UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1993
Commission File No. 0-12867
OR
/ / TRANSITION REPORT PUSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
3Com Corporation
(Exact name of registrant as specified in its charter)
California 94-2605794
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 Bayfront Plaza 95052
Santa Clara, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (408) 764-5000
Former name, former address and former fiscal year, if changed
since last report: N/A
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 X No
------- -------
Indicate the number of shares outstanding of each of the issuee's
classes of common stock, as of the latest practicable date.
As of November 30, 1993, 30,968,523 shares of the Registrant's
Common Stock were outstanding.
Part I. Financial Information
Incorporated herein is the following unaudited financial
information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of November 30, 1993 and May 31,
1993
Consolidated Statements of Income for the quarter and six months
ended November 30, 1993 and 1992
Consolidated Statements of Cash Flows for the Six months ended
November 30, 1993 and 1992
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I. Financial Information
Item 1. Financial Statements
3Com Corporation
Consolidated Balance Sheets
(dollars in thousands)
November 30, May 31,
1993 1993
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 62,862 $ 40,046
Temporary cash investments 97,897 77,184
Trade receivables 100,113 83,481
Inventories 57,761 68,061
Deferred income taxes 21,487 19,805
Other 19,561 15,835
Total current assets 359,681 304,412
Property and equipment - net 54,604 55,248
Other assets 8,577 7,918
Total $422,862 $367,578
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 45,806 $ 40,212
Accrued payroll and related expenses 14,271 16,671
Accrued restructuring costs 3,059 3,682
Other accrued liabilities 41,656 37,958
Income taxes payable 17,455 8,637
Current portion of long-term obligations 194 1,021
Total current liabilities 122,441 108,181
Long-term obligations 597 610
Accrued restructuring costs - non-current 289 524
Shareholders' Equity:
Preferred stock, no par value, 3,000,000
shares authorized; none outstanding
Common stock, no par value, 100,000,000
shares authorized; shares outstanding:
November 30, 1993: 30,968,523; May 31,
1993: 30,850,377 162,365 154,958
Retained earnings 137,596 103,163
Accumulated translation adjustments (426) 142
Total shareholders' equity 299,535 258,263
Total $422,862 $367,578
See notes to consolidated financial statements.
3Com Corporation
Consolidated Statements of Income
(in thousands except per share data)
(unaudited)
Quarter Ended Six Months Ended
November 30, November 30,
1993 1992 1993 1992
Sales $205,275 $152,697 $367,366 $288,314
Costs and expenses:
Cost of sales 102,410 78,888 184,086 153,021
Sales and marketing 42,501 34,430 77,956 63,588
Research and development 18,163 16,271 34,041 31,974
General and administrative 8,689 8,484 16,893 16,817
Total 171,763 138,073 312,976 265,400
Operating income 33,512 14,624 54,390 22,914
Gain on sale of investment - - 17,746 -
Other expense-net (492) (769) (812) (309)
Income before income taxes 33,020 13,855 71,324 22,605
Provision for income taxes 11,557 4,575 23,747 7,475
Net income $ 21,463 $ 9,280 $ 47,577 $ 15,130
Earnings per share:
Primary $.65 $.30 $1.46 $.50
Fully diluted $.65 $.29 $1.44 $.48
Shares used in computing per share amounts:
Primary 32,869 31,155 32,692 30,554
Fully diluted 33,159 31,493 33,124 31,381
See notes to consolidated financial statements.
3Com Corporation
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Six Months Ended
November 30,
1993 1992
Cash flows from operating activities:
Net income $ 47,577 $ 15,131
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 13,604 12,291
Gain on sale of investment (17,746) -
Deferred income taxes (1,707) (934)
Adjustment to conform fiscal year of
pooled entity - 2,163
Pro forma provision for income taxes - 1,318
Changes in assets and liabilities:
Trade receivables (16,632) (12,227)
Inventories 10,205 (6,085)
Other current assets (3,726) 4,876
Accounts payable 5,594 9,291
Accrued liabilities 1,299 1,676
Accrued restructuring costs (1,214) (4,207)
Income taxes payable 12,392 2,522
Net cash provided by operating activities 49,646 25,815
Cash flows from investing activities:
Proceeds from sale of investment 18,066 -
Investment in property and equipment (11,903) (12,862)
Purchase of temporary cash investments (35,327) (29,944)
Proceeds from temporary cash investments 14,614 17,600
Other - net (1,567) (151)
Net cash used for investing activities (16,117) (25,357)
Cash flows from financing activities:
Sale of common stock 7,334 8,117
Repurchases of common stock (16,645) (9,233)
Notes payable - 3,329
Repayments of long-term obligations (830) (919)
Equity distributions of pooled entity - (3,191)
Repurchase of stock warrants - (1,300)
Other - net (572) (1,601)
Net cash used for financing activities (10,713) (4,798)
Increase (decrease) in cash and cash equivalents 22,816 (4,340)
Cash and cash equivalents at beginning of period 40,046 34,694
Cash and cash equivalents at end of period $62,862 $30,354
See notes to consolidated financial statements.
3Com Corporation
Notes to Consolidated Financial Statements
1. In the opinion of management, these unaudited consolidated
financial statements include all adjustments necessary for a fair
presentation of the Company's financial position as of November 30,
1993, and the results of operations and cash flows for the quarters
and six months ended November 30, 1993 and 1992.
The results of operations for the quarter and six months ended
November 30, 1993 may not necessarily be indicative of the results for
the fiscal year ending May 31, 1994.
These financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto included
in the Company's Annual Report to Shareholders for the year ended May
31, 1993.
2. Inventories consisted of (in thousands):
November 30, May 31,
1993 1993
Finished goods $33,842 $41,331
Work-in-process 7,737 4,912
Raw materials 16,182 21,818
Total $57,761 $68,061
3Com Corporation
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quarter ended November 30, 1993
Orders for the Company's products in the second quarter of fiscal 1994
totaled $202.1 million, an increase of 27 percent from the
corresponding quarter a year ago, while sales were $205.3 million, an
increase of 34 percent. Both orders and sales were at record levels
for the Company. Compared with the first quarter of fiscal 1994,
orders and sales for the second quarter of fiscal 1994 increased 29
percent and 27 percent, respectively.
