EX-99.1 2 b705693cexv99w1.htm EX-99.1 TEXT OF PRESS RELEASE, DATED JUNE 24, 2008 exv99w1
Exhibit 99.1
(Logo)
FOR IMMEDIATE RELEASE
For more information contact:
         
Media & Investor Relations
  Media Relations
John Vincenzo
  Kevin Flanagan
508.323.1260
  508.323.1101
john_vincenzo@3com.com
  kevin_flanagan@3com.com
3COM REPORTS FOURTH QUARTER AND FULL-YEAR RESULTS FOR FISCAL 2008
MARLBOROUGH, MASS. — June 24, 2008 — 3Com Corporation (NASDAQ: COMS) today reported financial results for its fiscal 2008 fourth quarter, which ended May 30, 2008. Revenue in the quarter was $321.3 million compared to revenue of $310.9 million in the corresponding period in fiscal 2007, a 3 percent increase. For the full year, revenue was $1.29 billion compared to full-year fiscal 2007 revenue of $1.27 billion, an increase of 2 percent.
     “In FY08 we made progress in several key areas, including growing revenue year-over-year in almost every region, increasing our gross margins and generating cash from operations,” said 3Com CEO Bob Mao. “To build on these improvements, we must increasingly operate as one global enterprise. Integration of our worldwide operations will support our goals of profitable revenue growth and increasing market share, as well as result in cost savings.”

 

 

     Net loss in the quarter was $166.7 million, or $0.41 per share, compared with a net loss of $66.2 million, or $0.17 per share, in the fourth quarter of fiscal year 2007. In the fourth quarter of fiscal 2008, 3Com recorded a non-cash goodwill impairment charge of $158.0 million, or $0.39 per share arising from the company’s 2005 acquisition of TippingPoint. 3Com’s recent stock price decline triggered an impairment evaluation required by applicable accounting regulations. The net loss in the quarter increased primarily due to the impairment charge, offset by the absence of certain one-time charges in the prior-year period. On a non-GAAP basis, net income was $35.6 million, or $0.09 per diluted share, compared with net income of $4.6 million, or $0.01 per diluted share, for the fourth quarter of fiscal year 2007.
     For fiscal year 2008 3Com incurred a net loss of $228.8 million, compared with a net loss in fiscal year 2007 of $88.6 million. The increase in the net loss is primarily explained by the inclusion of the impairment charge offset by the absence of certain one-time charges in the prior-year period. On a non-GAAP basis 3Com generated net income for the full year of $94.9 million, or $0.23 per diluted share, compared to net income of $18.5 million, or $.05 per diluted share, in fiscal 2007.
     In the fourth quarter, 3Com generated $63.3 million in cash from operations. 3Com’s cash and cash equivalents balance at May 30, 2008 was $503.6 million.
     Management will host a conference call and Webcast at 5 p.m. EDT, Tuesday, June 24, 2008, to discuss the company’s financial results. To participate on the call, U.S. and international parties may dial 719-325-4788. 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/investor) in the Earnings Webcast section.
     For those unable to participate on the live call, a 24-hour replay will be available starting at 8:00 p.m. EDT on June 25, 2008 by dialing (719) 457-0820 or (888) 203-1112, Confirmation Code: 1308284. A replay also will be available over the Internet at 3Com’s Investor Relations Web site (www.3com.com/investor) in the Earnings Webcast section. The replay will be available for approximately three weeks after posting.
     For additional financial information, please refer to the Investor Relations section of our Web site.
This news 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 business objectives and goals, potential cost savings and integration. 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 grow profitably, expand outside of China, maintain and expand in China, improve expense controls while making investments to grow and other risks detailed in the Company’s filings with the SEC, including those discussed in the Company’s quarterly report filed with the SEC on Form 10-Q for the quarter ended February 28, 2008.

