S. dollar
equivalents at average rates for the period. Foreign currency
transaction gains and losses are recorded in the consolidated
statements of operations.



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

The components of comprehensive income (loss)
include net income (loss), foreign currency translation gains
(losses) and unrealized gains (losses) on available-for-sale
securities, net of tax, if applicable. Comprehensive income
(loss) is presented in the consolidated statements of
shareholders equity.



| |            
| | -----------
| | Advertising

The Company expenses advertising costs in the
period incurred. Advertising expense is classified as a
component of selling and administrative expenses in the
consolidated statements of operations.



| |             
| | ------------
| | Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards for each
jurisdiction in which the Company operates. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. The Company provides a valuation allowance for
deferred tax assets based on an assessment of whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. Earnings of foreign operations are
currently considered to be permanently reinvested in the
business and, therefore, no provision for domestic income tax or
foreign withholding tax is made on such earnings.



| |                 
| | ----------------
| | Product Warranty

The Company warrants its products against defects
in materials and workmanship, generally for two 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 the
Companys historical experience of known product failure
rates and historical costs incurred in correcting product
failures. In addition, from time

48



---



##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

to time, the recorded amount is adjusted for
specifically identified warranty exposures if unforeseen
technical problems arise.



| |                                              
| | ---------------------------------------------
| | Accounting for Employee Stock Award
    Plans

The Company accounts 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 has
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.

As allowed by Statement 123, the Company has
chosen to continue to account for stock-based compensation using
APB 25 and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Companys stock
at the grant date over the amount an employee must pay to
acquire the stock. Had compensation cost for the Companys
plans been determined under Statement 123, the
Companys net income (loss) and net income (loss) per share
would have been adjusted to the pro forma amounts indicated
below:

|                                                                                                                                                    |          |                   |        |          |      |          |          |   |       |   |         |   |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ----------------- | ------ | -------- | ---- | -------- | -------- | - | ----- | - | ------- | - | ----- | -
|                                                                                                                                                    |          |                  
|                                                                                                                                                    |          | Fiscal Year Ended
|                                                                                                                                                    |          |                  
|                                                                                                                                                    |          | June 25,          |        | June 27, |      | June 28,
|                                                                                                                                                    |          | 2004              |        | 2003     |      | 2002    
|                                                                                                                                                    |          |                   |        |          |      |         
|Net income (loss), as reported                                                                                                                      |          | $                 | 44,160 |          |      | $        | (139,589 | ) |       | $ | (41,924 | )
|Add: Stock based employee compensation expense
    included in reported net income (loss)                                                           |          |                   | 131    |          |      |          | 104      |   |       |   |        |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |          |                   | (7,341 | )        |      |          | (8,769   | ) |       |   | (6,875  | )
|                                                                                                                                                    |          |                   |        |          |      |          |          |   |       |   |         |  
|Pro forma net income (loss)                                                                                                                         |          | $                 | 36,950 |          |      | $        | (148,254 | ) |       | $ | (48,799 | )
|                                                                                                                                                    |          |                   |        |          |      |          |          |   |       |   |         |  
|Net income (loss) per share:                                                                                                                        |          |                   |        |          |      |          |          |   |       |   |         |  
|                                                                                                                                                    | Basic:   |                   |        |          |      |          |          |   |       |   |         |   |      
|                                                                                                                                                    |          | As reported       |        | $        | 1.14 |          |          | $ | (3.84 | ) |         | $ | (1.24 | )
|                                                                                                                                                    |          | Pro forma         |        | $        | 0.95 |          |          | $ | (4.07 | ) |         | $ | (1.45 | )
|                                                                                                                                                    | Diluted: |                   |        |          |      |          |          |   |       |   |         |   |      
|                                                                                                                                                    |          | As reported       |        | $        | 1.10 |          |          | $ | (3.84 | ) |         | $ | (1.24 | )
|                                                                                                                                                    |          | Pro forma         |        | $        | 0.94 |          |          | $ | (4.07 | ) |         | $ | (1.45 | )

The fair value for stock options granted in
fiscal years 2004, 2003, and 2002 was estimated at the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions:

|                                                |  |                   |         |          |  |          |         |   |  |  |         |  
|----------------------------------------------- |  | ----------------- | ------- | -------- |  | -------- | ------- | - |  |  | ------- | -
|                                                |  |                  
|                                                |  | Fiscal Year Ended
|                                                |  |                  
|                                                |  | June 25,          |         | June 27, |  | June 28,
|                                                |  | 2004              |         | 2003     |  | 2002    
|                                                |  |                   |         |          |  |         
|Risk-free interest rate                         |  |                   | 3.37    | %        |  |          | 2.65    | % |  |  | 4.12    | %
|Expected dividend yield                         |  |                   | 0.00    | %        |  |          | 0.00    | % |  |  | 0.00    | %
|Expected stock price volatility factor          |  |                   | 91.5    |          |  |          | 92.9    |   |  |  | 86.0    |  
|Weighted average expected life of stock options |  |                   | 4 years |          |  |          | 4 years |   |  |  | 4 years |  

The per share weighted-average fair values of
stock options granted during fiscal years 2004, 2003, and 2002
were $5.85, $2.46 and $6.24, respectively.

49



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The fair value of stock options included in the
pro forma amounts for fiscal years 2004, 2003, and 2002 is not
necessarily indicative of future effects on net income (loss)
and net income (loss) per share.



| |                          
| | -------------------------
| | Accounting Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
No. 46 (FIN 46), Consolidation of Variable
Interest Entities, which requires companies to consolidate
certain types of variable interest entities. A variable interest
entity is an entity that has inadequate invested equity at risk
to meet expected future losses, or whose holders of the equity
investments lack any of the following three characteristics:
(i) the ability to make decisions about the entitys
activities; (ii) the obligation to absorb the entitys
losses if they occur; or (iii) the right to receive the
entitys future returns if they occur. FIN 46 is
applicable immediately for all variable interests created after
January 31, 2003. For all variable interest entities
created before February 1, 2003, the provisions of
FIN 46 are effective for financial statements issued for
the first period ending after December 15, 2003. The
adoption of FIN 46 had no effect on the Companys
financial position, results of operations, or cash flows.

In December 2003, the FASB issued a revision to
FIN 46 (FIN 46R) to address various technical
corrections and implementation issues that have arisen since
issuance. The provisions of FIN 46R are effective for
financial periods ending after March 15, 2004. The adoption
of the new provisions had no effect on the Companys
financial position, results of operations, or cash flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (Statement 150). Statement 150 requires
that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for
as liabilities. The financial instruments affected include
mandatorily redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares
in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. The FASB subsequently
issued FASB Staff Position 150-3, which indefinitely deferred
certain classification and measurement requirements of
Statement 150. Statement 150 is effective for all
financial instruments entered into or modified after
May 31, 2003 and must be applied to existing instruments
for the first interim period beginning after June 15, 2003.
The adoption of Statement 150 had no effect on the
Companys financial position, results of operations, or
cash flows.



|        |                      
|------- | ---------------------
|Note 3. | Business Combinations



| |                 
| | ----------------
| | Fiscal Year 2004

In fiscal year 2004, the Company acquired certain
assets and liabilities of the following companies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On May 27, 2004, the Company acquired
    certain assets and liabilities of Alopa Networks, Inc. (Alopa),
    a provider of infrastructure software solutions for end-to-end
    activation, management, and assurance of digital services over
    cable. The Alopa assets became part of the Companys
    Broadband Management Solutions segment.                                                                                                                                       
|
| |  | On May 28, 2004, the Company acquired
    certain assets and liabilities of Lantern Communications, Inc.
    (Lantern), a provider of Metropolitan Area Network packet-based
    transport solutions, which incorporate advanced bandwidth
    management and switching capabilities for the delivery of
    services such as voice, video, and data over a packet-based
    infrastructure. The Lantern assets became part of the
    Companys Broadband Communications Products segment.

The total consideration for the acquisitions was
$34,372, consisting of cash payments of $33,162, direct
transaction costs and expenses of $270, and the assumption of
Lantern stock options to purchase 119,920 shares of
the Companys common stock having a fair market value of
$940, calculated using

50



---



##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

the Black-Scholes option-pricing model. The stock
options assumed included both vested and unvested stock options.
The unvested stock options require future employee service after
the acquisition date to vest, and as such, $516 was allocated to
unearned compensation based on their intrinsic value as of the
acquisition date. Such cost will be recognized over the
remaining vesting period.

The acquisitions resulted in additional goodwill
being recorded during fiscal year 2004 of $21,789, consisting of
$11,461 related to Alopa and $10,328 related to Lantern. The
goodwill is expected to be deductible for tax purposes.

Intangible assets acquired in the acquisitions
which are subject to amortization included $8,100 for completed
technology, $250 for customer relationships, and $860 for
covenants not-to-compete. In addition, one of the acquired
intangible assets was in-process research and development,
representing research and development projects that were
commenced but not yet completed at the date of the acquisition,
and which if unsuccessful, have no alternative future use in
research and development activities or otherwise. The fair value
allocated to in-process research and development as of the
acquisition date was $900 based on a third-party valuation. The
amount allocated to in-process research and development was
charged to expense as an acquired in-process technology charge
in the consolidated statement of operations for the fiscal year
ended June 25, 2004.

The acquisitions have been accounted for as
purchases, and accordingly, their results of operations have
been included in the consolidated statements since their
respective dates of acquisition. On an unaudited pro forma
basis, the effects of the acquisitions were not significant to
the Companys results of operations.

For additional information concerning goodwill
and other intangible assets, see Note 9.



| |                 
| | ----------------
| | Fiscal Year 2003

On September 16, 2002, the Company acquired
certain assets and liabilities of Philips Broadband Networks
(PBN) from Royal Philips Electronics (Philips). PBN is a
provider of broadband products, including transmission products,
network optimizing technologies, and element management systems.
The purchase included assets in various countries, cable
infrastructure products, and a design and production facility in
Manlius, New York. These assets and the facility became part of
the Companys Broadband Communications Products segment.
During the quarter ended December 27, 2002, the Company
announced the closing of its Manlius, New York and Louviers,
France facilities, which were acquired as part of the PBN
transaction. The purchase price for the acquisition was $73,198,
which was net of $200 of imputed interest. In addition, the
Company incurred direct transaction costs of $1,299 to
consummate the acquisition. The Company used its available cash
to fund the acquisition. The effective date of the acquisition
was August 26, 2002 (PBNs fiscal month end).
Accordingly, the results of operations of PBN were included in
the consolidated financial statements from August 26, 2002.
The acquisition was accounted for as a purchase. The excess of
the purchase price and related costs over the fair value of the
acquired net assets of the business was recorded as goodwill.
The following table summarizes the estimated fair value of the
net assets acquired from Philips, including goodwill, as of the
effective date of the acquisition.

|                                         |  |   |         |  
|---------------------------------------- |  | - | ------- | -
|Current assets                           |  | $ | 34,701  |  
|Property and equipment                   |  |   | 8,728   |  
|Intangible assets acquired at fair value |  |   | 5,100   |  
|Other long-term assets                   |  |   | 6,038   |  
|Current liabilities                      |  |   | (31,166 | )
|Goodwill                                 |  |   | 51,096  |  
|                                         |  |   |         |  
|Total purchase price                     |  | $ | 74,497  |  
|                                         |  |   |         |  

51



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

One of the acquired intangible assets was
in-process research and development, representing research and
development projects that were commenced but not yet completed
at the date of the acquisition, and which if unsuccessful, would
have no alternative future use. The value allocated to
in-process research and development as of the acquisition date
was $800 based on a third-party valuation of certain intangible
assets. The amount allocated to in-process research and
development was charged to expense as an acquired in-process
technology charge in the consolidated statement of operations
for the fiscal year ended June 27, 2003. A significant
portion of the amount of the goodwill from the acquisition is
deductible for tax purposes.



|        |              
|------- | -------------
|Note 4. | Restructuring

In fiscal year 2002, the Company recorded a
restructuring charge of $3,551 in connection with initiatives to
consolidate manufacturing operations affecting its
Santa Clara, California facility, and to improve its
operating performance by aligning the cost structure across the
Company with current business levels. The restructuring charges
represented employee termination benefits for approximately 350
employees, and other costs to downsize the operations. Other
costs reflected a write-down of equipment employed in the
operations and cancellation costs associated with fixed
contractual obligations. In addition, during fiscal year 2002,
the Company recorded a reversal of $891 for previously recorded
restructuring charges incurred in fiscal year 2001, resulting in
a net restructuring charge during fiscal year 2002 of $2,660.

In fiscal year 2003, the Company announced the
closing of its Manlius, New York manufacturing facility and its
Louviers, France engineering and support operations facility.
The decision to close the operations was a result of a process
the Company undertook to address redundancy in the product
lines, engineering support services and manufacturing capacity
resulting from its acquisition of certain assets and liabilities
of PBN. The Company ceased operations at each of these
facilities as of June 27, 2003. In fiscal year 2003, fair
value adjustments for property, plant, and equipment of $655 and
exit costs of $7,483, which included employee severance and
termination benefits for approximately 370 employees, relocation
for employees offered transfers, and other lease commitment
costs, were accounted for as an adjustment to the allocation of
the original purchase price, and recorded as additional goodwill.

In fiscal year 2003, the Company recorded $935 of
restructuring charges related to initiatives to improve its
operating performance by aligning the cost structure across the
Company with current business levels. The restructuring charge
represented employee termination benefits for approximately 170
employees, and lease commitment costs. Also, the Company
recorded a reversal of $475 for previously recorded
restructuring charges, resulting in a net restructuring charge
during fiscal year 2003 of $460.

In fiscal year 2004, an adjustment of $272 was
made to reduce the Companys restructuring accrual balance
for changes in assumptions and cash recoveries.