The Company believes that the year-over-year increase in second
quarter orders and sales is due to several factors, including the
success of the Company's key data networking platforms, revenues from
sales of products introduced during last fiscal year, general market
strength in the data networking industry, and the Company's ability to
deliver complete data networking solutions for different connectivity
environments. These growth factors were partially offset by the
unfavorable impact of the strengthening U.S. dollar as compared to
European currencies. During the first half of fiscal 1993, the
Company entered into a strong new product cycle by introducing several
key data networking platforms, including the industry-leading
EtherLink(R) III Parallel Tasking-TM family of network adapters, the
high-performance NETBuilder II(R) internetworking platform, and the
LinkBuilder(R) family of stackable hubs. The growth in sales reflects
customer acceptance of these platforms. Sales from products
introduced in the last 12 months declined from 52 percent of sales in
the first quarter of fiscal 1994 to 35 percent of sales in the second
quarter of fiscal 1994, as certain key products met their one-year
anniversary in the first half of fiscal 1994.
Sales of the Company's network adapter products in the second quarter
of fiscal 1994 increased 45 percent from the corresponding period in
fiscal 1993. The increase in adapter sales represented an increase in
unit volume partially offset by continuation of the industry-wide
trend toward decreasing average selling prices. The increase in unit
volume was seen in the sales of the EtherLink III Parallel Tasking
network adapter and the TokenLink(R) III network adapter. Lower
average selling prices were primarily attributable to a shift in
demand to the lower-priced EtherLink III network adapter.
Fiscal 1994 second quarter sales of the Company's systems products
(internetworking and hub products) increased 30 percent from the year-
ago quarter, led primarily by LinkBuilder stackable hubs, the
LinkBuilder 3GH internetworking hub, the high-performance NETBuilder
II bridge/router, and Boundary Routing-TM system architecture
internetworking platforms.
Sales of the Company's other products (terminal servers, customer
service, protocols and other products) represented six percent of
second quarter sales and decreased 11 percent from the second quarter
of fiscal 1993, primarily reflecting a continuing decline in the sales
of terminal server products.
Sales outside of the United States provided 51 percent of second
quarter sales, compared to 49 percent for the same period last year.
During the quarter, the Company opened sales offices in Mexico City,
Mexico and Tokyo, Japan.
Cost of sales as a percentage of sales was 49.9 percent for the
quarter compared to 51.7 percent for the second quarter of fiscal
1993. The improvement resulted primarily from increased utilization
of production capacity as well as lower costs for product
distribution, freight and duty. Such savings are due in part to the
Company's increasing utilization of the Ireland manufacturing facility
to serve European markets.
Total operating expenses in the second quarter of fiscal 1994 were
$69.4 million, or 34 percent of sales compared to $59.2 million, or 39
percent of sales for the second quarter of fiscal 1993. The $10.2
million, or 17 percent, increase in operating expenses reflected
increased sales and marketing expenses as well as increased research
and development costs.
Sales and marketing expenses during the second quarter of fiscal 1994
increased 23 percent from $34.4 million in the second quarter of
fiscal 1993 to $42.5 million, but declined as a percentage of sales
from 23 percent in the prior-year quarter to 21 percent in the second
quarter of fiscal 1994. The $8.1 million increase reflected increased
selling costs related to higher sales volume, the cost of promoting
the Company's systems products, and increased European cooperative
advertising, partially offset by the favorable impact of the
strengthening U.S. dollar as compared to European currencies. In the
second quarter of fiscal 1994, research and development expenses were
$18.2 million, or 9 percent of sales, compared to $16.3 million, or 11
percent of sales, in the comparable prior-year period. General and
administrative expenses in the second quarter were $8.7 million, or 4
percent of sales, as compared to $8.5 million, or 6 percent of sales,
for the same quarter in fiscal 1993.
Other expense (net) was $492,000 for the quarter, compared with
expense of $769,000 for the same quarter last fiscal year. The
improvement from the prior year quarter represents more favorable
foreign exchange results and higher interest income, partially offset
by a higher provision for doubtful accounts.
The Company's effective income tax rate in the second quarter of
fiscal 1994 was 35 percent.
Net income for the second quarter of fiscal 1994 was a record $21.5
million, or $0.65 per share, compared to $9.3 million, or $0.29 per
share, reported a year ago.
Six months ended November 30, 1993
Orders for the first half of fiscal 1994 were $359.1 million, a 24
percent increase from the $289.9 million in orders during the
corresponding period in fiscal 1993. Sales totaled $367.4 million, a
27 percent increase from sales of $288.3 million in the first half of
fiscal 1993.
Cost of sales for the first half of fiscal 1994 was 50.1 percent of
sales, a decrease from 53.1 percent of sales in the corresponding
period during fiscal 1993. The improvement in cost of sales was
primarily related to improved efficiency of the manufacturing
operations and a favorable shipment mix with higher shipments of the
lower-cost EtherLink III Parallel Tasking network adapter.
Operating expenses in the first half of fiscal 1994 were $128.9
million, or 35 percent of sales, compared to $112.4 million, or 39
percent of sales, in the comparable prior-year period. The $16.5
million increase was primarily due to increased selling costs related
to higher sales volume, the cost of promoting the Company's systems
products, and increased European cooperative advertising partially
offset by the favorable impact of the strengthening U.S. dollar as
compared to European currencies.
Other expense-net was $812,000 in the first half of fiscal 1994
compared with expense of $309,000 for the same period a year ago. The
expense increase from fiscal 1993 resulted primarily from a higher
provision for doubtful accounts partially offset by more favorable
foreign exchange results and higher interest income.
