_________________________________________________________________
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 March 1, 1998 Commission File No. 0-12867
or
transition report pursuant 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)
Delaware 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 ....XX.... No ................
As of March 1, 1998, 355,626,139 shares of the Registrant's
Common Stock were outstanding.
_________________________________________________________________
3Com Corporation
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three and Nine Months Ended March 1, 1998 and February 28, 1997
Consolidated Balance Sheets
March 1, 1998 and May 31, 1997
Consolidated Statements of Cash Flows
Nine Months Ended March 1, 1998 and February 28, 1997
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
3Com, AccessBuilder and U.S. Robotics are registered trademarks
of 3Com Corporation or its subsidiaries. Total Control and x2
are trademarks of 3Com Corporation or its subsidiaries.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
3Com Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
March 1, February 28, March 1, February 28,
1998 1997 1998 1997
---- ---- ---- ----
Sales $1,250,191 $1,462,891 $4,044,896 $4,234,334
Cost of sales 707,188 725,116 2,183,961 2,175,625
--------- --------- --------- ---------
Gross margin 543,003 737,775 1,860,935 2,058,709
--------- --------- --------- ---------
Operating expenses:
Sales and marketing 315,174 290,607 955,886 766,244
Research and development 144,237 135,264 432,013 346,645
General and administrative 67,775 63,623 201,905 169,776
Purchased in-process
technology - - - 54,000
Merger-related charges
(credits) (9,926) - 258,632 6,600
--------- --------- --------- ---------
Total operating expenses 517,260 489,494 1,848,436 1,343,265
--------- --------- --------- ---------
Operating income 25,743 248,281 12,499 715,444
Other income (expense), net (4,423) 4,490 6,175 10,300
--------- --------- --------- ---------
Income before income taxes 21,320 252,771 18,674 725,744
Income tax provision 7,462 73,667 52,028 266,998
--------- --------- --------- ---------
Net income (loss) $ 13,858 $ 179,104 $ (33,354) $ 458,746
========= ========= ========= =========
Net income (loss) per share:
Basic $ 0.04 $ 0.54 $ (0.10) $ 1.39
========= ========= ========= =========
Diluted $ 0.04 $ 0.50 $ (0.10) $ 1.30
========= ========= ========= =========
Shares used in computing
per share amounts:
Basic 354,766 332,362 349,028 329,469
========= ========= ========= =========
Diluted 366,116 355,116 349,028 353,413
========= ========= ========= =========
See notes to consolidated financial statements.
3Com Corporation
Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
March 1, May 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash and equivalents $ 386,028 $ 351,237
Short-term investments 514,892 538,706
Accounts receivable, net 888,955 996,080
Inventories, net 769,815 513,740
Deferred income taxes 222,503 196,875
Other 161,109 93,040
--------- ---------
Total current assets 2,943,302 2,689,678
Property and equipment, net 831,353 731,301
Deposits and other assets 96,625 118,804
Total assets $3,871,280 $3,539,783
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ - $ 134,700
Accounts payable 406,557 308,581
Other accrued liabilities 742,042 503,232
Income taxes payable 25,174 168,942
--------- ---------
Total current liabilities 1,173,773 1,115,455
Long-term obligations 46,811 170,652
Deferred income taxes 43,745 25,332
Stockholders' equity:
Preferred stock, no par value,
10,000 shares authorized;
none outstanding - -
Common stock, $.01 par value,
990,000 shares authorized;
shares outstanding: March 1, 1998,
355,626; May 31, 1997, 334,944 1,593,890 1,183,926
Retained earnings 1,016,207 1,049,561
Unrealized gain on investments, net 1,545 2,320
Unamortized restricted stock grants (4,684) (5,165)
Accumulated translation adjustments (7) (2,298)
--------- ---------
Total stockholders' equity 2,606,951 2,228,344
--------- ---------
Total liabilities and
stockholders' equity $3,871,280 $3,539,783
========= =========
See notes to consolidated financial statements.
3Com Corporation
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
-----------------
March 1, February 28,
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $ (33,354) $ 458,746
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 198,112 144,069
Deferred income taxes (25,750) (14,596)
Pooling of interests: OnStream - 4,850
U.S. Robotics 15,052 29,195
Purchased in-process technology - 54,000
Merger-related charges 258,632 6,600
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable 107,125 (544,599)
Inventories (318,320) 58,017
Other current assets (70,673) (62,062)
Accounts payable 97,976 142,633
Other accrued liabilities 112,221 100,166
Income taxes payable 28,342 182,739
--------- ---------
Net cash provided by operating
activities 369,363 559,758
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments (276,556) (399,735)
Proceeds from short-term investments 295,735 235,833
Purchase of property and equipment (324,426) (324,768)
Business acquired in purchase
transaction - (66,547)
Other, net (19,476) (42,562)
--------- ---------
Net cash used for investing activities (324,723) (597,779)
--------- ---------
Cash flows from financing activities:
Issuance of common stock 241,401 73,528
Repayments of short-term debt,
notes payable and capital lease
obligations (168,066) -
Repayments of long-term obligations (122,880) -
Net proceeds from issuance
of debt 33,300 60,700
Other, net 6,396 (563)
--------- ---------
Net cash provided by (used for)
financing activities (9,849) 133,665
--------- ---------
Increase in cash and equivalents 34,791 95,644
Cash and equivalents, beginning
of period 351,237 233,573
--------- ---------
Cash and equivalents, end of period $ 386,028 $ 329,217
========= =========
Non-cash financing and investing activities:
Tax benefit on stock option
transactions $ 153,103 $ 109,250
========= =========
Unrealized loss on investments, net $ (775) $ (2,643)
========= =========
See notes to consolidated financial statements.
3Com Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements have
been prepared by 3Com Corporation (the Company) and include
the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated. 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 March
1, 1998, and the results of operations for the three and
nine months ended March 1, 1998 and February 28, 1997 and
cash flows for the nine months ended March 1, 1998 and
February 28, 1997.
On June 1, 1997, the Company adopted a 52-53 week
fiscal year ending on the Sunday nearest to May 31, which
for fiscal 1998 will be May 31, 1998. The Company does not
expect this change to have a material impact on the
Company's financial statements. The results of operations
for the three and nine months ended March 1, 1998 may not
necessarily be indicative of the results to be expected for
the fiscal year ending May 31, 1998. These financial
statements should be read in conjunction with the
consolidated financial statements and related notes thereto
included in the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997.
2. U.S. Robotics Merger
On June 12, 1997, the Company completed the merger with U.S.
Robotics Corporation (U.S. Robotics), the leading supplier
of products and systems for accessing information across the
wide area network, including modems and remote access
products. This merger was accounted for as a pooling-of-
interests. The Company issued approximately 158 million
shares of its common stock in exchange for all outstanding
common stock of U.S. Robotics. The Company also assumed and
exchanged all options to purchase U.S. Robotics' stock for
options to purchase approximately 31 million shares of the
Company's common stock. All financial data of the Company
presented in this Form 10-Q have been restated to include
the historical financial information of U.S. Robotics in
accordance with generally accepted accounting principles and
pursuant to Regulation S-X. The fiscal year ended May 31,
1997 for 3Com has been combined with the period from July 1,
1996 through May 25, 1997 for U.S. Robotics. This combining
methodology includes the last three reported quarters of
U.S. Robotics, ended September 29, 1996, December 29, 1996,
and March 30, 1997, and the months of April and May 1997.
To reflect a complete 12-month year and a 3-month fourth
quarter and thereby enhance comparability of periodic
reported results, U.S. Robotics' results of operations for
the month ended March 30, 1997 are included in both the
three-month period ended March 30, 1997 and the three-month
period ended May 25, 1997. 3Com's balance sheet as of May
31, 1997 was combined with U.S. Robotics' balance sheet as
of May 25, 1997. The combining periods are as follows:
Fiscal 1997 Quarterly Periods
-----------------------------
Q1'97 Q2'97 Q3'97 Q4'97
----- ----- ----- -----
3Com August `96 November `96 February `97 May `97
U.S. Robotics September `96 December `96 March `97 May `97*
*Three-month period which includes March, April, and May.
Supplemental Operating Information for U.S. Robotics
- ----------------------------------------------------
Following is supplemental information regarding U.S.
Robotics' results of operations for the three-month period
ended May 25, 1997 (in thousands). Results for these periods
exclude reclassifications made to conform to the Company's
financial statement presentation.
Three
March April/May Months Ended
1997 1997 May 25, 1997
---- ---- ------------
Sales $ 541,662 $ 15,277 $ 556,939
Gross margin 279,411 (49,204) 230,207
Total operating expenses 97,457 187,557 285,014
--------- --------- ---------
Operating income (loss 181,954 (236,761) (54,807)
Income (loss) before income taxes 179,647 (242,929) (63,282)
Income tax provision (benefit) 66,720 (82,625) (15,905)
--------- --------- ---------
Net income (loss) $ 112,927 $ (160,304) $ (47,377)
========= ========= =========
U.S. Robotics' sales for the month ended March 30, 1997
(March 1997) were approximately $541.7 million, reflecting
strong market demand worldwide for information access
devices including the introduction and initial high volume
shipments of products incorporating x2TM technology (x2
products). x2 technology increases the potential speed for
downloading data from 28.8 or 33.6 Kilobits per second
(Kbps) for standard V.34 modems to 56 Kbps. Consistent
with U.S. Robotics' non-linear quarterly sales pattern,
sales in the first two months of the quarter were relatively
low and in the third month of the quarter, which March 1997
represents, were significantly higher.
