______________________________________________________________
United States
Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q/A
X Quarterly report pursuant to section 13 or 15(d) of
the securities exchange act of 1934
For the Quarterly Period Ended August 31, 1997 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 August 31, 1997, 345,948,876 shares of the Registrant's
Common Stock were outstanding.
______________________________________________________________
3Com Corporation
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
August 31, 1997 and May 31, 1997
Consolidated Statements of Operations
Three Months Ended August 31, 1997 and 1996
Consolidated Statements of Cash Flows
Three Months Ended August 31, 1997 and 1996
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, CoreBuilder, EtherLink, SuperStack and
U.S. Robotics are registered trademarks of 3Com Corporation or
its subsidiaries. Palm, PalmPilot, and x2 are trademarks of 3Com
Corporation or its subsidiaries.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
3Com Corporation
Consolidated Balance Sheets
(As restated, see Note 2)
(Dollars in thousands, except par value)
(Unaudited)
August 31, May 31,
1997 1997
---------- -------
ASSETS
Current Assets:
Cash and cash equivalents $ 517,657 $ 351,237
Temporary cash investments 490,830 538,706
Trade receivables 1,137,609 996,080
Inventories 417,013 513,740
Deferred income taxes 307,233 196,875
Other 160,709 93,040
--------- ---------
Total current assets 3,031,051 2,689,678
Property and equipment-net 712,573 731,301
Deposits and other assets 81,139 118,804
--------- ---------
Total $3,824,763 $3,539,783
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ - $ 134,700
Accounts payable 295,407 308,581
Other accrued liabilities 750,858 503,232
Income taxes payable 108,725 168,942
--------- ---------
Total current liabilities 1,154,990 1,115,455
Long-term debt 151,795 163,945
Other long-term obligations 6,573 6,707
Deferred income taxes 66,659 25,332
Stockholders' Equity:
Preferred stock, no par value,
10,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value,
990,000,000 shares authorized;
shares outstanding: August 31, 1997:
345,948,876; May 31, 1997: 334,943,663 1,447,639 1,183,926
Unamortized restricted stock grants (4,793) (5,165)
Retained earnings 998,325 1,049,561
Unrealized net gain on available-for-
sale securities 2,404 2,320
Accumulated translation adjustments 1,171 (2,298)
--------- ---------
Total stockholders' equity 2,444,746 2,228,344
--------- ---------
Total $3,824,763 $3,539,783
========= =========
See notes to consolidated financial statements.
3Com Corporation
Consolidated Statements of Operations
(As restated, see Note 2)
(In thousands, except per share data)
(Unaudited)
Three Months Ended
August 31,
------------------
1997 1996
---- ----
Sales $1,597,516 $1,311,504
Cost of sales 831,429 693,593
--------- ---------
Gross margin 766,087 617,911
--------- ---------
Operating expenses:
Sales and marketing 302,378 222,477
Research and development 142,798 98,053
General and administrative 62,865 49,736
Purchased in-process technology - 54,000
Merger-related charges 269,787 -
--------- ---------
Total operating expenses 777,828 424,266
--------- ---------
Operating income (loss) (11,741) 193,645
Other income, net 2,961 2,278
--------- ---------
Income (loss) before income taxes (8,780) 195,923
Income tax provision 42,453 90,879
--------- ---------
Net income (loss) $ (51,233) $ 105,044
========= =========
Net income (loss) per common
and equivalent share:
Primary $ (0.15) $ 0.30
Fully diluted $ (0.15) $ 0.30
Common and equivalent shares use
in computing per share amounts:
Primary 341,973 350,339
Fully diluted 341,973 351,192
See notes to consolidated financial statements.
3Com Corporation
Consolidated Statements of Cash Flows
(As restated, see Note 2)
(Dollars in thousands)
(Unaudited)
Three Months Ended
August 31,
------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ (51,233) $ 105,044
Adjustments to reconcile net income
(loss) to cash provided by operating
activities:
Depreciation and amortization 57,671 43,688
Deferred income taxes (68,955) 7,733
Purchased in-process technology - 54,000
Merger-related charges 269,787 -
Adjustments to conform fiscal year
of pooled entities: OnStream - 4,850
U.S. Robotics 15,052 29,195
Changes in assets and liabilities,
net of effects of acquisitions:
Trade receivables (141,529) (224,645)
Inventories 58,289 56,810
Other current assets (68,372) (13,145)
Accounts payable (13,174) 13,204
Accrued and other liabilities 99,651 25,805
Income taxes payable 60,881 39,327
--------- ---------
Net cash provided by operating activities 218,068 141,866
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (88,594) (96,611)
Purchase of temporary cash investments (102,973) (152,770)
Proceeds from temporary cash investments 149,825 144,595
Business acquired in purchase transaction - (66,547)
Other, net 5,998 (12,439)
--------- ---------
Net cash used for investing activities (35,744) (183,772)
--------- ---------
Cash flows from financing activities:
Common stock issued under stock plans 127,482 13,910
Repayments of short-term debt, notes payable
and capital lease obligations (168,066) (380)
Repayments of long-term debt (12,150) -
Net proceeds from issuance of debt 33,300 32,836
Other, net 3,530 881
--------- ---------
Net cash provided by (used for) financing
activities (15,904) 47,247
--------- ---------
Increase in cash and cash equivalents 166,420 5,341
Cash and cash equivalents at beginning
of period 351,237 233,573
--------- ---------
Cash and cash equivalents at end of period $ 517,657 $ 238,914
========= =========
Non-cash financing and investing activities:
Tax benefit on stock option transactions $ 121,098 $ 19,025
Unrealized net gain (loss) on available
for-sale securities $ 84 $ (1,902)
See notes to consolidated financial statements.
3Com Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
On June 12, 1997, 3Com Corporation (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/A 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 unaudited consolidated financial statements have
been prepared by 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 August 31, 1997, and
the results of operations and cash flows for the three months
ended August 31, 1997 and 1996.
