-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kcceal/L/7upeWv+QuArvN5w8V8Ekd0EyF5WJEVfYC3g6UkVmbO54M85BQqMsYP1 aiPs6v+RDOEZGpernUUZRQ== 0000950135-06-005856.txt : 20060921 0000950135-06-005856.hdr.sgml : 20060921 20060921170854 ACCESSION NUMBER: 0000950135-06-005856 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060921 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060921 DATE AS OF CHANGE: 20060921 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3COM CORP CENTRAL INDEX KEY: 0000738076 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 942605794 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12867 FILM NUMBER: 061102655 BUSINESS ADDRESS: STREET 1: 350 CAMPUS DRIVE CITY: MARLBOROUGH STATE: MA ZIP: 01752-3064 BUSINESS PHONE: 508-323-5000 MAIL ADDRESS: STREET 1: 350 CAMPUS DRIVE CITY: MARLBOROUGH STATE: MA ZIP: 01752-3064 8-K 1 b624483ce8vk.htm 3COM CORPORATION FORM 8-K e8vk
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 21, 2006
3COM CORPORATION
(Exact name of registrant as specified in its charter)
         
Delaware
(State or other jurisdiction of
incorporation)
  0-12867
(Commission
File Number)
  94-2605794
(IRS Employer
Identification No.)
350 Campus Drive
Marlborough, Massachusetts
01752

(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: (508) 323-1000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


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ITEM 2.02 Results of Operations and Financial Condition
ITEM 9.01 Financial Statements and Exhibits
SIGNATURE
EXHIBIT INDEX
EX-99.1 Press Release dated September 21, 2006


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ITEM 2.02 Results of Operations and Financial Condition
Financial Results.
     On September 21, 2006, 3Com Corporation (the “Company”) issued a press release regarding its financial results for its fiscal quarter ended September 1, 2006. The full text of the press release is attached hereto as Exhibit 99.1.
     The information in Item 2.02 of this Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Non-GAAP Financial Measures.
     The attached press release and the related conference call contain non-GAAP financial measures. In evaluating the Company’s performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under generally accepted accounting principles in the United States (“GAAP”).
     Non-GAAP Operating Loss Measure. The Company uses a non-GAAP operating loss measure in its public statements. Management believes this non-GAAP measure helps indicate the Company’s baseline performance before gains, losses or charges that are considered by management to be outside on-going operating results. Accordingly, management uses this non-GAAP measure to gain a better understanding of the Company’s comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company’s GAAP financials, provides useful information to investors by offering:
    the ability to make more meaningful period-to-period comparisons of the Company’s on-going operating results;
 
    the ability to better identify trends in the Company’s underlying business and perform related trend analysis;
 
    a higher degree of transparency for certain expenses (particularly when a specific charge impacts multiple line items);
 
    a better understanding of how management plans and measures the Company’s underlying business; and
 
    an easier way to compare the Company’s most recent results of operations against investor and analyst financial models.
     The non-GAAP operating loss measure used by the Company is defined to exclude the following charges and benefits: restructuring, amortization, in-process research and development, stock-based compensation expense and special items that management believes are unusual and outside of the Company’s on-going operations. There are no special items for the periods presented in the press release. Management believes the costs related to restructuring activities are not indicative of the Company’s normal operating costs. The restructuring charge consists primarily of severance expense and facility closure costs. Management also believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both the Company’s newly acquired and long-held businesses. Also, amortization is a non-cash charge for several of the periods presented. In addition, the Company has non-recurring in-process research and development expenses which are non-cash and related to acquisitions as opposed to the Company’s core operations. Finally, stock-based compensation expenses are non-cash charges that relate to restricted stock amortization and stock-based compensation costs associated with acquisitions, as well as additional stock-based compensation expense that

 


