EX-99.3 4 a05-6544_1ex99d3.htm EX-99.3

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial statements have been prepared to give effect to the acquisition by 3Com Corporation (3Com or the Company) of TippingPoint Technologies, Inc. (TippingPoint), using the purchase method of accounting for the business combination. On January 31, 2005, 3Com completed the acquisition of TippingPoint pursuant to the Agreement and Plan of Merger (the Merger Agreement) dated as of December 13, 2004. Pursuant to the Merger Agreement, each outstanding share of common stock of TippingPoint was converted into the right to receive $47.00 in cash.  Additionally, each outstanding option to purchase common stock of TippingPoint has been assumed by 3Com and now represents an option to acquire shares of common stock of 3Com on the terms and conditions set forth in the Merger Agreement.  The acquisition of TippingPoint by 3Com was initially reported on a Current Report on Form 8-K dated February 1, 2005, which report is being amended to include the financial statements required by Item 9.01 of Form 8-K.

 

The transaction was accounted for as an acquisition of TippingPoint by 3Com under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations. Under the purchase method of accounting, the total purchase price is allocated among the net tangible and identifiable intangible assets acquired by 3Com in connection with the transaction, based on their fair values as of the completion of the transaction. The excess cost over the net tangible and identifiable intangible assets was allocated to goodwill. The acquisition was structured as a purchase of stock for tax purposes. Accordingly, the tax basis of the acquired assets and liabilities are carried over at their historical amounts and goodwill is not deductible for tax purposes.

 

The unaudited pro forma condensed combined financial statements reflects the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair value at the time of the merger. 3Com calculated the purchase price of TippingPoint based upon each outstanding share of common stock of TippingPoint being converted into the right to receive $47.00 in cash, the estimated fair value of TippingPoint options assumed by 3Com and the direct costs incurred by 3Com related to the acquisition. The preliminary purchase price allocation is subject to finalization of the valuation of intangible assets, other assets acquired and liabilities assumed.

 

The preliminary purchase price is shown below (in millions):

 

Cash paid for common stock

 

$

389.5

 

Fair value of outstanding stock options assumed

 

36.1

 

Acquisition direct costs

 

4.4

 

Total purchase price

 

$

430.0

 

 

Intangible assets include amounts recognized for the fair value of existing technology, maintenance agreements, trade name and trademarks, and non-competition agreements.  These intangible assets have a weighted average useful life of approximately five years.

 

The excess of the purchase price over the tangible and identifiable intangible assets was recorded as goodwill and amounted to approximately $312.6 million. In accordance with current accounting standards, the goodwill will not be amortized and will be tested for impairment as required by SFAS No. 142, Goodwill and Other Intangible Assets.

 

The unaudited pro forma condensed combined balance sheet of 3Com gives effect to the transaction as if it occurred on November 26, 2004. The unaudited pro forma condensed combined statements of operations for the year ended May 28, 2004 and the six months ended November 26, 2004 give effect to the transaction as if it had occurred at the beginning of the fiscal period presented. The unaudited pro forma condensed combined financial statements are presented in accordance with Article 11 of Regulation S-X. The historical financial information of TippingPoint for the six months ended November 26, 2004 which is included in this Form 8-K/A have been derived from the financial statements of TippingPoint.

 

The pro forma adjustments are based upon information and assumptions available at the time of the filing of this Form 8-K/A and result in a preliminary allocation of the purchase price based on estimates of the fair value of the

 


 

assets acquired and liabilities assumed. The unaudited pro forma statements do not reflect synergies expected from the combination of the two entities.

 

The pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated as of the beginning of the fiscal periods presented nor is the data necessarily indicative of future operating results. The unaudited pro forma condensed combined financial statements and the accompanying notes thereto of 3Com and TippingPoint should be read in conjunction with and are qualified by the historical financial statements and notes thereto of 3Com and TippingPoint. 3Com’s historical financial statements are included in the Company’s Annual Report on Form 10-K for the year ended May 28, 2004 and the Company’s Quarterly Report on Form 10-Q for the quarter ended November 26, 2004. TippingPoint’s historical financial statements and related notes thereto are attached as Exhibit 99.2 to this Form 8-K/A.

 

3Com cannot assure you that it will not incur charges in excess of those included in the pro forma total consideration related to the transactions or that management will be successful in its efforts to integrate the operations of the companies.