Gross margin for March 1997 was approximately $279.4
million, or 51.6 percent of sales. The overall gross margin
reflected the initial high volume shipments of x2 products,
which generated higher gross margins due to U. S. Robotics'
temporary "first to market" advantage over competitors in
the 56 Kbps modem market. Also, to a lesser extent, the
overall gross margin reflected higher margins on the initial
sales of newer generation handheld organizer products
introduced during the month.
Total operating expenses for March 1997 were approximately
$97.5 million, or 18.0 percent of sales. Sales and
marketing expenses reflected significant spending related to
the introduction of x2 products, other marketing programs
designed to generate continuing growth in sales and expand
market share, and continuing investments to increase the
worldwide sales force with the intent of increasing sales of
network systems products. General and administrative
expenses and research and development expenses reflected
continuing investments in personnel and systems necessary to
support U.S. Robotics' expanded level of business activity
and its commitment to new product and technology
development. As a percentage of sales, total operating
expenses for March 1997 were low due to the non-linear sales
pattern described above.
Gross sales for the two months ended May 25, 1997 were
approximately $200.3 million. Net sales after provisions,
primarily for product returns of $143 million and price
protection of $33 million, were approximately $15.3 million.
These results principally reflect the following factors:
U.S. Robotics' non-linear sales pattern, as described above;
lower than anticipated sales out of the channel, due in part
to confusion about the new 56 Kbps technologies and concerns
regarding the absence of an industry standard for 56 Kbps
modems; efforts to reduce levels of channel inventory,
including increased emphasis on sales out of the channel via
price reductions and other promotions; and product returns
from channel partners whose sales out had been lower than
anticipated.
Returns during the two months ended May 25, 1997 totaled
$82.3 million, reflecting primarily desktop modems and
remote access concentrators. The majority of the desktop
modem returns consisted of older generation products which
were heavily impacted by the March 1997 introduction of
U.S. Robotics' 56 Kbps modem with x2 technology. Returns of
remote access concentrators were due primarily to lower than
anticipated sales out of the distribution channel. Based on
negotiations with individual customers, U.S. Robotics
allowed returns during this period in excess of customers'
contractual rights due to the 56 Kbps technology transition
and the desire to reduce channel inventory. Returns during
this period exceeded the March 30, 1997 balance in the
allowance for sales returns of $48.9 million by $33.4
million.
The price protection provision of $33 million related
primarily to price reductions effective subsequent to March
30, 1997 for desktop modems and remote access concentrator
product lines.
Gross margin for this period was affected adversely by the
provision for price protection described above, a provision
for potentially excess and obsolete inventory of
approximately $15.4 million, and unabsorbed manufacturing
costs.
Operating expenses for the two months ended May 25, 1997
were approximately $187.6 million. Sales and marketing
expenses reflected significant spending related to the
introduction of x2 products and newer generation handheld
organizer products, other marketing programs designed to
generate continuing growth in sales and expand market share,
and continuing investments to increase the worldwide sales
force with the intent of increasing sales of network systems
products. General and administrative expenses and research
and development expenses reflected continuing investments in
personnel and systems necessary to support U.S. Robotics'
anticipated growth and its commitment to new product and
technology development. As a percentage of sales, total
operating expenses for the two months ended May 25, 1997
were high due to the non-linear sales pattern described
above.
Other expenses, net, for the two months ended May 25, 1997
were approximately $6.2 million. Such expenses reflected
higher interest expense due to increased short term
borrowing. During these two months, U.S. Robotics increased
its short-term borrowings from approximately $61 million to
approximately $135 million, $10 million under an existing
$90 million short-term borrowing arrangement and $125
million under an existing $300 million revolving credit
facility. Such borrowings were primarily necessary to fund
ongoing operating expenses, including costs associated with
the launch of the new x2 technology, as well as capital
expenditures. The Company repaid such short-term borrowing
shortly after closing of the merger in June 1997 between
3Com and U.S. Robotics and the use of these borrowing
arrangements is no longer expected to be required.
The provision for income taxes for the two months ended May
25, 1997 was a net benefit of approximately $82.6 million,
resulting in an effective tax rate of 34.0 percent.
Merger Related Charges (Credits)
- --------------------------------
During the first nine months of fiscal 1998, the
Company recorded merger-related charges of $258.6 million
which includes approximately $216.7 million of integration
expenses and $41.9 million of direct transaction costs
(consisting primarily of investment banking and other
professional fees). Integration expenses included:
- - $54.0 million related to the closure and elimination of
owned and leased facilities, primarily duplicate
corporate headquarters and domestic and European sales
offices;
- - $62.4 million for severance and outplacement costs
related to the merger, including amounts related to
termination benefits associated with employment
agreements. Employee groups impacted by the merger
include personnel involved in duplicate corporate
services, manufacturing and logistics, product
organizations and sales;
- - $41.5 million associated with certain long-term assets,
primarily including duplicate finance, manufacturing,
human resource and other management information systems,
and capitalized purchased research and development costs
related to a discontinued product; and
- - $58.8 million primarily associated with the elimination
and phase-out of duplicate wide area networking products
(i.e., 3Com's AccessBuilder[registered trademark] 2000, 4000,
5000 and 8000 products and U.S. Robotics'[registered trademark]
TOTALswitch, ATM switch, LANLinker and related small office
home office products), and the discontinuance of U.S. Robotics'
telephony products. The charge primarily includes inventory
write-offs and noncancelable purchase commitments.
During the third quarter of fiscal 1998, merger-related
charges were a net credit of $9.9 million. Primarily
included in this credit were actual costs incurred for a
product swap-out program associated with certain
discontinued products, which were more than offset by
reductions in the estimates for remaining charges associated
with duplicate facilities and information systems.
The remaining merger-related accrual at March 1, 1998
was approximately $112 million. Total expected cash
expenditures relating to the merger charge are estimated to
be approximately $126 million, of which approximately $88
million was disbursed prior to March 1, 1998. Termination
benefits paid to 730 employees terminated through March 1,
1998 (approximately 75 percent of the total planned
severances) were approximately $43 million. The remaining
severance and outplacement amounts are expected to be paid
within the next six months.
Pro Forma Information
- ---------------------
The fiscal 1997 consolidated financial statements have been
restated to include U. S. Robotics information on the basis
described above. The consolidated statements of income for
the fiscal years ended May 31, 1996 and 1995 include the
U.S. Robotics statements of income for the fiscal years
ended September 29, 1996 and October 1, 1995, respectively.
This presentation has the effect of including U.S. Robotics'
results of operations for the three-month period ended
September 29, 1996 in both the combined years ended May 31,
1997 and 1996, and reflects sales of $611.4 million and net
income of $13.5 million, which has been reported as a
decrease to the Company's fiscal 1997 retained earnings.
The combined results below reflect reclassifications to
conform financial statement presentation. Summarized pro
forma operating results for the three and nine months ended
February 28, 1997 are as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
February 28, February 28,
1997 1997
---- ----
(In thousands, except per share amounts)
Sales:
3Com $ 786,778 $2,317,214
U.S. Robotics 690,184 1,947,006
Reclassifications to conform financial
statement presentation (14,071) (29,886)
--------- ---------
Combined $1,462,891 $4,234,334
========= =========
Net income:
3Com $ 87,645 $ 284,786
U.S. Robotics 91,459 173,960
--------- ---------
Combined $ 179,104 $ 458,746
========= =========
Net income per share (on a diluted basis):
3Com $ 0.47 $ 1.53
U.S. Robotics (1) 0.54 1.03
--------- ---------
Combined $ 0.50 $ 1.30
========= =========
(1) Adjusted for effect of exchange ratio of 1.75 shares of
3Com Common Stock for each share of U.S. Robotics Common Stock.
3. Inventories, net consisted of (in thousands):
March 1, May 31,
1998 1997
---- ----
Finished goods $ 537,136 $ 346,631
Work-in-process 47,548 31,606
Raw materials 185,131 135,503
--------- ---------
Total $ 769,815 $ 513,740
========= =========
4. Bond Redemption
On December 23, 1997, the Company redeemed convertible
subordinated notes totaling $110 million. Under the terms
of the note agreement, the Company paid cash of
approximately $115 million for principal, accrued interest
and early call premium. Included in other income
(expense), net for the three and nine months ended March 1,
1998 is a charge of approximately $4.7 million for the early
call premium and write-off of unamortized issuance fees.
5. Net Income (Loss) Per Share
In 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. SFAS 128 replaced the
previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic
earnings per share is computed using the weighted average
number of common shares. Diluted earnings per share is
computed using the weighted average number of common shares
and potentially dilutive common shares outstanding during
the period. Potentially dilutive common shares consist of
employee stock options, warrants and convertible securities.