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 quarter ended August 31, 1997 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. Restatements
In response to a review by the staff of the Securities
and Exchange Commission of the Company's Form 10-Q
filings for the quarterly periods ended August 31, 1997
and November 30, 1997, the Company is revising previously
reported financial statements. Specifically, and as
discussed in detail below, the consolidated financial
statements as of and for the year ended May 31, 1997, and
as of and for the three months ended August 31, 1997 and
1996 have been restated to (1) recombine the periods
presented for fiscal 1997, (2) adjust the merger-related
charge recorded in the quarter ended August 31, 1997, and
(3) exclude the effect of conforming the two companies'
fixed asset capitalization policies.
Recombination of Fiscal 1997
- ----------------------------
The Company is revising the methodology for presenting
the combined historical financial results of 3Com and
U.S. Robotics for fiscal 1997. The Company had
previously combined the 12-month period ended May 31,
1997 for 3Com with the 12-month period ended March 30,
1997 for U.S. Robotics. This combining methodology
resulted in U.S. Robotics' April and May 1997 operating
results, a net loss of $160.3 million, being recorded as
a decrease to the Company's retained earnings as of June
1, 1997, rather than as a component of the fiscal 1997
statement of operations.
The Company is now combining the fiscal year ended May
31, 1997 for 3Com 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.
Consistent with U.S. Robotics' non-linear quarterly sales
pattern, sales were relatively low in the first two
months of each quarter and significantly higher in the
third month of each quarter, which March 1997 represents.
By using this method, the last month of a quarter is
included in each of the four quarters for fiscal 1997.
The Company believes that there is no preferable practical
alternative to this combining method. Nevertheless, this
method does double-count March 1997 results. As discussed
more fully below, product returns in April and May 1997
were higher than anticipated and resulted in an increase
in the provision for estimated product returns at May 25, 1997.
An indeterminate amount of these returns were related to
March 1997 sales; however, the Company believes that this
amount is not significant to the combined results and that
inclusion of March 1997 in both the third and fourth quarters
of fiscal 1997 is appropriate. 3Com's balance sheet as of
May 31, 1997 was recombined with U.S. Robotics' balance sheet
as of May 25, 1997. The U.S. Robotics' March 1997 net income
of $112.9 million was reflected once in the Company's retained
earnings at May 31, 1997. The previously reported and revised
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
Previously reported June`96 September`96 December`96 March`97
As recombined 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 the 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 Charge
- ---------------------
During the Company's first fiscal quarter ended August
31, 1997, the Company recorded a merger-related charge of
$426.0 million. As a result of a reassessment of this
charge, the Company is reducing the merger-related charge
by $156.2 million to $269.8 million, as follows (in
millions):
Total merger-related charge as previously reported $426.0
Less reductions:
Product swap-out program (61.8)
Duplicate facilities and real estate (25.4)
Goodwill (20.8)
Duplicate fixed assets (13.4)
Severance and outplacement (8.9)
Other assets and obligations (25.9)
-----
Total merger-related charge, as revised $269.8
=====
The $61.8 million decrease in the charge reflects a
change in the amount and timing of recording the product
swap-out costs associated with certain discontinued
products. The Company expects the total cost of the swap-out
program will be significantly less than the amount originally
accrued. As originally recorded, shipment of replacement
products resulted in the recognition of sales and cost of
sales. The revised accounting for the swap-out program
records the net cost of the swap-out as a merger-related
charge as the costs are incurred. Accordingly, sales and
cost of sales were reduced in the first quarter by $3.3
million and $1.2 million, respectively.
The $25.4 million decrease in the charge for the
elimination of duplicate owned and leased facilities
primarily reflects a refinement of costs based on
detailed asset records rather than estimates. The $20.8
million decrease in the charge for goodwill reflects a
reinstatement of the goodwill recorded by U.S. Robotics
in conjunction with acquisitions of several international
distributors prior to the merger with 3Com.
Other reductions to the charge primarily reflect
revisions to fixed asset write-offs, severance and
outplacement costs, costs for a development contract
which was not terminated, and a reduction in the amount
of loss expected on discontinued product inventory and
other assets.
The Company expects there will be minimal impact on
future operating results attributable to the
aforementioned adjustments to the merger-related charge.
In the second fiscal quarter ended November 30, 1997, the
merger-related charge will reflect approximately $14.2
million in costs associated with the product swap-out
program. In future quarters the Company estimates there
will be a total of approximately $10 to $15 million of
additional merger-related costs associated with this
program.
The revised charge of $269.8 million includes
approximately $227.9 million of integration expenses and
$41.9 million of direct transaction costs (consisting
primarily of investment banking and other professional
fees). Integration expenses included:
- - $76.1 million related to the closure and elimination
of owned and leased facilities, primarily duplicate
corporate headquarters and domestic and European sales
offices;
- - $63.0 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;
- - $49.1 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
- - $39.7 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.
The remaining merger-related accrual at August 31,
1997 was approximately $221 million. Total expected cash
expenditures relating to the merger-related charge are
estimated to be approximately $148 million, of which
approximately $48 million was disbursed prior to August
31, 1997. Termination benefits paid to 300 employees
terminated through August 31, 1997 (approximately 30
percent of the total planned severances) were
approximately $17 million. The remaining severance and
outplacement amounts are expected to be paid within the
next twelve months.
Fixed Asset Capitalization Policies
- -----------------------------------
The financial statements in the Company's Form 10-Q for
the period ended August 31, 1997 included the effect of
conforming the two companies' fixed asset capitalization
policies, which reduced retained earnings by $41.4
million at May 31, 1997. The Company subsequently
determined that this change was not appropriate.
Eliminating this change did not have a material impact on
the Company's consolidated financial statements.