Net income was $47.6 million, or $1.44 per share, for the first half
of fiscal 1994, compared to $15.1 million or $.48 per share, for the
first half of fiscal 1993. Net income for the first half of fiscal
1994 included a $11.5 million ($0.35 per share) after-tax gain from
the sale of the Company's investment in Madge, N.V. and a $1.2 million
($0.04 per share) tax benefit due to retroactive components of the
recently enacted federal tax bill as well as the effect of changes in
federal statutory rates. Excluding these gains, net income would have
been $34.9 million or $1.05 per share, both record levels for the
Company.
Business Environment and Risk Factors
The Company's future operating results may be affected by various
trends and factors which are beyond the Company's control. These
include adverse changes in general economic conditions, governmental
regulation or intervention affecting communications or data
networking, and fluctuations in foreign exchange rates, and also
include factors listed below. Accordingly, past trends should not be
used by investors to anticipate future results or trends. Further,
the Company's prior performance should not be presumed to be an
accurate indicator of future performance. The data networking
industry has become increasingly competitive, and the Company's
results may be adversely affected by the actions of existing or future
competitors, including the development of new technologies, the
introduction of new products, the assertion by third parties of patent
or similar intellectual property rights, and the reduction of prices
by competitors to gain or retain market share.
The Company's manufacturing process requires components supplied by
outside suppliers. There can be no assurance that in the future the
Company's suppliers will be able to meet the Company's demand for such
components in a timely and cost effective manner. The Company's
operating results and customer relationships could be adversely
affected by either an increase in prices for or an interruption or
reduction in the supply of any key components. The market for the
Company's products is characterized by rapidly changing technology.
An unexpected change in the technologies affecting data networking
could have a material adverse effect on the Company's operating
results.
The market price of the Company's common stock has been, and may
continue to be, extremely volatile. Factors such as new product
announcements by the Company or its competitors, quarterly
fluctuations in the Company's operating results and general conditions
in the data networking market may have a significant impact on the
market price of the Company's common stock. These conditions, as well
as factors which generally affect the market for stocks of high
technology companies, could cause the price of the Company's stock to
fluctuate substantially over short periods.
Liquidity and Capital Resources
The Company's financial position and its generation of cash from
operations remains strong. Cash, cash equivalents and temporary cash
investments at November 31, 1993 were a record $160.8 million, up
$43.5 million from May 31, 1993. The announced acquisition of
Synernetics, Inc. (described below) is expected to use a significant
portion of the Company's cash, cash equivalents and temporary cash
investments in the third quarter of fiscal 1994
For the six months ended November 30, 1993, net cash generated from
operating activities was $49.6 million. Accounts receivable increased
$16.6 million or 20 percent from May 31, 1993 to November 30, 1993 due
primarily to a significant increase in sales over the same time
period. Days sales outstanding in receivables decreased from 45 days
at fiscal year end to 44 days at the end of the second quarter.
Inventory levels declined $10.3 million from fiscal year end, with
inventory turnover improved from 5.3 turns at May 31, 1993 to 6.7
turns at November 30, 1993.
Investing activities for the first half of fiscal 1993 included $18.1
million of proceeds from the sale of the Company's investment in Madge
N.V., offset by $11.9 million used for capital expenditures.
During the first half of fiscal 1994, the Company repurchased 700,000
shares of its common stock at an average price of $23.78 per share,
for a total cash outlay of $16.6 million. As of November 30, 1993,
the Company was authorized to repurchase up to an additional 1.8
million shares of its common stock in the open market.
In January 1994, the Company increased its revolving credit agreement
with a bank from $20 million to $40 million and extended the
expiration date to December 31, 1996.
Subsequent Events
On December 14, 1993, the Company announced a technology licensing
agreement with Pacific Monolithics, Inc., a pioneer in wireless
communications. The agreement gives the Company exclusive rights to
develop, manufacture and sell wireless LAN products based on wireless
radio communications technology developed by Pacific Monolithics, Inc.
The licensing agreement was for $2.5 million, most of which will be
charged to operating expenses as purchased technology in the third
quarter of fiscal 1994.
On December 16, 1993, the Company announced a definitive agreement to
acquire Synernetics, Inc., located in North Billerica, Massachusetts.
Synernetics, Inc., develops and markets intelligent switching systems
for large-scale client/server production networks employing a
combination of Ethernet switching, Ethernet-to-FDDI bridging, and FDDI
concentration. The acquisition, for $104 million in cash plus
assumption by the Company of certain stock options and additional
transaction costs of approximately $15 million, will be accounted for
as a purchase and is expected to be completed in January 1994. It is
anticipated that in the third quarter of fiscal 1994 the Company will
charge to expense approximately $103 million related to the
acquisition.
The source of funds for the acquisition of Synernetics is expected to
be the Company's existing balances of cash, cash equivalents and
temporary cash investments and as a result the Company expects to use
approximately two thirds of those balances in the third quarter of
fiscal 1994. The Company anticipates that it may undertake other
transactions during the current fiscal year and thereafter which may
require the use of cash. Based on current plans and business
conditions, the Company believes that its existing cash balances,
together with cash generated from operations, the established
revolving credit agreement and other reasonable sources of capital,
are sufficient to satisfy anticipated outlays for such transactions
and operating cash requirements through fiscal 1994.
3Com Corporation
Part II. Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of shareholders
on September 28, 1993.
(b) Not applicable.
(c) The following matter was voted upon at the meeting and
the number of affirmative and negative votes cast with
respect to such matter is as follows:
1. The following directors were elected:
Total Vote For Total Vote Withheld
Jean-Louis Gassee 26,570,595 149,906
Jack L. Hancock 26,572,538 147,963
Stephen C. Johnson 26,593,340 127,161
William F. Zuendt 26,592,190 128,311
2. The 3Com Corporation 1983 Stock Option Plan
("Plan") was amended by increasing the total
number of shares of common stock reserved for
issuance thereunder by 1,500,000 shares, to a
total of 13,200,000 shares. The number of
affirmative votes for this proposal was 20,153,881
and the number of negative votes was 5,841,321.
The number of abstained votes was 330,199 and the
number of no votes was 395,100.