All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to SFAS
128 requirements.
The following table sets forth the computation of basic
and diluted earnings per share as required under SFAS 128:
Three months ended Nine months ended
------------------ -----------------
March 1, February 28, March 1, February 28,
1998 1997 1998 1997
---- ---- ---- ----
Numerator -- Net income
(loss) $ 13,858 $ 179,104 $ (33,354) $ 458,746
========= ========= ========= =========
Denominator for basic
earnings per share --
Weighted average shares 354,766 332,362 349,028 329,469
Effect of potentially dilutive
common shares:
Restricted stock 193 341 - 327
Stock options 11,157 22,413 - 23,617
--------- --------- --------- ---------
Denominator for diluted
earnings per share -- 366,116 355,116 349,028 353,413
--------- --------- --------- ---------
Net income (loss) per
share -- Basic $ 0.04 $ 0.54 $ (0.10) $ 1.39
--------- --------- --------- ---------
Net income (loss) per
share -- Diluted $ 0.04 $ 0.50 $ (0.10) $ 1.30
--------- --------- --------- ---------
Potentially dilutive common shares are excluded from
the calculation of diluted earnings per share for the nine
months ended March 1, 1998, as they were antidilutive.
6. Employee Stock Options
On December 17, 1997, the Company's Board of Directors
approved the repricing of certain employee stock options
with an exercise price in excess of the fair market value of
the Company's common stock on January 12, 1998. The
exercise price for 20.8 million shares of employee stock
options was reset to $29.375, the closing market price on
January 12, 1998. All such options retain their original
vesting schedules but are subject to a nine-month period in
which exercises are prohibited. Stock options held by
executive officers and directors were not eligible for such
repricing.
7. Litigation
The Company is a party to lawsuits in the normal course of
its business. The Company notes that (i) litigation in
general, and patent and securities litigation in particular,
can be expensive and disruptive to normal business
operations and (ii) the results of complex legal proceedings
can be very difficult to predict with any certainty.
Securities Litigation
- ---------------------
On March 24 and May 5, 1997, putative securities class
action lawsuits, captioned Hirsch v. 3Com Corporation, et
al., Civ. A. No. CV764977 (Hirsch) and Kravitz v. 3Com
Corporation, et al., Civ. A. No. CV765962 (Kravitz),
respectively, were filed against the Company and certain of
its officers and directors in the California Superior Court,
Santa Clara County. The complaints allege violations of
Sections 25400 and 25500 of the California Corporations Code
and seek unspecified damages on behalf of a purported class
of purchasers of 3Com common stock during a period from
September 24, 1996 through February 10, 1997.
On February 10, 1998, a putative securities class action,
captioned Euredjian v. 3Com Corporation, et al., No. C-98-
00508 CRB, was filed against 3Com and several of its present
and former officers and directors in United States District
Court for the Northern District of California asserting the
same class period and factual allegations as the Hirsch and
Kravitz actions. The complaint alleges violations of the
federal securities laws, specifically Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, and seeks
unspecified damages. The Hirsch, Kravitz and Euredjian
actions were filed after Intel Corporation sharply decreased
prices on its Fast Ethernet network interface cards, which
resulted in 3Com decreasing its prices on similar products
and a short-term negative impact on the Company's stock
price. The Company believes it has meritorious defenses to
the claims in the Hirsch, Kravitz and Euredjian actions and
intends to contest the lawsuits vigorously. An unfavorable
resolution of the actions could have a material adverse
effect on the business, results of operations or financial
condition of the Company.
Several securities actions have been filed against the
Company and certain of its current and former officers and
directors following the Company's merger with U.S. Robotics.
In December 1997, a putative securities class action,
captioned Reiver v. 3Com Corporation, et al., No. C-97-21083
JW, was filed in the United States District Court for the
Northern District of California. The complaint alleges
violations of the federal securities laws, specifically
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and seeks unspecified damages on behalf of a purported
class of purchasers of 3Com common stock during a period
from May 19, 1997 through November 6, 1997. In December
1997 and January 1998, seven similar shareholder class
action lawsuits were filed in the United States District
Court for the Northern District of Illinois and the United
States District Court for the Northern District of
California. The cases filed in the Northern District of
Illinois have been transferred to the Northern District of
California, and the actions have been consolidated. The
Company believes it has meritorious defenses to the claims
and intends to contest the lawsuits vigorously. An
unfavorable resolution of the actions could have a material
adverse effect on the business, results of operations or
financial condition of the Company.
In January 1998, two purported shareholder complaints
relating to the Company's June 1997 merger with U.S.
Robotics were filed in California Superior Court, Santa
Clara County: Stanley Grossman v. 3Com Corporation, et al.,
Civ. A. No. CV771335 and Jason v. 3Com Corporation, et al.,
Civ. A. No. CV771713. The actions allege that 3Com, several
of its officers and directors, and several former U.S.
Robotics officers violated Sections 11 and 15 of the
Securities Act of 1933 by making alleged misrepresentations
and omissions in a May 8, 1997 registration statement. The
complaints seek damages in an unspecified amount on behalf
of a purported class of persons who received the Company's
stock during the merger pursuant to the registration
statement. The Company has filed a motion in Delaware
Chancery Court seeking an injunction preventing plaintiffs
from proceeding, on the basis that plaintiffs' claims are
barred by a settlement in a prior action. The Company
believes it has meritorious defenses to the claims and
intends to contest the lawsuits vigorously. An unfavorable
resolution of the actions could have a material adverse
effect on the business, results of operations or financial
condition of the Company.
In February 1998, a shareholder derivative action
purportedly on behalf of the Company was filed in Delaware
Chancery Court: Wasserman v. Benhamou, et al., Civil Action
No. 16200-NC. The complaint alleges that the Company's
directors breached their fiduciary duties to the Company by
engaging in alleged wrongful conduct from mid-1996 through
November 1997, including the conduct complained of in the
securities litigation described above. The Company is named
solely as a nominal defendant, against whom the plaintiff
seeks no recovery.
Intellectual Property Litigation
- --------------------------------
During February 1998 the Company and Livingston Enterprises,
Inc. (Livingston) agreed to settle the cases pending between
Livingston and U.S. Robotics in the United States District
Court for the Northern District of California Case No. C-97-
3551(CRB). These actions were dismissed on March 4, 1998.
Neither party admitted fault in the settlement. The terms
of the settlement, which were not disclosed, were not
material to the business, results of operations, or
financial condition of the Company.
On April 26, 1997, Xerox Corporation filed suit against U.S.
Robotics in the United States District Court for the Western
District of New York (Xerox Corporation v. U.S. Robotics
Corporation and U.S. Robotics Access Corporation, No. 97-CV-
6182T), claiming infringement of one United States Patent
related to handwriting recognition. The complaint alleges
willful infringement and prays for unspecified damages and
injunctive relief. The Company believes it has meritorious
defenses to the claims and intends to contest the lawsuit
vigorously. An unfavorable resolution of the action could
have a material adverse effect on the business, results of
operations or financial condition of the Company.
By an agreement effective February 27, 1998, the Company and
Motorola, Inc. settled the patent lawsuit pending between
Motorola and U.S. Robotics in the United States District
Court for the District of Massachusetts (Civil Action No.
97-10339RCL). This case was dismissed on March 31, 1998.
Neither party admitted fault. In connection with the
settlement, the Company and Motorola entered into a cross-
license of their respective patents relating to high-speed
analog modem technologies required for implementation of
international standard data communications protocols,
including the pending V.90 standard for 56 Kbps modems. The
terms of the settlement, which were not disclosed, were not
material to the business, results of operations or financial
condition of the Company.
Consumer Litigation
- -------------------
During 1997, three putative class action lawsuits were filed
against the Company or its subsidiary, U.S. Robotics, in the
state courts of California and Illinois. Each of the actions
seeks damages as a result of alleged misrepresentations by the
Company or U.S. Robotics in connection with the sale of its
new x2[TM] products and products upgradeable to x2 under
various California and Illinois consumer fraud statutes and
under common law theories including fraud and negligent
misrepresentation. Plaintiffs in Bendall, et al. v. U.S. Robotics
Corporation, et al., (No. 170441, Superior Court of Marin County,
California), Lippman, et al v. 3Com, (No. 97 CH 09773, Circuit
Court of Cook County, Illinois), and Michaels, et. al. v. U.S.
Robotics Access Corporation et al., (No. 94 CH 14417, Circuit
Court of Cook County, Illinois) seek certification respectively
of nationwide classes of purchasers of x2 technology during the
approximate period November 1996 through at least May 1997.
The complaints seek injunctive relief and an unspecified amount
of damages. The Lippman and Michaels actions are presently stayed.
Four of the seven counts of the Bendall action recently were
dismissed on motion of U.S. Robotics. Plaintiffs have
stated that they will attempt to replead those claims. Two
other actions purporting to be brought in the public
interest under California statutes were filed against U.S.