The following table provides detail on the
activity and remaining restructuring accrual balance as of
June 25, 2004.

|                                            |  |               |       |                |  |               |      |               |  |   |        |   |  |   |     | 
|------------------------------------------- |  | ------------- | ----- | -------------- |  | ------------- | ---- | ------------- |  | - | ------ | - |  | - | --- | 
|                                            |  | Restructuring |       | Adjustments in |  |               |      | Restructuring
|                                            |  | Accrual at    |       | Fiscal Year    |  |               |      | Accrual at   
|                                            |  | June 27, 2003 |       | 2004           |  | Net Cash Paid |      | June 25, 2004
|                                            |  |               |       |                |  |               |      |              
|Employee severance and termination benefits |  | $             | 1,812 |                |  | $             | (272 | )             |  | $ | (1,501 | ) |  | $ | 39  | 
|Contractual obligations and other           |  |               | 462   |                |  |               |     |               |  |   | (370   | ) |  |   | 92  | 
|                                            |  |               |       |                |  |               |      |               |  |   |        |   |  |   |     | 
|Total                                       |  | $             | 2,274 |                |  | $             | (272 | )             |  | $ | (1,871 | ) |  | $ | 131 | 
|                                            |  |               |       |                |  |               |      |               |  |   |        |   |  |   |     | 

Employee severance and termination benefit
payments are being made on a weekly or bi-weekly basis, and as
such, the Company anticipates payments for the amounts accrued
as of June 25, 2004 to extend through

52



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

December 2004. The amounts accrued as of
June 25, 2004 related to contractual obligations will be
paid out over their remaining term of six months, unless
terminated early.



|        |                                
|------- | -------------------------------
|Note 5. | Sale of Bankruptcy Trade Claims

The Company filed unsecured claims in the
bankruptcy cases of Adelphia and affiliates related to accounts
receivable which were previously written-off in fiscal year
2002. On October 30, 2003, the Company entered into an
agreement to sell substantially all of its pre-petition trade
claims against Adelphia and its affiliates. Under the terms of
the agreement, the Company received $21,075 on November 4,
2003 in an initial cash payment, with additional amounts being
held in escrow pending the resolution of certain contingencies.
Upon resolution of these contingencies, the Company anticipates
it could receive an additional approximately $10,000 in the
first half of fiscal year 2005. The $21,075 was recorded as a
component of other income in the consolidated statements of
operations in fiscal year 2004.

53



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|        |                      
|------- | ---------------------
|Note 6. | Marketable Securities

Marketable securities as of June 25, 2004
and June 27, 2003 consisted of the following:

|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |        | 
|-------------------------------------- | ----------------------------------- | --------- | ------ | ---------- |  | ---------- | -- | ---------- |  | - | ---- | ---- | - | - | ------ | ------ | 
|                                       |                                     |           |        | Gross      |  | Gross      |    |           
|                                       |                                     |           |        | Unrealized |  | Unrealized |    |           
|                                       |                                     | Amortized |        | Holding    |  | Holding    |    |           
|                                       |                                     | Cost      |        | Gains      |  | Losses     |    | Fair Value
|                                       |                                     |           |        |            |  |            |    |           
|June 25, 2004:                         |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Available-for-sale                     |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|                                       | Corporate obligations               |           | $      | 22,403     |  |            | $  |           |  |   | $    | (119 | ) |   | $      | 22,284 | 
|                                       | Municipal securities                |           |        | 17,400     |  |            |    |           |  |   |      |     |   |   |        | 17,400 | 
|                                       | Asset-backed securities             |           |        | 4,106      |  |            |    |           |  |   |      | (19  | ) |   |        | 4,087  | 
|                                       | Collateralized mortgage obligations |           |        | 4,204      |  |            |    |           |  |   |      | (10  | ) |   |        | 4,194  | 
|                                       | Certificate of deposits             |           |        | 4,999      |  |            |    |           |  |   |      | (32  | ) |   |        | 4,967  | 
|                                       | Equity securities                   |           |        | 1          |  |            |    | 1          |  |   |      |     |   |   |        | 2      | 
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Total classified as current assets     |                                     | $         | 53,113 |            |  | $          | 1  |            |  | $ | (180 | )    |   | $ | 52,934 |       
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Available-for-sale:                    |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|                                       | Mutual funds                        |           | $      | 35         |  |            | $  | 5          |  |   | $    |     |   |   | $      | 40     | 
|                                       | Corporate obligations               |           |        | 66         |  |            |    |           |  |   |      | (1   | ) |   |        | 65     | 
|                                       | Equity securities                   |           |        | 142        |  |            |    | 12         |  |   |      |     |   |   |        | 154    | 
|                                       | Certificate of deposits             |           |        | 9          |  |            |    |           |  |   |      |     |   |   |        | 9      | 
|Trading:                               |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|                                       | Mutual funds                        |           |        | 810        |  |            |    | 82         |  |   |      |     |   |   |        | 892    | 
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Total classified as non-current assets |                                     | $         | 1,062  |            |  | $          | 99 |            |  | $ | (1   | )    |   | $ | 1,160  |       
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|June 27, 2003:                         |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Available-for-sale                     |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|                                       | Equity securities                   |           | $      | 1          |  |            | $  | 1          |  |   | $    |     |   |   | $      | 2      | 
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Total classified as current assets     |                                     | $         | 1      |            |  | $          | 1  |            |  | $ |     |      |   | $ | 2      |       
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Available-for-sale:                    |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|                                       | Mutual funds                        |           | $      | 40         |  |            | $  |           |  |   | $    | (3   | ) |   | $      | 37     | 
|                                       | Corporate obligations               |           |        | 60         |  |            |    | 2          |  |   |      |     |   |   |        | 62     | 
|                                       | Equity securities                   |           |        | 164        |  |            |    |           |  |   |      | (2   | ) |   |        | 162    | 
|                                       | Certificate of deposits             |           |        | 26         |  |            |    |           |  |   |      |     |   |   |        | 26     | 
|Trading:                               |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|                                       | Mutual funds                        |           |        | 976        |  |            |    |           |  |   |      | (151 | ) |   |        | 825    | 
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       
|Total classified as non-current assets |                                     | $         | 1,266  |            |  | $          | 2  |            |  | $ | (156 | )    |   | $ | 1,112  |       
|                                       |                                     |           |        |            |  |            |    |            |  |   |      |      |   |   |        |       

54



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The fair value of investments in debt securities
at June 25, 2004 by contractual maturities are shown below.
These debt securities, which are classified as
available-for-sale, include corporate obligations and municipal
securities.

|                                   |  |   |        |          |  |  |  | 
|---------------------------------- |  | - | ------ | -------- |  |  |  | 
|                                   |  |   |        | June 25,
|                                   |  |   |        | 2004    
|                                   |  |   |        |         
|Due in one year or less            |  | $ | 8,574  |         
|Due in one year through five years |  |   | 13,775 |         
|Due in greater than ten years      |  |   | 17,400 |         
|                                   |  |   |        |         
|Total                              |  | $ | 39,749 |         
|                                   |  |   |        |         

The Companys investments in municipal
securities, which are classified above as due in greater than
ten years, have a put option which enables the Company to put
back the securities to the issuer for full principal and any
accrued interest with seven days notice.

The Company periodically reviews its investment
securities classified as available-for-sale for potential
impairment and records impairment in accordance with
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. This includes a review of
the fair value of each investment security in relation to its
book value, the current grade of the security, and other
significant events. Based on managements review, no
investment securities were determined to be other than
temporarily impaired, and as a result no impairment charges were
recorded in fiscal years 2004, 2003, and 2002. There were no
securities as of June 25, 2004 in an unrealized-loss
position for twelve or more months.



|        |            
|------- | -----------
|Note 7. | Inventories

Inventories as of June 25, 2004 and
June 27, 2003 consisted of the following:

|                |  |          |        |          |  |   |        | 
|--------------- |  | -------- | ------ | -------- |  | - | ------ | 
|                |  | June 25, |        | June 27,
|                |  | 2004     |        | 2003    
|                |  |          |        |         
|Finished goods  |  | $        | 8,761  |          |  | $ | 6,660  | 
|Work-in-process |  |          | 3,806  |          |  |   | 5,499  | 
|Raw materials   |  |          | 13,113 |          |  |   | 18,279 | 
|                |  |          |        |          |  |   |        | 
|                |  | $        | 25,680 |          |  | $ | 30,438 | 
|                |  |          |        |          |  |   |        | 



|        |                               
|------- | ------------------------------
|Note 8. | Property, Plant, and Equipment

Property, plant, and equipment as of
June 25, 2004 and June 27, 2003 consisted of the
following:

|                                               |  |          |         |          |  |   |         |  
|---------------------------------------------- |  | -------- | ------- | -------- |  | - | ------- | -
|                                               |  | June 25, |         | June 27,
|                                               |  | 2004     |         | 2003    
|                                               |  |          |         |         
|Land                                           |  | $        | 343     |          |  | $ | 554     |  
|Buildings                                      |  |          | 9,560   |          |  |   | 9,400   |  
|Machinery and equipment under capital lease    |  |          | 260     |          |  |   | 259     |  
|Machinery and equipment                        |  |          | 83,401  |          |  |   | 79,994  |  
|Leasehold improvements                         |  |          | 1,448   |          |  |   | 1,462   |  
|                                               |  |          |         |          |  |   |         |  
|                                               |  |          | 95,012  |          |  |   | 91,669  |  
|Less accumulated depreciation and amortization |  |          | (77,315 | )        |  |   | (67,251 | )
|                                               |  |          |         |          |  |   |         |  
|                                               |  | $        | 17,697  |          |  | $ | 24,418  |  
|                                               |  |          |         |          |  |   |         |  

55



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|        |                                     
|------- | ------------------------------------
|Note 9. | Goodwill and Other Intangible Assets

Using the guidance in SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (Statement 121),
during the fourth quarter of fiscal year 2002, the Company
recorded an impairment charge of $13,642 for goodwill and other
intangible assets related to the acquisition of MobileForce
Technologies Inc. (MobileForce), which is part of the
Companys Broadband Management Solutions segment. The
impairment resulted in a write-down of these assets to their
fair value, based upon the projected recoverability of these
intangible assets through an analysis of expected future cash
flows. In accordance with the Companys ordinary business
practices, projected future cash flows were discounted at a rate
corresponding to the Companys estimated cost of capital.

The Company adopted the provisions of
Statement 142 effective June 29, 2002. As of the date
of adoption, the Company had unamortized goodwill of $7,246 and
unamortized identifiable intangible assets of $1,597 that were
subject to the transition provisions of Statement 142. For
purposes of applying Statement 142, management believes the
Companys operating segments (Broadband Communications
Products, Broadband Network Services and Broadband Management
Solutions) represent the Companys reporting units,
although there was no goodwill or intangible assets associated
with Broadband Management Solutions as of the date of adoption.
The Company determined the carrying value of each reporting unit
by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of
the date of adoption. The Company then determined the fair value
of each reporting unit. The fair value was determined based on
an independent third party appraisal, using a discounted cash
flow model. As a result of this evaluation, the Company did not
have an impairment of goodwill as of June 29, 2002.

The Company is required to reevaluate whether
goodwill is impaired on at least an annual basis. The Company
has selected the end of its third fiscal quarter of each year to
reassess the value of its reporting units and related goodwill
balances. An assessment would also be performed at other times
if events have occurred or circumstances exist that indicate the
carrying amount of goodwill may not be recoverable. In fiscal
year 2003, the Company determined that the carrying value of the
Broadband Communications Products reporting unit exceeded its
fair value, which was determined from an independent third-party
appraisal, and as such, an impairment charge of $40,022 was
recorded during the thirteen-week period ended March 28,
2003. The decline in the fair value of the Broadband
Communications Products reporting unit was attributable to the
weakness in capital spending by cable operators. The Company
made an estimate of the value of other intangible assets not
recorded on its balance sheet as of March 28, 2003, in
order to allocate the fair value of the Broadband Communications
Products reporting unit to both tangible and intangible assets
as of March 28, 2003. The Company completed a third-party
valuation of these unrecorded intangible assets during the
fourth quarter ending June 27, 2003, and recorded an
additional goodwill impairment charge of $6,029 in the fourth
quarter of fiscal year 2003.

During the third quarter of fiscal year 2004, the
Company performed its annual evaluation of goodwill using a
discounted cash flow model. The Company determined there was no
impairment. Goodwill was $38,312 and

56



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

$15,034 as of June 25, 2004 and
June 27, 2003, respectively. As of June 25, 2004 and
June 27, 2003, goodwill was allocated by segment as follows:

|                                   |               |          |        |          |  |   |        |       | 
|---------------------------------- | ------------- | -------- | ------ | -------- |  | - | ------ | ----- | 
|                                   |               | June 25, |        | June 27,
|                                   |               | 2004     |        | 2003    
|                                   |               |          |        |         
|Broadband Communications Products: |               |          |        |          |  |   |        |      
|                                   | United States |          | $      | 12,160   |  |   | $      | 1,832 | 
|                                   | Europe        |          |        | 6,839    |  |   |        | 4,905 | 
|                                   | Asia          |          |        | 875      |  |   |        | 1,320 | 
|                                   |               |          |        |          |  |   |        |      
|                                   |               |          | 19,874 |          |  |   | 8,057  |      
|Broadband Management Solutions:    |               |          |        |          |  |   |        |      
|                                   | United States |          |        | 11,221   |  |   |        |      | 
|                                   | Asia          |          |        | 240      |  |   |        |      | 
|                                   |               |          |        |          |  |   |        |      
|                                   |               |          | 11,461 |          |  |   |       |      
|Broadband Network Services:        |               |          |        |          |  |   |        |      
|                                   | United States |          |        | 6,977    |  |   |        | 6,977 | 
|                                   |               |          |        |          |  |   |        |      
|Total                              |               | $        | 38,312 |          |  | $ | 15,034 |      
|                                   |               |          |        |          |  |   |        |      

During fiscal year 2004, the acquisitions of
Lantern and Alopa resulted in the addition of $10,328 and
$11,461, respectively, of goodwill. Other changes in goodwill
related to changes in deferred taxes associated with
acquisitions and fluctuations in foreign currency exchange rates
used to translate the goodwill related to foreign subsidiaries
at the balance sheet date.