3. The ratification and appointment of Deloitte &
Touche as public accountants was approved with
26,552,846 affirmative votes, 34,430 negative
votes and 133,225 abstained votes.
(d) Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 1983 Stock Option Plan, as amended (Exhibit 10.1 to Form
10-K) (10)
10.2 Amended and Restated Incentive Stock Option Plan (4)
10.3 License Agreement dated March 19, 1981 (1)
10.4 First Amended and Restated 1984 Employee Stock Purchase
Plan, as amended (Exhibit 19.1 to Form 10-Q) (11)
10.5 License Agreement dated as of June 1, 1986 (Exhibit 10.16
to Form 10-K) (3)
10.6 3Com Corporation Director Stock Option Plan, as amended
(Exhibit 19.3 to Form 10-Q) (11)
10.7 Bridge Communications, Inc. 1983 Stock Option Plan, as
amended (Exhibit 4.7 to Form S-8) (2)
10.8 3Com Headquarters Lease dated December 1, 1988, as amended
(Exhibit 10.14 to Form 10-K) (10)
10.9 Ground Lease dated July 5, 1989 (Exhibit 10.19 to Form
10-K) (5)
10.10 Sublease Agreement dated February 9, 1989 (Exhibit 10.20
to Form 10-K) (5)
10.11 Credit Agreement dated April 21, 1993 (Exhibit 10.11 to
Form 10-K) (7)
10.12 Asset Purchase Agreement dated as of January 24, 1992
(Exhibit 2.1 to Form 8-K)(12)
10.13 3Com Corporation Restricted Stock Plan dated July 9, 1991
(Exhibit 19.2 to Form 10-Q) (11)
10.14 Agreement and Plan of Merger dated December 16, 1992
(Exhibit 3 to Form 8-K)(13)
10.15 Form of Indemnity Agreement for Directors and Officers
19.1 The 3Com Corporation 1983 Stock Option Plan
20.1 3Com Corporation First Quarter Report
(1) Incorporated by reference to the corresponding Exhibit
previously filed as an Exhibit to Registrant's
Registration Statement on Form S-1 filed January 25,
1984 (File No. 2-89045).
(2) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to
Registrant's Registration Statement on Form S-8 filed
October 13, 1987 (File No. 33-17848).
(3) Incorporated by reference to the corresponding Exhibit or
the Exhibit identified in parentheses previously filed
as an Exhibit to Registrant's Form 10-K filed August
29, 1987 (File No. 0-12867).
(4) Incorporated by reference to Exhibit 10.2 to Registrant's
Registration Statement on Form S-4 filed on August 31,
1987 (File No. 33-16850).
(5) Incorporated by reference to the corresponding Exhibit or
the Exhibit identified in parentheses previously filed
as an Exhibit to Registrant's Form 10-K filed on August
28, 1989 (File No. 0-12867).
(6) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to
Registrant's Form 10-K filed on August 27, 1991 (File
No. 0-12867).
(7) Incorporated by reference to the corresponding Exhibit or
the Exhibit identified in parentheses previously filed
as an Exhibit to Registrant's Form 10-K filed on August
27, 1993 (File No. 0-12867).
(8) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to
Registrant's Form 10-Q filed January 10, 1992 (File No.
0-12867).
(9) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to
Registrant's Form 8-K filed on February 18, 1992 (File
No. 0-12867).
(10) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to
Registrant's Form 8-K filed on February 12, 1993 (File
No. 0-12867).
(b) Reports on Form 8-K
None.
Signatures
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 thereunto duly authorized.
3Com Corporation
(Registrant)
January 14, 1994 /s/ Christopher B. Paisley
Dated: ---------------- By ---------------------------
Christopher B. Paisley
Vice President Finance and
Chief Financial Officer
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of
_____________, 19____, by and between 3Com Corporation, a
California corporation ("Corporation"), and
___________________________ ("Agent").
RECITALS
A. Agent performs a valuable service to the Corporation
in his capacity as a director, officer or agent of the
Corporation.
B. The shareholders of the Corporation have adopted by-
laws ("By-Laws") providing for the indemnification of the
directors, officers, employees and other agents of the
Corporation, including persons serving at the request of the
Corporation in such capacities with other corporations of
enterprises, as authorized by the California General
Corporation Law, as amended ("Code").
C. The By-Laws and the Code, by their non-exclusive
nature, permit contracts between the Corporation and its
agents, officers, employees and other agents with respect to
indemnification of such persons.
D. In order to induce Agent to continue to serve in the
capacity set forth above, the Corporation has determined and
agreed to enter into this Agreement with Agent.
NOW, THEREFORE, in consideration of Agent's continued
service in the capacity set forth above after the date
hereof, the parties hereto agree as follows:
l. Service to the Corporation. Agent will serve, at the
will of the Corporation or under separate contract, if any
such contract exists, as a director, officer or agent of the
Corporation or as a director, officer or other fiduciary of
an affiliate of the Corporation (including any employee
benefit plan of the Corporation) faithfully and to the best
of his ability so long as he is duly elected and qualified
in accordance with the provisions of the By-Laws or other
applicable charter documents of the Corporation or such
affiliate; provided, however, that Agent may at any time and
for any reason resign from such position (subject to any
contractual publication that Agent may have assumed apart
from this Agreement) and that the Corporation or any
affiliate shall have no publication under this Agreement to
continue Agent in any such position.
2. Maintenance of Liability Insurance.
(a) The Corporation hereby covenants and agrees that,
so long as the Agent shall continue to serve as an agent of
the corporation and thereafter so long as the Agent shall be
subject to any possible action, suit or proceeding by reason
of the fact that the Agent was an agent of the Corporation,
the Corporation, subject to Section 2(c), shall promptly
obtain and maintain in full force and effect directors' and
officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) In all policies of D&O Insurance the agent shall be
named as an insured in such a manner as to provide the Agent
the same rights and benefits as are accorded to the most
favorably insured of the Corporation's directors, if the
Agent is a director; or of the Corporation's officers, if
the Agent is not a director of the Corporation but is an
officer; or of the Corporation's key employees, if the Agent
is not an officer or director but is a key employee.