Robotics in 1997 in state court in California arising out of
U.S. Robotics' alleged misrepresentations in connection with
the sale of its x2 products. The plaintiff in one of these
cases, Levy v. U.S. Robotics Corporation (No. 170968,
Superior Court of Marin County, California), recently
voluntarily dismissed her complaint. The other action,
Intervention Inc. v. U.S. Robotics Corporation (No. 984352,
Superior Court of San Francisco, California), is pending and
seeks injunctive and unspecified monetary relief. The
Company believes it has meritorious defenses to these
lawsuits and intends to contest the lawsuits vigorously. An
unfavorable resolution of the actions could have a material
adverse effect on the business, results of operations or
financial condition of the Company.
8. Effects of Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS 130, "Reporting
Comprehensive Income." This statement establishes standards
for the reporting and display of comprehensive income and
its components. SFAS 130 will be effective for the
Company's fiscal year 1999 and requires reclassification of
financial statements for earlier periods for comparative
purposes.
In June 1997, the FASB issued SFAS 131, "Disclosures
About Segments of an Enterprise and Related Information."
This statement requires that financial information be
reported on the basis used internally for evaluating segment
performance and deciding how to allocate resources to
segments. SFAS 131 is effective for the Company's fiscal
year 1999 and requires restatement of all previously
reported information for comparative purposes.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the
percentage of total sales represented by the line items reflected
in the Company's consolidated statements of operations:
Three Months Ended Nine Months Ended
------------------ -----------------
March 1, February 28, March 1, February 28,
1998 1997 1998 1997
---- ---- ---- ----
Sales...................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ............. 56.6 49.6 54.0 51.4
----- ----- ----- -----
Gross margin............... 43.4 50.4 46.0 48.6
----- ----- ----- -----
Operating expenses:
Sales and marketing........ 25.2 20.0 23.6 18.1
Research and development... 11.5 9.2 10.7 8.2
General and administrative. 5.4 4.3 5.0 4.0
Purchased in-process
technology............... - - - 1.2
Merger-related charges
(credits)................ (0.8) - 6.4 0.2
----- ----- ----- -----
Total operating expenses... 41.3 33.5 45.7 31.7
----- ----- ----- -----
Operating income .......... 2.1 16.9 0.3 16.9
Other income (expense),
net...................... (0.4) 0.3 0.2 0.2
----- ----- ----- -----
Income before income
taxes.................... 1.7 17.2 0.5 17.1
Income tax provision....... 0.6 5.0 1.3 6.3
----- ----- ----- -----
Net income (loss).......... 1.1% 12.2% (0.8)% 10.8%
===== ===== ===== =====
Excluding merger-related
and purchased in-process
technology charges
(credits):
Total operating expenses... 42.1% 33.5% 39.3% 30.3%
Operating income........... 1.3 16.9 6.7 18.3
Net income................. 0.6 11.0 4.5 11.8
Sales in the third quarter of fiscal 1998 totaled $1.25 billion,
an increase of four percent from the second quarter of fiscal
1998, but a decrease of $212.7 million or 15 percent from the
corresponding quarter a year ago. Sales of client access
products (e.g., modems and network interface cards (NICs)) in the
third quarter of fiscal 1998 increased 17 percent from the second
quarter of fiscal 1998 but decreased 16 percent from the same
quarter a year ago. Sales of client access products in the third
quarter of fiscal 1998 represented 56 percent of total sales
compared to 57 percent in the third quarter of fiscal 1997.
Sales of network systems products (e.g., switches, routers, hubs,
and remote access concentrators) in the third quarter of fiscal
1998 decreased eight percent compared to the second quarter of
fiscal 1998 and decreased 13 percent from the same quarter one
year ago. Sales of network systems products represented 44
percent of total sales in the third quarter of fiscal 1998,
compared to 43 percent in the year-ago quarter. Sales in the
U.S. represented 54 percent of total sales for the third quarter
of fiscal 1998. The Company experienced a sequential decline
from the second quarter of fiscal 1998 in domestic sales of three
percent and a sequential increase in international sales of 14
percent. U.S. and international sales decreased 15 percent and
14 percent, respectively, when compared to the third quarter of
fiscal 1997.
Sales in the first nine months of fiscal 1998 totaled $4.0
billion, a decrease of $189.4 million or four percent from the
corresponding period a year ago. Sales of client access products
in the first nine months of fiscal 1998 decreased nine percent
from the same period one year ago, and represented 54 percent of
total sales, compared to 57 percent in the first nine months of
fiscal 1997. Sales of network systems products in the first nine
months of fiscal 1998 increased one percent from the same period
one year ago, and represented 46 percent of total sales, compared
to 43 percent in the year ago period. Sales in the U.S. for the
first nine months of fiscal 1998 comprised 56 percent of total
sales compared to 58 percent in the same period a year ago. Sales
in the U.S. decreased eight percent while international sales
increased one percent when compared to the first nine months of
fiscal 1997.
The Company believes that the third quarter and nine-month sales
were affected by the following factors.
The pricing environment has been very competitive, and although
the Company experienced significant year-over-year unit growth in
key products such as Fast Ethernet NICs and workgroup switches,
these gains were partially offset by declines in average selling
prices. For example, during the third quarter, the Company
experienced significant price decreases in a number of product
segments, including modems, switches, hubs and remote access
concentrators.
In the second quarter of fiscal 1998, the Company adopted a new
inventory business model, which generally calls for fewer weeks
supply of inventory in the distribution channel. To implement
this model, the Company constrained sales into the channel during
the second and third quarters of fiscal 1998. As a result, sales
during these periods were adversely affected.
In January 1998, the International Telecommunications Union (ITU)
finally determined the V.90 standard for 56 Kbps technology. The
Company believes that the previous lack of such a standard
contributed to delays in customers purchasing decisions for
higher-speed modems and remote access concentrators. Although
the Company began shipping V.90 standard modems late in the third
quarter, the Company believes these delays adversely affected
sales.
During the third quarter of fiscal 1998, sales in the Asia
Pacific region compared to the third quarter of fiscal 1997
decreased 13 percent. Historically, the Asia Pacific region had
been a high growth region for the networking industry and the
Company. During fiscal 1998, however, several Asian countries
experienced a weakening of their local currencies and turmoil in
their financial markets and institutions, which the Company
believes has adversely affected financial results during fiscal
1998.
According to industry reports, there has been a slowdown in the
growth of the networking industry since the beginning of calendar
1997. While the industry had grown at rates in excess of 30
percent in prior years, recent reports indicate that the
networking industry worldwide grew by less than 20 percent during
1997, and this pattern continued into early 1998. The Company
believes that this slowdown in growth rates has impacted sales
during fiscal 1998.
The Company believes that the transition to new technologies and
new product platforms, such as the transition to the new high-
speed Ethernet standard, Gigabit Ethernet, may be delaying some
purchase decisions for the Company's LAN products. Additionally,
systems sales reflected lower than expected sales of the Total
Control[TM] remote access platform.
Gross margin as a percentage of sales was 43.4 percent in the
third quarter of fiscal 1998, compared to 46.1 percent in the
second quarter of fiscal 1998 and 50.4 percent in the third
quarter of fiscal 1997. The U.S. Robotics brand modems with x2
technology were introduced in the third quarter of fiscal 1997,
with significantly higher margins, reflecting first-to-market
pricing. During the past twelve months, increased product and
price competition in this product segment has resulted in a
continuing decline in gross margin percent. Gross margins during
the third quarter of fiscal 1998 primarily reflected this trend.
Additionally, the Company's year-over-year gross margin decline
was affected by product mix, specifically higher sales of certain
NICs and workgroup switching products, which carry lower gross
margins. Also, the Company experienced a slowdown in sales, as
well as aggressive pricing of remote access products. The
Company's margins were also negatively affected in part, from
fixed manufacturing costs being a higher percentage of sales, and
by certain systems products, which are nearing the end of their
life cycles. Gross margin as a percentage of sales was 46.0
percent in the first nine months of fiscal 1998, compared to 48.6
percent for the first nine months of fiscal 1997.
Operating expenses in the third quarter of fiscal 1998 were
$517.3 million, or 41.3 percent of sales, compared to $553.3
million, or 46.2 percent of sales in the second quarter of fiscal
1998 and $489.5 million, or 33.5 percent of sales in third
quarter of fiscal 1997. Operating expenses in the first nine
months of fiscal 1998 were $1.8 billion or 45.7 percent of sales,
compared to $1.3 billion, or 31.7 percent of sales in first nine
months of fiscal 1997. Operating expenses as a percentage of
sales were higher than historical levels, in part due to the
reduced level of sales for the third quarter of fiscal 1998, as
discussed above. Excluding a credit of $9.9 million associated
with the U.S. Robotics merger, operating expenses would have been
$527.2 million, or 42.1 percent of sales for the third quarter of
fiscal 1998. Excluding the merger-related charge of $258.6
million in the first nine months of fiscal 1998, operating
expenses would have been $1.6 billion, or 39.3 percent of sales.
Excluding a charge of $54.0 million for purchased in-process
technology associated with the acquisition of Scorpio
Communications Ltd. (Scorpio) and a charge of $6.6 million
associated with the acquisition of OnStream Networks, Inc.