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represents the fair value of stock-based compensation required pursuant to the adoption in the current period of FAS 123 (R). The expense related to acquisitions is not part of the Company’s normal operating costs and is non-cash. The FAS 123 (R)-related expense is excluded because management believes as a non-cash charge it does not provide a meaningful indicator of the core operating business results. Management manages the business primarily without regard to these non-cash expenses. In addition, because the calculation of these expenses is dependent on factors such as forfeiture rate, volatility of the Company’s stock and a risk-free interest rate, all of which are subject to fluctuation, these charges are expected to be variable over time, and therefore may not provide a meaningful comparison of core operating results among periods. It is useful to note that these factors are generally outside the Company’s control.
     General. These non-GAAP measures have limitations, however, because they do not include all items of income and expense that impact the Company’s operations. Management compensates for these limitations by also considering the Company’s GAAP results. The non-GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating loss, net loss and loss per share, and should not be considered measures of the Company’s liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measures reported by other companies.
ITEM 9.01 Financial Statements and Exhibits
          (c) Exhibits
     
Exhibit Number   Description
 
   
99.1
  Text of Press Release, dated September 21, 2006, titled “3Com Reports First Quarter Fiscal Year 2007 Results.”

 


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SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  3COM CORPORATION
 
 
Date: September 21, 2006  By:   /S/ DONALD M. HALSTED, III    
    Donald M. Halsted, III
Executive Vice President and Chief Financial Officer 
 
 

 


Table of Contents

EXHIBIT INDEX
     
Exhibit Number   Description
 
   
99.1
  Text of Press Release, dated September 21, 2006, titled “3Com Reports First Quarter Fiscal Year 2007 Results.”

 

EX-99.1 2 b624483cexv99w1.htm EX-99.1 PRESS RELEASE DATED SEPTEMBER 21, 2006 exv99w1
 

Exhibit 99.1
FOR IMMEDIATE RELEASE
For more information contact:
     
Investor Relations
  Media Relations
John Vincenzo
  Joseph Vukson
508.323.1260
  508.323.1228 
john_vincenzo@3com.com
  joseph_vukson@3com.com
3COM REPORTS FIRST QUARTER FISCAL YEAR 2007 RESULTS
Delivers Double Digit Year-over-Year Revenue Growth;
Continues Year-over-Year and Sequential Improvements in Bottom-Line Performance
First Quarter Highlights
  GAAP loss per share was $0.04 in the first quarter, improved from an $0.11 loss per share in the prior-year quarter; and
 
  GAAP revenue for the first quarter was $300 million, a 69 percent increase over the prior-year quarter due primarily to the inclusion of Huawei-3Com results in the current period; and a 16 percent increase over the prior year quarter’s non-GAAP pro forma revenue, assuming the consolidation of Huawei-3Com from the beginning of the period.
MARLBOROUGH, MASS. — September 21, 2006 — 3Com Corporation (NASDAQ: COMS) today reported consolidated financial results for its first quarter-ended September 1, 2006, including a full three months of results from its majority-owned joint-venture Huawei-3Com (H-3C). This quarter marks the first time 3Com results include the impact of adopting FAS 123 (R). 3Com also reports segment results for two operating segments, Secure, Converged Networking (SCN) and H-3C.

 


 

Revenue
     Generally Accepted Accounting Principles (GAAP) revenue for the first quarter of fiscal 2007 was $300 million, a 69 percent increase compared to same period in fiscal 2006. This growth is primarily the result of the inclusion of H-3C revenue in the current period offset, in part, by a decline in revenue from the SCN segment. Compared to non-GAAP pro forma revenue for the prior-year period, which includes the results of H-3C as if consolidated from the beginning of the period, 3Com’s revenue grew 16 percent. This increase was principally due to growth in H-3C revenue, offset in part by a decline in the SCN segment.
Gross Profit, Operating Expense and Operating Loss — GAAP Basis
     3Com’s gross profit for the first quarter of fiscal 2007 was $136 million, or 46 percent of revenue, which is a six percentage point improvement compared to the prior-year quarter, driven primarily by the inclusion of H-3C results in the current period results. First quarter fiscal 2007 operating expenses were $157 million, resulting in an operating loss of $21 million. This compares to a $47 million operating loss in the first quarter of fiscal 2006. The $26 million improvement comprises $14 million due to reduced operating loss in the SCN segment and $12 million of operating income from H-3C’s results.
Non-GAAP Operating Loss1
     The first quarter fiscal 2007 non-GAAP operating loss was $5 million, a $34 million improvement compared to the prior-year quarter’s non-GAAP operating loss of $39 million. GAAP operating loss improved less than non-GAAP operating loss due to the inclusion of increased amortization expenses for the H-3C acquisition which are included in GAAP results.
Net Loss and EPS — GAAP basis
 
1   The non-GAAP operating loss measure used by the company excludes restructuring, amortization, in-process research and development, stock-based compensation expense and, if applicable in the relevant period, unusual items. The required reconciliations and other disclosures are set forth later in this press release in Table D and in the Current Report on Form 8-K furnished to the SEC on the date hereof.