(c) Notwithstanding the foregoing, the Corporation
shall have no obligation to obtain or maintain D&O Insurance
if the Corporation determines in good faith that such
insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of
coverage provided, the coverage provided by such insurance
is limited by exclusions so as to provide an insufficient
benefit, or the Agent is covered by similar insurance
maintained by a subsidiary of the Corporation.
3. Indemnity of Agent. The Corporation hereby agrees to
hold harmless and indemnify Agent to the fullest extent
authorized or permitted by the provision of the By-Laws and
the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the
corporation to provide broader indemnification rights than
the By-Laws or the Code permitted prior to adoption of such
amendment).
4. Additional Indemnity. In addition to and not in
limitation of the indemnification otherwise provided for
herein, and subject only to the exclusions set forth in
Section 4 hereof, the Corporation hereby further agrees to
hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys'
fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes
legally obligated to pay because of any claim or claims made
against or by him in connection with any threatened, pending
or completed action suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative
(including an action by or in the right of the Corporation)
to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that
Agent is, was or at any time becomes a director, officer,
employee or other agent of the Corporation, or is or was
serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent
of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, or was a
director, officer, employee or agent of a corporation which
was a predecessor corporation of the Corporation or of
another enterprise at the request of such predecessor
corporation; and
(b) otherwise to the fullest extent as may be provided
to Agent by the Corporation under the non-exclusivity
provisions of Section 29 of the By-Laws and the Code.
5. Limitations on Additional Indemnity. No indemnity
pursuant to Section 4 hereof shall be paid by the
Corporation:
(a) on account of any claim against Agent for an
accounting of profits made from the purchase or sale by
Agent of securities of the Corporation pursuant to the
provisions of Section 16(b) of the Securities Exchange Act
of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) for which payment is actually made to Agent under a
valid and collectible insurance policy or under a valid and
enforceable indemnity clause, by-law or agreement, except in
respect of any excess beyond payment under such insurance,
clause, by-law or agreement;
(c) in connection with any proceeding (or part thereof)
initiated by agent, or any proceeding by Agent against the
Corporation or its directors, officers, employees or other
agents, unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding (or part
thereof) was authorized by the Board of Directors of the
Corporation, (iii) such indemnification is provided by the
Corporation, in its sole discretion, pursuant to the powers
vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 10 hereof;
(d) if indemnification is prohibited by law, in which
regard both the Agent and the Corporation are aware that:
(i) Section 204(a)(10) of the Code, at the time of
this Agreement, would prohibit indemnification:
(1) on account of Agent's acts or omissions that
involve intentional misconduct or a knowing and culpable
violation of law;
(2) on account of Agent's acts or omissions that
Agent believes to be contrary to the best interests of the
Corporation or its shareholders or that involve the absence
of good faith on the part of the Agent;
(3) on account of any transaction from which Agent
derived an improper personal benefit;
(4) on account of Agent's acts or omissions that
show a reckless disregard for the Agent's duty to the
Corporation or its shareholders in circumstances in which
Agent was aware, or should have been aware, in the ordinary
course of performing Agent's duties, of a risk of serious
injury to the Corporation or its shareholders;
(5) on account of Agent's acts or omissions that
constitute an unexcused pattern of inattention that amounts
to an abdication of Agent's duty to the Corporation or its
shareholders;
(6) on account of any liability of Agent under
Section 310 of the Code;
(7) on account of any liability of Agent under
Section 316 of the Code; and
(8) on account of any act or omission of Agent
occurring prior to the date when a provision in the
Corporation's Articles of Incorporation eliminating or
limiting the personal liability of the Corporation's
directors for monetary damages in actions brought by or in
the right of the Corruption, as authorized by Section
204(a)(10) of the Code, first became effective; and that
(ii) Section 317(c) of the Code, at the time of this
Agreement, would prohibit indemnification in respect of any
action by or in the right of the Corporation to procure a
judgment in its favor:
(1) in respect of any claim, issue or matter as to
which Agent shall have been adjudged to be liable to the
Corporation in the performance of Agent's duty to the
Corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was
pending shall determine upon application that, in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for expenses and then only
to the extent the court shall determine;
(2) of amounts paid in settling or otherwise
disposing of a pending action without court approval; and
(3) of expenses incurred in defending a pending
action which is settled or otherwise disposed of without
court approval.
6. Continuation of Indemnity. All Agreements and
obligations of the Corporation contained herein shall
continue during the period Agent is a director, officer,
employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director,
officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise) and shall continue thereafter so long as
Agent shall be subject to any possible claim or threatened,
pending or competed action, suit or proceeding, whether
civil, criminal, arbitrational, administrative or
investigative, by reason of the fact that Agent was serving
in the capacity referred to herein.
7. Partial Indemnification. Agent shall be entitled
under this Agreement to indemnification by the Corporation
for a portion of the expenses (including attorneys' fees),
witness fees, damage, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or
proceeding referred to in Section 4 hereof even if not
entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the
portion thereof to which Agent is entitled.
8. Notification and Defense of Claim. Not later than
thirty (30) days after receipt by Agent of notice of the
commencement of any action, suit or proceeding, Agent will,
if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of
the commencement thereof; but the omission so to notify the
Corporation will not relieve it from any liability which it
may have to Agent otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to which
Agent notifies the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate
therein at its own expense;
(b) except as otherwise provided below, the Corporation
may, at its option and jointly with any other indemnifying
party similarly notified and electing to assume such
defense, assume the defense thereof, with counsel reasonably
satisfactory to Agent. After notice from the Corporation to
Agent of its election to assume the defense thereof, the
Corporation will not be liable to Agent under this Agreement
for any legal or other expenses subsequently incurred by
Agent in connection with the defense thereof except for
reasonable costs of investigation or otherwise as provided
below. Agent shall have the right to employ separate
counsel in such action, suit or proceeding but the fees and
expenses of such counsel incurred after notice from the
Corporation of its assumption of the defense thereof shall
be at the expense of Agent unless (i) the employment of
counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded that there may be
a conflict of interest between the Corporation and Agent in
the conduct of the defense of such action or (iii) the
Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases
the fees and expenses of Agent's separate counsel shall be
at the expense of the Corporation. The Corporation shall
not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as
to which Agent shall have made the conclusion provided for
in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify
Agent under this Agreement for any amounts paid in
settlement of any action or claim effected without its
written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action
except that it shall not settle any action or claim in any
manner which would impose any penalty or limitation on Agent
without Agent's written consent.