(OnStream), operating expenses would have been $1.3 billion, or
30.3 percent of sales for the first nine months of fiscal 1997.
The Company's objective is to reduce expenses as a percentage of
sales in future quarters.
Sales and marketing expenses in the third quarter of fiscal 1998
decreased $23.2 million or seven percent from the second quarter
of fiscal 1998. Sales and marketing expenses as a percentage of
sales decreased to 25.2 percent of sales in the third quarter of
fiscal 1998, from 28.2 percent in the second quarter of fiscal
1998. The decrease in absolute dollars and dollars as a
percentage of total sales resulted from the decrease in spending
in product and company-wide marketing programs. Sales and
marketing expenses increased $24.6 million or eight percent from
the third quarter of fiscal 1997 and increased as a percentage of
sales from 20.0 percent in the corresponding fiscal 1997 period.
The year-over-year increase is attributable to the expansion of
field sales and marketing activities and personnel worldwide, as
well as an increase in spending for the Company's customer
service programs. Sales and marketing expenses in the first nine
months of fiscal 1998 increased $189.6 million or 25 percent from
the first nine months of fiscal 1997.
Research and development expenses in the third quarter of fiscal
1998 remained flat in absolute dollars when compared to the
second quarter of fiscal 1998 and decreased to 11.5 percent of
sales from 12.1 percent of sales in the second quarter of fiscal
1998. Research and development expenses increased $9.0 million
or seven percent from the year-ago period, and increased to 11.5
percent of total sales in the third quarter of fiscal 1998,
compared to 9.2 percent in third quarter of fiscal 1997.
Research and development expenses in the first nine months of
fiscal 1998 increased $85.4 million or 25 percent from the year-
ago nine-month period. The year-over-year increase in research
and development expenses in absolute dollars and dollars as a
percentage of sales was primarily attributable to the cost of
developing the Company's new products in the areas of client
access, switching, and network management, and its expansion into
new technologies and markets. The Company believes the timely
introduction of new technologies and products is crucial to its
success, and plans to continue to make acquisitions or strategic
investments to accelerate time to market where appropriate.
General and administrative expenses in the third quarter of
fiscal 1998 decreased $3.5 million or five percent from the
second quarter of fiscal 1998 and decreased to 5.4 percent of
total sales in the third quarter of fiscal 1998 from 6.0 percent
in the second quarter of fiscal 1998. The decrease in absolute
dollars and dollars as a percentage of sales of administrative
spending was partially offset by a slight increase in the
provision for bad debts. General and administrative expenses in
the third quarter of fiscal 1998 increased $4.2 million or seven
percent from the same period a year ago, and increased to 5.4
percent of total sales in the third quarter of fiscal 1998,
compared to 4.3 percent in the third quarter of fiscal 1997.
General and administrative expenses in the first nine months of
fiscal 1998 increased $32.1 million or 19 percent from the same
period a year ago. The year-over-year increase in general and
administrative expenses in absolute dollars and dollars as a
percentage of sales primarily reflected the expansion of the
Company's infrastructure, including personnel, as well as an
increased provision for bad debts.
During the third quarter of fiscal 1998, merger-related charges
were a net credit of $9.9 million Primarily included in this
credit were actual costs incurred for a product swap-out program
associated with certain discontinued products, which were more
than offset by reductions in the estimates for remaining charges
associated with duplicate facilities and information systems.
Other income (expense), net decreased $12.1 million compared to
the second quarter of fiscal 1998 and $8.9 million compared to
the third quarter of fiscal 1997. Other income (expense), net
decreased approximately $4.1 million in the first nine months of
fiscal 1998 compared to the first nine months of fiscal 1997.
The majority of the Company's sales are denominated in U.S.
Dollars. Where available, the Company enters into foreign
exchange forward contracts to hedge certain balance sheet
exposures and intercompany balances against future movements in
foreign exchange rates. However, third quarter results reflect
foreign currency losses of approximately $8.5 million, primarily
related to Korean operations, where foreign exchange hedges were
not available, or were available only to a limited extent. In
addition, the Company recorded a charge of approximately $4.7
million related to an early call premium and write-off of
unamortized issuance fees associated with the redemption of the
convertible notes in December 1997, which was included in other
income (expense), net in the third quarter of fiscal 1998.
The Company's effective income tax rate was approximately 35.0
percent in the third quarter of fiscal 1998 compared to 29.1
percent in the third quarter of fiscal 1997. Excluding a tax
benefit of approximately $17.9 million associated with the
acquisition of Scorpio, the pro forma income tax rate was 36.2
percent for the third quarter of fiscal 1997. The Company
recorded a tax provision of $52.0 million for the first nine
months of fiscal 1998, compared to $267.0 million for the first
nine months of fiscal 1997. The provision in the first nine
months of fiscal 1998 reflected the non-deductibility of certain
costs associated with the U.S. Robotics merger. Excluding these
costs, the pro forma effective income tax rate was 35.0 percent
for the first nine months of fiscal 1998. The provision for the
first nine months of fiscal 1997 reflected the non-deductibility
of the purchased in-process technology charge and related tax
benefit associated with the acquisition of Scorpio and merger-
related charge associated with OnStream. Excluding these
charges, the pro forma income tax rate was 36.2 percent for the
first nine months of fiscal 1997.
Net income for the third quarter of fiscal 1998 was $13.9
million, or $0.04 per share, compared to net income of $179.1
million, or $0.50 per share, for the third quarter of fiscal
1997. Excluding the tax benefit associated with the acquisition
of Scorpio, net income was $161.2 million, or $0.45 per share for
the third quarter of fiscal 1997. Net loss for the first nine
months of fiscal 1998 was $33.4 million, or $0.10 per share,
compared to net income of $458.7 million, or $1.30 per share, for
the first nine months of fiscal 1997. Excluding the merger-
related charges associated with U.S. Robotics, net income was
$180.2 million, or $0.49 per share for the first nine months of
fiscal 1998. Excluding the purchased in-process technology and
related tax benefit associated with the acquisition of Scorpio
and the merger-related charge associated with OnStream, net
income was $501.4 million, or $1.42 per share for the first nine
months of fiscal 1997.
Business Environment and Risk Factors
- -------------------------------------
This report contains certain forward looking statements,
including statements regarding future trends in market growth,
sales, gross margins, operating expenses, and inventory levels.
Actual results could vary materially based on a number of
factors, including but not limited to those set forth below.
In managing its business, the Company utilizes a long-term
financial model which is based on observed and anticipated trends
in technology and the marketplace. The model is not a prediction
of financial results; it is used to make decisions about the
allocation of resources and investments. During the third
quarter, the Company revised the model. As reflected below, the
ranges for gross margin and operating expenses as a percentage of
sales were lowered, while the range for operating income was not
changed.
Old New
--- ---
Gross margin 48-50% 45.5-47.5%
Operating expenses 30-32% 27.5-29.5%
Operating income 16-20% 16.0-20.0%
The change in gross margin reflects primarily the increasing
percentage of sales attributable to PC original equipment
manufacturers (OEM), the emerging importance of the consumer and
small enterprise market segment and increased price competition.
There can be no assurance that the Company's actual results in
any particular period will fall within the model.
The Company participates in a highly volatile industry which is
characterized by vigorous competition for market share, rapid
technological development, consolidations, uncertainty over
adoption of industry standards, and declining prices for personal
computers. This has in the past resulted and could in the future
result in aggressive pricing practices and increased competition,
both from start-up companies and from well-capitalized computer
systems, communications and other major technology companies.
For example, over the past twelve months, prices in the modem
market have declined significantly due to increased competition
and the availability of lower-priced standard components. Also,
the introduction of the new 56 Kbps higher-speed technology has
created downward price pressure on older technologies. Pricing
pressure also intensified in other product lines, including
switches, hubs and remote access concentrators. Pricing pressure
may continue on these and other products in coming quarters.
Market researchers have reported that network industry growth in
calendar 1997 was less than historic growth rates and that this
pattern continued into 1998. The slowdown in industry growth
rates may be a reflection of changing geographic economic growth
rates, inventory compression, a change in longer-term demand for
networking products, or some combination thereof. There can be
no assurance that the networking industry will continue to grow
or that it will again achieve historic growth rates. There can
also be no assurance that the Company's results in any particular
quarter will fall within market researchers' forecasted ranges
for growth.
The Company sells a significant portion of its products to
distributors and resellers. Such distributors and resellers
maintain significant levels of the Company's products in their
inventories. The Company attempts to ensure appropriate levels
of inventory are available to end users by working closely with
these resellers and distributors. There can be no assurance that
the Company will be successful in efforts to manage inventory
levels at its distributors and resellers. In addition, due to
consolidation in the distribution and reseller channels and the
Company's increased volume of sales into these channels, the
Company has experienced an increased concentration of credit
risk. While the Company continually monitors and manages this
risk, financial difficulties on the part of one or more of the
Company's resellers may have a material adverse effect on the
Company's results of operations.