Effect of Restatements on Consolidated Financial Statements
- -----------------------------------------------------------
The effect of the restatements described above on the
consolidated balance sheets as of August 31, 1997 and May
31, 1997 and the consolidated statements of operations
for the three months ended August 31, 1997 and 1996 is as
follows (in thousands):
August 31, 1997 May 31, 1997
--------------- ------------
As As
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
Total current assets $3,026,942 $3,031,051 $2,836,564 $2,689,678
Property and equipment - net 621,113 712,573 660,025 731,301
Total assets 3,703,738 3,824,763 3,609,233 3,539,783
Total current liabilities 1,171,004 1,154,990 1,072,796 1,115,455
Total stockholders' equity 2,307,707 2,444,746 2,340,122 2,228,344
Three Months Ended Three Months Ended
August 31, 1997 August 31, 1996
--------------- --------------
As As
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
Sales $1,600,862 $1,597,516 $1,250,060 $1,311,504
Cost of sales 832,808 831,429 658,204 693,593
--------- --------- --------- ---------
Gross margin 768,054 766,087 591,856 617,911
--------- --------- --------- ---------
Operating expenses:
Sales and marketing 301,307 302,378 207,208 222,477
Research and development 142,117 142,798 99,765 98,053
General and administrative 62,589 62,865 47,642 49,736
Purchased in-process technology - - - 54,000
Merger-related charges 426,000 269,787 - -
--------- --------- --------- ---------
Total operating expenses 932,013 777,828 354,615 424,266
--------- --------- --------- ---------
Operating income (loss) (163,959) (11,741) 237,241 193,645
Other income, net 2,961 2,961 2,973 2,278
--------- --------- --------- ---------
Income (loss) before
income taxes (160,998) (8,780) 240,214 195,923
Income tax provision (benefit) (14,178) 42,453 88,250 90,879
--------- --------- --------- ---------
Net income (loss) $ (146,820) $ (51,233) $ 151,964 $ 105,044
========= ========= ========= =========
Primary and fully diluted net
income (loss) per common
and equivalent share: $ (0.43) $ (0.15) $ 0.43 $ 0.30
Common and equivalent shares used in
computing per share amounts:
Primary 341,973 341,973 351,970 350,339
Fully diluted 341,973 341,973 352,386 351,192
Effect of Restatement on 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
proforma operating results as previously reported and as
restated for the quarter ended August 31, 1996 and the
years ended May 31, 1997, 1996 and 1995 are as follows:
As Previously Reported
-------------------------------------------------
Three Months Ended Years Ended
August 31, May 31,
1996 1997 1996 1995
---- ----------------------------
(In thousands, except per share amounts)
Sales:
3Com $ 710,140 $3,147,106 $2,327,101 $1,593,469
U.S. Robotics 546,785 2,493,791 1,977,512 889,347
Reclassifications to conform
financial statement
presentation (6,865) (36,751) (20,105) (3,056)
--------- --------- --------- ---------
Combined $1,250,060 $5,604,146 $4,284,508 $2,479,760
========= ========= ========= =========
Net income:
3Com $ 91,572 $ 373,950 $ 177,854 $ 144,559
U.S. Robotics 63,298 237,258 170,021 65,951
Adjustments to conform
certain accounting policies (2,906) (13,585) (7,259) (6,954)
--------- --------- --------- ---------
Combined $ 151,964 $ 597,623 $ 340,616 $ 203,556
========= ========= ========= =========
Net income per share
(on a fully diluted basis):
3Com $ 0.50 $ 2.01 $ 1.00 $ 0.84
U.S. Robotics (1) 0.37 1.41 1.02 0.43
Adjustments to conform
certain accounting policies (0.01) (0.04) (0.02) (0.02)
--------- --------- --------- ---------
Combined $ 0.43 $ 1.69 $ 0.99 $ 0.63
========= ========= ========= =========
As Restated
-------------------------------------------------
Three Months Ended Years Ended
August 31, May 31,
1996 1997 1996 1995
---- ----------------------------
(In thousands, except per share amounts)
Sales:
3Com $ 710,140 $3,147,106 $2,327,101 $1,593,469
U.S. Robotics 611,410 2,503,945 1,977,512 889,347
Reclassifications to conform
financial statement
presentation (10,046) (44,974) (20,105) (3,056)
--------- --------- --------- ---------
Combined $1,311,504 $5,606,077 $4,284,508 $2,479,760
========= ========= ========= =========
Net income:
3Com $ 91,572 $ 373,950 $ 177,854 $ 144,559
U.S. Robotics 13,472 126,583 170,021 65,951
--------- --------- --------- ---------
Combined $ 105,044 $ 500,533 $ 347,875 $ 210,510
========= ========= ========= =========
Net income per share
(on a fully diluted basis):
3Com $ 0.50 $ 2.01 $ 1.00 $ 0.84
U.S. Robotics (1) 0.08 0.75 1.02 0.43
--------- --------- --------- ---------
Combined $ 0.30 $ 1.41 $ 1.01 $ 0.65
========= ========= ========= =========
(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 consisted of (in thousands):
August 31, 1997 May 31, 1997
--------------------- ----------------------
As As
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
Finished goods $ 261,917 $ 268,215 $ 262,023 $ 346,631
Work-in-process 27,679 27,679 35,462 31,606
Raw materials 121,119 121,119 104,871 135,503
--------- --------- -------- ---------
Total $ 410,715 $ 417,013 $ 402,356 $ 513,740
========= ========= ========= =========
4. Net Income (Loss) Per Share
Net income (loss) per common and equivalent share is
computed based on the weighted average number of common
shares and the dilutive effects of stock options
outstanding during the period using the treasury stock
method. Common equivalent shares were not included in
the calculation of earnings per share as they were
antidilutive for the quarter ended August 31, 1997. The
effect of the assumed conversion of the 10.25%
convertible subordinated notes was antidilutive for the
periods presented.