9. Expenses. The Corporation shall advance, prior to the
final disposition of any proceeding, promptly following
request therefor, all expenses incurred by Agent in
connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts
if it shall be determined ultimately by a court of last
resort that Agent is not entitled to be indemnified under
the provisions of this Agreement, the By-Laws, the Code or
otherwise.
10. Enforcement. Any right to indemnification or
advances granted by this Agreement to Agent shall be
enforceable by or on behalf or Agent in any court of
competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of
request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid
also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification
is made under Section 4 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 9
hereof, provided that the required undertaking has been
tendered to the Corporation) that Agent is not entitled to
indemnification because of the limitations set forth in
Section 4 hereof, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the
Corporation (including its Board of directors or its
shareholder) to have made a determination prior to the
commencement of such enforcement action that indemnification
of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of
Directors or its shareholders) that such indemnification is
improper shall be a defense to the action or create a
presumption that Agent is not entitled to indemnification
under this agreement or otherwise.
11. Subrogation. In the event of payment under this
Agreement, the Corporation shall be subrogated to the extent
of such payment to all of the rights of recovery of Agent,
who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to
enable the Corporation effectively to bring suit to enforce
such rights.
12. Non-Exclusivity of Rights. The rights conferred on
Agent by this Agreement shall not be exclusive of any other
right which Agent may have or hereafter acquire under any
statute, provision of the Corporation's Articles of
Incorporation or By-laws, agreement, vote of shareholders of
directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding
office.
13. Survival of Rights.
(a) The rights conferred on Agent by this agreement
shall continue after Agent has ceased to be a director,
officer, employee or other agent of the Corporation or to
serve at the request of the Corporation as a director,
officer, employee or other agent or another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise and shall inure to the benefit of Agent's
heirs, executors and administrators.
(b) The Corporation shall require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be
required to perform if no such succession had taken place.
14. Interpretation of Agreement. It is understood that
the parties hereto intend this Agreement to be interpreted
and enforced so as to provide indemnification to the Agent
to the fullest extent permitted by law.
15. Separability. Each of the provisions of this
Agreement is a separate and distinct agreement and
independent of the others, so that if any provision hereof
shall be held to be invalid for any reason, such invalidity
or unenforceability shall not affect the validity or
enforceability of the other provisions hereof. Subject to
the last sentence of this Section 15, the parties agree to
use their best efforts to replace such invalid or
unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent
possible, the economic, business and other purposes of this
invalid or unenforceable provision. Furthermore, if this
Agreement shall be invalidated in its entirety on any
ground, then the Corporation shall nevertheless indemnify
Agent to the fullest extent provided by the By-Laws, the
Code or any other applicable law.
16. Successors and Assigns. The terms of this Agreement
shall bind, and shall inure to the benefit of, the
successors and assigns of the parties hereto.
17. Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of
California.
18. Amendment and Termination. No amendment,
modification, termination or cancellation of this Agreement
shall be effective unless in writing signed by both parties
hereto.
19. Identical Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall
for all purposes be deemed to be an original but all of
which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to
evidence the existence of this Agreement.
20. Headings. The headings of the sections of this
Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the
construction hereof.
21. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be
deemed to have been duly given (i) upon delivery if
delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the
date on which such communication was mailed if mailed by
certified or registered mail with postage prepaid:
(a) If to Agent, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
or to such other address as may have been furnished to Agent
by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
3Com CORPORATION AGENT
By_____________________________ _________________________
(Signature) (Signature)
Title__________________________ Agent's Address:
__________________________
__________________________
3Com CORPORATION
1983 STOCK OPTION PLAN
1. Purpose. The 3Com Corporation 1983 Stock Option Plan
(the "Plan") is established to create additional incentive
for key employees of 3Com Corporation and any present or
future parent and/or subsidiary corporation of such
corporation (collectively referred to as the "Company") to
promote the financial success and progress of the Company.
For purposes of the Plan, a parent corporation and a
subsidiary corporation shall be as defined in sections
425(e) and 425(f) of the Internal Revenue Code of 1954, as
amended (the "Code").
2. Administration. The Plan shall be administered by the
Board of Directors (the "Board") and/or by a duly appointed
committee of the Board having such powers as shall be
specified by the Board. Any subsequent references to the
Board shall also mean the committee if it has been
appointed. All questions of interpretation of the Plan or
of any options granted under the Plan (an "Option") shall be
determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the
Plan and/or any Option. Options may be either incentive
stock options as defined in section 422A of the Code or
nonqualified stock options. All incentive stock options and
nonqualified stock options granted to an Optionee shall be
set forth in separate Options.
3. Eligibility.
(a) Eligible Persons. The Options may be granted only
to employees (including officers) of the Company. The Board
shall, in its sole discretion, determine which persons shall
be granted Options (an "Optionee"). A director of the
Company shall not be granted an Option unless the director
is also an employee of the Company. An Optionee may, if he
is otherwise eligible, be granted additional Options.