Many vendors, distributors and resellers have been successful in
the direct sale of products to customers who wish to order
products via the Internet or through electronic data interchange
(EDI). These trends have enabled manufacturers to increase
business and lower their cost structures from configure-to-order
and just-in-time inventory management practices. There can be no
assurance that the Company will successfully implement such
systems in a timely manner and a failure to do so could adversely
affect results of operations.
The Company derives an increasing portion of its sales from OEM
partners including PC companies that bundle 3Com network
interface cards and modems, and incorporate chip-sets into their
products. The Company believes that future sales growth of these
products is dependent, in part, on the Company's ability to
strengthen relationships and increase business with OEM partners.
OEM sales are characterized as having lower average selling
prices and gross margins. Consequently, the Company's overall
gross margin percentage may be adversely impacted if OEM sales
become a larger percentage of the Company's business. Certain
OEMs in the PC industry are integrating communication subsystems
on the PC motherboard. If such integration becomes a trend, the
Company's future sales growth may be adversely impacted.
In the second quarter, the Company adopted a new inventory
business model. The new model generally calls for fewer weeks
supply of inventory in the channel and the Company taking on some
of the inventory stocking risk previously held by its customers.
To implement the new model, the Company constrained sales into
its distribution channels. As a result of the constrained sales
and the initial stocking of new products, the Company's inventory
levels increased. In addition, inventory turns have been reduced
to levels that are low both relative to historical levels and the
Company's long-term business model. During the fourth quarter,
the Company anticipates that sales out of and into the channel
should be reasonably in balance, and that changes in its build
plans should, together with the planned sales levels, result in
improvements in the Company's inventory position. However, there
can be no assurance that the Company will achieve improvements in
its inventory position, and a failure to do so could adversely
affect the Company's sales, reserves for excess and obsolete
inventory, and results of operations.
The Company's operations in certain markets, which are
characterized by economic and political instability and currency
fluctuations, may subject the Company's resellers to financial
difficulties which may have an adverse impact on the Company.
For example, the recent instability in the Asian financial
markets appears to have negatively impacted sales, and may
continue to negatively impact sales in those markets in a number
of ways, including: increasing competition from local competitors
that offer sales terms in local currencies, reducing access to
sources of capital needed by customers to make purchases, and
slowing end user purchases. Should the Asian economic
environment fail to improve, the Company would consider
continuing to expand its exposure to foreign currencies to
preserve long-term customer relationships. A significant
fluctuation in foreign currency could have an adverse impact on
the Company's sales and/or foreign currency transaction
exposures. Finally, the aforementioned instability may increase
credit risks as the recent weakening of certain Asian currencies
may result in insolvencies or otherwise impair customers' ability
to repay existing obligations. Depending on the situation in
Asia in coming quarters, any or all of these factors could
adversely impact the Company's financial results in future
quarters.
Typically, quarterly sales and results of operations depend on
the volume and timing of orders, and the ability to fulfill them
within the quarter. The Company's customers historically request
fulfillment of orders in a short period of time, resulting in a
minimal backlog and limited visibility to future sales trends.
Should incoming order rates decline, if ordered products are not
readily available, or if the Company does not immediately fill
orders, the Company's results of operations could be adversely
affected. In addition, the Company historically has sold a large
percentage of its products in the third month of each quarter.
This subjects the Company to additional business risks due to
unexpected disruptions in functions, including but not limited to
manufacturing, order management, information systems and
shipping. While the Company intends to reduce the percentage of
sales in the third month of a quarter, there can be no assurance
that this will occur. Failure to reduce the percentage of sales
in the third month of a quarter could adversely affect the
Company's financial results.
The Company's success depends, in substantial part, on the timely
and successful introduction of new products. An unexpected
change in one or more of the technologies affecting network
communications, or in market demand for products based on a
particular technology, or entry by new competitors, could lead to
a slowdown in sales of certain products, and could have a
material adverse effect on the Company's operating results if the
Company does not respond timely and effectively to such changes.
In addition, delays in shipping new products, or technical
problems found in new products could adversely affect the
Company's results of operations. The Company is engaged in
research and development activities in certain LAN and WAN high-
speed standards and high-speed technologies, such as: Fast
Ethernet, Gigabit Ethernet, ATM, 56 Kbps, ISDN, xDSL and data-
over-cable. As the industry standardizes on high-speed
technologies, there can be no assurance that the Company will be
able to respond promptly and cost-effectively to compete in the
marketplace.
The Company's success depends, in substantial part, on the
adoption of industry standards, the timely introduction of new
standards-compliant products, and market acceptance of these
products. For example, with the determination of the V.90 56
Kbps standard in January 1998, and the Company's introduction of
V.90 products in February 1998, future results of the Company are
dependent, in part, on the timing and extent to which the V.90
technology is deployed by Internet Service Providers and accepted
by Internet and other modem users. Slower than expected
acceptance by these customers or the failure of the Company to
successfully market and sell these V.90 products could have an
adverse impact on the Company's results of operations.
The Company has received, and may continue to receive, notice of
claims of infringement of other parties' proprietary rights.
The Company, from time to time, must negotiate licenses or cross-
licenses with third parties to obtain rights to incorporate
proprietary technologies or technologies, protocols or
specifications embodied in industry standards. With regard to
industry standard technologies, participants in the standard
making process typically undertake to license such rights on
reasonable and non-discriminatory terms. The Company's failure to
obtain and maintain licenses for third party intellectual
property rights required for the manufacture, sale and use of its
products, particularly those which must comply with industry
standard protocols and specifications to be commercially viable,
could have a material adverse effect on the Company's business,
results of operation, and financial condition.
In June 1997, the Company merged with U.S. Robotics, the largest
acquisition in the history of the networking industry. Large
acquisitions are challenging and there can be no assurance that
products, technologies, distribution channels, customer support
operations, management information systems, key personnel and
businesses of U.S. Robotics or other acquired companies will be
effectively assimilated into the Company's business or product
offerings, or that such integration will not adversely affect the
Company's business, financial condition or results of operations.
The inability of management to successfully integrate the
operations of the two companies in a timely manner could have a
material adverse effect on the business, results of operations,
and financial condition of the Company.
The Company's products are covered by warranties and the Company
is subject to contractual commitments. If unexpected
circumstances arise such that the product does not perform as
intended and the Company is not successful in resolving product
quality or performance issues, there could be an adverse impact
on the financial results of the Company.
Some key components of the Company's products are currently
available only from single sources. There can be no assurance
that in the future the Company's suppliers will be able to meet
the Company's demand for 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 supply of, any
key components.
Recruiting and retaining skilled personnel, especially in certain
locations in which the Company operates, is highly competitive.
Recently, for example, recruiting of qualified engineers has been
extremely competitive. If the Company cannot successfully
recruit and retain such skilled personnel, the Company's
financial results may be adversely affected.
Many computer systems were not designed with the year 2000 issues
in mind, and may require significant hardware and software
modifications. During the next few years, companies owning and
operating such systems may plan to devote a substantial portion
of their information systems' spending to make such modifications
and divert spending away from networking solutions. This could
have an adverse impact on the Company's sales and results of
operations. The Company believes the majority of its major
systems are currently Year 2000 compliant, and costs to
transition the Company's remaining systems to Year 2000
compliance are not anticipated to be material.
The market price of the Company's common stock has been, and may
continue to be, extremely volatile. Factors such as new product,
pricing or acquisition announcements by the Company or its
competitors, quarterly fluctuations in the Company's operating
results, challenges associated with integration of businesses and
general conditions in the data networking market, such as a
decline in industry growth rates, 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.
Because of the foregoing factors, as well as other factors
affecting the Company's operating results, past trends and
performance should not be presumed by investors to be an accurate
indicator of future results or trends.
Liquidity and Capital Resources
- -------------------------------
Cash, cash equivalents and short-term investments at March 1,
1998 were $900.9 million, increasing $11.0 million from May 31,
1997.
For the nine months ended March 1, 1998, net cash generated from
operating activities was $369.4 million. Accounts receivable at
March 1, 1998 decreased $107.1 million from May 31, 1997 to
$889.0 million. Days sales outstanding in receivables decreased
to 64 days at March 1, 1998, compared to 65 days at May 31, 1997.
Inventory levels at March 1, 1998 increased $256.1 million, of
which $190.5 million was finished goods, from the prior fiscal
year-end to $769.8 million. Average inventory turnover was 4.0
turns for the quarter ended March 1, 1998, compared to 6.4 turns
for the quarter ended May 31, 1997, primarily as a result of the
increase in the Company's inventory due to reduced sales levels
and increased inventory requirements related to the initial
stocking of new products.
During the nine months ended March 1, 1998, the Company made
$324.4 million in capital expenditures. Major capital
expenditures included upgrades and expansion of the Company's
facilities in the U.K., Santa Clara, California and Illinois and
the continuing development of the Company's worldwide information
systems. As of March 1, 1998, the Company had approximately $115
million in capital expenditure commitments outstanding primarily
associated with the construction and expansion of office and
manufacturing space in Santa Clara, Illinois, the U.K., and
Singapore.