The following information is provided to report
what net income (loss) for fiscal years 2004, 2003 and 2002
would have been, exclusive of amortization expense (including
any related tax effects) recognized related to goodwill and
intangible assets that are no longer being amortized as a result
of the adoption of Statement 142:

|                                                              |  |          |        |          |  |          |          |   |  |   |         |  
|------------------------------------------------------------- |  | -------- | ------ | -------- |  | -------- | -------- | - |  | - | ------- | -
|                                                              |  | June 25, |        | June 27, |  | June 28,
|                                                              |  | 2004     |        | 2003     |  | 2002    
|                                                              |  |          |        |          |  |         
|Reported net income (loss):                                   |  | $        | 44,160 |          |  | $        | (139,589 | ) |  | $ | (41,924 | )
|Add back: Goodwill and workforce amortization,
    net of tax |  |          |       |          |  |          |         |   |  |   | 2,239   |  
|                                                              |  |          |        |          |  |          |          |   |  |   |         |  
|Adjusted net income (loss)                                    |  | $        | 44,160 |          |  | $        | (139,589 | ) |  | $ | (39,685 | )
|                                                              |  |          |        |          |  |          |          |   |  |   |         |  
|Diluted net income (loss) per share:                          |  |          |        |          |  |          |          |   |  |   |         |  
|Reported net income (loss) per share                          |  | $        | 1.10   |          |  | $        | (3.84    | ) |  | $ | (1.24   | )
|Add back: Goodwill and workforce amortization,
    net of tax |  |          |       |          |  |          |         |   |  |   | 0.06    |  
|                                                              |  |          |        |          |  |          |          |   |  |   |         |  
|Adjusted net income (loss) per share                          |  | $        | 1.10   |          |  | $        | (3.84    | ) |  | $ | (1.18   | )
|                                                              |  |          |        |          |  |          |          |   |  |   |         |  

57



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Other intangible assets as of June 25, 2004
and June 27, 2003 consisted of the following:

|                               |  |   |        |          |  |          |        |   |  |   |        |  
|------------------------------ |  | - | ------ | -------- |  | -------- | ------ | - |  | - | ------ | -
|                               |  |   |        | June 25, |  | June 27,
|                               |  |   |        | 2004     |  | 2003    
|                               |  |   |        |          |  |         
|Cost of intangibles:           |  |   |        |          |  |          |        |  
|Purchased technology           |  | $ | 10,600 |          |  | $        | 2,500  |  
|Customer relationships         |  |   | 3,150  |          |  |          | 2,900  |  
|Covenants not-to-compete       |  |   | 860    |          |  |          |       |  
|Patents and trademarks         |  |   | 1,200  |          |  |          | 1,200  |  
|                               |  |   |        |          |  |          |        |  
|                               |  |   |        |          |  |          | 15,810 |   |  |   | 6,600  |  
|                               |  |   |        |          |  |          |        |   |  |   |        |  
|Less accumulated amortization: |  |   |        |          |  |          |        |  
|Purchased technology           |  |   | (2,069 | )        |  |          | (1,092 | )
|Customer relationships         |  |   | (1,779 | )        |  |          | (805   | )
|Covenants not-to-compete       |  |   | (43    | )        |  |          |       |  
|Patents and trademarks         |  |   | (1,167 | )        |  |          | (767   | )
|                               |  |   |        |          |  |          |        |  
|                               |  |   |        |          |  |          | (5,058 | ) |  |   | (2,664 | )
|                               |  |   |        |          |  |          |        |   |  |   |        |  
|                               |  |   |        |          |  | $        | 10,752 |   |  | $ | 3,936  |  
|                               |  |   |        |          |  |          |        |   |  |   |        |  

Amortization expense for fiscal years 2004, 2003,
and 2002 was $2,395, $1,961, and $8,340, respectively. Estimated
future amortization expense for identifiable intangibles is as
follows:

|             |      |  |   |       | 
|------------ | ---- |  | - | ----- | 
|Fiscal year: |      |  |   |      
|             | 2005 |  | $ | 3,816 | 
|             | 2006 |  |   | 2,356 | 
|             | 2007 |  |   | 1,781 | 
|             | 2008 |  |   | 1,460 | 
|             | 2009 |  |   | 1,339 | 



|         |                    
|-------- | -------------------
|Note 10. | Financing Agreement

The Company has a two-year secured revolving
credit financing agreement with a commercial lender. Borrowings
under the financing agreement may be used for working capital
and general corporate purposes. The financing agreement provides
a commitment of up to an aggregate amount of $20,000. The
financing agreement allows for the issuance of letters of credit
and cash borrowings. Letters of credit outstanding are limited
to no more than $6,000. Cash borrowings are limited by certain
availability reserves and a borrowing base, primarily a
percentage of eligible domestic trade accounts receivable, up to
the facilitys maximum availability less letters of credit
outstanding.

As security for the financing agreement, the
Company has pledged the following collateral: trade accounts
receivable, inventory, general intangibles, real estate,
equipment, life insurance policies, and a portion of the stock
of a wholly owned foreign subsidiary. The financing agreement
contains a number of restrictive covenants, including covenants
limiting incurrence of subordinate debt, disposal of collateral,
and the payment of dividends (except stock dividends). The
financing agreement contains no financial covenants.

The financing agreement is committed through
November 6, 2004. Borrowings under the financing agreement
bear interest at an applicable bank rate or LIBOR plus two and
three-quarters percent (2.75%) per annum, payable monthly. The
financing agreement required the payment of a facility fee of
$150 at execution of the agreement, and requires a fee on the
unused commitment of 0.375% per annum payable monthly and
an administrative fee of $36 per annum. As of June 25,
2004, the Company had no borrowings outstanding under

58



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

the financing agreement and letters of credit had
been issued for $1,450 related to facility lease obligations and
requirements under the Companys workers compensation
policies. Based upon the eligible borrowing base at
June 25, 2004, available borrowings under the financing
agreement were $8,246. The Company is in the process of
evaluating alternatives to the current financing agreement.

As a condition to closing on the financing
agreement, the Company terminated its prior credit agreement
with a bank, except that the Company continues to maintain
letters of credit provided by the bank related to the
Companys workers compensation program, customer
obligations, and equipment lease obligations. As of
June 25, 2004, the aggregate amount of the letters of
credit was $1,605. A cash compensating balance of $1,637 is
maintained to secure the letters of credit, which has been
classified as a current asset, as the terms for the letters of
credit expire in less than one year.



|         |                    
|-------- | -------------------
|Note 11. | Accrued Liabilities

Accrued liabilities as of June 25, 2004, and
June 27, 2003 consisted of the following:

|                                       |  |          |        |          |  |   |        | 
|-------------------------------------- |  | -------- | ------ | -------- |  | - | ------ | 
|                                       |  | June 25, |        | June 27,
|                                       |  | 2004     |        | 2003    
|                                       |  |          |        |         
|Accrued incentive plan expense         |  | $        | 2,392  |          |  | $ | 49     | 
|Accrued vacation expense               |  |          | 2,920  |          |  |   | 2,624  | 
|Accrued salary expense                 |  |          | 3,090  |          |  |   | 2,478  | 
|Accrued benefits and sales tax expense |  |          | 880    |          |  |   | 1,788  | 
|Accrued warranty expense               |  |          | 10,065 |          |  |   | 14,117 | 
|Accrued workers compensation expense  |  |          | 524    |          |  |   | 400    | 
|Accrued restructuring costs            |  |          | 131    |          |  |   | 2,274  | 
|Accrued income taxes payable           |  |          | 3,630  |          |  |   | 3,405  | 
|Deferred revenue                       |  |          | 2,143  |          |  |   | 2,492  | 
|Accrued other                          |  |          | 5,499  |          |  |   | 7,805  | 
|                                       |  |          |        |          |  |   |        | 
|                                       |  | $        | 31,274 |          |  | $ | 37,432 | 
|                                       |  |          |        |          |  |   |        | 



|         |               
|-------- | --------------
|Note 12. | Long-Term Debt

Long-term debt as of June 25, 2004 and
June 27, 2003 was as follows:

|                          |  |          |      |          |  |   |       |  
|------------------------- |  | -------- | ---- | -------- |  | - | ----- | -
|                          |  | June 25, |      | June 27,
|                          |  | 2004     |      | 2003    
|                          |  |          |      |         
|Notes payable             |  | $        | 896  |          |  | $ | 1,028 |  
|Capital lease obligations |  |          | 34   |          |  |   | 85    |  
|                          |  |          |      |          |  |   |       |  
|                          |  |          | 930  |          |  |   | 1,113 |  
|Less current portion      |  |          | (158 | )        |  |   | (175  | )
|                          |  |          |      |          |  |   |       |  
|                          |  | $        | 772  |          |  | $ | 938   |  
|                          |  |          |      |          |  |   |       |  

The Company obtained $1,952 of funding through
the Pennsylvania Industrial Development Authority (PIDA) for 40%
of the cost of the expansion of the Companys facility in
State College, Pennsylvania. The PIDA borrowing has an interest
rate of 2%. Monthly payments of principal and interest of $13
are required through 2010. Certain property, plant, and
equipment collateralize the borrowing. The principal balance at
June 25, 2004 was $896.

59



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company has various capital leases for
machinery and equipment, office equipment, and furniture and
fixtures that expire through 2006. At June 25, 2004, the
future minimum payments required under capital lease
arrangements were as follows:

|                                                            |      |   |     |    | 
|----------------------------------------------------------- | ---- | - | --- | -- | 
|Fiscal year ending:                                         |      |   |     |   
|                                                            | 2005 |   | $   | 27 | 
|                                                            | 2006 |   |     | 11 | 
|                                                            |      |   |     |   
|                                                            |      |   | 38  |   
|Less amount representing interest                           |      |   | (4  | ) 
|                                                            |      |   |     |   
|Present value of future minimum lease payments              |      |   | 34  |   
|Less current portion of obligation under capital
    leases |      |   | (23 | ) 
|                                                            |      |   |     |   
|Long-term obligations under capital leases                  |      | $ | 11  |   
|                                                            |      |   |     |   

Long-term debt at June 25, 2004 had
scheduled maturities as follows:

|                    |            |   |     |     | 
|------------------- | ---------- | - | --- | --- | 
|Fiscal year ending: |            |   |     |    
|                    | 2005       |   | $   | 158 | 
|                    | 2006       |   |     | 147 | 
|                    | 2007       |   |     | 140 | 
|                    | 2008       |   |     | 142 | 
|                    | 2009       |   |     | 145 | 
|                    | Thereafter |   |     | 198 | 
|                    |            |   |     |    
|                    |            | $ | 930 |    
|                    |            |   |     |    

Total interest paid on the short-term credit
facilities (see Note 10) and long-term debt was $87,
$118, and $144 for fiscal years 2004, 2003, and 2002,
respectively.



|         |                                                             
|-------- | ------------------------------------------------------------
|Note 13. | Capital Stock and Accumulated Other
    Comprehensive Income



| |                  
| | -----------------
| | Authorized Stock:

The Company is authorized to issue
100,000,000 shares of $.05 par value common stock and
2,000,000 shares of no par value preferred stock. There are
no shares of preferred stock outstanding.



| |                      
| | ---------------------
| | Warrants Outstanding:

The following table summarizes information about
warrants outstanding as of June 25, 2004:

|                 |  |               |        |          |  |             |        |                      |  |           |      |  |  |  |       |  |  |  |       | 
|---------------- |  | ------------- | ------ | -------- |  | ----------- | ------ | -------------------- |  | --------- | ---- |  |  |  | ----- |  |  |  | ----- | 
|                 |  |               |        |          |  |             |        |                     
|                 |  |               |        |          |  |             |        | Warrants Outstanding
|                 |  |               |        |          |  |             |        | in Connection with: 
|                 |  | Warrants      |        |          |  | Fiscal Year |        |                     
|                 |  | Outstanding   |        | Exercise |  | Warrants    |        | Debt                 |  | Equity   
|Issued           |  | as of 6/25/04 |        | Price    |  | Expire      |        | Financing            |  | Financing
|                 |  |               |        |          |  |             |        |                      |  |          
|Fiscal year 1999 |  |               | 4,000  |          |  | $           | 5.00   |                      |  |           | 2005 |  |  |  |      |  |  |  | 4,000 | 
|Fiscal year 2001 |  |               | 5,310  |          |  | $           | 54.11  |                      |  |           | 2007 |  |  |  | 5,310 |  |  |  |      | 
|Fiscal year 2001 |  |               | 693    |          |  | $           | 54.11  |                      |  |           | 2008 |  |  |  | 693   |  |  |  |      | 
|Fiscal year 2001 |  |               | 693    |          |  | $           | 54.11  |                      |  |           | 2009 |  |  |  | 693   |  |  |  |      | 
|Fiscal year 2001 |  |               | 115    |          |  | $           | 108.70 |                      |  |           | 2011 |  |  |  | 115   |  |  |  |      | 
|                 |  |               |        |          |  |             |        |                      |  |           |      |  |  |  |       |  |  |  |       | 
|                 |  |               | 10,811 |          |  |             |        |                      |  |           |      |  |  |  | 6,811 |  |  |  | 4,000 | 
|                 |  |               |        |          |  |             |        |                      |  |           |      |  |  |  |       |  |  |  |       | 

60



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Shareholder Rights Plan:

The Company has a shareholder rights plan
intended to preserve the long-term value of the Company for its
shareholders by discouraging a hostile takeover. Under the
shareholder rights plan, each outstanding share of the
Companys common stock has an associated preferred share
purchase right. The rights are exercisable only if a person or
group acquires 20% or more of the Companys outstanding
common stock. If the rights became exercisable, the rights would
allow their holders (other than the acquiring person or group)
to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock (Preferred Stock), no par value
per share of the Company at a price of $150.00 per one
one-hundredth of a share of Preferred Stock, subject to
adjustment. The dilutive effect of the rights on the acquiring
person or group is intended to encourage such person or group to
negotiate with the Companys Board.



| |                 
| | ----------------
| | Public Offering:

On February 26, 2004, the Company sold in a
public offering 5,060,000 shares of its common stock at a
price of $14.50 per share. The offering resulted in net
proceeds (after deducting issuance costs) to the Company of
$69,482 in fiscal year 2004.