5. Litigation
The Company is a party to lawsuits in the normal course
of its business. The Company and its counsel believe
that it has meritorious defenses in all lawsuits in which
the Company or its subsidiaries is a defendant. The
Company notes that (i) litigation in general and patent
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.
On October 13, 1995, the Company acquired Chipcom, which
had already been named as a defendant in the litigation
described below. Five complaints were filed between May
30, 1995 and June 16, 1995 that alleged violations by the
defendants of Sections 10(b) and 20(a) of the Securities
and Exchange Act of 1934, and sought unspecified damages.
The cases were consolidated for pretrial purposes
pursuant to an order entered by the Court on June 15,
1995. The consolidated action is entitled In re: Chipcom
Securities Litigation, Civil Action No. 95-111114-DPW. A
Consolidated Complaint was filed on September 13, 1995,
and an Amended Consolidated Complaint was filed on
November 30, 1995.
The defendants' motion to dismiss the Amended
Consolidated Complaint was granted without leave to amend
on May 1, 1996. The dismissal covers all five cases.
The plaintiffs appealed the order granting the dismissal.
On October 1, 1996, the parties to these cases agreed
upon what the Company considers to be favorable financial
terms for settlement of all five cases, which amount the
Company does not consider material to its operations,
financial position, or liquidity. Pursuant to the
settlement which was approved by the District Court on
June 26, 1997, all claims of all persons which are
related to the subject matter of the Consolidated
Complaint were settled and released.
On March 24, 1997, a putative shareholder class action
lawsuit, entitled Hirsch v. 3Com Corporation, et al.,
Civil Action No. CV764977, was filed against the Company
and certain of its officers and directors in the
California Superior Court, Santa Clara County (the
Superior Court). The complaint alleges, among other
things, fraud, negligent misrepresentation and violations
of the California securities laws, including that during
the putative class period, sales of the Company's stock
by officers and directors of 3Com and acquisitions made
with the Company's stock occurred at inflated prices in
light of undisclosed information. Specifically, the
complaint alleges violations of Sections 25400 and 25500
of the California Corporations Code, Sections 1709 and
1710 of the California Civil Code, and Sections 17200 et
seq. and 17500 et seq. of the California Business and
Professions Code. The complaint, which covers a putative
period of September 24, 1996 through February 10, 1997,
does not specify the damages sought. On July 30, 1997,
the Superior Court sustained in part and overruled in
part the Company's demurrer to the complaint. As a
result of such ruling, the Civil Code and Business and
Professions Codes allegations have been stricken from the
complaint. The Company is in the process of appealing
the Superior Court's ruling with respect to the remaining
Corporations Code allegations. Management believes that
the action is not meritorious and intends to vigorously
contest it. An adverse resolution of the action could
have a material adverse effect on the Company's results
of operations and financial condition in the quarter in
which such adverse resolution occurs.
U.S. Robotics and certain of its directors were named as
defendants in eleven lawsuits relating to the merger
between the Company and U.S. Robotics brought in the
Delaware Chancery Court (In re: U.S. Robotics
Corporation Shareholder's Litigation, Delaware Chancery
Court Consolidated Civil Action No. 15580). The Company
has been named as a defendant in nine of these actions.
The lawsuits, which purport to be stockholder class
actions brought on behalf of all U.S. Robotics
stockholders, allege, inter alia, that the directors of
U.S. Robotics have breached their fiduciary duties by
approving the Merger Agreement, and that the Company
aided and abetted this alleged breach of duty. An
agreement in principle to settle this litigation has been
reached with plaintiffs' counsel on what the Company
considers to be favorable financial terms, which amount
the Company does not consider to be material to its
operations, financial position, or liquidity. Pursuant
to the settlement which was approved by the Delaware
Chancery Court on October 7, 1997, all claims of all
persons which are related to the subject matter were
settled and released.
On February 13, 1997, Motorola, Inc. filed suit against
U.S. Robotics in the United States District Court for the
District of Massachusetts (Motorola, Inc. v. U.S.
Robotics Corporation, et al., Civil Action No. 97-
10339RCL), claiming infringement of eight United States
patents. The complaint alleges willful infringement and
prays for unspecified damages and injunctive relief. In
a separate statement announcing the filing of the lawsuit
published on PRNewswire on the same date, Motorola
alleged that the patents at issue cover "technologies
essential to the International Telecommunications Union
(ITU) V.34 modem standard." In the same statement, a
Motorola officer is quoted as saying that Motorola is
"committed" to making its technology incorporated in
standards available on a "fair, reasonable and non-
discriminatory basis." U.S. Robotics has filed an answer
to Motorola's claims setting forth its defenses and
asserting counterclaims which allege infringement of a
U.S. Robotics patent, violation of antitrust laws,
promissory estoppel and unfair competition. Although the
Company believes it has meritorious defenses to
Motorola's claims and intends to contest this lawsuit
vigorously, an adverse outcome of such litigation could
have a material adverse effect on the business, results
of operations or financial condition of the Company in
the quarter in which such adverse resolution occurs.
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 Corp., No.
97-CV-6182T), claiming infringement of one United States
Patent. The complaint alleges willful infringement and
prays for unspecified damages and injunctive relief. In
a press release dated April 30, 1997, Xerox alleged that
its patent, issued January 21, 1997, "covers the use and
recognition of handwritten text using an alphabet system
designed especially for reliable recognition in pen
computers," and that Palm Computing Corporation's (Palm)
PalmPilotTM hand-held computer and "Graffiti" software in
its PalmTM operating system infringe the Xerox patent.
Palm is a wholly-owned subsidiary of the Company. The
Company believes it has meritorious defenses to Xerox's
claims and intends to contest the lawsuit vigorously. An
adverse resolution of the action could have a material
adverse effect on the Company's results of operations and
financial condition in the quarter in which such adverse
resolution occurs.