In April 1998, the Company purchased the Rolling Meadows
property, which was previously under an operating lease, and paid
the owner $38.3 million pursuant to its purchase rights.
During the first nine months of fiscal 1998, the Company received
cash of $241.4 million from the sale of approximately 21 million
shares of its common stock to employees through its employee
stock purchase and option plans. These cash inflows related
primarily to the exercise of stock options by former employees of
U.S. Robotics. Pursuant to a change-in-control feature of the
U.S. Robotics' employee stock option plans, substantially all
outstanding options held by employees of U.S. Robotics became
fully vested and exercisable upon closing of the merger in June
1997.
During the first quarter of fiscal 1998, the Company signed a
lease, which replaces a previous land lease, for 300,000 square
feet of office and research and development space and a data
center to be built on land adjacent to the Company's headquarters
site. The lease expires in August 2002, with an option to extend
the lease term for two successive periods of five years each.
The Company has an option to purchase the property for $83.6
million, or at the end of the lease arrange for the sale of the
property to a third party with the Company retaining an
obligation to the owner for the difference between the sale price
and $83.6 million, subject to certain provisions of the lease.
Construction of the buildings began in July 1997, and the Company
anticipates that it will occupy and begin lease payments in the
second quarter of fiscal 1999.
During the first quarter of fiscal 1998, the Company signed a
lease, which replaces a previous land lease, for 525,000 square
feet of office, research and development and manufacturing space
to be built on land in Marlborough, Massachusetts. The lease
expires in August 2002, with an option to extend the lease term
for two successive periods of five years each. The Company has
an option to purchase the property for $86.0 million, or at the
end of the lease arrange for the sale of the property to a third
party with the Company retaining an obligation to the owner for
the difference between the sale price and $86.0 million, subject
to certain provisions of the lease. Construction of the
buildings began in the first quarter of fiscal 1998, and the
Company anticipates that it will occupy and begin lease payments
in the third quarter of fiscal 1999.
The two aforementioned leases require the Company to maintain
specified financial covenants, all of which the Company was in
compliance with as of March 1, 1998.
During the fourth quarter of fiscal 1998, the Company notified
the lessor of a 58 acre parcel of land near its existing
headquarters in Santa Clara of its intention to exercise its
option to purchase the land for $49.5 million. On March 26, 1998
the option was exercised and the Company immediately sold a
portion of the land to a third party. Terms of the transaction
will result in the Company reporting a net gain of $16.5 million
on the sale of the property during the fourth quarter of fiscal
1998. An additional gain of $4.2 million was deferred pending
the resolution of certain contingencies.
The Company has a $100 million revolving bank credit agreement
which expires December 20, 1999. Payment of cash dividends are
permitted under the credit agreement, subject to certain
limitations based on net income levels of the Company. The
Company has not paid and does not anticipate it will pay cash
dividends on its common stock. The credit agreement requires the
Company to maintain specified financial covenants. As of March
1, 1998, there were no outstanding borrowings under the credit
agreement and the Company was in compliance with all required
covenants. During the nine months ended March 1, 1998, the
Company repaid $168.1 million of short-term borrowings incurred
by U.S. Robotics prior to the merger.
On December 23, 1997, the Company redeemed convertible
subordinated notes totaling $110 million. Under the terms of the
note agreement, the Company paid cash of approximately $115
million for principal, accrued interest and an early call
premium. Included in other income (expense), net for the three
and nine months ended March 1, 1998 is a charge of approximately
$4.7 million for the early call premium and write-off of
unamortized issuance fees.
As of March 1, 1998 approximately $112 million of the merger
accrual remained outstanding. Of this amount, approximately $38
million related to cash expenditures associated with the merger,
which the Company expects will be incurred over the next six
months.
During the fourth quarter of fiscal 1998, the Company completed
the acquisition of Lanworks Technologies, Inc. for approximately
$13 million, which will be accounted for as a purchase
transaction. The purchase is expected to result in a charge for
purchased in-process technology of approximately $8 million
during the quarter ended May 31, 1998.
Based on current plans and business conditions, the Company
believes that its existing cash and equivalents, temporary cash
investments, cash generated from operations and the available
revolving credit agreement will be sufficient to satisfy
anticipated operating cash requirements for at least the next
twelve months.
Effects of Recent Accounting Pronouncements
- -------------------------------------------
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting
and display of comprehensive income and its components. SFAS 130
will be effective for the Company's fiscal year 1999 and requires
reclassification of financial statements for earlier periods for
comparative purposes.
In June 1997, the FASB issued SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information." This
statement requires that financial information be reported on the
basis used internally for evaluating segment performance and
deciding how to allocate resources to segments. SFAS 131 is
effective for the Company's fiscal year 1999 and requires
restatement of all previously reported information for
comparative purposes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to lawsuits in the normal course of its
business. The Company notes that (i) litigation in general, and
patent and securities litigation in particular, can be expensive
and disruptive to normal business operations and (ii) the results
of complex legal proceedings can be very difficult to predict
with any certainty.
Securities Litigation
- ---------------------
On March 24 and May 5, 1997, putative securities class action
lawsuits, captioned Hirsch v. 3Com Corporation, et al., Civ. A.
No. CV764977 (Hirsch) and Kravitz v. 3Com Corporation, et al.,
Civ. A. No. CV765962 (Kravitz), respectively, were filed against
the Company and certain of its officers and directors in the
California Superior Court, Santa Clara County. The complaints
allege violations of Sections 25400 and 25500 of the California
Corporations Code and seek unspecified damages on behalf of a
purported class of purchasers of 3Com common stock during a
period from September 24, 1996 through February 10, 1997.
On February 10, 1998, a putative securities class action,
captioned Euredjian v. 3Com Corporation, et al., No. C-98-00508
CRB, was filed against 3Com and several of its present and former
officers and directors in United States District Court for the
Northern District of California asserting the same class period
and factual allegations as the Hirsch and Kravitz actions. The
complaint alleges violations of the federal securities laws,
specifically Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, and seeks unspecified damages. The Hirsch, Kravitz
and Euredjian actions were filed after Intel Corporation sharply
decreased prices on its Fast Ethernet network interface cards,
which resulted in 3Com decreasing its prices on similar products
and a short-term negative impact on the Company's stock price.
The Company believes it has meritorious defenses to the claims in
the Hirsch, Kravitz and Euredjian actions and intends to contest
the lawsuits vigorously. An unfavorable resolution of the
actions could have a material adverse effect on the business,
results of operations or financial condition of the Company.
Several securities actions have been filed against the Company
and certain of its current and former officers and directors
following the Company's merger with U.S. Robotics. In December
1997, a putative securities class action, captioned Reiver v.
3Com Corporation, et al., No. C-97-21083 JW, was filed in the
United States District Court for the Northern District of
California. The complaint alleges violations of the federal
securities laws, specifically Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and seeks unspecified damages on
behalf of a purported class of purchasers of 3Com common stock
during a period from May 19, 1997 through November 6, 1997. In
December 1997 and January 1998, seven similar shareholder class
action lawsuits were filed in the United States District Court
for the Northern District of Illinois and the United States
District Court for the Northern District of California. The
cases filed in the Northern District of Illinois have been
transferred to the Northern District of California, and the
actions have been consolidated. The Company believes it has
meritorious defenses to the claims and intends to contest the
lawsuits vigorously. An unfavorable resolution of the actions
could have a material adverse effect on the business, results of
operations or financial condition of the Company.
In January 1998, two purported shareholder complaints relating to
the Company's June 1997 merger with U.S. Robotics were filed in
California Superior Court, Santa Clara County: Stanley Grossman
v. 3Com Corporation, et al., Civ. A. No. CV771335 and Jason v.
3Com Corporation, et al., Civ. A. No. CV771713. The actions
allege that 3Com, several of its officers and directors, and
several former U.S. Robotics officers violated Sections 11 and 15
of the Securities Act of 1933 by making alleged
misrepresentations and omissions in a May 8, 1997 registration
statement. The complaints seek damages in an unspecified amount
on behalf of a purported class of persons who received the
Company's stock during the merger pursuant to the registration
statement. The Company has filed a motion in Delaware Chancery
Court seeking an injunction preventing plaintiffs from
proceeding, on the basis that plaintiffs' claims are barred by a
settlement in a prior action. The Company believes it has
meritorious defenses to the claims and intends to contest the
lawsuits vigorously. An unfavorable resolution of the actions
could have a material adverse effect on the business, results of
operations or financial condition of the Company.
In February 1998, a shareholder derivative action purportedly on
behalf of the Company was filed in Delaware Chancery Court:
Wasserman v. Benhamou, et al., Civil Action No. 16200-NC. The
complaint alleges that the Company's directors breached their
fiduciary duties to the Company by engaging in alleged wrongful
conduct from mid-1996 through November 1997, including the
conduct complained of in the securities litigation described
above. The Company is named solely as a nominal defendant,
against whom the plaintiff seeks no recovery.
Intellectual Property Litigation
- --------------------------------
During February 1998 the Company and Livingston Enterprises, Inc.
(Livingston) agreed to settle the cases pending between
Livingston and U.S. Robotics in the United States District Court
for the Northern District of California Case No. C-97-3551(CRB).