On February 19, 2002, the Company sold in a
public offering 3,450,000 shares of its common stock at a
price of $16.00 per share. The offering resulted in net
proceeds (after deducting issuance costs) to the Company of
$52,193 in fiscal year 2002.



| |                
| | ---------------
| | Treasury Stock:

At June 25, 2004 and June 27, 2003,
3,595,036 shares of common stock are being held by the
Company as treasury stock and are available to be used in
meeting the Companys obligations under its present and
future stock option plans and for other corporate purposes. In
addition, shares of the Companys common stock purchased
under a non-qualified deferred compensation arrangement, held in
a Rabbi Trust, have been presented in a manner similar to
treasury stock. As of June 25, 2004 and June 27, 2003,
50,814 shares and 52,473 shares, respectively, were
held in the Rabbi Trust.



| |                             
| | ----------------------------
| | Net Income (Loss) Per Share:

Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of
common shares outstanding. Diluted net income (loss) per share
is computed by dividing net income (loss) by the weighted
average number of common shares outstanding plus the dilutive
effect of options and warrants. The dilutive effect of options
and warrants is calculated under the treasury stock method using
the average market price for the period. Net income (loss) per
share is calculated as follows:

|                                                                |         |                   |            |          |  |          |            |       |   |   |            |       |  
|--------------------------------------------------------------- | ------- | ----------------- | ---------- | -------- |  | -------- | ---------- | ----- | - | - | ---------- | ----- | -
|                                                                |         |                  
|                                                                |         | Fiscal Year Ended
|                                                                |         |                  
|                                                                |         | June 25,          |            | June 27, |  | June 28,
|                                                                |         | 2004              |            | 2003     |  | 2002    
|                                                                |         |                   |            |          |  |         
|Net income (loss)                                               |         | $                 | 44,160     |          |  | $        | (139,589   | )     |   | $ | (41,924    | )    
|                                                                |         |                   |            |          |  |          |            |       |   |   |            |      
|Weighted average common shares outstanding                      |         |                   | 38,831,695 |          |  |          | 36,384,105 |       |   |   | 33,709,999 |      
|Common share equivalents                                        |         |                   | 1,391,523  |          |  |          |           |       |   |   |           |      
|                                                                |         |                   |            |          |  |          |            |       |   |   |            |      
|Weighted average common shares and common share
    equivalents |         |                   | 40,223,218 |          |  |          | 36,384,105 |       |   |   | 33,709,999 |      
|                                                                |         |                   |            |          |  |          |            |       |   |   |            |      
|Net income (loss) per share  basic and
    diluted:            |         |                   |            |          |  |          |            |       |   |   |            |      
|                                                                | Basic   |                   | $          | 1.14     |  |          | $          | (3.84 | ) |   | $          | (1.24 | )
|                                                                | Diluted |                   | $          | 1.10     |  |          | $          | (3.84 | ) |   | $          | (1.24 | )

61



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

For fiscal years ended June 25, 2004,
June 27, 2003, and June 28, 2002, common share
equivalents of 2,559,929, 6,681,786, and 6,677,064,
respectively, were excluded from the diluted net income (loss)
per share calculation because they were antidilutive.



| |                                            
| | -------------------------------------------
| | Accumulated Other Comprehensive
    Income:

SFAS No. 130, Reporting
Comprehensive Income, requires net unrealized investment
gains or losses on the Companys available-for-sale
securities and net foreign exchange gains or losses on
translation to be included in accumulated other comprehensive
income (loss) in the consolidated balance sheet and in the
disclosure of comprehensive income. The totals of other
comprehensive income (loss) items and comprehensive income
(loss), which includes net income (loss), are separately set
forth in the consolidated statements of shareholders
equity.

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

|                                         |  |          |       |          |  |   |       |  
|---------------------------------------- |  | -------- | ----- | -------- |  | - | ----- | -
|                                         |  | June 25, |       | June 27,
|                                         |  | 2004     |       | 2003    
|                                         |  |          |       |         
|Unrealized loss on marketable securities |  | $        | (162  | )        |  | $ | (1    | )
|Foreign currency translation gain        |  |          | 5,175 |          |  |   | 2,433 |  
|                                         |  |          |       |          |  |   |       |  
|Accumulated other comprehensive income   |  | $        | 5,013 |          |  | $ | 2,432 |  
|                                         |  |          |       |          |  |   |       |  

The components of other comprehensive income and
the related tax effects are as follows:

|                                               |  |        |       |            |  |        |     |   |  |   |       |  
|---------------------------------------------- |  | ------ | ----- | ---------- |  | ------ | --- | - |  | - | ----- | -
|                                               |  | Amount |       | Income Tax |  | Amount
|                                               |  | Before |       | Expense    |  | Net of
|                                               |  | Tax    |       | (Benefit)  |  | Taxes 
|                                               |  |        |       |            |  |       
|Fiscal year ended June 25,
    2004:           |  |        |       |            |  |        |     |   |  |   |       |  
|Unrealized holding loss during the fiscal year |  | $      | (161  | )          |  | $      |    |   |  | $ | (161  | )
|Net foreign currency translation gain          |  |        | 2,742 |            |  |        |    |   |  |   | 2,742 |  
|                                               |  |        |       |            |  |        |     |   |  |   |       |  
|Total other comprehensive income               |  | $      | 2,581 |            |  | $      |    |   |  | $ | 2,581 |  
|                                               |  |        |       |            |  |        |     |   |  |   |       |  
|Fiscal year ended June 27,
    2003:           |  |        |       |            |  |        |     |   |  |   |       |  
|Unrealized holding gain during the fiscal year |  | $      | 18    |            |  | $      | 7   |   |  | $ | 11    |  
|Net foreign currency translation gain          |  |        | 1,875 |            |  |        |    |   |  |   | 1,875 |  
|                                               |  |        |       |            |  |        |     |   |  |   |       |  
|Total other comprehensive income               |  | $      | 1,893 |            |  | $      | 7   |   |  | $ | 1,886 |  
|                                               |  |        |       |            |  |        |     |   |  |   |       |  
|Fiscal year ended June 28,
    2002:           |  |        |       |            |  |        |     |   |  |   |       |  
|Unrealized holding loss during the fiscal year |  | $      | (20   | )          |  | $      | (9  | ) |  | $ | (11   | )
|Net foreign currency translation gain          |  |        | 949   |            |  |        | 261 |   |  |   | 688   |  
|                                               |  |        |       |            |  |        |     |   |  |   |       |  
|Total other comprehensive income               |  | $      | 929   |            |  | $      | 252 |   |  | $ | 677   |  
|                                               |  |        |       |            |  |        |     |   |  |   |       |  



|         |                  
|-------- | -----------------
|Note 14. | 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.

62



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

During fiscal years 2004 and 2003, the Company
recorded compensation expense of $131 and $104, respectively,
related to an equity-based compensation award contingent upon
meeting certain performance objectives that was awarded to an
officer of the Company pursuant to the Incentive Plan. The stock
option award was earned based upon the achievement of certain
performance criteria. There was no compensation expense recorded
in fiscal year 2002 related to equity-based incentive
compensation awards.

The Companys previous stock option plans
provided for the grant of options to employees with an exercise
price per share of at least the fair market value of such shares
on the date prior to grant and to directors with an exercise
price equal to the fair market value on the date of grant. Stock
options granted to certain employees vest in cumulative annual
installments of either 20% or 25% per year beginning
one year after the date of grant. Options granted to
non-employee directors were exercisable one year after grant.
Certain options held by the former Chairman were exercisable
immediately.

In connection with the acquisition of Lantern,
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, 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.

In connection with the acquisition of
Worldbridge, outstanding incentive and nonqualified stock
options to acquire Worldbridge 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 the date of termination of employment or ten years from
the date of grant. The options vested immediately upon
assumption by the Company.

In connection with the acquisition of Silicon
Valley Communications, Inc. (SVCI), outstanding incentive and
nonqualified stock options to acquire SVCI common stock were
converted into stock options to acquire the Companys
common stock. Incentive stock options generally vest over four
or five years, with 25% or 20% vesting after one year and
the remainder monthly thereafter, and expire ten years from
the date of grant. Nonqualified options are generally fully
vested upon issuance and expire ten years from date of
grant.

63



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

A summary of the status of the Companys
stock option plans as of June 25, 2004, June 27, 2003,
and June 28, 2002, and changes during the fiscal years
ended on those dates, is presented below:

|                                   |  |               |            |                |  |               |       |                |  |        |           |                |  |   |       |  |  |  |           |   |  |   |       | 
|---------------------------------- |  | ------------- | ---------- | -------------- |  | ------------- | ----- | -------------- |  | ------ | --------- | -------------- |  | - | ----- |  |  |  | --------- | - |  | - | ----- | 
|                                   |  |               |            |                |  |              
|                                   |  | June 25, 2004 |            | June 27, 2003  |  | June 28, 2002
|                                   |  |               |            |                |  |              
|                                   |  |               |            | Weighted-Avg.  |  |               |       | Weighted-Avg.  |  |        |           | Weighted-Avg. 
|                                   |  | Shares        |            | Exercise Price |  | Shares        |       | Exercise Price |  | Shares |           | Exercise Price
|                                   |  |               |            |                |  |               |       |                |  |        |           |               
|Outstanding at beginning of year   |  |               | 6,380,081  |                |  | $             | 9.63  |                |  |        | 6,528,854 |                |  | $ | 10.31 |  |  |  | 6,409,613 |   |  | $ | 9.96  | 
|Granted                            |  |               | 863,370    |                |  | $             | 7.17  |                |  |        | 923,000   |                |  | $ | 3.71  |  |  |  | 1,528,650 |   |  | $ | 9.72  | 
|Exercised                          |  |               | (1,380,512 | )              |  | $             | 7.17  |                |  |        | (220,190  | )              |  | $ | 2.06  |  |  |  | (857,514  | ) |  | $ | 5.98  | 
|Expired                            |  |               | (212,982   | )              |  | $             | 13.14 |                |  |        | (322,882  | )              |  | $ | 11.58 |  |  |  | (75,653   | ) |  | $ | 15.30 | 
|Forfeited                          |  |               | (167,203   | )              |  | $             | 9.66  |                |  |        | (528,701  | )              |  | $ | 9.82  |  |  |  | (476,242  | ) |  | $ | 10.48 | 
|                                   |  |               |            |                |  |               |       |                |  |        |           |                |  |   |       |  |  |  |           |   |  |   |       | 
|Outstanding at end of year         |  |               | 5,482,754  |                |  | $             | 9.72  |                |  |        | 6,380,081 |                |  | $ | 9.63  |  |  |  | 6,528,854 |   |  | $ | 10.31 | 
|                                   |  |               |            |                |  |               |       |                |  |        |           |                |  |   |       |  |  |  |           |   |  |   |       | 
|Options exercisable at end of year |  |               | 3,158,466  |                |  | $             | 11.47 |                |  |        | 3,573,264 |                |  | $ | 10.67 |  |  |  | 2,923,519 |   |  | $ | 9.99  | 
|                                   |  |               |            |                |  |               |       |                |  |        |           |                |  |   |       |  |  |  |           |   |  |   |       | 

The following table summarizes information about
the Companys outstanding stock options as of June 25,
2004:

|                         |  |                     |           |                       |  |                |     |             |  |                |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | --------------------- |  | -------------- | --- | ----------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                      
|                         |  | Options Outstanding |           | Options Exercisable  
|                         |  |                     |           |                      
|                         |  | Number              |           | Weighted-Avg.         |  |                |     | Number      |  |               
|                         |  | Outstanding         |           | Remaining Contractual |  | Weighted-Avg.  |     | Exercisable |  | Weighted-Avg. 
|Range of Exercise Prices |  | at 6/25/04          |           | Life (Years)          |  | Exercise Price |     | at 6/25/04  |  | Exercise Price
|                         |  |                     |           |                       |  |                |     |             |  |               
|$ 0.50                   |  |                     | 5,806     |                       |  |                | 3.1 |             |  | $              | 0.50  |  |  |  | 5,806     |  |  | $ | 0.50  | 
|$ 0.80                   |  |                     | 61,515    |                       |  |                | 9.6 |             |  | $              | 0.80  |  |  |  | 12,180    |  |  | $ | 0.80  | 
|$ 1.50                   |  |                     | 49,586    |                       |  |                | 5.6 |             |  | $              | 1.50  |  |  |  | 49,586    |  |  | $ | 1.50  | 
|$ 3.05 to $4.51          |  |                     | 881,752   |                       |  |                | 6.6 |             |  | $              | 3.70  |  |  |  | 261,548   |  |  | $ | 3.73  | 
|$ 4.75 to $7.00          |  |                     | 1,048,739 |                       |  |                | 4.6 |             |  | $              | 6.19  |  |  |  | 756,005   |  |  | $ | 6.17  | 
|$ 7.25 to $10.88         |  |                     | 1,636,625 |                       |  |                | 5.7 |             |  | $              | 8.30  |  |  |  | 687,968   |  |  | $ | 8.32  | 
|$10.94 to $16.41         |  |                     | 1,132,043 |                       |  |                | 4.0 |             |  | $              | 12.32 |  |  |  | 730,496   |  |  | $ | 12.50 | 
|$16.47 to $24.50         |  |                     | 524,707   |                       |  |                | 3.7 |             |  | $              | 21.78 |  |  |  | 514,007   |  |  | $ | 21.86 | 
|$26.44 to $39.13         |  |                     | 141,231   |                       |  |                | 3.6 |             |  | $              | 31.33 |  |  |  | 140,120   |  |  | $ | 31.34 | 
|$39.94                   |  |                     | 750       |                       |  |                | 3.8 |             |  | $              | 39.94 |  |  |  | 750       |  |  | $ | 39.94 | 
|                         |  |                     |           |                       |  |                |     |             |  |                |       |  |  |  |           |  |  |   |       | 
|                         |  |                     | 5,482,754 |                       |  |                | 5.1 |             |  | $              | 9.72  |  |  |  | 3,158,466 |  |  | $ | 11.47 | 
|                         |  |                     |           |                       |  |                |     |             |  |                |       |  |  |  |           |  |  |   |       | 



|         |                 
|-------- | ----------------
|Note 15. | Retirement Plans

The Company has retirement savings and profit
sharing plans that qualify under Section 401(k) of the
Internal Revenue Code. Participation is available to all
employees meeting minimum service requirements.