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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.
The non-GAAP measures used by the Company exclude restructuring, amortization, in-process research and development, stock-based compensation expense and, if applicable in the relevant period, unusual items, such as those detailed in the tables attached to this press release. The required reconciliations and other disclosures for all non-GAAP measures used by the Company are set forth later in this press release, in the Current Report on Form 8-K furnished to the SEC on the date hereof and/or in the investor relations section of our Web site, www.3com.com.
References to the financial information included in this news release reflect rounded numbers and should be considered approximate values.
About 3Com Corporation
3Com Corporation (NASDAQ: COMS) 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. 3Com also includes H3C Technologies Co., Limited (H3C), a China-based provider of network infrastructure products. H3C brings high-performance, cost-effective product development and a strong footprint in one of the world’s most dynamic markets. Through its TippingPoint division, 3Com is a leading provider of network-based intrusion prevention systems that deliver in-depth application protection, infrastructure protection, and performance protection. For further information, please visit www.3com.com, or the press site www.3com.com/pressbox.
# # #
Copyright © 2008 3Com Corporation. 3Com, the 3Com logo and TippingPoint are registered trademarks and H3C is a trademark of 3Com Corporation or its wholly owned subsidiaries. All other company and product names may be trademarks of their respective holders.

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3Com Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
TABLE A
                                 
    Three Months Ended     Twelve Months Ended  
    May 30,     June 1,     May 30,     June 1,  
    2008     2007     2008     2007  
Sales
   $ 321,254     $ 310,920     $ 1,294,879     $ 1,267,481  
Cost of sales
     147,529       172,483       640,424       689,027  
 
                        
 
                                
Gross profit
     173,725       138,437       654,455       578,454  
 
                                
Operating expenses:
                                
Sales and marketing
     78,402       89,048       316,019       319,696  
Research and development
     51,614       71,268       206,653       215,632  
General and administrative
     50,310       28,791       129,116       93,875  
Amortization of intangibles
     25,626       7,897       103,670       42,525  
Goodwill impairment
     157,977       —       157,977       —  
In-process research and development
     —       34,053       —       35,753  
Restructuring charges
     193       718       4,501       3,494  
 
                        
Total operating expenses
     364,122       231,775       917,936       710,975  
 
                        
 
                                
Operating loss
     (190,397 )     (93,338 )     (263,481 )     (132,521 )
 
                                
Gain on investments, net
     109       344       460       1,143  
Interest (expense) income, net
     (2,675 )     7,598       (13,087 )     40,863  
Other income, net
     11,370       11,780       44,364       38,291  
 
                        
 
Loss from operations before income taxes and minority interest of consolidated joint venture
     (181,593 )     (73,616 )     (231,744 )     (52,224 )
 
                                
Income tax benefit (provision)
     14,870       (5,126 )     2,903       (10,173 )
 
Minority interest of Huawei in the income of consolidated joint venture (1)
     —       12,516       —       (26,192 )
 
                        
 
Net loss
   $ (166,723 )   $ (66,226 )     (228,841 )     (88,589 )
 
                        
 
Basic and diluted loss per share
   $ (0.41 )   $ (0.17 )   $ (0.57 )   $ (0.22 )
 
                        
 
Shares used in computing basic and diluted per share amounts
     401,922       395,988       399,524       393,894  
 
(1)   Represents Huawei’s 49% interest in the H3C joint venture for the period of minority interest that ended with 3Com’s acquisition of the remaining 49% interest on March 29, 2007.

 

 

3Com Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
TABLE B
                 
    May 30,     June 1,  
    2008     2007  
ASSETS
                
 
                
Current assets:
                
Cash and equivalents
   $ 503,644     $ 559,217  
Notes receivable
     65,116       77,368  
Accounts receivable, net
     116,281       102,952  
Inventories, net
     90,831       107,988  
Other current assets
     34,033       50,157  
 
            
 
                
Total current assets
     809,905       897,682  
 
                
Property & equipment, net
     54,314       76,460  
Goodwill
     609,297       766,444  
Intangibles, net
     278,385       371,289  
Deposits and other assets
     23,229       39,217  
 
            
 
Total assets
   $ 1,775,130     $ 2,151,092  
 
            
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
                
Current liabilities:
                
Accounts payable
   $ 90,280     $ 110,430  
Current portion of long-term debt
     48,000       94,000  
Accrued liabilities and other
     384,429       435,638  
 
            
 
                
Total current liabilities
     522,709       640,068  
 
                
Deferred taxes and long-term obligations
     4,119       23,725  
Long-term debt
     253,000       336,000  
Stockholders’ equity
     995,302       1,151,299  
 
            
 
                
Total liabilities and stockholders’ equity
   $ 1,775,130     $ 2,151,092  
 
            

 

 