On April 21, 1997, U.S. Robotics and three of its
customers, Best Buy Co., Inc., Egghead, Inc. and Fry's
Electronics, Inc., were sued in a purported consumer
class action filed in Superior Court in Marin County,
California (Bendall et al v. U.S. Robotics Corporation et
al, No. 170441). The named plaintiffs are residents of
the states of Alabama, California, Tennessee and
Washington and they purport to represent various classes
of persons who have purchased or otherwise acquired U.S.
Robotics' new x2 products and products upgradeable to x2.
Damages, including punitive damages, and other relief are
sought under the California Consumer Legal Remedies Act
and the California Song-Beverly Consumer Warranty Act,
and under various common law theories, including breach
of contract, fraud and deceit, negligent
misrepresentation, breach of implied warranty and unjust
enrichment. The Company believes it has meritorious
defenses to this lawsuit and intends to contest the
lawsuit vigorously. An adverse resolution of the action
could have a material adverse effect on the Company's
results of operations and financial condition in the
quarter in which such adverse resolution occurs.
Another lawsuit, purporting to be "For the interests of
the General Public" was filed against U.S. Robotics in
the same court on March 13, 1997 (Levy v. U.S. Robotics
Corporation, No. 170968). This action alleges that U.S.
Robotics' promotion and advertising of x2 products
constituted unfair competition and deceptive, untrue and
misleading advertising in violation of the California
Business and Professional Code, and seeks injunctive
relief, including "restitution of all revenues" and an
award of attorney fees. Additionally, a purported public
interest plaintiff sued U.S. Robotics on January 29, 1997
in California Superior Court in San Francisco
(Intervention Inc. v. U.S. Robotics Corporation, Case No.
984352) under the same statute, alleging various
misrepresentations in connection with the promotion and
advertising of U.S. Robotics' x2 products, and seeking
injunctive and other relief, including attorney's fees.
The Company believes it has meritorious defenses to this
lawsuit and intends to contest the lawsuit vigorously.
An adverse resolution of the action could have a material
adverse effect on the Company's results of operations and
financial condition in the quarter in which such adverse
resolution occurs.
6. Effects of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings per Share." This
Statement establishes and simplifies standards for
computing and presenting earnings per share. SFAS 128
will be effective for the Company's third quarter of
fiscal 1998, and requires restatement of all previously
reported earnings per share data that are presented.
Early adoption of this Statement is not permitted. SFAS
128 replaces primary and fully diluted earnings per share
with basic and diluted earnings per share. Under SFAS
128, the Company's reported earnings per share for the
first fiscal quarter of 1998 and 1997 would have been:
Three Months Ended August 31,
1997 1996
---- ----
Basic $ (0.15) $ 0.32
Diluted $ (0.15) $ 0.30
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.
3Com Corporation
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company has restated its consolidated financial
statements for the three months ended August 31, 1997 and
1996, and the fiscal year ended May 31, 1997. For a detailed
description of the restatements, please see Notes 1 and 2 of
Notes to Consolidated Financial Statements. The following
Management's Discussion and Analysis of Financial Condition
and Results of Operations pertains to the consolidated
financial statements, as restated.
Results of Operations
- ---------------------
The following table sets forth, for the fiscal quarters
indicated, the percentage of total sales represented by the
line items reflected in the Company's consolidated statements
of operations:
Three Months Ended August 31,
1997 1996
---- ----
Sales..................................... 100.0 % 100.0 %
Cost of sales............................. 52.0 52.9
----- -----
Gross margin.............................. 48.0 47.1
----- -----
Operating expenses:
Sales and marketing....................... 18.9 17.0
Research and development.................. 8.9 7.5
General and administrative................ 4.0 3.8
Purchased in-process technology........... - 4.1
Merger-related charges.................... 16.9 -
----- -----
Total operating expenses.................. 48.7 32.4
----- -----
Operating income (loss)................... (0.7) 14.7
Other income, net......................... 0.2 0.2
----- -----
Income (loss) before income taxes......... (0.5) 14.9
Income tax provision...................... 2.7 6.9
----- -----
Net income (loss)......................... (3.2)% 8.0 %
===== =====
Excluding merger-related and purchased
in-process technology charges:
Total operating expenses.................. 31.8 % 28.2 %
Operating income.......................... 16.2 18.9
Net income................................ 10.6 12.1
Quarters Ended August 31, 1997 and 1996
Sales in the first quarter of fiscal 1998 totaled $1.6
billion, an increase of $286.0 million or 22 percent from the
corresponding quarter a year ago. The Company believes that
the year-over-year increase in first quarter sales is due to
several factors, including growth in the networking market as
the Internet, corporate Intranets, client server applications
and remote access services stimulate customers to migrate from
shared to switched media and to larger bandwidth and higher
speed technologies, such as Fast Ethernet, ATM and Gigabit
Ethernet, to support data, voice and video multimedia traffic.
The Company also believes that the strength of the Company's
product offerings at the edge of the network, including
modems, network interface cards (NICs), workgroup switches and
hubs, the continuous expansion of 3Com's product offerings,
and the ability to deliver complete data networking solutions
for different connectivity environments contributed to the
increase in first quarter sales over the same period a year
ago.
Sales of client access products (e.g., modems and NICs) in the
first quarter of fiscal 1998 increased 23 percent from the
same quarter one year ago, and represented 56 percent of total
sales, compared to 55 percent in the first quarter of fiscal
1997. Net sales of modem products during the first quarter
were approximately $500 million. The year-over-year increase
in sales of client access products represented a significant
increase in unit volume, led primarily by the Fast EtherLink
(registered trademark) PCI adapters and Fast EtherLink PC Cards,
and sales of the recently introduced U.S. Robotics (registered
trademark) 56 Kbps modem with x2TM technology. This increase was
partially offset by a decline in average selling prices of certain
Fast EtherLink products and a decline in sales of 10 Mbps Ethernet
NICs as a result of the accelerated transition from 10 Mbps
Ethernet to Fast Ethernet adapters.