 


 

     The first quarter fiscal 2007 net loss was $14 million, or $0.04 per share, including restructuring, amortization and stock-based compensation expense of $15 million, or $0.04 per share. In the same period of the prior year, the net loss was $42 million, or $0.11 per share, including restructuring, amortization and stock based compensation expense of $8 million, or $0.02 per share2.
Cash and Short-Term Securities
     3Com ended the quarter with $916 million in cash, cash equivalents and short-term investments, including the consolidated cash, cash equivalents and short-term investments of H-3C, which totaled $197 million. The net increase of $52 million from the balance at the end of the previous quarter is due in large part to the sale of certain non-core assets.
     “I am pleased with our overall consolidated results for the quarter, particularly the growth of H-3C and the continued improvements in our expense control for our SCN segment,” commented Edgar Masri, 3Com’s President and Chief Executive Officer. “Our consolidated results for our North America, EMEA and Asia Pacific regions grew sequentially and our networking, security, voice and services businesses all grew year-over-year. We now must bring a level of consistency to all areas of our business so each group increases sales and profitability.”
Conference Call
     Management will host a conference call and webcast at 5 p.m. EDT today to discuss quarterly highlights, historical financial results and expectations of future performance. To participate on the call, U.S. and international parties may dial (913) 981-4902. Alternatively, interested parties may listen to the live broadcast of the call over the Internet at 3Com’s Investor Relations Web site (www.3com.com/IR) in the Earnings webcast section.
 
2   Our results for periods prior to the current period, in which we adopted FAS 123 (R), included stock based compensation expense primarily related to restricted stock amortization and stock-based compensation costs associated with acquisitions.

 


 

Safe Harbor
This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including forward-looking statements regarding our goal to increase sales and profitability. These statements are neither promises nor guarantees, but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including, without limitation, risks relating to: our ability to return to profitability in light of significant historical net losses; our focus on enterprise networking and fluctuating results based on conditions in that market; our ability to respond effectively to increased competition; our ability to compensate for lower sales or cash outlays with cost reductions sufficient to generate positive net income or cash flow; the consequences of expense reduction; our dependence on our joint venture in China (H-3C); H-3C’s success; economic, political and social events in China; H-3C’s dependence on Huawei; our ability to evolve our financial and managerial control and systems; our ability to consummate and finance a transaction with Huawei to purchase additional interest in H-3C; the consequences of Huawei winning the bidding process, if commenced; our ability to identify and respond to market trends; our ability to hire and retain qualified personnel; our ability to use strategic alliances; the success of our outsourcing strategy; the market acceptance of our products and the inclusion of our technology in industry standards; our reliance on a small number of resellers; distributors reducing inventories of our products; our ability to successfully develop relationships with system integrators, service providers and enterprise VARs; Huawei’s minority rights in our H-3C venture; competition with Huawei; the success of acquisitions; our ability to manage our supply chain; the ability of our manufacturing outsourcing strategy to meet cost, quality and performance standards; China’s reforms and changing economic environment; uncertainty with respect to China’s legal system; possible reduction in Chinese tax benefits; restrictions on H-3C paying dividends; our ability to maintain effective internal controls that include H-3C; currency rate fluctuations; intellectual property rights, enforcement and defense; stock price volatility; and other risks detailed in the Company’s filings with the SEC, including those discussed in the Company’s annual report filed with the SEC on Form 10-K for the year ended June 2, 2006.
3Com Corporation does not intend, and disclaims any obligation, to update any forward-looking information contained in this release or with respect to the announcements described herein.
References to the financial information included in this press release and the related conference call reflect rounded numbers and should be considered approximate values.
About 3Com Corporation
3Com Corporation is a leading provider of secure, converged voice and data networking solutions for enterprises of all sizes. 3Com offers a broad line of innovative products backed by world class sales, service and support, which excel at delivering business value for its customers. Through its TippingPoint division, 3Com is the leading provider of network-based intrusion prevention systems that deliver in-depth application protection, infrastructure protection, and performance protection. 3Com also is the majority owner of Huawei-3Com Co., Ltd. (H-3C), a China-based joint venture formed by 3Com and Huawei in November 2003. H-3C brings innovative and cost-effective product development and manufacturing and a strong footprint in one of the world’s most dynamic markets. For further information, please visit www.3com.com, or the press site www.3com.com/pressbox.