(b) Fair Market Value Limitation. Notwithstanding any
other provisions in the Plan to the contrary, any Option
which is designated as an incentive stock option and is
granted pursuant to the Plan on or after January 1, 1987
shall comply with the limitations set forth in section
422A(b)(7) of the Internal Revenue Code of 1986 (the "1986
Code") (i.e., shall not become exercisable at a rate faster
than $100,000 per calendar year). In the event an Option is
subsequently determined to have exceeded the foregoing
limitation, the Option shall be amended, if necessary, in
accordance with applicable Treasury Regulations and rulings
to preserve, as the first priority, to the maximum possible
extent, the status of the Option as an incentive stock
option and to preserve, as a second priority, to the maximum
possible extent, the total number of shares subject to the
Option. Notwithstanding the above, the Board of Directors
shall have the authority, in its sole discretion, to amend
the Plan to eliminate the limitation set forth in the first
sentence of this paragraph or any limitation set forth in
the Plan setting forth or otherwise designed to comply with
the provisions of section 422A(b)(8) of the Internal Revenue
Code of 1954, as amended prior to the Tax Reform Act of 1986
(the "1954 Code"), and/or to grant Options which comply with
either limitation referred to above but which do not comply
with both such limitations.
4. Shares Subject to Option. The maximum number of
shares which may be issued under the Plan shall be 9,700,000
shares of the Company's authorized but unissued common
stock, subject to adjustment as provided in paragraph 7. In
the event that any outstanding Option for any reason expires
or is terminated and/or shares subject to repurchase are
repurchased by the Company, the shares of common stock
allocable to the unexercised portion of such Option or so
repurchased may again be subjected to an Option.
5. Time for Granting Options. All Options shall be
granted, if at all, within ten (10) years from the earlier
of the date the Plan is adopted by the Board or the date the
Plan is duly approved by the stockholders of the Company.
6. Terms, Conditions and Form of Options. Subject to the
provisions of the Plan, the Board shall determine for each
Option (which need not be incidental) the number of shares
for which the Option shall be granted, the option price of
the Option, the exercisability of the Option, whether the
Option is a nonqualified stock option or an incentive stock
option, and all other terms and conditions of the Option not
inconsistent with this paragraph 6. Options granted
pursuant to the Plan shall be evidenced by written
agreements specifying the number of shares covered thereby,
in such form as the Board shall from time to time establish,
and shall comply with and be subject to the following terms
and conditions:
(a) Option Price.
(i) The option price for any incentive stock option
shall be not less than the fair market value as determined
by the Board of the shares of common stock of 3Com on the
date of the granting of such Option, except that, as to an
Optionee who at the time the Option is granted owns stock
possessing more than 10% of the total combined voting power
of all classes of stock of the Company within the meaning of
section 422A(b)(6) of the Code (a "Ten Percent Owner
Optionee"), the option price for any incentive stock option
granted to the Ten Percent Owner Optionee shall not be less
than 110% of the fair market value of the shares on the date
the Option is granted.
(ii) The option price for any nonqualified stock
option shall be not less than 85% of the fair market value
as determined by the Board of the shares of common stock of
3Com on the date of granting of such Option.
(b) Exercise Period of Options. The Board shall have
the power to set the time or times within which each Option
shall be exercisable or the event or events upon the
occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however,
that no Option shall be exercisable after the expiration of
ten (10) years from the date such Option is granted, and
provided further that no Option granted to a Ten Percent
Owner Optionee which is intended to be an incentive stock
option shall be exercisable after the expiration of five (5)
years from the date such Option is granted.
(c) Stockholder Approval. An Option is not exercisable
until such time as the Plan is duly approved by the
stockholders of the Company.
(d) Payment of Option Price. Payment of the option
price for the number of shares being purchased shall be made
(1) in cash, (2) by tender to the Company of shares of the
Company's common stock which (a) either has been owned by
the Optionee for more than one (1) year or was not acquired,
directly or indirectly from the Company, and (b) has a fair
market value not less than the option price, or (3) by such
other consideration (including, without limitation, the
Optionee's promissory note) as the Board may approve at the
time the Option is granted. Notwithstanding the foregoing,
the Option may not be exercised by the tender of the
Company's common stock to the extent such tender of stock
would constitute a violation of the provisions of section
500 et seq. of the California Corporations Code, or the
corresponding provisions of other applicable law. In the
event the Board permits the exercise of an Option in whole
or in part by means of the Optionee's promissory note, the
Board shall determine the provisions of such note; provided,
however, that the note shall not represent more than ninety-
five (95%) of the option price, the principal shall be due
and payable not more than four (4) years after the Option is
exercised and interest shall be payable at least annually
and be at least equal to the minimum interest rate to avoid
imputed interest pursuant to section 483 of the Code.
(e) Sequential Exercise Limitation. Notwithstanding
any other provision of the Plan to the contrary, the Board
of Directors shall have the authority, in its sole
discretion, to grant Options on or after January 1, 1987
designated as incentive stock options which are subject to
any restrictions on exercise set forth in the Plan setting
forth or otherwise designed to comply with the provisions of
section 422A(b)(7) of the 1954 Code.
(f) Options Non-Transferable. During the lifetime of
the Optionee, the Option shall be exercisable only by said
Optionee. No Option shall be assignable or transferable by
the Optionee, except by will or by the laws of descent and
distribution.
(g) Standard Option Terms.
(i) Incentive Stock Options. Unless otherwise
provided for the Board in the grant of an Option, an Option
designated by the Board as an incentive stock option shall
comply with and be subject to terms and conditions set forth
in the form of Incentive Stock Option Agreement attached
hereto as Exhibit A and incorporated herein by reference.
(ii) Nonqualified Stock Options. Unless otherwise
provided for by the Board in the grant of an Option, an
Option designated by the Board as a nonqualified stock
option shall comply with and be subject to the terms and
conditions set forth in the form of Nonqualified Stock
Option Agreement attached hereto as Exhibit B and
incorporated herein by reference.
(iii) Authority to Vary Terms. The Board shall have
the authority from time to time to vary the terms of the
option agreements set forth as Exhibits A and/or B either in
connection with the grant of an individual Option or in
connection with the authorization of a new standard form or
forms; provided, however, that the terms and conditions of
such option agreements shall be in accordance with the terms
of the Plan. Such authority shall include, but not by way
of limitation, the authority to grant Options which are not
immediately exercisable.