Sales of network systems products (e.g., switches,
internetworking, remote access and hubs) in the first quarter
of fiscal 1998 increased 20 percent from the same quarter one
year ago, and represented 44 percent of total sales, compared
to 45 percent in the year ago quarter. The year-over-year
increase in network systems sales was led primarily by the
increase in the SuperStack (registered trademark) II workgroup
switching family, the CoreBuilder (registered trademark) 7000
ATM High-Function switching family, and the CoreBuilder 5000
enterprise switching family, partially offset by the year-over-year
declines in average selling prices for remote access and workgroup
switching products. The Company experienced a significant increase
in unit volume in workgroup switching products and Fast Ethernet
stackable hubs, partially offset by a decline in average selling
prices resulting from increased competition and pricing pressures.
International sales for the first quarter of fiscal 1998
comprised 44 percent of total sales compared to 37 percent in
the same period a year ago. International sales increased 45
percent in all major geographic regions, with especially
strong growth in the Asia Pacific and European regions. The
Company believes that the growth in international sales is due
primarily to the Company's continued expansion of operations
internationally. The Company's operations were not
significantly impacted by fluctuations in foreign currency
exchange rates in the first quarters of fiscal 1998 and 1997.
Sales in the United States for the first quarter of fiscal
1998 increased eight percent when compared to the first
quarter of fiscal 1997.
Gross margin as a percentage of sales was 48.0 percent in the
first quarter of fiscal 1998, compared to 47.1 percent for the
first quarter of fiscal 1997. The corresponding improvement
in gross margin in the first quarter of fiscal 1998 primarily
reflects increased sales of higher margin products, such as
the U.S. Robotics 56 Kbps modem with x2 technology and
enterprise switching products. Factors causing the increase
in gross margin were partially offset by higher sales of
certain lower margin adapter products and workgroup switching
products, for which average selling prices declined during the
period due to competitive pricing pressures.
Total operating expenses in the first quarter of fiscal 1998
were $777.8 million or 48.7 percent of sales, compared to
$424.3 million or 32.4 percent of sales in first quarter of
fiscal 1997. Excluding the pre-tax merger-related charge of
$269.8 million related to the merger with U.S. Robotics (see
Note 2 of Notes to Consolidated Financial Statements), total
operating expenses for the first quarter of fiscal 1998 were
$508.0 million, or 31.8 percent of sales. Excluding the
purchased in-process technology charge of $54.0 million
associated with the acquisition of Scorpio Communications,
Ltd. (Scorpio), total operating expenses for the first quarter
of fiscal 1997 were $370.3 million, or 28.2 percent of sales.
Sales and marketing expenses in the first quarter of fiscal
1998 increased $79.9 million or 36 percent from the first
quarter of fiscal 1997. Sales and marketing expenses as a
percentage of sales increased to 18.9 percent of sales in the
first quarter of fiscal 1998, from 17.0 percent of sales in
the corresponding fiscal 1997 period. The increase in such
expenses reflected increased costs associated with marketing
promotions and customer support programs and an increase in
field sales and marketing personnel.
Research and development expenses in the first quarter of
fiscal 1998 increased $44.7 million or 46 percent from the
year-ago period. Research and development expenses increased
to 8.9 percent of sales in the first quarter of fiscal 1998,
compared to 7.5 percent of sales in the first quarter of
fiscal 1997. The increase in research and development
expenses was primarily attributable to the cost of developing
new products, primarily switching, network management and
remote access, and the Company's 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 first quarter of
fiscal 1998 increased $13.1 million or 26 percent from the
same period a year ago. General and administrative expenses
increased to 4.0 percent of sales in the first quarter of
fiscal 1998, compared to 3.8 percent of sales in the first
quarter of fiscal 1997. The increase in general and
administrative expenses primarily reflected an expansion of
the Company's infrastructure and duplicate levels of corporate
administration as a result of the merger with U.S. Robotics.
Other income (net) increased $0.7 million to $3.0 million in
the first quarter of fiscal 1998 compared to $2.3 million in
the first quarter of fiscal 1997. Interest income increased
primarily due to larger cash and investment balances, but was
partially offset by losses on foreign exchange translations.
The Company recorded a tax provision of $42.5 million for the
first quarter of fiscal 1998, compared to $90.9 million for
the first quarter of fiscal 1997. The provision in the first
quarter of fiscal 1998 reflected the non-deductibility of
certain costs associated with the merger. Excluding these
costs, the pro forma effective income tax rate was 35.0
percent for the first quarter of fiscal 1998. The provision
in the first quarter of fiscal 1997 reflected the non-
deductibility of the purchased in-process technology charge
associated with the acquisition of Scorpio. Excluding this
charge, the pro forma effective tax rate was 36.4 percent for
the first quarter of fiscal 1997.
Net loss for the first quarter of fiscal 1998 was $51.2
million, or $0.15 per share, compared to net income of $105.0
million, or $0.30 per share, for the first quarter of fiscal
1997. Excluding the merger-related charge, net income was
$169.6 million, or $0.47 per share for the first quarter of
fiscal 1998. Excluding the purchased in-process technology
charge associated with the acquisition of Scorpio, net income
was $159.0 million, or $0.45 per share in the first quarter of
fiscal 1997.
Business Environment and Risk Factors
This report contains certain forward looking statements,
including statements regarding future trends in sales, gross
margin, expense and liquidity levels. Actual results could
vary materially based upon a number of factors, including but
not limited to those set forth below. The Company's future
operating results may be affected by various trends and
factors which the Company must successfully manage in order to
achieve favorable operating results. In addition, there are
trends and factors beyond the Company's control which affect
its operations. In accordance with the provisions of the
Private Securities Litigation Reform Act of 1995, the
cautionary statements set forth below identify important
factors that could affect future results or cause actual
results to differ materially from those in any forward-looking
statements which may be contained in this report. Such trends
and factors include, but are not limited to, the Company's
successful introduction of new products, adverse changes in
general economic conditions or conditions in the specific
markets for the Company's products, governmental regulation or
intervention affecting communications or data networking,
fluctuations in foreign exchange rates, and other factors,
including those listed below.