The Company has a deferred compensation plan that
does not qualify under Section 401 of the Internal Revenue
Code, which provides officers and key executives with the
opportunity to participate in an unqualified deferred
compensation plan. The total of net participant deferrals, which
is reflected in other long-term liabilities, was $1,405 and
$1,085 at June 25, 2004 and June 27, 2003,
respectively.

The Company also has a deferred retirement salary
plan, which is limited to certain officers. The present value of
the estimated future retirement benefit payments is being
accrued over the estimated service period from the date of the
agreements. The accrued balance of this plan, the majority of
which is included in other long-

64



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

term liabilities, was $945 and $970 at
June 25, 2004 and June 27, 2003, respectively. Total
expenses for these plans were $1,403, $1,691, and $1,476 for
fiscal years 2004, 2003, and 2002, respectively.



|         |                            
|-------- | ---------------------------
|Note 16. | Other Income (Expense), Net

Other income (expense), net for fiscal years
2004, 2003, and 2002 was as follows:

|                                        |  |                   |     |          |  |          |     |  |  |   |        |  
|--------------------------------------- |  | ----------------- | --- | -------- |  | -------- | --- |  |  | - | ------ | -
|                                        |  |                  
|                                        |  | Fiscal Year Ended
|                                        |  |                  
|                                        |  | June 25,          |     | June 27, |  | June 28,
|                                        |  | 2004              |     | 2003     |  | 2002    
|                                        |  |                   |     |          |  |         
|Recovery (provision) on note receivable |  | $                 |    |          |  | $        | 800 |  |  | $ | (1,300 | )
|Other income (expense), net             |  |                   | 371 |          |  |          | 105 |  |  |   | (176   | )
|                                        |  |                   |     |          |  |          |     |  |  |   |        |  
|                                        |  | $                 | 371 |          |  | $        | 905 |  |  | $ | (1,476 | )
|                                        |  |                   |     |          |  |          |     |  |  |   |        |  



|         |             
|-------- | ------------
|Note 17. | Income Taxes

Total income tax expense (benefit) for fiscal
years 2004, 2003, and 2002 was allocated as follows:

|                                                                                                                        |  |                   |       |          |  |          |        |  |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | -------- |  | -------- | ------ |  |  | - | ------- | -
|                                                                                                                        |  |                  
|                                                                                                                        |  | Fiscal Year Ended
|                                                                                                                        |  |                  
|                                                                                                                        |  | June 25,          |       | June 27, |  | June 28,
|                                                                                                                        |  | 2004              |       | 2003     |  | 2002    
|                                                                                                                        |  |                   |       |          |  |         
|Net income (loss) from operations                                                                                       |  | $                 | 1,022 |          |  | $        | 47,017 |  |  | $ | (23,152 | )
|Shareholders equity, for unrealized holding
    gain (loss)                                                            |  |                   |      |          |  |          | 7      |  |  |   | (9      | )
|Shareholders equity, for net foreign
    currency translation gain                                                     |  |                   |      |          |  |          |       |  |  |   | 261     |  
|Shareholders equity, for tax benefit
    derived from exercise of stock options                                        |  |                   |      |          |  |          |       |  |  |   | (1,292  | )
|Goodwill, for initial recognition of acquired tax
    benefits that were previously included in the valuation allowance |  |                   | (464  | )        |  |          |       |  |  |   |        |  
|                                                                                                                        |  |                   |       |          |  |          |        |  |  |   |         |  
|                                                                                                                        |  | $                 | 558   |          |  | $        | 47,024 |  |  | $ | (24,192 | )
|                                                                                                                        |  |                   |       |          |  |          |        |  |  |   |         |  

Income tax expense (benefit) attributable to
operations consisted of the following:

|          |         |                   |       |          |   |          |        |        |  |   |         |         |  
|--------- | ------- | ----------------- | ----- | -------- | - | -------- | ------ | ------ |  | - | ------- | ------- | -
|          |         |                  
|          |         | Fiscal Year Ended
|          |         |                  
|          |         | June 25,          |       | June 27, |   | June 28,
|          |         | 2004              |       | 2003     |   | 2002    
|          |         |                   |       |          |   |         
|Current:  |         |                   |       |          |   |          |        |        |  |   |         |        
|          | Federal |                   | $     | 451      |   |          | $      |       |  |   | $       | (9,980  | )
|          | State   |                   |       | 296      |   |          |        |       |  |   |         |        |  
|          | Foreign |                   |       | 599      |   |          |        | 1,675  |  |   |         | 101     |  
|          |         |                   |       |          |   |          |        |        |  |   |         |        
|          |         |                   | 1,346 |          |   |          | 1,675  |        |  |   | (9,879  | )      
|          |         |                   |       |          |   |          |        |        |  |   |         |        
|Deferred: |         |                   |       |          |   |          |        |        |  |   |         |        
|          | Federal |                   |       |         |   |          |        | 36,979 |  |   |         | (12,099 | )
|          | State   |                   |       |         |   |          |        | 7,841  |  |   |         | (4,623  | )
|          | Foreign |                   |       | (324     | ) |          |        | 522    |  |   |         | 3,449   |  
|          |         |                   |       |          |   |          |        |        |  |   |         |        
|          |         |                   | (324  | )        |   |          | 45,342 |        |  |   | (13,273 | )      
|          |         |                   |       |          |   |          |        |        |  |   |         |        
|          |         | $                 | 1,022 |          |   | $        | 47,017 |        |  | $ | (23,152 | )      
|          |         |                   |       |          |   |          |        |        |  |   |         |        

65



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table reconciles income tax expense
(benefit) from operations as reflected in the consolidated
statement of operations with the amount calculated by applying
the U.S. federal income tax rate of 35 percent to
income (loss) before income taxes:

|                                                                           |  |                   |         |          |  |          |         |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ----------------- | ------- | -------- |  | -------- | ------- | - |  | - | ------- | -
|                                                                           |  |                  
|                                                                           |  | Fiscal Year Ended
|                                                                           |  |                  
|                                                                           |  | June 25,          |         | June 27, |  | June 28,
|                                                                           |  | 2004              |         | 2003     |  | 2002    
|                                                                           |  |                   |         |          |  |         
|Income tax expense (benefit) computed at 35%                               |  | $                 | 15,814  |          |  | $        | (32,400 | ) |  | $ | (22,777 | )
|State income taxes, net of federal tax                                     |  |                   | 1,312   |          |  |          | (3,750  | ) |  |   | (4,109  | )
|Tax effect of foreign income and losses                                    |  |                   | (1,015  | )        |  |          | 498     |   |  |   | 81      |  
|Tax effect of export incentives                                            |  |                   |        |          |  |          |        |   |  |   | (59     | )
|Increase (decrease) in the valuation allowance
    for deferred tax assets |  |                   | (14,406 | )        |  |          | 82,164  |   |  |   | 2,934   |  
|Other, net                                                                 |  |                   | (683    | )        |  |          | 505     |   |  |   | 778     |  
|                                                                           |  |                   |         |          |  |          |         |   |  |   |         |  
|                                                                           |  | $                 | 1,022   |          |  | $        | 47,017  |   |  | $ | (23,152 | )
|                                                                           |  |                   |         |          |  |          |         |   |  |   |         |  

66



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and
deferred tax liabilities at June 25, 2004 and June 27,
2003 are presented below:

|                                             |                                                                                       |                                       |         |          |        |   |         |        |        |  
|-------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------- | ------- | -------- | ------ | - | ------- | ------ | ------ | -
|                                             |                                                                                       | June 25,                              |         | June 27,
|                                             |                                                                                       | 2004                                  |         | 2003    
|                                             |                                                                                       |                                       |         |         
|Gross deferred tax assets:                   |                                                                                       |                                       |         |          |        |   |         |       
|                                             | Accounts receivable, principally due to allowance
    for doubtful accounts           |                                       | $       | 790      |        |   | $       | 1,363  |       
|                                             | Inventories, principally due to accrual for
    obsolescence                          |                                       |         | 13,400   |        |   |         | 16,403 |       
|                                             | Compensated absences, principally due to accrual
    for financial reporting purposes |                                       |         | 1,014    |        |   |         | 1,293  |       
|                                             | Workers compensation expense accrual for
    financial reporting purposes            |                                       |         | 210      |        |   |         | 160    |       
|                                             | Warranty expense accrual for financial reporting
    purposes                         |                                       |         | 3,593    |        |   |         | 5,311  |       
|                                             | Employee benefit plan accrual for financial
    reporting purposes                    |                                       |         | 586      |        |   |         | 518    |       
|                                             | Deferred research and development for tax purposes                                    |                                       |         |         |        |   |         | 136    |       
|                                             | Investment impairment for financial reporting
    purposes                            |                                       |         | 1,225    |        |   |         | 1,225  |       
|                                             | Net operating loss carryforwards                                                      |                                       |         | 29,797   |        |   |         | 38,168 |       
|                                             | Alternative minimum tax credit carryforwards                                          |                                       |         | 818      |        |   |         | 374    |       
|                                             | Research tax credit carryforwards                                                     |                                       |         | 2,047    |        |   |         | 1,995  |       
|                                             | Intangible assets, principally due to differences
    in amortization                 |                                       |         | 16,465   |        |   |         | 15,045 |       
|                                             | Restructuring expense accrual for financial
    reporting purposes                    |                                       |         | 53       |        |   |         | 3,056  |       
|                                             | Plant and equipment, principally due to
    differences in depreciation               |                                       |         | 252      |        |   |         |       |       
|                                             | Other                                                                                 |                                       |         | 2,116    |        |   |         | 6,256  |       
|                                             |                                                                                       |                                       |         |          |        |   |         |       
|                                             |                                                                                       | Total gross deferred tax assets       |         |          | 72,366 |   |         |        | 91,303 |  
|Less valuation allowance                     |                                                                                       |                                       | (71,253 | )        |        |   | (89,146 | )     
|                                             |                                                                                       |                                       |         |          |        |   |         |       
|                                             | Net total deferred tax assets                                                         |                                       |         | 1,113    |        |   |         | 2,157  |       
|                                             |                                                                                       |                                       |         |          |        |   |         |       
|Gross deferred tax liabilities:              |                                                                                       |                                       |         |          |        |   |         |       
|                                             | Plant and equipment, principally due to
    differences in depreciation               |                                       |         |         |        |   |         | (1,017 | )     
|                                             | Other                                                                                 |                                       |         | (826     | )      |   |         | (1,161 | )     
|                                             |                                                                                       |                                       |         |          |        |   |         |       
|                                             |                                                                                       | Total gross deferred tax liabilities  |         |          | (826   | ) |         |        | (2,178 | )
|                                             |                                                                                       |                                       |         |          |        |   |         |       
|Net deferred tax assets (liabilities)        |                                                                                       | $                                     | 287     |          |        | $ | (21     | )     
|                                             |                                                                                       |                                       |         |          |        |   |         |       
|Reflected in consolidated balance sheets as: |                                                                                       |                                       |         |          |        |   |         |       
|                                             | Current deferred tax liabilities                                                      |                                       | $       | (467     | )      |   | $       | (528   | )     
|                                             | Non-current deferred tax assets                                                       |                                       |         | 754      |        |   |         | 507    |       
|                                             |                                                                                       |                                       |         |          |        |   |         |       
|                                             |                                                                                       | Net deferred tax assets (liabilities) |         | $        | 287    |   |         | $      | (21    | )
|                                             |                                                                                       |                                       |         |          |        |   |         |       

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
periods in which the temporary differences become deductible and
the loss and credit carryforwards can be utilized. Management
considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in
making this assessment. As a result of the cumulative losses in
fiscal years 2001, 2002, and 2003, management concluded during
fiscal year 2003 that a valuation allowance against net deferred
tax assets was appropriate and recorded an allowance as of that
date. As of June 25, 2004, a full valuation allowance on
the net deferred tax assets has been recorded, with the
exception of certain net deferred tax assets in specific foreign

67



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

jurisdictions. In addition, the Company expects
to provide a valuation allowance on any future net deferred tax
assets until the Company can sustain a level of profitability
that demonstrates its ability to utilize these assets.

Subsequently recognized tax benefits relating to
the valuation allowance for deferred tax assets as of
June 25, 2004 will be allocated as follows:

|                                                                                          |       |   |        |        | 
|----------------------------------------------------------------------------------------- | ----- | - | ------ | ------ | 
|Income tax benefit that would be reported in the
    consolidated statement of operations |       | $ | 68,485 |       
|Additional paid-in capital                                                                |       |   | 2,768  |       
|                                                                                          |       |   |        |       
|                                                                                          | Total |   | $      | 71,253 | 
|                                                                                          |       |   |        |       

At June 25, 2004, the Company had federal
net operating loss carryforwards of approximately $45,531, state
net operating loss carryforwards of approximately $62,132, and
foreign net operating losses of approximately $24,613, which are
available to offset future federal, state, and foreign taxable
income, if any, and expire at various dates through fiscal year
2023. In addition, at June 25, 2004, the Company had
research and development credit carryovers for federal and state
income tax purposes of approximately $1,814 and $233,
respectively. The federal credit carryforwards expire through
2022, and the state carryforwards can be carried forward
indefinitely. The Company also had a federal alternative minimum
tax credit of $818 at June 25, 2004, which has an
indefinite carryforward period.

The Company has not recognized a deferred tax
liability for the basis differences and the undistributed
earnings related to its foreign subsidiaries since the Company
currently does not expect unremitted earnings to reverse and
become taxable to the Company in the foreseeable future. A
deferred tax liability will be recognized when the Company is no
longer able to demonstrate that it plans to permanently reinvest
undistributed earnings. Undistributed earnings were
approximately $16,139 at June 25, 2004.

