EX-99.2 3 b705693cexv99w2.htm EX-99.2 SUPPLEMENTAL FINANCIAL INFORMATION FISCAL QUARTER AND YEAR ENDED MAY 30, 2008 exv99w2
Exhibit 99.2
3Com Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
TABLE A
                                         
    Three Months Ended     Twelve Months Ended  
    May 30,     February 29,     June 1,     May 30,     June 1,  
    2008     2008     2007     2008     2007  
Sales
   $ 321,254     $ 336,390     $ 310,920     $ 1,294,879     $ 1,267,481  
Cost of sales
     147,529       156,716       172,483       640,424       689,027  
 
                              
 
                                        
Gross profit
     173,725       179,674       138,437       654,455       578,454  
 
                                        
Operating expenses:
                                        
Sales and marketing
     78,402       82,428       89,048       316,019       319,696  
Research and development
     51,614       50,530       71,268       206,653       215,632  
General and administrative
     50,310       26,268       28,791       129,116       93,875  
Amortization of intangibles
     25,626       25,778       7,897       103,670       42,525  
Goodwill impairment
     157,977       —       —       157,977       —  
In-process research and development
     —       —       34,053       —       35,753  
Restructuring charges
     193       736       718       4,501       3,494  
 
                              
Total operating expenses
     364,122       185,740       231,775       917,936       710,975  
 
                              
 
                                        
Operating loss
     (190,397 )     (6,066 )     (93,338 )     (263,481 )     (132,521 )
 
                                        
Gain on investments, net
     109       23       344       460       1,143  
Interest (expense) income, net
     (2,675 )     (2,879 )     7,598       (13,087 )     40,863  
Other income, net
     11,370       10,568       11,780       44,364       38,291  
 
                              
 
                                        
(Loss) income from operations before income taxes and minority interest of consolidated joint venture
     (181,593 )     1,646       (73,616 )     (231,744 )     (52,224 )
 
                                        
Income tax benefit (provision)
     14,870       (9,486 )     (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 )   $ (7,840 )   $ (66,226 )   $ (228,841 )   $ (88,589 )
 
                              
 
                                        
Basic and diluted loss per share
   $ (0.41 )   $ (0.02 )   $ (0.17 )   $ (0.57 )   $ (0.22 )
 
                              
Shares used in computing basic and diluted per share amounts
     401,922       400,142       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  
 
            

 

Additional Financial Data
(in thousands)
(unaudited)
TABLE C
Sales by Geography (a)
                                         
    Three Months Ended     Twelve Months Ended  
    May 30,     February 29,     June 1,     May 30,     June 1,  
    2008     2008     2007     2008     2007  
China
   $ 149,773     $ 169,864     $ 141,968     $ 609,498     $ 587,044  
Europe, Middle East and Africa
     74,100       75,368       66,623       292,339       272,826  
North America
     46,727       42,871       61,571       202,205       233,691  
Asia Pacific Rim (ex-China)
     30,514       27,059       23,924       106,820       103,501  
Latin and South America
     20,140       21,228       16,834       84,017       70,419  
 
                              
 
                                        
Total Sales
   $ 321,254     $ 336,390     $ 310,920     $ 1,294,879     $ 1,267,481  
 
                              
 
(a)   DVBU and TippingPoint segment sales are included in geographic categories based on the location of the end customer. H3C 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     Twelve Months Ended  
    May 30,     February 29,     June 1,     May 30,     June 1,  
    2008     2008     2007     2008     2007  
Networking
   $ 261,185     $ 279,771     $ 252,009     $ 1,058,465     $ 1,028,090  
Security
     36,441       30,459       32,362       133,445       120,053  
Voice
     12,625       15,093       16,835       60,696       68,033  
Services
     10,291       10,309       9,147       39,583       35,871  
Connectivity Products
     712       758       567       2,690       15,434  
 
                              
 
                                        
Total Sales
   $ 321,254     $ 336,390     $ 310,920     $ 1,294,879     $ 1,267,481  
 
                              

 

3Com Corporation
Reconciliation of Non-GAAP Measures
(in thousands, except margin and per-share data)
(unaudited)
TABLE D
                                         
    Three Months Ended     Twelve Months Ended  
    May 30,     February 29,     June 1,     May 30,     June 1,  
    2008     2008     2007     2008     2007  
GAAP operating loss
   $ (190,397 )   $ (6,066 )   $ (93,338 )   $ (263,481 )   $ (132,521 )
Restructuring
     193       736       718       4,501       3,494  
Amortization of intangible assets
     25,626       25,778       7,897       103,670       42,525  
In-process research and development [a]
     —       —       34,053       —       35,753.00  
Impacts to cost of sales from purchase accounting adjustments to inventory [b]
     —       57       63       11,176       63.00  
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       —       57,308.00  
Stock-based compensation expense [h]
     9,793       5,544       4,962       25,206       20,095  
Acquiree expensed acquisition costs [i]
     43       2,988       —       10,631       —  
 