 


 

3Com Corporation

Unaudited Pro Forma Condensed Combined Balance Sheet

 

(In thousands)

 

3Com
November 26, 2004

 

TippingPoint
October 31, 2004

 

Pro Forma
Adjustments

 

3Com
Pro Forma

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

458,669

 

$

28,237

 

$

(2,557

)(n)

$

484,349

 

Short-term investments

 

815,204

 

1,360

 

(389,451

)(a)

427,113

 

Accounts receivable, net

 

64,401

 

7,112

 

 

 

71,513

 

Inventories

 

22,344

 

4,033

 

850

(c)

27,227

 

Other current assets

 

41,317

 

2,159

 

(1,024

)(e)

42,452

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

1,401,935

 

42,901

 

(392,182

)

1,052,654

 

 

 

 

 

 

 

 

 

 

 

Investment in Huawei-3Com joint venture

 

138,015

 

 

 

 

 

138,015

 

Property and equipment, net

 

71,108

 

2,119

 

(104

)(d)

73,123

 

Property and equipment held for sale

 

12,238

 

 

 

 

 

12,238

 

Deposits and other assets

 

32,718

 

715

 

 

 

33,433

 

Deferred income taxes

 

2,986

 

 

 

 

 

2,986

 

Intangible assets, net

 

1,820

 

 

 

69,850

(g)

71,670

 

Goodwill

 

899

 

 

 

312,635

(l)

313,534

 

Total assets

 

$

1,661,719

 

$

45,735

 

$

(9,801

)

$

1,697,653

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

75,078

 

$

2,718

 

$

—

 

$

77,796

 

Accrued liabilities and other

 

222,750

 

11,221

 

4,447

(b)

234,965

 

 

 

 

 

 

 

(3,453

)(f)

 

 

Total current liabilities

 

297,828

 

13,939

 

994

 

312,761

 

Deferred revenue and long-term obligations

 

12,466

 

2,012

 

 

 

14,478

 

Total liabilities

 

310,294

 

15,951

 

994

 

327,239

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock

 

2,266,398

 

349,874

 

(349,874

)(m)

2,302,453

 

 

 

 

 

 

 

36,055

(a)

 

 

Treasury stock

 

(63,986

)

 

 

 

 

(63,986

)

Unamortized stock-based compensation

 

(4,550

)

(9,455

)

9,455

(m)

(13,959

)

 

 

 

 

 

 

(9,409

)(i)

 

 

Retained deficit

 

(841,222

)

(310,635

)

310,635

(m)

(848,879

)

 

 

 

 

 

 

(2,557

)(n)

 

 

 

 

 

 

 

 

(5,100

)(k)

 

 

Accumulated other comprehensive loss

 

(5,215

)

 

 

 

 

(5,215

)

Total stockholders’ equity

 

1,351,425

 

29,784

 

(10,795

)

1,370,414

 

Total liabilities and stockholders’ equity

 

$

1,661,719

 

$

45,735

 

$

(9,801

)

$

1,697,653

 

 

See notes to unaudited pro forma condensed combined financial statements.

 


 

3Com Corporation

Unaudited Pro Forma Condensed Combined Statement of Operations

For The Year Ended May 28, 2004

 

 

 

3Com

 

TippingPoint

 

 

 

3Com

 

(In thousands, except per share data)

 

Year ended
May 28, 2004

 

Year ended
April 30, 2004

 

Pro Forma
Adjustments

 

Pro
Forma

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

698,884

 

$

9,045

 

$

(553

)(f)

$

707,376

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

455,813

 

3,468

 

850

(c)

460,131

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

243,071

 

5,577

 

(1,403

)

247,245

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

244,703

 

9,676

 

1,971

(j)

256,350

 

Research and development

 

95,195

 

10,100

 

1,995

(j)

107,290

 

General and administrative

 

74,245

 

3,651

 

2,253

(j) 

80,149

 

Amortization and write down of intangibles

 

7,026

 

 

 

14,358

(h)

21,384

 

Restructuring charges

 

159,727

 

 

 

 

 

159,727

 

Write down of fixed assets

 

 

 

203

 

 

 

203

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

580,896

 

23,630

 

20,577

 

625,103

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(337,825

)

(18,053

)

(21,980

)

(377,858

)

 

 

 

 

 

 

 

 

 

 

Loss on investments, net

 

(10,899

)

 

 

 

 

(10,899

)

Interest and other income, net

 

15,905

 

312

 

 

 

16,217

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes, equity interest in loss of unconsolidated joint venture

 

(332,819

)

(17,741

)

(21,980

)

(372,540

)

Income tax benefit

 

3,135

 

 

 

 

 

3,135

 

Equity interest in loss of unconsolidated joint venture

 

(17,179

)

 

 

 

 

(17,179

)

Loss from continuing operations

 

(346,863

)

(17,741

)

(21,980

)

(386,584

)

Discontinued operations, net of taxes

 

(2,400

)

1,258

 

 

 

(1,142

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(349,263

)

$

(16,483

)

$

(21,980

)

$

(387,726

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.91

)

$

(2.42

)

 

 

$

(1.02

)

Discontinued operations, net of taxes

 

(0.01

)

0.17

 

 

 

(0.00

)

Net loss

 

$

(0.92

)

$

(2.24

)

 

 

$

(1.02

)

 

 

 

 

 

 

 

 

 

 

Shares used in computing per share amounts:

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

379,766

 

7,346

 

 

 

379,766

 

 

See notes to unaudited pro forma condensed combined financial statements.