Cash paid (recovered) for income taxes was
$1,423, $(9,728), and $(217) in fiscal years 2004, 2003, and
2002, respectively.



|         |                             
|-------- | ----------------------------
|Note 18. | Concentration of Credit Risk

Financial instruments that subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Companys accounts receivable are derived
primarily from sales to cable operators, broadcasters, and other
network operators and distributors. The Company performs
periodic credit evaluations of its customers financial
conditions and generally does not require collateral.
Receivables are generally due within 30 days. Credit losses
are provided for in the consolidated financial statements. On
June 25, 2002, Adelphia Communications (Adelphia) and
affiliates, a major cable operator and customer of the Company,
filed a petition for protection under the federal bankruptcy
statutes. As of June 28, 2002, the Company recorded a
charge-off to bad debts of $44,938 due to managements
assessment of the recoverability of accounts receivables from
Adelphia and affiliates. Adelphia was the Companys largest
customer in fiscal year 2002.

Sales to two customers were $48,659 (20%)
and $39,724 (16%), respectively, in fiscal year 2004. Sales
to two customers were $38,348 (19%) and $33,404 (17%),
respectively, in fiscal year 2003. Sales to three customers were
$78,508 (30%), $28,563 (11%) and $27,222 (10%),
respectively, in fiscal year 2002. All of these principal
customers purchase both products and services. No other
customers represented greater than 10% of sales in fiscal years
2004, 2003, or 2002. One customer accounted for 27% of the
Companys gross accounts receivable balance as of
June 25, 2004.

68



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|         |                              
|-------- | -----------------------------
|Note 19. | Commitments and Contingencies

The Company has recently identified certain
commissions paid for business development efforts in foreign
countries. The Company is currently investigating the nature of
the payments to determine if there have been any violations of
law related to the payments or any other such payments.

The Company leases real property and other
equipment under operating leases. Certain leases are renewable
and provide for the payment of real estate taxes and other
occupancy expenses. At June 25, 2004, the future minimum
lease payments for noncancelable leases with remaining lease
terms in excess of one year were as follows:

|                    |  |   |       |  |  |  |  | 
|------------------- |  | - | ----- |  |  |  |  | 
|Fiscal year ending: |  |   |       | 
|2005                |  | $ | 3,135 | 
|2006                |  |   | 1,816 | 
|2007                |  |   | 1,209 | 
|2008                |  |   | 687   | 
|2009                |  |   | 586   | 
|Thereafter          |  |   | 3,283 | 

Rent expense relating to continuing operations
was $5,401, $5,280, and $3,656 for fiscal years 2004, 2003, and
2002, respectively.

Note 20.     Guarantees

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45), which addresses the
disclosure to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees.
FIN 45 also requires the recognition of a liability by a
guarantor at the inception of certain guarantees.

As of June 25, 2004, the Company did not
have any outstanding guarantees, except for product warranties
and indemnification clauses in the Companys software
license agreements. The Company warrants its products against
defects in materials and workmanship, generally for two 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 known 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 if unforeseen
technical problems arise.

The Companys Broadband Management Solutions
segment licenses software to its customers under written
agreements. Each agreement contains the relevant terms of the
contractual arrangement with the customers, and generally
includes provisions for indemnifying the customers 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. The 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.

69



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Changes in the Companys warranty liability
during fiscal years 2004 and 2003 were as follows:

|                                                                |  |          |        |          |  |   |        |  
|--------------------------------------------------------------- |  | -------- | ------ | -------- |  | - | ------ | -
|                                                                |  | June 25, |        | June 27,
|                                                                |  | 2004     |        | 2003    
|                                                                |  |          |        |         
|Balance as of beginning of the period                           |  | $        | 14,117 |          |  | $ | 10,762 |  
|Warranties issued during the period                             |  |          | 2,032  |          |  |   | 2,724  |  
|Fair value of warranty liabilities acquired in
    acquisitions |  |          |       |          |  |   | 7,499  |  
|Settlements made during the period                              |  |          | (3,124 | )        |  |   | (4,340 | )
|Changes in the liability for pre-existing
    warranties        |  |          | (2,960 | )        |  |   | (2,528 | )
|                                                                |  |          |        |          |  |   |        |  
|Balance as of end of the period                                 |  | $        | 10,065 |          |  | $ | 14,117 |  
|                                                                |  |          |        |          |  |   |        |  



|         |                                                
|-------- | -----------------------------------------------
|Note 21. | Quarterly Results of Operations
    (Unaudited)

The quarterly results of operations for fiscal
years 2004 and 2003, and significant incremental and/or unusual
charges (recoveries) during those quarters, were as follows:

|                                              |  |         |        |         |  |         |        |            |  |       |        |  |  |   |        |  |  |   |         | 
|--------------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                              |  | First   |        | Second  |  | Third   |        | Fourth     |  |      
|                                              |  | Quarter |        | Quarter |  | Quarter |        | Quarter(1) |  | Total
|                                              |  |         |        |         |  |         |        |            |  |      
|Fiscal Year 2004                              |  |         |        |         |  |         |        |            |  |       |        |  |  |   |        |  |  |   |         | 
|Net sales                                     |  | $       | 56,767 |         |  | $       | 61,530 |            |  | $     | 58,427 |  |  | $ | 64,194 |  |  | $ | 240,918 | 
|Gross profit                                  |  |         | 20,021 |         |  |         | 23,239 |            |  |       | 23,505 |  |  |   | 23,502 |  |  |   | 90,267  | 
|Net income                                    |  |         | 4,828  |         |  |         | 29,721 |            |  |       | 4,991  |  |  |   | 4,620  |  |  |   | 44,160  | 
|                                              |  |         |        |         |  |         |        |            |  |       |        |  |  |   |        |  |  |   |         | 
|Net income per share  basic and
    diluted: |  |         |        |         |  |         |        |            |  |       |        |  |  |   |        |  |  |   |         | 
|Basic                                         |  | $       | 0.13   |         |  | $       | 0.81   |            |  | $     | 0.13   |  |  | $ | 0.11   |  |  | $ | 1.14    | 
|                                              |  |         |        |         |  |         |        |            |  |       |        |  |  |   |        |  |  |   |         | 
|Diluted                                       |  | $       | 0.13   |         |  | $       | 0.78   |            |  | $     | 0.12   |  |  | $ | 0.10   |  |  | $ | 1.10    | 
|                                              |  |         |        |         |  |         |        |            |  |       |        |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in the results of operations for the
    fourth quarter of fiscal year 2004 was a $900 charge for
    acquired in-process technology.

|                                       |  |         |        |         |  |         |        |            |  |       |          |   |  |   |         |   |  |   |          |  
|-------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ---------- |  | ----- | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                       |  | First   |        | Second  |  | Third   |        | Fourth     |  |      
|                                       |  | Quarter |        | Quarter |  | Quarter |        | Quarter(1) |  | Total
|                                       |  |         |        |         |  |         |        |            |  |      
|Fiscal Year 2003                       |  |         |        |         |  |         |        |            |  |       |          |   |  |   |         |   |  |   |          |  
|Net sales                              |  | $       | 44,635 |         |  | $       | 53,974 |            |  | $     | 50,100   |   |  | $ | 51,953  |   |  | $ | 200,662  |  
|Gross profit                           |  |         | 10,209 |         |  |         | 12,584 |            |  |       | (6,203   | ) |  |   | 15,348  |   |  |   | 31,938   |  
|Net loss                               |  |         | (7,258 | )       |  |         | (4,708 | )          |  |       | (114,641 | ) |  |   | (12,982 | ) |  |   | (139,589 | )
|                                       |  |         |        |         |  |         |        |            |  |       |          |   |  |   |         |   |  |   |          |  
|Net loss per share  basic and diluted |  | $       | (0.20  | )       |  | $       | (0.13  | )          |  | $     | (3.15    | ) |  | $ | (0.36   | ) |  | $ | (3.84    | )
|                                       |  |         |        |         |  |         |        |            |  |       |          |   |  |   |         |   |  |   |          |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in the results of operations for the
    fourth quarter of fiscal year 2003 was a $590 excess and
    obsolete inventory charge resulting from product rationalization
    and a decline in market conditions, a $469 recovery on accounts
    receivable, a $62 restructuring charge, a $1,421 gain on
    settlement of warranty charges, a $6,029 incremental goodwill
    impairment charge related to the Broadband Communications
    Products reporting unit, and a $4,438 incremental charge to
    establish a valuation allowance on net deferred tax assets.

70



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|         |                    
|-------- | -------------------
|Note 22. | Segment Information

The Company operates in three industry segments:
Broadband Communication Products, Broadband Network Services,
and Broadband Management Solutions.

The Broadband Communications Products segment is
responsible for the development, management, production, support
and sales of advanced fiber optic and radio frequency equipment.
The Broadband Network Services segment provides outsourced
technical services, including network engineering and design,
construction, activation, optimization, certification,
maintenance, and operations. The Broadband Management Solutions
segment is responsible for the development, integration,
management, implementation, support, and sale of operational
support systems that focus on network services management and
mobile workforce management 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 management organizes segments within an
enterprise for making operating decisions and assessing
performance. Accounting policies used by the segments are the
same as those described in Note 2.

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



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Corporate selling and administrative expenses,
    certain quality assurance costs, and technology oversight
    functions                                                                                         
|
| |  | Restructuring costs                                                                                                                                                                                                
|
| |  | Goodwill and other intangible asset impairment
    charges                                                                                                                                                         
|
| |  | Goodwill amortization resulting from acquisitions                                                                                                                                                                  
|
| |  | Income tax expense (benefit)                                                                                                                                                                                       
|
| |  | Identifiable assets of cash and cash equivalents,
    marketable securities and other short-term investments, assets
    associated with discontinued operations, and certain other
    long-term corporate assets.

71



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Information about industry segments for fiscal
years 2004, 2003, and 2002 is as follows:

|                         |                                      |                |   |           |   |            |   |             |   |       |   |         |   |  |   |         |   |  |   |         |  
|------------------------ | ------------------------------------ | -------------- | - | --------- | - | ---------- | - | ----------- | - | ----- | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                         |                                      | Broadband      |   | Broadband |   | Broadband  |   |             |   |      
|                         |                                      | Communications |   | Network   |   | Management |   | Unallocated |   |      
|                         |                                      | Products       |   | Services  |   | Solutions  |   | Items       |   | Total
|                         |                                      |                |   |           |   |            |   |             |   |      
|Year ended June 25, 2004 |                                      |                |   |           |   |            |   |             |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Net sales                            |                | $ | 184,880   |   |            | $ | 45,397      |   |       | $ | 10,641  |   |  | $ |        |   |  | $ | 240,918 |  
|                         | Depreciation and amortization        |                |   | 8,514     |   |            |   | 605         |   |       |   | 372     |   |  |   | 1,717   |   |  |   | 11,208  |  
|                         | Operating income (loss)              |                |   | 50,554    |   |            |   | 5,254       |   |       |   | (611    | ) |  |   | (32,707 | ) |  |   | 22,490  |  
|                         | Income tax expense                   |                |   |           |   |            |   |             |   |       |   |         |   |  |   | 1,022   |   |  |   | 1,022   |  
|                         | Identifiable assets at June 25, 2004 |                |   | 94,698    |   |            |   | 38,533      |   |       |   | 15,518  |   |  |   | 118,136 |   |  |   | 266,885 |  
|                         | Capital expenditures                 |                |   | 782       |   |            |   | 241         |   |       |   | 89      |   |  |   | 433     |   |  |   | 1,545   |  
|Year ended June 27, 2003 |                                      |                |   |           |   |            |   |             |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Net sales                            |                | $ | 172,750   |   |            | $ | 23,377      |   |       | $ | 4,535   |   |  | $ |        |   |  | $ | 200,662 |  
|                         | Depreciation and amortization        |                |   | 10,443    |   |            |   | 737         |   |       |   | 579     |   |  |   | 1,642   |   |  |   | 13,401  |  
|                         | Operating income (loss)              |                |   | (7,773    | ) |            |   | 79          |   |       |   | (7,939  | ) |  |   | (77,723 | ) |  |   | (93,356 | )
|                         | Income tax expense                   |                |   |           |   |            |   |             |   |       |   |         |   |  |   | 47,017  |   |  |   | 47,017  |  
|                         | Identifiable assets at June 27, 2003 |                |   | 88,717    |   |            |   | 22,497      |   |       |   | 3,006   |   |  |   | 28,797  |   |  |   | 143,017 |  
|                         | Capital expenditures                 |                |   | 2,499     |   |            |   | 186         |   |       |   | 425     |   |  |   | 1,046   |   |  |   | 4,156   |  
|Year ended June 28, 2002 |                                      |                |   |           |   |            |   |             |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Net sales                            |                | $ | 224,331   |   |            | $ | 38,070      |   |       | $ | 3,250   |   |  | $ |        |   |  | $ | 265,651 |  
|                         | Depreciation and amortization        |                |   | 7,810     |   |            |   | 919         |   |       |   | 6,347   |   |  |   | 2,604   |   |  |   | 17,680  |  
|                         | Operating loss                       |                |   | (461      | ) |            |   | (2,433      | ) |       |   | (19,142 | ) |  |   | (45,703 | ) |  |   | (67,739 | )
|                         | Income tax benefit                   |                |   |           |   |            |   |             |   |       |   |         |   |  |   | (23,152 | ) |  |   | (23,152 | )
|                         | Identifiable assets at June 28, 2002 |                |   | 139,596   |   |            |   | 19,097      |   |       |   | 12,605  |   |  |   | 99,525  |   |  |   | 270,823 |  
|                         | Capital expenditures                 |                |   | 762       |   |            |   | 1,272       |   |       |   | 183     |   |  |   | 5,773   |   |  |   | 7,990   |  

72



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##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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

|                                |               |            |   |          |         |          |   |         |         |  |   |         |         | 
|------------------------------- | ------------- | ---------- | - | -------- | ------- | -------- | - | ------- | ------- |  | - | ------- | ------- | 
|                                |               |           
|                                |               | Year Ended
|                                |               |           
|                                |               | June 25,   |   | June 27, |         | June 28,
|                                |               | 2004       |   | 2003     |         | 2002    
|                                |               |            |   |          |         |         
|Sales:                          |               |            |   |          |         |          |   |         |         |  |   |        
|                                | United States |            | $ | 173,755  |         |          | $ | 144,821 |         |  | $ | 232,053 |        
|                                | Europe        |            |   | 33,286   |         |          |   | 28,649  |         |  |   | 10,885  |        
|                                | Asia          |            |   | 22,321   |         |          |   | 19,104  |         |  |   | 7,286   |        
|                                | Canada        |            |   | 4,683    |         |          |   | 5,370   |         |  |   | 11,065  |        
|                                | Latin America |            |   | 6,873    |         |          |   | 2,718   |         |  |   | 4,362   |        
|                                |               |            |   |          |         |          |   |         |         |  |   |        
|                                |               | Total      |   | $        | 240,918 |          |   | $       | 200,662 |  |   | $       | 265,651 | 
|                                |               |            |   |          |         |          |   |         |         |  |   |        
|Property, Plant, and Equipment: |               |            |   |          |         |          |   |         |         |  |   |        
|                                | United States |            | $ | 16,463   |         |          | $ | 23,072  |         |  | $ | 23,467  |        
|                                | Europe        |            |   | 602      |         |          |   | 786     |         |  |   | 747     |        
|                                | Other         |            |   | 632      |         |          |   | 560     |         |  |   | 487     |        
|                                |               |            |   |          |         |          |   |         |         |  |   |        
|                                |               | Total      |   | $        | 17,697  |          |   | $       | 24,418  |  |   | $       | 24,701  | 
|                                |               |            |   |          |         |          |   |         |         |  |   |        



|         |           
|-------- | ----------
|Note 23. | Litigation

Certain former security holders and employees of
Convergence.com Corporation, a company that was acquired in
fiscal year 2000, filed claims against the Company in March 2001
alleging violations of state securities laws and certain other
state law claims related to a stock option plan. The complaint
alleged that the damages suffered by the individuals
approximated $2,130, which was based on the number of stock
options multiplied by the highest price of the Companys
common stock since the acquisition, and did not take into
account the exercise price, which the plaintiffs would have had
to pay to the Company if the options were exercised. The
complaint also asserted claims for treble damages, an
undetermined amount of punitive damages and reimbursement of
attorneys fees.