These actions were dismissed on March 4, 1998. Neither party
admitted fault in the settlement. The terms of the settlement,
which were not disclosed, were not material to the business,
results of operations, or financial condition of the Company.
On April 26, 1997, Xerox Corporation filed suit against U.S.
Robotics in the United States District Court for the Western
District of New York (Xerox Corporation v. U.S. Robotics
Corporation and U.S. Robotics Access Corporation, No. 97-CV-
6182T), claiming infringement of one United States Patent related
to handwriting recognition. The complaint alleges willful
infringement and prays for unspecified damages and injunctive
relief. The Company believes it has meritorious defenses to the
claims and intends to contest the lawsuit vigorously. An
unfavorable resolution of the action could have a material
adverse effect on the business, results of operations or
financial condition of the Company.
By an agreement effective February 27, 1998, the Company and
Motorola, Inc. settled the patent lawsuit pending between
Motorola and U.S. Robotics in the United States District Court
for the District of Massachusetts (Civil Action No. 97-10339RCL).
This case was dismissed on March 31, 1998. Neither party
admitted fault. In connection with the settlement, the Company
and Motorola entered into a cross-license of their respective
patents relating to high-speed analog modem technologies required
for implementation of international standard data communications
protocols, including the pending V.90 standard for 56 Kbps
modems. The terms of the settlement, which were not disclosed,
were not material to the business, results of operations or
financial condition of the Company.
Consumer Litigation
- -------------------
During 1997, three putative class action lawsuits were filed
against the Company or its subsidiary, U.S. Robotics, in the
state courts of California and Illinois. Each of the actions
seeks damages as a result of alleged misrepresentations by the
Company or U.S. Robotics in connection with the sale of its new
x2TM products and products upgradeable to x2 under various
California and Illinois consumer fraud statutes and under common
law theories including fraud and negligent misrepresentation.
Plaintiffs in Bendall, et al. v. U.S. Robotics Corporation, et
al., (No. 170441, Superior Court of Marin County, California),
Lippman, et al v. 3Com, (No. 97 CH 09773, Circuit Court of Cook
County, Illinois), and Michaels, et al. v. U.S. Robotics Access
Corporation et al., (No. 94 CH 14417, Circuit Court of Cook
County, Illinois) seek certification respectively of nationwide
classes of purchasers of x2 technology during the approximate
period November 1996 through at least May 1997. The complaints
seek injunctive relief and an unspecified amount of damages. The
Lippman and Michaels actions are presently stayed. Four of the
seven counts of the Bendall action recently were dismissed on
motion of U.S. Robotics. Plaintiffs have stated that they will
attempt to replead those claims. Two other actions purporting to
be brought in the public interest under California statutes were
filed against U.S. Robotics in 1997 in state court in California
arising out of U.S. Robotics' alleged misrepresentations in
connection with the sale of its x2 products. The plaintiff in
one of these cases, Levy v. U.S. Robotics Corporation (No.
170968, Superior Court of Marin County, California), recently
voluntarily dismissed her complaint. The other action,
Intervention Inc. v. U.S. Robotics Corporation (No. 984352,
Superior Court of San Francisco, California), is pending and
seeks injunctive and unspecified monetary relief. The Company
believes it has meritorious defenses to these lawsuits and
intends to contest the lawsuits vigorously. An unfavorable
resolution of the actions could have a material adverse effect on
the business, results of operations or financial condition of the
Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation (13)
3.2 Certificate of Correction Filed to Correct a Certain Error
in the Certificate of Incorporation (13)
3.3 Certificate of Merger (13)
3.4 Bylaws of 3Com Corporation, As Amended (13)
4.1 Indenture Agreement between 3Com Corporation and The First
National Bank of Boston for the private placement of convertible subordinated
notes dated as of November 1, 1994 (Exhibit 5.2 to Form 8-K) (6)
4.2 Placement Agreement for the private placement of convertible
subordinated notes dated November 8, 1994 (Exhibit 5.1 to Form 8-K) (6)
4.3 Amended and Restated Rights Agreement dated December 31, 1994
(Exhibit 10.27 to Form 10-Q) (7)
10.1 1983 Stock Option Plan, as amended (Exhibit 10.1 to Form 10-K)
(3)*
10.2 Amended and Restated Incentive Stock Option Plan (2)*
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) (4)*
10.5 Second Amended and Restated 1984 Employee Stock Purchase Plan
(Exhibit 10.5 to Form 10-Q)(8)*
10.6 3Com Corporation Director Stock Option Plan, as amended
(Exhibit 19.3 to Form 10-Q) (4)*
10.7 Amended 3Com Corporation Director Stock Option Plan (Exhibit
10.8 to Form 10-Q)(8)*
10.8 3Com Corporation Restricted Stock Plan, as Amended (Exhibit
10.17 to Form 10-Q)(8)*
10.9 1994 Stock Option Plan (Exhibit 10.22 to Form 10-K) (5)*
10.10 Lease Agreement between BNP Leasing Corporation, as Landlord,
and 3Com Corporation, as Tenant, effective as of November 20, 1996 (Exhibit
10.37 to Form 10-Q) (10)
10.11 Purchase Agreement between BNP Leasing Corporation and 3Com
Corporation, effective as of November 20, 1996 (Exhibit 10.38 to Form 10-Q)
(10)
10.12 Agreement and Plan of Reorganization among 3Com Corporation,
OnStream Acquisition Corporation and OnStream Networks, Inc. dated as of
October 5, 1996 (Exhibit 2.1 to Form S-4) (9)
10.13 Lease Agreement between BNP Leasing Corporation, as Landlord,
and 3Com Corporation, as Tenant, effective as of February 3, 1997 for the
Combined Great America Headquarters site (Exhibit 10.19 to Form 10-Q) (12)
10.14 Purchase Agreement between BNP Leasing Corporation and 3Com
Corporation, effective as of February 3, 1997 for the Combined Great America
Headquarters site (Exhibit 10.20 to Form 10-Q) (12)
10.15 Credit Agreement dated as of December 20, 1996 among 3Com
Corporation, Bank of America National Trust and Savings Association, as
Agent, and the Other Financial Institutions Party Hereto Arranged by BA
Securities, Inc. (Exhibit 10.21 to Form 10-Q) (12)
10.16 Amended and Restated Agreement and Plan of Merger by and
among 3Com Corporation, TR Acquisitions Corporation, 3Com (Delaware)
Corporation, and U.S. Robotics Corporation, dated as of February 26, 1997
and amended as of March 14, 1997(11)
10.17 Lease Agreement between BNP Leasing Corporation, as Landlord,
and 3Com Corporation, as Tenant, effective as of July 25, 1997 for the Great
America Phase III (PAL) site (13)
10.18 Purchase Agreement between BNP Leasing Corporation and 3Com
Corporation, effective as of July 25, 1997 for the Great America Phase III
(PAL) site (13)
10.19 Lease Agreement between BNP Leasing Corporation, as Landlord,
and 3Com Corporation, as Tenant, effective as of July 29, 1997 for the
Marlborough site (13)
10.20 Purchase Agreement between BNP Leasing Corporation and 3Com
Corporation, effective as of July 29, 1997 for the Marlborough site (13)
10.21 Lease Agreement between BNP Leasing Corporation, as Landlord,
and 3Com Corporation, as Tenant, effective as of August 11, 1997 for the
Rolling Meadows site (13)
10.22 Purchase Agreement between BNP Leasing Corporation and 3Com
Corporation, effective as of August 11, 1997 for the Rolling Meadows site (13)
10.23 First Amendment to Credit Agreement (13)
* Indicates a management contract or
compensatory plan.
(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 Exhibit 10.2 to Registrant's
Registration Statement on Form S-4 filed on August 31, 1987
(File No. 33-16850)
(3) 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)
(4) 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)
(5) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Form 10-K filed on
August 31, 1994 (File No. 0-12867)
(6) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Form 8-K filed on
November 16, 1994 (File No. 0-12867)
(7) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed on
January 13, 1995 (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
on January 15, 1996 (File No. 0-12867)
(9) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Registration
Statement on Form S-4, originally filed on October 11, 1996 (File No. 333-
13993)
(10) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed
on January 13, 1997 (File No. 0-12867)
(11) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Registration
Statement on Form S-4, filed on March 17, 1997 (File No. 333-23465)
(12) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Form 10-Q, filed
on April 11, 1997 (File No. 0-12867)
(13) Incorporated by reference to the Exhibit identified in
parentheses previously filed as an Exhibit to Registrant's Form 10-Q, filed
on October 14, 1997 (File No. 0-12867)
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the fiscal quarter
covered by this report, as follows:
(i) Report on Form 8-K filed on March 5, 1998, reporting under
Item 5 the announcement that the Company revised previously reported
financial results relating to the accounting combination and merger
restructuring charge for the June 12, 1997 merger of 3Com and U.S. Robotics.
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)
Dated: April 6, 1998 By: /s/ Christopher B. Paisley
-------------------- ------------------------------
Christopher B. Paisley
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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