3Com Corporation
Reconciliation of Non-GAAP Measures
(in thousands, except margin and per-share data)
(unaudited)
TABLE C
                                 
    Three Months Ended     Twelve Months Ended  
    May 30,     June 1,     May 30,     June 1,  
    2008     2007     2008     2007  
GAAP operating loss
   $ (190,397 )   $ (93,338 )   $ (263,481 )   $ (132,521 )
Restructuring
     193       718       4,501       3,494  
Amortization of intangible assets
     25,626       7,897       103,670       42,525  
In-process research and development [a]
     —       34,053       —       35,753  
Impacts to cost of sales from purchase accounting adjustments to inventory [b]
     —       63       11,176       63  
Patent litigation success fee [c]
     9,000       —       9,000       —  
VAT recovery dispute [d]
     6,069       —       6,069       —  
IPO fees write-off [e]
     4,864       —       4,864       —  
Goodwill impairment [f]
     157,977       —       157,977       —  
EARP change in control expense [g]
     —       57,308       —       57,308  
Stock-based compensation expense [h]
     9,793       4,962       25,206       20,095  
Acquiree expensed acquisition costs [i]
     43       —       10,631       —  
 
                        
Non-GAAP operating income
   $ 23,168     $ 11,663     $ 69,613     $ 26,717  
 
                        
 
                                
GAAP net loss
   $ (166,723 )   $ (66,226 )   $ (228,841 )   $ (88,589 )
Restructuring
     193       718       4,501       3,494  
Amortization of intangible assets
     25,626       7,897       103,670       42,525  
In-process research and development [a]
     —       34,053       —       35,753  
Impacts to cost of sales from purchase accounting adjustments to inventory [b]
     —       63       11,176       63  
Huawei’s 49% minority interest in H3C’s amortization as shown above
     —       (30,256 )     —       (41,913 )
Patent litigation success fee [c]
     9,000       —       9,000       —  
VAT recovery dispute [d]
     6,069       —       6,069       —  
IPO fees write-off [e]
     4,864       —       4,864       —  
Goodwill impairment [f]
     157,977       —       157,977       —  
EARP change in control expense [g]
     —       57,308       —       57,308  
Stock-based compensation expense [h]
     9,793       4,962       25,206       20,095  
Acquiree expensed acquisition costs [i]
     43       —       10,631       —  
Gain on sales of assets [j]
     —       —       (6,155 )     (1,300 )
Gain on sale of investment portfolio [k]
     —       —       —       (2,000 )
(Gain) loss on insurance settlement [l]
     —       (3,908 )     2,066       (6,908 )
Tax reserve release [m]
     (11,284 )     —       (11,284 )     —  
Charge related to change in tax rates [n]
     —       —       6,056       —  
 
                        
Non-GAAP net income
   $ 35,558     $ 4,611     $ 94,936     $ 18,528  
 
                        
 
                                
GAAP net loss per share
   $ (0.41 )   $ (0.16 )   $ (0.57 )   $ (0.22 )
Restructuring
     0.00       0.00       0.01       0.01  
Amortization of intangible assets
     0.06       0.02       0.26       0.11  
In-process research and development [a]
     —       0.09       —       0.09  
Impacts to cost of sales from purchase accounting adjustments to inventory [b]
     —       0.00       0.03       0.00  
Huawei’s 49% minority interest in H3C’s amortization as shown above
     —       (0.08 )     —       (0.10 )
Patent litigation success fee [c]
     0.02       —       0.02       —  
VAT recovery dispute [d]
     0.02       —       0.02       —  
IPO fees write-off [e]
     0.01       —       0.01       —  
Goodwill impairment [f]
     0.39       —       0.39       —  
EARP change in control expense [g]
     —       0.14       —       0.14  
Stock-based compensation expense [h]
     0.03       0.01       0.06       0.05  
Acquiree expensed acquisition costs [i]
     0.00       —       0.03       —  
Gain on sales of assets [j]
     —       —       (0.02 )     (0.00 )
Gain on sale of investment portfolio [k]
     —       —       —       (0.01 )
(Gain) loss on insurance settlement [l]
     —       (0.01 )     0.01       (0.02 )
Tax reserve release [m]
     (0.03 )     —       (0.03 )     —  
Charge related to change in tax rates [n]
     —       —       0.01       —  
 