                              
Non-GAAP operating income
   $ 23,168     $ 29,037     $ 11,663     $ 69,613     $ 26,717  
 
                              
 
                                        
GAAP net loss
   $ (166,723 )   $ (7,840 )   $ (66,226 )   $ (228,841 )   $ (88,589 )
Restructuring
     193       736       718       4,501       3,494  
Amortization of intangible assets
     25,626       25,778       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]
     —       57       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       5,544       4,962       25,206       20,095  
Acquiree expensed acquisition costs [i]
     43       2,988       —       10,631       —  
Gain on sales of assets [j]
     —       (1,225 )     —       (6,155 )     (1,300 )
Gain on sale of investment portfolio [k]
     —       —       —       —       (2,000 )
(Gain) loss on insurance settlement [l]
     —       2,066       (3,908 )     2,066       (6,908 )
Tax reserve release [m]
     (11,284 )     —       —       (11,284 )     —  
Charge related to change in tax rates [n]
     —       6,056       —       6,056       —  
 
                              
Non-GAAP net income
   $ 35,558     $ 34,160     $ 4,611     $ 94,936     $ 18,528  
 
                              
 
                                        
GAAP net loss per share
   $ (0.41 )   $ (0.02 )   $ (0.16 )   $ (0.57 )   $ (0.22 )
Restructuring
     0.00       0.00       0.00       0.01       0.01  
Amortization of intangible assets
     0.06       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       0.00       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       0.01       0.06       0.05  
Acquiree expensed acquisition costs [i]
     0.00       0.01       —       0.03       —  
Gain on sales of assets [j]
     —       (0.00 )     —       (0.02 )     (0.00 )
Gain on sale of investment portfolio [k]
     —       —       —       —       (0.01 )
(Gain) loss on insurance settlement [l]
     —       0.01       (0.01 )     0.01       (0.02 )
Tax reserve release [m]
     (0.03 )     —       —       (0.03 )     —  
Charge related to change in tax rates [n]
     —       0.01       —       0.01       —  
 
                              
Non-GAAP net income per share, diluted
   $ 0.09     $ 0.08     $ 0.01     $ 0.23     $ 0.05  
 
                              
Shares used in computing diluted per share amounts
     406,139       404,502       401,334       404,193       399,680  
 
                                        
GAAP operating loss margin
     -59.3 %     -1.8 %     -30.0 %     -20.3 %     -10.5 %
Restructuring
     0.1 %     0.2 %     0.2 %     0.3 %     0.3 %
Amortization of intangible assets
     8.0 %     7.7 %     2.5 %     8.0 %     3.4 %
In-process research and development [a]
     0.0 %     0.0 %     11.0 %     0.0 %     2.8 %
Impacts to cost of sales from purchase accounting
     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %
adjustments to inventory [b]
     0.0 %     0.0 %     0.0 %     0.9 %     0.0 %
Patent litigation success fee [c]
     2.8 %     0.0 %     0.0 %     0.7 %     0.0 %
VAT recovery dispute [d]
     1.9 %     0.0 %     0.0 %     0.5 %     0.0 %
IPO fees write-off [e]
     1.5 %     0.0 %     0.0 %     0.4 %     0.0 %
Goodwill impairment [f]
     49.2 %     0.0 %     0.0 %     12.2 %     0.0 %
EARP change in control expense [g]
     0.0 %     0.0 %     18.4 %     0.0 %     4.5 %
Stock-based compensation expense [h]
     3.0 %     1.6 %     1.7 %     2.0 %     1.6 %
Acquiree expensed acquisition costs [i]
     0.0 %     0.9 %     0.0 %     0.8 %     0.0 %
 
                              
Non-GAAP operating income margin
     7.2 %     8.6 %     3.8 %     5.4 %     2.1 %
 
                              

 

 