On January 23, 2004, the Superior Court of
Forsyth County, Georgia granted the Companys motion for
summary judgment in full, thereby dismissing all claims against
the Company. The plaintiffs have filed a motion of their intent
to appeal the decision. The Company will continue to assert its
defenses to these claims and will continue to contest them
vigorously; however, it cannot be sure that it will be
successful in defending these claims in an appeal of the
decision.

From time to time, the Company is also a party to
litigation and claims that arise in the ordinary course of
business. In the opinion of management, the ultimate resolution
of these matters will not have a material effect on the
Companys business, its financial position or its results
of operations.



|         |                  
|-------- | -----------------
|Note 24. | Subsequent Events

The Company completed two acquisitions subsequent
to fiscal year ended June 25, 2004.

On July 16, 2004, the Company acquired all
the outstanding securities of Stargus, Inc. (Stargus), a
privately held company headquartered in Andover, Massachusetts.
Stargus is a provider of comprehensive network and service
management solutions for cable broadband networks. Stargus
became part of the Companys Broadband Management Solutions
segment. The purchase price for the acquisition was
approximately $17,000, subject to certain adjustments.

73



---



##### 





C-COR Incorporated


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

On September 3, 2004, the Company acquired
certain assets and liabilities of Optinel Systems, Inc.
(Optinel), a privately held company located in Elkridge,
Maryland. Optinel is a provider of optical Ethernet transport
solutions solutions for residential and business services.
Optinel became part of the Companys Broadband
Communications Products segment. The purchase price for the
acquisition was approximately $9,500, subject to certain
adjustments. Additional cash payments of up to $6,000 are
required to be made to Optinel shareholders if certain sales
objectives are achieved within thirteen months from the date of
acquisition.

The Company anticipates using a third-party
appraisal firm to perform a valuation of the acquired
identifiable intangible assets, including in-process research
and development that was commenced but not yet completed at the
date of the acquisitions, and which if unsuccessful, would have
no alternative use. The fair value (if any) ascribed to
in-process research and development will be charged to expense
in the first quarter of fiscal year 2005. The fair value
ascribed to other identifiable intangibles will result in higher
amortization expense in future periods, in amounts unknown at
this time. Any excess of the purchase price and related costs
over the fair value of the acquired net assets of the businesses
will be recorded as goodwill.

74



---



##### 



MANAGEMENTS RESPONSIBILITY FOR FINANCIAL
REPORTING

To the Shareholders:

The management of C-COR Incorporated is
responsible for the preparation, integrity and objectivity of
the financial statements and other information contained in this
Annual Report on Form 10-K. To ensure reliability of
financial data, C-COR has established and maintains an internal
control system, which provides reasonable assurance that
financial reports do not contain any material misstatement.

The Audit Committee of the Board of Directors is
responsible for reviewing and evaluating the overall performance
of C-CORs financial reporting and accounting practices.
The Committee meets periodically and independently with
management, our internal auditors, and KPMG LLP to discuss the
Companys internal accounting controls, auditing, and
financial matters. The internal auditors and independent public
accountants have unrestricted access to the Audit Committee.

We believe that the consolidated financial
statements and related notes in this report are presented fairly
in all material respects, and that they were prepared according
to accounting principles generally accepted in the United States
of America.

C-COR Incorporated

-s- William T. Hanelly

WILLIAM T. HANELLY Chief Financial Officer, 
 Secretary and Treasurer

September 8, 2004

75



---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants
    on Accounting and Financial Disclosure

None



|         |                        
|-------- | -----------------------
|Item 9A. | 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
controls and procedures related to our reporting and disclosure
obligations as of June 25, 2004, which is the end of the
period covered by this Annual Report on Form 10-K. Based on
that evaluation and except for deficiencies in certain of our
internal controls for our EuroPacific operations which were
discovered after the end of our fiscal year and which are in the
process of being corrected, 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 Controls

There were no changes that occurred during the
fiscal quarter ended June 25, 2004 that materially
affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.



|         |                  
|-------- | -----------------
|Item 9B. | Other Information

None

76



---



##### 



PART III



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information with respect to Directors
required by this item will be subsequently incorporated herein
by reference to the Registrants Proxy Statement expected
to be dated on or about September 8, 2004.

The information with respect to Executive
Officers required by this item is set forth in Part I of
this Annual Report on Form 10-K.

To the Companys knowledge, based solely on
a review of the copies of such reports furnished to the Company
and written representations that no other reports were required
during the fiscal year ended June 25, 2004, its officers,
directors and ten percent shareholders complied with all
applicable Section 16(a) filing requirements, with the
exception of those filings listed in the Registrants Proxy
Statement expected to be dated on or about September 8,
2004.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item will be
subsequently incorporated herein by reference to the
Registrants Proxy Statement expected to be dated on or
about September 8, 2004.



|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters

The information required by this item will be
subsequently incorporated herein by reference to the
Registrants Proxy Statement expected to be dated on or
about September 8, 2004.



|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

None



|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required by this item will be
subsequently incorporated herein by reference to the
Registrants Proxy Statement expected to be dated on or
about September 8, 2004.

PART IV



|         |                                               
|-------- | ----------------------------------------------
|Item 15. | Exhibits and Financial Statement
    Schedules

(a) (1) Financial Statements



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The following financial statements are included
    in Item 8 of this Annual Report on Form 10-K:                                
|
| | Report of Independent Registered Public
    Accounting Firm                                                                      
|
| | Consolidated Balance Sheets as of June 25,
    2004 and of June 27, 2003                                                         
|
| | Consolidated Statements of Operations for the
    Fiscal Years Ended June 25, 2004, June 27, 2003 and
    June 28, 2002          
|
| | Consolidated Statements of Cash Flows for the
    Fiscal Years Ended June 25, 2004, June 27, 2003 and
    June 28, 2002          
|
| | Consolidated Statements of Shareholders
    Equity for the Fiscal Years Ended June 25, 2004,
    June 27, 2003 and June 28, 2002
|
| | Notes to Consolidated Financial Statements                                                                                       

77



---



##### 





| |                                  
| | ---------------------------------
| | (2) Financial Statement Schedules



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedules, other than
    Schedule II  Valuation and Qualifying Accounts,
    have been omitted because they are not applicable or the
    required information is shown in the consolidated financial
    statements or notes thereto.



| |             
| | ------------
| | (3) Exhibits



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The exhibits to this Annual Report on
    Form 10-K are listed on the accompanying index to exhibits
    and are incorporated herein by reference or are filed as part of
    this Annual Report on Form 10-K.
|
| | Each management contract or compensation plan
    required to be filed as an exhibit is identified by an
    asterisk(*).                                                                                     

|       |     |                          |  |                                                                                                                                                                                                                                                                                                                                                                            
|------ | --- | ------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |     | Description of Documents
|       |     |                         
|       | (2) | (a)                      |  | Agreement and Plan of Merger dated as of
    July 2, 2004, by and among Broadband Management Solutions,
    LLC, BMS Subsidiary, Inc. and Stargus, Inc. (incorporated by
    reference to the Registrants Form 8-K dated
    July 16, 2004 and filed July 21, 2004).                                                                                                      
|       | (2) | (b)                      |  | Acquisition Agreement dated as of May 14,
    2004, by and among the Registrant, Broadband Royalty Corporation
    and Lantern Communications, Inc. (incorporated by reference to
    the Registrants Form 8-K dated May 28, 2004 and
    filed June 7, 2004).                                                                                                            
|       | (2) | (c)                      |  | Acquisition Agreement dated as of May 10,
    2004, by and among the Registrant, Broadband Management
    Solutions, LLC, Broadband Royalty Corporation, Alopa Networks,
    Inc. and Alopa Networks Private Ltd. (incorporated by reference
    to the Registrants Form 8-K dated May 27, 2004
    and filed June 7, 2004).                                              
|       | (2) | (d)                      |  | Acquisition Agreement dated as of July 8,
    2002, by and among the Registrant, and Koninklijke Philips
    Electronics N.V., Philips Electronics North America Corporation,
    Philips Broadband Networks, Inc. (incorporated by reference to
    the Registrants Form 8-K dated September 16,
    2002, and filed on September 25, 2002).                             
|       | (2) | (e)                      |  | Amendment No. 1 to Acquisition Agreement
    dated as of September 15, 2002, by and among the
    Registrant, and Koninklijke Philips Electronics N.V., Philips
    Electronics North America Corporation, Philips Broadband
    Networks, Inc. (incorporated by reference to the
    Registrants Form 8-K dated September 16, 2002,
    and filed on September 25, 2002).
|       | (2) | (f)                      |  | Acquisition Agreement dated as of August 27,
    2004, by and among the Registrant, Broadband Royalty Corporation
    and Optinel Systems, Inc. (incorporated by reference to the
    Registrants Form 8-K dated September 3, 2004 and
    filed September 8, 2004).                                                                                                      
|       | (3) | (a)                      |  | Amended and Restated Articles of Incorporation of
    Registrant (the Articles of Incorporation) filed
    with the Secretary of State of the Commonwealth of Pennsylvania
    on February 19, 1981 (incorporated by reference to
    Exhibit (3)(a) to Registrants Form 10-Q for the
    quarter ended December 24, 1999).                                             
|       | (3) | (b)                      |  | Amendment to the Articles of Incorporation of
    Registrant filed with the Secretary of State of the Commonwealth
    of Pennsylvania on November 14, 1986 (incorporated by
    reference to Exhibit (3)(b) to Registrants
    Form 10-Q for the quarter ended December 24, 1999).                                                                                       
|       | (3) | (c)                      |  | Amendment to the Articles of Incorporation filed
    with the Secretary of State of the Commonwealth of Pennsylvania
    on September 21, 1995 (incorporated by reference to
    Exhibit (3)(c) to Registrants Form 10-Q for the
    quarter ended December 24, 1999).                                                                                                    
|       | (3) | (d)                      |  | Amendment to the Articles of Incorporation filed
    with the Secretary of State of the Commonwealth of Pennsylvania
    on July 9, 1999 (incorporated by reference to
    Exhibit (3)(d) to Registrants Form 10-Q for the
    quarter ended December 24, 1999).                                                                                                          
|       | (3) | (e)                      |  | Statement with Respect to Shares of Series A
    Junior Participating Preferred Stock filed with the Secretary of
    State of the Commonwealth of Pennsylvania on August 30,
    1999 (incorporated by reference to Exhibit (3)(e) to
    Registrants Form 10-Q for the quarter ended
    December 24, 1999).                                                            
|       | (3) | (f)                      |  | Amendment to the Articles of Incorporation filed
    with the Secretary of State of the Commonwealth of Pennsylvania
    on October 20, 1999 (incorporated by reference to
    Exhibit (3)(f) to Registrants Form 10-Q for the
    quarter ended December 24, 1999).                                                                                                      