The Company participates in a highly volatile and rapidly
growing industry which is characterized by vigorous
competition for market share and rapid technological
development carried out amidst uncertainty over adoption of
industry standards and protection of proprietary intellectual
property rights. 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 and communications
companies. The Company's ability to compete in this
environment depends upon a number of competitive and market
factors, and is subject to the risks set forth in this report
and other factors.
The market for the Company's products is intensely competitive
and characterized by rapidly changing technology. 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 data
networking, or in market demand for products based on a
particular technology, 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. The Company
is engaged in research and development activities in certain
emerging LAN and WAN high-speed technologies, such as ATM,
ISDN, DSL, Fast Ethernet, Gigabit Ethernet 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. In addition, if the PC industry migrates
toward standardizing the integration of network interface
capabilities on the PC motherboard, and if the Company does
not manage its business to cost-effectively transition toward
this technology, it could have an adverse impact on the
Company.
The Company recently introduced x2 technology (pulse code
modulation technology permitting downloading of data over
regular analog telephone lines at speeds up to 56 Kbps).
Although the Company was the first to begin shipping in
commercial volumes in March 1997, the Company has experienced
vigorous competition from many of the significant modem and
remote access equipment manufacturers, most of which have
begun shipment of, or announced their intentions to bring
products featuring the same basic 56 Kbps technology and
capabilities to market in the coming weeks and months. The
Company's success depends, in substantial part, on the
adoption of industry standards and on the timely and
successful introduction of upgrades of this product to comply
with emerging industry standards and on the Company's ability
to address competing technological and product developments
carried out by others. Delays in adoption of industry
standards or adoption of standards not fully compatible with
x2 technology could adversely affect the Company's sales of
products incorporating the x2 technology.
Although annual growth rates for the networking infrastructure
industry have recently been in the 30 to 50 percent range, and
annual growth rates for the PC industry have recently been in
the high teens, there can be no assurance that these industry
growth rates will continue at the same level. As both
industries affect the Company's business, a slowdown in either
of these industries could adversely affect the financial
results of Company. There can be no assurance that the
Company's results in any particular quarter will fall within
that range.
The Company's customers historically request fulfillment of
orders in a short period of time, resulting in a minimal
backlog. Quarterly sales and results of operations generally
depend on the volume and timing of orders, and the ability to
fulfill them within the quarter. As a result, the lack of
backlog provides limited visibility to the Company's future
sales trends. Should incoming orders rates decline, the
Company's financial results would be adversely affected in any
such period. In addition, if the Company is not successful in
meeting its linearity objectives, sales during the quarter may
become back-end loaded which may expose the Company to
potential risk due to unforeseen circumstances, as well as
incremental costs caused by temporary fluctuations in business
operations.
The Company sells its products through a large and diverse set
of direct and indirect (third party) distribution channels,
and the Company considers its broad distribution capabilities
to be a competitive asset. Management of these distribution
channels requires the Company to work with its channel
partners to monitor inventories of the Company's products held
by channel partners and maintain these inventories at levels
which are appropriate to the level of sales anticipated by
each channel partner. Visibility as to the total levels of
inventory held by channel partners is limited as information
from channel partners may not be complete or accurate.
However, based on the limited data available, the Company
believes that channel inventory levels are at or above the
high end of the range of where the Company would like to
operate. If the Company is not successful in working with its
channel partners to monitor and reduce channel inventories to
appropriate levels on an ongoing basis, future results may be
affected.
The non-linearity of sales throughout the quarter subjects the
Company to business risks due to unexpected disruptions in
functions including but not limited to manufacturing, order
management, information systems and shipping, and could have
an adverse affect on the Company's results of operations.
The Company operates in an industry in which the ability to
compete is dependent on the development or acquisition of
proprietary technology, which must be protected both to
preserve the benefits of exclusive use of the Company's own
technology, and enable the Company to license technology from
other parties on acceptable terms. The Company attempts to
protect its intellectual property rights through a combination
of patents, copyrights, trademarks and trade secret laws.
There can be no assurance that the steps taken by the Company
will be sufficient to prevent misappropriation of intellectual
properties or that competitors will not independently develop
technologies that are equivalent or superior to the
technologies of the Company.
The Company must, from time to time, and may in the future,
negotiate licenses with third parties with respect to third-
party proprietary technologies that are required for
implementation of certain networking and communication
protocols and standards. In most instances, the owners of
intellectual property rights covering technologies required
for official standards have formally undertaken to license
such rights on fair, reasonable and non-discriminatory terms.
However, there can be no assurance in this regard, and there
is still the potential for disputes and litigation even where
a third party has undertaken to make licenses generally
available.
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.
The Company distributes a significant portion of its products
through third party distributors and resellers. 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. Likewise, the Company's expansion into
certain emerging geographic markets, 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.
The Company will continue to invest in expanding its sales,
marketing, service, logistics and manufacturing operations
worldwide. The Company's sales and earnings may be adversely
affected unless the Company can successfully assimilate and
train new employees in a timely manner. The Company may also
be adversely affected if it cannot successfully expand its
sales and distribution capabilities, in particular, the new
manufacturing and distribution facility in the Asia Pacific
region, in a timely manner.
Although substantially all of the Company's historical sales
have been denominated in U.S. dollars, the Company does have
operations in other geographic markets and occasionally
transacts business in other currencies. Should the
international environment change such that the Company must
expand its exposure to foreign currencies, despite the fact
that the Company does attempt to mitigate this risk by hedging
foreign currency transactions, a significant fluctuation in
foreign currency could have an adverse impact on the Company.