                                         
    Three Months Ended     Twelve Months Ended  
    May 30,     February 29,     June 1,     May 30,     June 1,  
    2008     2008     2007     2008     2007  
GAAP net loss margin
     -51.9 %     -2.3 %     -21.3 %     -17.7 %     -7.0 %
Restructuring
     0.1 %     0.2 %     0.2 %     0.3 %     0.3 %
Amortization of intangible assets
     8.0 %     7.7 %     2.5 %     8.0 %     3.4 %
In-process research and development [a]
     0.0 %     0.0 %     11.0 %     0.0 %     2.8 %
Impacts to cost of sales from purchase accounting
                             0.0 %        
adjustments to inventory [b]
     0.0 %     0.0 %     0.0 %     0.9 %     0.0 %
Huawei’s 49% minority interest in H3C’s amortization
                             0.0 %        
as shown above
     0.0 %     0.0 %     -9.7 %     0.0 %     -3.3 %
Patent litigation success fee [c]
     2.8 %     0.0 %     0.0 %     0.7 %     0.0 %
VAT recovery dispute [d]
     1.9 %     0.0 %     0.0 %     0.5 %     0.0 %
IPO fees write-off [e]
     1.5 %     0.0 %     0.0 %     0.4 %     0.0 %
Goodwill impairment [f]
     49.2 %     0.0 %     0.0 %     12.2 %     0.0 %
EARP change in control expense [g]
     0.0 %     0.0 %     18.4 %     0.0 %     4.5 %
Stock-based compensation expense [h]
     3.0 %     1.6 %     1.6 %     1.9 %     1.6 %
Acquiree expensed acquisition costs [i]
     0.0 %     0.9 %     0.0 %     0.8 %     0.0 %
Gain on sales of assets [j]
     0.0 %     -0.4 %     0.0 %     -0.5 %     -0.1 %
Gain on sale of investment portfolio [k]
     0.0 %     0.0 %     0.0 %     0.0 %     -0.2 %
(Gain) loss on insurance settlement [l]
     0.0 %     0.6 %     -1.2 %     0.2 %     -0.5 %
Tax reserve release [m]
     -3.5 %     0.0 %     0.0 %     -0.9 %     0.0 %
Charge related to change in tax rates [n]
     0.0 %     1.8 %     0.0 %     0.5 %     0.0 %
 
                              
Non-GAAP net income margin
     11.1 %     10.2 %     1.5 %     7.3 %     1.5 %
 
                              
 
                                        
GAAP sales and marketing expenses
   $ 78,402     $ 82,428     $ 89,048     $ 316,019     $ 319,696  
EARP change in control expense [g]
     —       —       (17,727 )     —       (17,727 )
Stock-based compensation expense [h]
     (1,830 )     (1,753 )     (1,398 )     (5,976 )     (5,756 )
 
                              
Non-GAAP sales and marketing expenses
   $ 76,572     $ 80,675     $ 69,923     $ 310,043     $ 296,213  
 
                              
 
                                        
GAAP research and development expenses
   $ 51,614     $ 50,530     $ 71,268     $ 206,653     $ 215,632  
EARP change in control expense [g]
     —       —       (27,230 )     —       (27,230 )
Stock-based compensation expense [h]
     (1,199 )     (1,100 )     (848 )     (3,993 )     (4,621 )
 
                              
Non-GAAP research and development expenses
   $ 50,415     $ 49,430     $ 43,190     $ 202,660     $ 183,781  
 
                              
 
                                        
GAAP general and administrative expenses
   $ 50,310     $ 26,268     $ 28,791     $ 129,116     $ 93,875  
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 )     —  
EARP change in control expense [g]
     —       —       (6,635 )     —       (6,635 )
Stock-based compensation expense [h]
     (6,033 )     (2,195 )     (2,259 )     (13,103 )     (8,142 )
Acquiree expensed acquisition costs [i]
     (43 )     (2,988 )     —       (10,631 )     —  
 
                              
Non-GAAP general and administrative expense
   $ 24,301     $ 21,085     $ 19,897     $ 85,449     $ 79,098  
 
                              
 
[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,   February 29,   June 1,
    2008   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,   February 29,   June 1,   May 30,   June 1,
    2008   2008   2007   2008   2007
Cost of sales
     731       496       457       2,134       1,576  
Sales and marketing
     1,830       1,753       1,398       5,976       5,756  
Research and development
     1,199       1,100       848       3,993       4,621  
General and administrative
     6,033       2,195       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.