 


 

3Com Corporation

Unaudited Pro Forma Condensed Combined Statement of Operations

For The Six Months Ended November 26, 2004

 

 

 

3Com

 

TippingPoint

 

 

 

3Com

 

(In thousands, except per share data)

 

Six Months Ended
November 26, 2004

 

Six Months Ended
October 31, 2004

 

Pro Forma
Adjustments

 

Pro
Forma

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

313,417

 

$

16,359

 

$

(3,453

)(f)

$

326,323

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

198,631

 

4,926

 

850

(c)

204,407

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

114,786

 

11,433

 

(4,303

)

121,916

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

114,493

 

9,080

 

1,229

(j)

124,802

 

Research and development

 

44,599

 

5,372

 

1,129

(j)

51,100

 

General and administrative

 

30,057

 

2,161

 

751

(j)

32,969

 

Amortization and write down of intangibles

 

3,189

 

 

 

7,179

(h)

10,368

 

Restructuring charges

 

7,281

 

 

 

 

 

7,281

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

199,619

 

16,613

 

10,288

 

226,520

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(84,833

)

(5,180

)

(14,591

)

(104,604

)

 

 

 

 

 

 

 

 

 

 

Loss on investments, net

 

82

 

 

 

 

 

82

 

Interest and other income, net

 

5,814

 

182

 

 

 

5,996

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes, equity interest in loss of unconsolidated joint venture

 

(78,937

)

(4,998

)

(14,591

)

(98,526

)

Income tax (provision)

 

(543

)

 

 

 

 

(543

)

Equity interest in loss of unconsolidated joint venture

 

(4,876

)

 

 

 

 

(4,876

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(84,356

)

$

(4,998

)

$

(14,591

)

$

(103,945

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$

(0.22

)

$

(0.67

)

 

 

$

(0.27

)

 

 

 

 

 

 

 

 

 

 

Shares used in computing per share amounts:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

383,140

 

7,409

 

 

 

383,140

 

 

See notes to unaudited pro forma condensed combined financial statements.

 


 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

1. Basis of Presentation

 

The accompanying unaudited pro forma condensed combined financial statements present the pro forma results of operations and financial position of 3Com Corporation (3Com) and TippingPoint Technologies, Inc. (TippingPoint) on a combined basis based on the historical financial information of each company and after giving effect to the acquisition of TippingPoint by 3Com.  The acquisition was recorded using the purchase method of accounting. Certain reclassifications have been made to the historical TippingPoint financial statements to conform to the presentation used in 3Com’s historical financial statements. Such reclassifications had no effect on TippingPoint’s previously reported results from continuing operations.

 

The unaudited pro forma condensed combined balance sheet has been prepared assuming the acquisition occurred on November 26, 2004. In accordance with SFAS No. 141, Business Combinations, 3Com calculated the purchase price of TippingPoint based upon each outstanding share of common stock of TippingPoint being converted into the right to receive $47.00 in cash, the estimated fair value of TippingPoint options assumed by 3Com and the direct costs incurred by 3Com related to the acquisition. The unaudited pro forma condensed combined statement of operations has been prepared assuming the acquisition occurred at the beginning of the fiscal periods presented.

 

2. Pro Forma Adjustments

 

The following are brief descriptions of each of the pro forma adjustments included in the unaudited pro forma condensed combined financial statements:

 

a)              To reflect the liquidation of approximately $389.5 million in short-term investments to provide for the cash disbursed and the assumption of all outstanding options in conjunction with the TippingPoint acquisition.

 

b)             To record liabilities associated with 3Com transaction costs related to the acquisition of TippingPoint.

 

c)              To adjust acquired inventory to estimated fair value.

 

d)             To write off a portion of the assets acquired that will not be utilized in the combined business prospectively.

 

e)              To record acquired other current assets at estimated fair value.

 

f)                To record acquired accrued liabilities and other at estimated fair value.

 

g)             To record the allocation of purchase price to identifiable amortizable intangible assets.

 

h)             To record the amortization expense over an estimated weighted average five year useful life related to the fair value of identifiable amortizable intangible assets.

 

i)                 To record the deferred compensation for the intrinsic value of unvested stock options of TippingPoint at the date of acquisition.

 

j)                 To reflect the amortization over the remaining service period of stock-based compensation expense related to the intrinsic value of unvested stock options of TippingPoint at the date of acquisition.

 

k)              To reflect the expense of in-process technology acquired.

 

l)                 To record the estimated goodwill resulting from the allocation of the purchase price to the fair value of assets acquired and liabilities assumed.

 


 

m)           To eliminate the historical equity balances of TippingPoint.

 

n)             To reflect the disbursement of cash and accumulated deficit for the payment of transaction expenses incurred by TippingPoint in its transaction to be acquired by 3Com.

 

3. Pro Forma Net Loss Per Share

 

The unaudited pro forma combined basic net loss per share is based upon the weighted average number of outstanding shares of common stock of 3Com during the periods presented. The unaudited pro forma combined diluted net loss per share is the same as the unaudited pro forma combined basic net loss per share as all common stock equivalents are anti-dilutive due to the loss position.

 

4. In-Process Research & Development

 

3Com will record an immediate write-off of in-process research and development at the consummation of the acquisition. The unaudited pro forma condensed combined statements of operations do not include the charge for in-process research and development of approximately $5.1 million since it is considered a non-recurring charge. The charge was recorded by 3Com in the three months ended February 25, 2005.