 


 

# # #
Copyright © 2006 3Com Corporation. 3Com and the 3Com logo are registered trademarks and TippingPoint is a trademark of 3Com Corporation. All other company and product names may be trademarks of their respective holders.

 


 

3Com Corporation
Condensed Consolidated Statements of Operations

(in thousands, except per share data)
(unaudited)
TABLE A
                         
    Three Months Ended  
    September 1,     June 2,     September 2,  
    2006     2006     2005  
Sales
  $ 300,144     $ 255,276     $ 177,636  
Cost of sales
    163,715       143,999       107,570  
 
                 
Gross profit
    136,429       111,277       70,066  
 
                       
Operating expenses:
                       
Sales and marketing
    77,122       69,860       70,118  
Research and development
    47,793       32,373       21,197  
General and administrative
    20,276       16,571       18,213  
Amortization of intangibles
    12,181       9,317       3,862  
In-process research and development
          650        
Restructuring charges
    (75 )     3,426       3,361  
 
                 
Total operating expenses
    157,297       132,197       116,751  
 
                 
Operating loss
    (20,868 )     (20,920 )     (46,685 )
 
                       
Gain (loss) on investments, net
    2,292       1,063       (414 )
Interest and other income, net
    14,808       17,621       5,989  
 
                 
Loss from operations before income taxes, equity interest in unconsolidated Huawei - 3Com joint venture, and minority interest of consolidated joint venture
    (3,768 )     (2,236 )     (41,110 )
 
                       
Income tax provision
    (1,358 )     (5,115 )     (915 )
Equity interest of 3Com in the income (loss) of unconsolidated Huawei - 3Com joint venture (1)
          3,251       (16 )
Minority Interest of Huawei in the income of consolidated Huawei - 3Com joint venture (2)
    (8,942 )     (11,074 )      
 
                 
 
                       
Net loss
  $ (14,068 )   $ (15,174 )   $ (42,041 )
 
                 
Basic and diluted net loss per share:
  $ (0.04 )   $ (0.04 )   $ (0.11 )
 
                 
Shares used in computing basic and diluted per share amounts
    391,885       390,245       383,760  
    (1) Represents 3Com’s interest in the Huawei-3Com joint venture for the period on and prior to February 1, 2006
 
    (2) Represents Huawei’s interest in the Huawei-3Com joint venture for the period subsequent to February 1, 2006

 


 

3Com Corporation
Condensed Consolidated Balance Sheets

(in thousands)
(unaudited)
TABLE B
                 
    September 1,     June 2,  
    2006     2006  
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalent
  $ 554,169     $ 501,097  
Short-term investments
    361,490       363,250  
Notes Receivable
    50,935       63,224  
Accounts receivable, net
    120,848       115,120  
Inventories, net
    171,366       148,819  
Other current assets
    56,970       57,835  
 
           
Total current assets
    1,315,778       1,249,345  
 
               
Property & equipment, net
    80,309       89,109  
Other assets
    28,929       56,803  
Goodwill
    354,259       354,259  
Intangibles, net
    99,614       111,845  
 
           
Total assets
  $ 1,878,889     $ 1,861,361  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 148,326     $ 153,245  
Accrued liabilities and other
    338,342       318,036  
 