 

 

     
3Com Corporation
Segment Reporting
(in thousands)
(unaudited)
TABLE E
                                                                                                 
    Three Months Ended May 30, 2008   Twelve Months Ended May 30, 2008
                                                                             
            Data Voice                   Eliminations /                   Data Voice                   Eliminations /    
    H3C   Business Unit   Tipping Point   Corporate   Other   Total   H3C   Business Unit   Tipping Point   Corporate   Other   Total
Sales
   $ 190,004     $ 136,954     $ 29,209     $ —     $ (34,913 ) [a]   $ 321,254     $ 772,313     $ 551,012     $ 104,101     $ —     $ (132,547 ) [a]   $ 1,294,879  
 
                                                                                                
Gross profit
     109,644       45,355       19,457       —       (731 ) [c]     173,725       425,394       172,384       70,197       (210 ) [b]     (13,310 ) [c]     654,455  
 
                                                                                                
Operating expenses
     69,233       50,941       19,188       11,926  [b]     212,834  [d]     364,122       283,383       198,198       70,693       45,878  [b]     319,784  [d]     917,936  
 
                                                                                                
         
Operating income (loss)
     40,411       (5,586 )     269       (11,926 )     (213,565 )     (190,397 )     142,011       (25,814 )     (496 )     (46,088 )     (333,094 )     (263,481 )
         
                                                                                                 
    Three Months Ended June 1, 2007   Twelve Months Ended June 1, 2007
            Data Voice                   Eliminations /                   Data Voice                   Eliminations /    
    H3C   Business Unit   Tipping Point   Corporate   Other   Total   H3C   Business Unit   Tipping Point   Corporate   Other   Total
Sales
   $ 175,728     $ 138,422     $ 24,663     $ —     $ (27,893 ) [a]   $ 310,920     $ 731,131     $ 552,640     $ 90,178     $ —     $ (106,468 ) [a]   $ 1,267,481  
 
                                                                                                
Gross profit
     84,548       44,120       16,248       (243 ) [b]     (6,236 ) [c]     138,437       344,987       181,713       60,307       (1,196 ) [b]     (7,357 ) [c]     578,454  
 
                                                                                                
Operating expenses
     55,180       48,990       18,732       10,103  [b]     98,765  [d]     231,770       240,085       204,003       70,750       44,254  [b]     151,883  [d]     710,975  
 
                                                                                                
         
Operating income (loss)
     29,368       (4,870 )     (2,484 )     (10,346 )     (105,001 )     (93,333 )     104,902       (22,290 )     (10,443 )     (45,450 )     (159,240 )     (132,521 )
         
 
[a]   - eliminations for inter-company revenue during the respective periods.
 
[b]   - represents costs not directly attributable to any operating business segment.
 
[c]   - includes stock based compensation in all periods and purchase accounting inventory related adjustments, Equity Appreciation Rights Plan (EARP) and purchase accounting inventory related adjustments as applicable.
 
[d]   - includes: stock-based compensation, amortization, and restructuring in all periods and goodwill impairment, IPR&D, Equity Appreciation Rights Plan (EARP), and deal costs where applicable.

 

3Com Corporation
Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
Table F
                 
    Twelve Month’s Ended  
    May 30,     June 1,  
    2008     2007  
Cash flows from operating activities:
                
Net loss
   $ (228,841 )     (88,589 )
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
                
Depreciation and amortization
     136,030       74,990  
Loss (gain) on property and equipment disposals
     2,224       (14,714 )
Goodwill impairment
     157,977       —  
In-process research and development
     —       35,753  
Minority interest
     —       26,192  
Stock-based compensation expense
     25,207       20,095  
Gain on investments, net
     (185 )     (1,417 )
Deferred income taxes
     (8,206 )     (10,487 )
Change in assets and liabilities:
                
Accounts receivable
     7,895       (24,677 )
Inventories
     32,621       50,589  
Other assets
     18,429       32,368  
Accounts payable
     (22,926 )     (34,760 )
Other liabilities
     (65,348 )     100,195  
 
            
Net cash provided by operating activities
     54,877       165,538  
 
            
 
                
Cash flows from investing activities:
                
Purchase of investments
     —       (225,005 )
Proceeds from maturities and sales of investments
     442       609,342  
Purchase of property and equipment
     (17,893 )     (28,331 )
Businesses acquired in purchase transactions, net of cash acquired
     —       (898,529 )
Proceeds from sale of property and equipment
     1,096       36,580  
 
            
Net cash used in investing activities
     (16,355 )     (505,943 )
 
            
 
                
Cash flows from financing activities:
                
Issuances of common stock
     8,305       23,588  
Repurchases of common stock
     (3,180 )     (13,463 )
(Payments of) proceeds from long term debt
     (129,000 )     415,811  
Dividend paid to minority interest shareholder
     —       (40,785 )
Other, net
     —       2,787  
 
            
Net cash (used in) provided by financing activities
     (123,875 )     387,938  
 
            
 
                
Effects of exchange rate changes on cash and equivalents
     29,780       10,587  
 
                
Net change in cash and equivalents during period
     (55,573 )     58,120  
Cash and equivalents, beginning of period
     559,217       501,097  
 
            
Cash and equivalents, end of period
   $ 503,644     $ 559,217