78



---



##### 



|       |      |                          |  |                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | ---- | ------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |      | Description of Documents
|       |      |                         
|       | (3)  | (g)                      |  | Amendment to Articles of Incorporation filed with
    the Secretary of State of the Commonwealth of Pennsylvania on
    December 22, 1999 (incorporated by reference to
    Exhibit (3)(g) to Registrants Form 10-Q for the
    quarter ended December 24, 1999).                                                                                                                               
|       | (3)  | (h)                      |  | Amendment to Articles of Incorporation filed with
    the Secretary of State of the Commonwealth of Pennsylvania and
    effective on June 26, 2004.                                                                                                                                                                                                                                             
|       | (3)  | (i)                      |  | Bylaws of Registrant, as amended through
    September 22, 2000 (incorporated by reference to
    Exhibit 3.1 to the Registrants Form 10-Q for the
    quarter ended September 29, 2000).                                                                                                                                                                                                       
|       | (4)  | (a)                      |  | Specimen of Common Stock Certificate
    (incorporated by reference to Exhibit 4.1 to Form S-8
    Registration Statement, File No. 333-49826).                                                                                                                                                                                                                                                  
|       | (4)  | (b)                      |  | Rights Agreement, dated as of August 17,
    1999, between C-COR.net Corp. and American Stock Transfer and
    Trust Co., as Rights Agent, including the Form of Statement with
    Respect to Shares as Exhibit A, the Form of Right
    Certificate as Exhibit B and the Summary of Rights as
    Exhibit C (incorporated by Reference to Registrants
    Form 8-K filed on August 30, 1999). 
|       | (10) | (a)*                     |  | 1989 Non-Employee Directors Non-Qualified
    Stock Option Plan (incorporated by reference to Exhibit 28
    to Form S-8 Registration Statement, File No. 33-35208).                                                                                                                                                                                                                            
|       | (10) | (b)*                     |  | Indemnification Agreement dated February 3,
    1992, between the Registrant and Gerhard B. Nederlof
    (incorporated by reference to Exhibit (10)(gg) to the
    Registrants Form 10-K for the year ended
    June 26, 1992).                                                                                                                                                                 
|       | (10) | (c)*                     |  | Supplemental Retirement Plan Participation
    Agreement dated April 20, 1993, between the Registrant and
    Gerhard B. Nederlof (incorporated by reference to
    Exhibit (10)(bb) to the Registrants Form 10-K
    for the year ended June 25, 1993, Securities and Exchange
    Commission File No. 0-10726).                                                                               
|       | (10) | (d)*                     |  | Registrants Retirement Savings and Profit
    Sharing Plan as Amended July 1, 1989, and including
    amendments through April 19, 1994 (incorporated by
    reference to Exhibit 99.B14 to Form S-8 Registration
    Statement, File No. 333-02505).                                                                                                                                           
|       | (10) | (e)*                     |  | Registrants Supplemental Executive
    Retirement Plan effective May 1, 1996 (incorporated by
    reference to Exhibit (10)(ff) to the Registrants
    Form 10-K for the year ended June 28, 1996).                                                                                                                                                                                            
|       | (10) | (f)(i)*                  |  | 1988 Stock Option Plan (incorporated by reference
    to Exhibit (10)(kk)(i) to the Registrants
    Form 10-K for the year ended June 28, 1996).                                                                                                                                                                                                                                                
|       | (10) | (f)(ii)*                 |  | Amendment to 1988 Stock Option Plan (incorporated
    by reference to Exhibit (10)(kk)(ii) to the
    Registrants Form 10-K for the year ended
    June 28, 1996).                                                                                                                                                                                                                              
|       | (10) | (g)(i)*                  |  | 1992 Stock Purchase Plan (incorporated by
    reference to Exhibit (10)(ll)(i) to the Registrants
    Form 10-K for the year ended June 28, 1996).                                                                                                                                                                                                                                              
|       | (10) | (g)(ii)*                 |  | Amendment to 1992 Stock Purchase Plan
    (incorporated by reference to Exhibit (10)(ll)(ii) to the
    Registrants Form 10-K for the year ended
    June 28, 1996).                                                                                                                                                                                                                            
|       | (10) | (h)*                     |  | C-COR Incorporated Amended and Restated Incentive
    Plan (incorporated by reference to Registrants Definitive
    Proxy Statement filed September 8, 2004).                                                                                                                                                                                                                                   
|       | (10) | (i)*                     |  | Form of Change of Control Agreement (Registrant
    has entered into five of such agreements with Douglas W.
    Engerman, Ken Wright, John O. Caezza, Mary G. Beahm,
    and Gerhard B. Nederlof, respectively) (incorporated by
    reference to Exhibit (10)(bb) to the Registrants
    Form 10-K for the year ended June 30, 2000).                                                         
|       | (10) | (j)                      |  | Financing Agreement dated November 7, 2002
    by and among The CIT Group/ Business Credit, Inc., C-COR.net
    Corp., Broadband Capital Corporation, Broadband Royalty
    Corporation, Broadband Management Solutions, LLC and Broadband
    Network Services, Inc. (incorporated by reference to the
    Registrants Form 10-Q dated September 27, 2002,
    and filed on November 12, 2002).
|       | (10) | (k)*                     |  | First Amendment to Amended and Restated Change of
    Control Agreement, dated November 13, 2002, between the
    Registrant and William T. Hanelly (incorporated by
    reference to the Registrants Form 10-Q dated
    December 27, 2002, and filed on February 10, 2003).                                                                                                                   

79



---



##### 



|       |      |                          |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ---- | ------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |      | Description of Documents
|       |      |                         
|       | (10) | (l)*                     |  | Third Amended and Restated Employment Agreement
    dated June 15, 2003, between the Registrant and
    David A. Woodle (incorporated by reference to
    Exhibit (10)(bb) to the Registrants Form 10-K
    for the year ended June 27, 2003).                                                                                                                                                     
|       | (10) | (m)*                     |  | Fiscal Year 2004 Profit Incentive Plan
    (PIP)  Employees (incorporated by reference to
    Exhibit (10)(cc) to the Registrants Form 10-K
    for the year ended June 27, 2003).                                                                                                                                                                                                                
|       | (10) | (n)*                     |  | Fiscal Year 2004 Profit Incentive Plan
    (PIP)  Executive Management (incorporated by
    reference to Exhibit (10)(dd) to the Registrants
    Form 10-K for the year ended June 27, 2003).                                                                                                                                                                                                     
|       | (10) | (o)(i)                   |  | Assignment of Claim Agreement, dated as of
    October 28, 2003, by and among C-COR.net Corp., in its own
    capacity and as successor by merger with Philips Broadband
    Networks, Inc., Broadband Network Services, Inc. and Satellite
    Asset Management, L.P. (incorporated by reference to
    Exhibit (10)(1) to the Registrants Form 10-Q for
    the quarter ended December 26, 2003).
|       | (10) | (o)(ii)                  |  | Escrow Agreement, dated as of October 28,
    2003, by and among C-COR.net Corp., in its own capacity and as
    successor by merger with Philips Broadband Networks, Inc.,
    Broadband Network Services, Inc. and Satellite Asset Management,
    L.P. (incorporated by reference to Exhibit (10)(2) to the
    Registrants Form 10-Q for the quarter ended
    December 26, 2003).             
|       | (10) | (p)*                     |  | Form of Indemnification Agreement (Registrant has
    entered into five of such agreements with Douglas W.
    Engerman, Ken Wright, John O. Caezza, William T.
    Hanelly, and Mary G. Beahm, respectively).                                                                                                                                                                                      
|       | (10) | (q)*                     |  | Form of Supplemental Retirement Plan (Registrant
    has entered into four of such agreements with Douglas W.
    Engerman, John O. Caezza, William T. Hanelly, and
    Mary G. Beahm, respectively).                                                                                                                                                                                               
|       | (10) | (r)*                     |  | Fiscal Year 2005 Profit Incentive Plan
    (PIP)  Employees.                                                                                                                                                                                                                                                                                                                                       
|       | (10) | (s)*                     |  | Fiscal Year 2005 Profit Incentive Plan
    (PIP)  Executive Management.                                                                                                                                                                                                                                                                                                                            
|       | (21) |                          |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                     
|       | (23) |                          |  | Consent of Independent Registered Public
    Accounting Firm.                                                                                                                                                                                                                                                                                                                                       
|       | (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 of Chief Executive Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                          
|       | (32) | (2)                      |  | Certification of Chief Financial Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                          



---



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All exhibits listed herein and not otherwise
    incorporated by reference to reports or registration statements
    of the Registrant were filed with the Registrants report
    on Form 10-K for the fiscal ended June 25, 2004. Such
    exhibits are incorporated herein by reference and made a part
    hereof.

80



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15 (d) 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)                 
|
| | /s/ DAVID A. WOODLE          
| |                              
| | Chief Executive Officer      
| | (principal executive officer)

September 8, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities indicated on the 8 day of September 2004.

|                                      |  |                                                 
|------------------------------------- |  | ------------------------------------------------
|                                     
|/s/ DAVID A. WOODLEDirector, Chairman |  |                                                 
|                                     
|/s/ MICHAEL J. FARRELL                |  | /s/ ANTHONY A. IBARGÜEN                         
|                                      |  |                                                 
|Director                              |  | Director                                        
|                                     
|/s/ RODNEY M. ROYSE                   |  | /s/ JOHN J. OMLOR                               
|                                      |  |                                                 
|Director                              |  | Director                                        
|                                     
|/s/ I.N. RENDALL HARPER, JR.          |  | /s/ JAMES E. CARNES                             
|                                      |  |                                                 
|Director                              |  | Director                                        
|                                     
|/s/ LANCE T. SHANER                   |  | /s/ JAMES J. TIETJEN                            
|                                      |  |                                                 
|Director                              |  | Director                                        
|                                     
|/s/ JOSEPH E. ZAVACKY                 |  | /s/ WILLIAM T. HANELLY                          
|                                      |  |                                                 
|Controller and Assistant Secretary    |  | Chief Financial Officer, Secretary and Treasurer
|(principal accounting officer)        |  | (principal financial officer)                   

81



---



##### 



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |         |    
|-------------------------------------------------- | ------------------------------------ | ------------ | --------- | --------------- |  | ----------------- | --------- | --------- | - | - | ------- | ------- | ---
|                                                   |                                      |              |           |                
|COL. A                                             |                                      | COL. B       |           | COL. C         
|                                                   |                                      |              |           |                
|                                                   |                                      |              |           |                
|                                                   |                                      |              |           | ADDITIONS      
|                                                   |                                      | Balance at   |           |                
|                                                   |                                      | Beginning of |           | Charged to Cost |  | Charged to Other 
|DESCRIPTION                                        |                                      | Period       |           | and Expenses    |  | Accounts-Describe
|                                                   |                                      |              |           |                 |  |                  
|Year ended June 25, 2004                           |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Reserves deducted from assets to which they apply: |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   | Allowance for Doubtful Accounts      |              | $         | 4,063,000       |  |                   | $         | (322,000  | ) |   | $       |        |    
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Reserves not deducted from assets:                 |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   | Workers Compensation Self-insurance |              | $         | 400,000         |  |                   | $         | 185,000   |   |   | $       |        |    
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Year ended June 27, 2003                           |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Reserves deducted from assets to which they apply: |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   | Allowance for Doubtful Accounts      |              | $         | 3,428,000       |  |                   | $         | (125,000  | ) |   | $       | 750,000 | (3)
|                                                   | Allowance for Notes Receivable       |              |           | 1,300,000       |  |                   |           | (800,000  | ) |   |         |        |    
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   |                                      | $            | 4,728,000 |                 |  | $                 | (925,000  | )         |   | $ | 750,000 |        
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Reserves not deducted from assets:                 |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   | Workers Compensation Self-insurance |              | $         | 994,000         |  |                   | $         | (417,000  | ) |   | $       |        |    
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Year ended June 28, 2002                           |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Reserves deducted from assets to which they apply: |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   | Allowance for Doubtful Accounts      |              | $         | 1,565,000       |  |                   | $         | 2,152,000 |   |   | $       |        |    
|                                                   | Allowance for Notes Receivable       |              |           |                |  |                   |           | 1,300,000 |   |   |         |        |    
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   |                                      | $            | 1,565,000 |                 |  | $                 | 3,452,000 |           |   | $ |        |        
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|Reserves not deducted from assets:                 |                                      |              |           |                 |  |                   |           |           |   |   |         |        
|                                                   | Workers Compensation Self-insurance |              | $         | 1,178,000       |  |                   | $         | 23,000    |   |   | $       |        |    
|                                                   |                                      |              |           |                 |  |                   |           |           |   |   |         |        

82



---



##### 



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                                   |                                      |             |         |               |      |   |           |           | 
|-------------------------------------------------- | ------------------------------------ | ----------- | ------- | ------------- | ---- | - | --------- | --------- | 
|COL. A                                             |                                      | COL. D      |         | COL. E       
|                                                   |                                      |             |         |              
|                                                   |                                      | Deductions- |         | Balance at   
|DESCRIPTION                                        |                                      | Describe    |         | End of Period
|                                                   |                                      |             |         |              
|Year ended June 25, 2004                           |                                      |             |         |               |      |   |           |          
|Reserves deducted from assets to which they apply: |                                      |             |         |               |      |   |           |          
|                                                   | Allowance for Doubtful Accounts      |             | $       | 537,000       | (1)  |   | $         | 3,204,000 | 
|                                                   |                                      |             |         |               |      |   |           |          
|Reserves not deducted from assets:                 |                                      |             |         |               |      |   |           |          
|                                                   | Workers Compensation Self-insurance |             | $       | 61,000        | (2)  |   | $         | 524,000   | 
|                                                   |                                      |             |         |               |      |   |           |          
|Year ended June 27, 2003                           |                                      |             |         |               |      |   |           |          
|Reserves deducted from assets to which they apply: |                                      |             |         |               |      |   |           |          
|                                                   | Allowance for Doubtful Accounts      |             | $       | (10,000       | )(1) |   | $         | 4,063,000 | 
|                                                   | Allowance for Notes Receivable       |             |         | 500,000       | (1)  |   |           |          | 
|                                                   |                                      |             |         |               |      |   |           |          
|                                                   |                                      | $           | 490,000 |               |      | $ | 4,063,000 |          
|                                                   |                                      |             |         |               |      |   |           |          
|Reserves not deducted from assets:                 |                                      |             |         |               |      |   |           |          
|                                                   | Workers Compensation Self-insurance |             | $       | 177,000       | (2)  |   | $         | 400,000   | 
|                                                   |                                      |             |         |               |      |   |           |          
|Year ended June 28, 2002                           |                                      |             |         |               |      |   |           |          
|Reserves deducted from assets to which they apply: |                                      |             |         |               |      |   |           |          
|                                                   | Allowance for Doubtful Accounts      |             | $       | 289,000       | (1)  |   | $         | 3,428,000 | 
|                                                   | Allowance for Notes Receivable       |             |         |              |      |   |           | 1,300,000 | 
|                                                   |                                      |             |         |               |      |   |           |          
|                                                   |                                      | $           | 289,000 |               |      | $ | 4,728,000 |          
|                                                   |                                      |             |         |               |      |   |           |          
|Reserves not deducted from assets:                 |                                      |             |         |               |      |   |           |          
|                                                   | Workers Compensation Self-insurance |             | $       | 207,000       | (2)  |   | $         | 994,000   | 
|                                                   |                                      |             |         |               |      |   |           |          



---



|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Uncollectible accounts and note receivable
    written off, net of recoveries and foreign exchange translation
    effects.
|   
|(2) | Workers compensation claims paid.                                                                                          
|   
|(3) | Allowance related to acquired operations.                                                                                  

83