7. Effect of Change in Stock Subject to Plan.
Appropriate adjustments shall be made in the number and
class of shares of stock subject to this Plan and to any
outstanding Options and in the exercise price of any
outstanding Options in the event of a stock dividend, stock
split, reverse stock split or like change in the capital
structure of the Company.
8. Termination or Amendment of Plan. The Board may at
any time terminate or amend the Plan, provided that without
approval of stockholders there shall be (i) no increase in
the total number of shares covered by the Plan (except by
operation of the provisions of paragraph 7 above, and (ii)
no change in the class of persons eligible to receive
Options. In any case, no amendment may adversely affect any
then outstanding Options or any unexercised portions thereof
without the consent of the Optionee unless such amendment is
required to enable the Option to qualify as an incentive
stock option (as defined in the Code).
9. Effect of Prior Plan as to Outstanding Options. The
Company has heretofore adopted the 3Com Corporation Amended
and Restated Incentive Stock Option Plan (the "Earlier
Plan"). The Plan in all respects is independent of and not
a continuation or amendment of the Earlier Plan.
Accordingly, the terms of the Earlier Plan shall remain in
effect and apply to Options granted pursuant to the Earlier
Plan.
3Com Corporation
August 31, 1993
First Quarter Report
To Our Shareholders
For the quarter ended August 31, 1993, we are pleased to report
continuing progress toward an improved financial operating model.
Net income of $26.1 million ($.80 per share) reflected record
earnings from operations of $13.4 million ($.41 per share). Also
included in net income were $1.2 million ($.04 per share)
resulting from retroactive changes in the tax laws and an $11.5
million ($.35 per share) gain on the sale of shares in Madge N.V.
We believe these results are tangible evidence that our global
data networking strategy is working, our customer relationships
continue to strengthen worldwide, and our operations continue to
gain efficiency.
Orders and sales increased 20% from the prior year to $157.0
million and $162.1 million, respectively, reflecting strength in
all key product platforms. Our systems business (internetworking
and hubs) grew 20% year-over-year to $58.1 million, and our
adapter business increased 25% from last year to $92.7 million.
Geographically, sales in the Americas, Europe, and
Intercontinental region accounted for 56%, 35%, and 9% of total
sales, respectively.
Sales of products introduced in the last 12 months were 52% of
total sales, reflecting market acceptance of our new products,
including LinkBuilder stackable hubs, EtherLink III Parallel
Tasking-TM and TokenLink III adapters, and NETBuilder II and
Boundary Routing-TM System Architecture internetworking platforms.
Additionally, we began shipping our LinkBuilder MSH and
LinkBuilder FDDI chassis hubs for Ethernet, Token Ring and FDDI
environments. Early in the quarter, the NETBuilder II router was
awarded Communications Week's Mixed-LAN Max Award for achieving
the first-ever perfect score in processing multi-protocol data
traffic.
In July, we introduced our High Performance Scalable Networking
strategy. This comprehensive blueprint of the future of data
networks allows customers to incrementally increase the bandwidth
and reduce the complexity of their networks using hub and
internetworking platforms available from 3Com today. We also
announced a strategic alliance with Fore Systems, a leader in ATM
(asynchronous transfer mode) technology, to incorporate ATM
switching in our connectivity systems. Additionally, we extended
our partnership with Novell, Inc. to ensure interoperability of
our complementary router technologies. Further, we were the
first to demonstrate 100 Mbps Fast Ethernet technology and we
also introduced the first applications of our new Transcend-TM
network management architecture, a unique management scheme that
manages complete, logical connectivity systems rather than single
devices.
At our September annual meeting of shareholders, Jean-Louis
Gassee, Jack L. Hancock, Stephen C. Johnson, and William F.
Zuendt were elected to two-year board terms. Additionally, we
acknowledge the many contributions of former Chairman L. William
Krause who, after more than 12 years of service to 3Com, has
decided not to seek re-election to the Board. Shareholders also
approved a 1.5 million share reserve increase under the company's
1983 Stock Option Plan and ratified the appointment of Deloitte &
Touche as the company's independent public accountants for the
1994 fiscal year.
The industry is shifting its focus from point products to
comprehensive connectivity systems and solutions. We are leading
this trend and are, we believe, positioned to further increase
our market share and improve our operating results. On behalf of
all 1,995 3Com employees, we thank you for your continued
support.
Eric A. Benhamou
President and CEO
Consolidated Statements of Income
Quarter Ended August 31,
1993 1992
in thousands, except per share data (unaudited)
Sales $162,091 $135,617
Costs and Expenses:
Cost of sales 81,676 74,133
Sales and marketing 35,455 29,158
Research and development 15,878 15,703
General and administrative 8,204 8,333
Total 141,213 127,327
Operating income 20,878 8,290
Gain on sale of investment 17,746 -
Other income (expense)-net (320) 460
Income before taxes 38,304 8,750
Income tax provision 12,190 2,900
Net income $ 26,114 $ 5,850
Earnings per share $0.80 $0.20
Shares used in computing
per share amount 32,656 29,954
Consolidated Balance Sheet
Quarter Ended August 31,
1993 1992
in thousands, except per share data (unaudited)
Assets
Current Assets:
Cash, cash equivalents and
temporary cash investments $145,298 $ 76,893
Trade receivables 84,911 72,622
Inventories 63,331 55,639
Other 27,283 31,766
Total current assets 320,823 236,920
Property and equipment-net 55,517 57,093
Other assets 7,438 11,235
Total $383,778 $305,248
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ - $ 8,336
Accounts payable and accruals 89,248 75,683
Accrued restructuring costs 3,321 7,941
Income taxes payable 20,184 5,171
Current portion of long-term
obligations 191 317
Total current liabilities 112,944 97,448
Long-term obligations 456 1,401
Accrued restructuring
costs-noncurrent 524 2,518
Shareholders' Equity:
Common stock 153,921 126,697
Unamortized restricted stock
grants and notes receivable
from sale of common stock - (112)
Retained earnings 116,256 73,363
Accumulated translation adjustments (323) 3,933
Total shareholders' equity 269,854 203,881
Total $383,778 $305,248