                        
Non-GAAP net income per share, diluted
   $ 0.09     $ 0.01       0.23       0.05  
 
                        
Shares used in computing diluted per share amounts
     406,139       401,334       404,193       399,680  
 
                                
GAAP net loss margin
     -51.9 %     -21.3 %     -17.7 %     -7.0 %
Restructuring
     0.1 %     0.2 %     0.3 %     0.3 %
Amortization of intangible assets
     8.0 %     2.5 %     8.0 %     3.4 %
In-process research and development [a]
     0.0 %     11.0 %     0.0 %     2.8 %
Impacts to cost of sales from purchase accounting adjustments to inventory [b]
     0.0 %     0.0 %     0.9 %     0.0 %
Huawei’s 49% minority interest in H3C’s amortization as shown above
     0.0 %     -9.7 %     0.0 %     -3.3 %
Patent litigation success fee [c]
     2.8 %     0.0 %     0.7 %     0.0 %
VAT recovery dispute [d]
     1.9 %     0.0 %     0.5 %     0.0 %
IPO fees write-off [e]
     1.5 %     0.0 %     0.4 %     0.0 %
Goodwill impairment [f]
     49.2 %     0.0 %     12.2 %     0.0 %
EARP change in control expense [g]
     0.0 %     18.4 %     0.0 %     4.5 %

 

 

                                 
    Three Months Ended     Twelve Months Ended  
    May 30,     June 1,     May 30,     June 1,  
    2008     2007     2008     2007  
Stock-based compensation expense [h]
     3.0 %     1.6 %     1.9 %     1.6 %
Acquiree expensed acquisition costs [i]
     0.0 %     0.0 %     0.8 %     0.0 %
Gain on sales of assets [j]
     0.0 %     0.0 %     -0.5 %     -0.1 %
Gain on sale of investment portfolio [k]
     0.0 %     0.0 %     0.0 %     -0.2 %
(Gain) loss on insurance settlement [l]
     0.0 %     -1.2 %     0.2 %     -0.5 %
Tax reserve release [m]
     -3.5 %     0.0 %     -0.9 %     0.0 %
Charge related to change in tax rates [n]
     0.0 %     0.0 %     0.5 %     0.0 %
 
                        
Non-GAAP net income margin
     11.1 %     1.5 %     7.3 %     1.5 %
 
                        
 
[a]   In-process research and development from our acquisition of Roving Planet.
 
[b]   Results from our 49% H3C acquisition transaction.
 
[c]   Success fee for patent litigation.
 
[d]   Disputed VAT recovery receivable no longer deemed collectible.
 
[e]   Write-off capitalized costs of proposed IPO.
 
[f]   Goodwill impairment related to loss in value of a reporting unit.
 
[g]   These charges represent the initial portion of the Equity Appreciation Rights Plan for H3C employees triggered by 3Com’s acquisition of the remaining 49% ownership of H3C. They are included in the following cost and expense categories by period:
                 
    Three and Twelve Months Ended
    May 30,   June 1,
    2008   2007
Cost of sales
     —       5,716  
Sales and marketing
     —       17,727  
Research and development
     —       27,230  
General and administrative
     —       6,635  
 
[h]   Stock-based compensation expense is included in the following cost and expense categories by period:
                                 
    Three Months Ended   Twelve Months Ended
    May 30,   March 2,   May 30,   June 1,
    2008   2007   2008   2007
Cost of sales
     731       457       2,134       1,576  
Sales and marketing
     1,830       1,398       5,976       5,756  
Research and development
     1,199       848       3,993       4,621  
General and administrative
     6,033       2,259       13,103       8,142  
 
[i]   These expenses relate to the proposed acquisition of the Company in September 2007, the deal was terminated by the acquisitioner in April 2008.
 
[j]   The gain relates to patent sales in fiscal 2008 and a patent sale in fiscal 2007.
 
[k]   This gain relates to the sale of our venture investment portfolio.
 
[l]   This loss relates to the recording of final costs associated with our Hemel facility in fiscal 2008. Fiscal 2007 relates to insurance settlements received for the Hemel facility.
 
[m]   This gain relates to the release of tax reserves due to settlements with foreign tax authorities.
 
[n]   This expense relates to a $6.1 million non-cash deferred tax liability provision in the PRC to reflect an increase in statutory tax rates.