           
Total current liabilities
    486,668       471,281  
 
               
Deferred revenue and long-term obligations
    13,299       13,788  
Minority Interest of Huawei (a)
    182,872       173,930  
Stockholders’ equity
    1,196,050       1,202,362  
 
           
Total liabilities and stockholders’ equity
  $ 1,878,889     $ 1,861,361  
 
           
(a)   Represents Huawei’s 49 percent ownership in the H-3C joint-venture

 


 

Additional Financial Data
(in thousands)
(unaudited)
TABLE C
Sales by Geography (a)
                         
    Three Months Ended  
    September 1,     June 2,     September 2,  
    2006     2006     2005  
North America
  $ 58,423     $ 57,513     $ 68,624  
Latin and South America
    15,319       18,778       14,117  
Europe, Middle East and Africa
    69,534       67,485       74,908  
Asia Pacific Rim
    156,868       111,500       19,987  
 
                 
Total Sales
  $ 300,144     $ 255,276     $ 177,636  
 
                 
[a] SCN segment sales are included in geographic categories based on the location of the end customer. H-3C segment sales included in the geographic categories are based upon the hub locations of OEM partners in the case of OEM sales and the location of end-customers in the case of direct customer sales
Sales by Product Category
                         
    Three Months Ended  
    September 1,     June 2,     September 2,  
    2006     2006     2005  
Networking
  $ 244,033     $ 198,838     $ 127,054  
Security
    25,462       24,681       16,876  
Voice
    15,949       14,532       15,408  
Services
    8,351       8,757       7,835  
Connectivity Products
    6,349       8,468       10,463  
 
                 
Total Sales
  $ 300,144     $ 255,276     $ 177,636  
 
                 

 


 

3Com Corporation
Reconciliation of Non-GAAP Operating Loss

(in thousands)
(unaudited)
TABLE D
                         
    Three Months Ended  
    September 1,     June 2,     September 2,  
    2006     2006     2005  
GAAP operating loss
  $ (20,868 )   $ (20,920 )   $ (46,685 )
Restructuring
    (75 )     3,426       3,361  
Amortization of intangible assets
    12,181       9,317       3,862  
Stock-based compensation expense [a]
    3,287       1,686       635  
In-process research and development [b]
          650        
 
                 
Non-GAAP operating loss
  $ (5,475 )   $ (5,841 )   $ (38,827 )
 
                 
[a] Stock-based compensation expense is included in the following cost and expense categories by period (dollars in millions):
Cost of sales
  $ 0.3     $     $  
Sales and marketing
    1.2       0.3       0.1  
Research and development
    1.2       1.1        
General and administrative
    0.6       0.3       0.5  
[b] This charge is the recognition of the estimated value of in-process R&D recognized from the H-3C 2 percent majority ownership acquisition

 


 

3Com Corporation
Segment Reporting

(in thousands)
(unaudited)
TABLE E
                                                 
    Operating Segments  
    SCN     H-3C     Eliminations  
                            For the Period              
    Three Months Ended     Three Months Ended     Three Months Ended     February 2, 2006 -     Three Months Ended     Three Months Ended  
    September 1, 2006     June 2, 2006     June 30, 2006     March 31, 2006     September 1, 2006     June 2, 2006  
Revenue
  $ 155,823     $ 165,808     $ 169,968     $ 108,290     $ (25,647 )(1)   $ (18,822 )(1)
Gross profit
    56,345       59,840       80,084       51,437                  
Total sales and marketing, research and development, and general and administrative expenses
    85,403       88,601       59,788       30,203                  
Other operating expenses (2)
    3,516       7,016       8,590       6,377                  
Operating income (loss)
    (32,574 )     (35,777 )     11,706       14,857                  
Net income (loss)
    (23,375 )     (28,919 )     18,249       21,568       (8,942 )(3)     (7,823 )(3)
    (1) Represents eliminations for inter-company revenue during the respective periods
 
    (2) Represents restructuring and amortization in all periods presented plus in-process research and development included in the H-3C operating segment of $650 thousand in the two month period presented
 
    (3) Represents minority interest of Huawei in the income of H-3C for April, May and June of 2006 for the period ended September 1, 2006 and February and March 2006 for the period ended June 2, 2006

 

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