Recruiting and retaining skilled personnel, especially in
certain locations in which the Company operates, is highly
competitive. Retention of key employees following an
acquisition or merger is typically challenging and the
Company's success in retaining such employees or effectively
recruiting new employees may impact future operations. See
discussion of the U.S. Robotics transaction below. Unless the
Company can successfully recruit and retain such personnel,
the Company's ability to achieve continued growth in sales and
earnings may be adversely affected.
Acquisitions of complementary businesses and technologies,
including technologies and products under development, are an
active part of the Company's overall business strategy.
Certain of the Company's major competitors have also been
engaged in merger and acquisition transactions. Such
consolidations by competitors are creating entities with
increased market share, customer base, technology and
marketing expertise, sales force size, or proprietary
technology in segments in which the Company competes. These
developments may adversely affect the Company's ability to
compete in such segments.
On June 12, 1997, the Company merged with U.S. Robotics, the
largest acquisition in the history of the networking industry
(see Note 1 of Notes to Consolidated Financial Statements).
Large acquisitions are challenging, in general, 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
difficulties of such integration may be increased by the size
and number of future acquisitions and the requirements of
coordinating geographically separated organizations, such as
the U.S. Robotics merger. The integration of the companies
will require the dedication of management resources which may
temporarily distract attention from the day-to-day business of
the combined company. 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, including, without limitation, product
development cycles and marketing efforts. In addition, there
can be no assurance that any acquired products, technologies
or businesses will contribute at anticipated levels to the
Company's sales or earnings, or that the sales, earnings and
technologies under development from acquired businesses will
not be adversely affected by the integration process or other
general factors. If the Company is not successful in the
integration of such acquisitions, there could be an adverse
impact on the financial results and financial condition of the
Company. For a detailed discussion of these and other risks
related to the U.S. Robotics merger, see the Joint Proxy
Statement/Prospectus dated May 8, 1997 at pages 21 through 26.
The high-growth nature of the computer networking industry,
coupled with critical time-to-market factors, has caused
increased competition and consolidation. As a result, there
has been a significant increase in the cost of acquiring
computer networking companies. Future acquisitions are
therefore more likely to result in costs that are material to
the Company's operations. There can be no assurance that the
Company will continue to be able to identify and consummate
suitable acquisition transactions in the future. However,
should the Company consummate acquisitions in the future, the
impact may result in increased dilution of the Company's
earnings.
The Company's business is characterized by the continuous
introduction of new products and the management of the
transition of those products from prior generations of
technology or product platforms. In each product transition
cycle, the Company faces the challenge of managing the
inventory of its older products, including materials, work-in-
process, and products held by resellers. If the Company is
not successful in managing these transitions, there could be
an adverse impact on the financial results of the Company.
The Company's products are covered by product warranties and
the Company may be subject to contractual commitments
concerning product features or performance. 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 sales and earnings.
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.
The Company is in the process of transitioning its
manufacturing requirements planning (MRP), accounts payable,
purchasing and intercompany accounting systems to a new set of
applications which operate on a client server based platform.
In the second quarter of fiscal 1998, the Company plans to
transition to the first installation at several manufacturing
sites. Further development of the client server system will
be required to assure production stability of the new
applications systems. As a result of the transition to the
new client server platform, the Company may experience
processing or financial system disruptions, which may have an
adverse effect on the Company.
Notwithstanding the Company's increased geographical
diversification, the Company's corporate headquarters and a
large portion of its research and development activities and
other critical business operations are located in California,
near major earthquake faults. The Company's business,
financial condition and operating results could be materially
adversely affected in the event of a major earthquake.
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 temporary cash investments at
August 31, 1997 were $1.0 billion, increasing $118.5 million
from May 31, 1997.
For the three months ended August 31, 1997, net cash generated
from operating activities was $218.1 million. Trade
receivables at August 31, 1997 increased $141.5 million to
$1,137.6 million from $996.1 million at May 31, 1997. Days
sales outstanding in receivables decreased to 64 days at
August 31, 1997, compared to 65 days at May 31, 1997.
Inventory levels at August 31, 1997 decreased $96.7 million
from the prior fiscal year-end to $417.0 million. Inventory
turnover increased to 7.1 turns at August 31, 1997, compared
to 6.4 turns at May 31, 1997.
During the three months ended August 31, 1997, the Company
made $88.6 million in capital expenditures. Major capital
expenditures included upgrades and expansion of the Company's
facilities in Santa Clara, California and the continuing
development of the Company's worldwide information systems.
As of August 31, 1997, the Company had outstanding
approximately $140 million in capital expenditure commitments
primarily associated with the construction and expansion of
office and manufacturing space in Singapore, the U.K. and
Ireland.
During the first quarter of fiscal 1998, the Company received
cash of $127.5 million from the sale of approximately 11 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 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 with 3Com 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, to
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. The Company began
construction of the buildings in July 1997, and 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, to
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. The Company began
construction of the buildings in the first quarter of fiscal
1998, and anticipates that it will occupy and begin lease
payments in the third quarter of fiscal 1999.
During the first quarter of fiscal 1998, the Company signed a
lease for an existing 400,000 square foot building and for
100,000 square feet to be built on adjacent land in Rolling
Meadows, Illinois. The new and renovated facility will be
used for research and development and office space. The lease
expires in September 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 $95.0
million or, at the end of the lease, to 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 $95.0 million, subject to certain provisions of the
lease. The Company expects to begin renovation and
construction of the buildings in the second quarter of fiscal
1998, and anticipates that it will occupy and begin lease
payments in the first quarter of fiscal 1999.
The three aforementioned leases require the Company to
maintain specified financial covenants, all of which the
Company was in compliance with as of August 31, 1997.
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
August 31, 1997, there were no outstanding borrowings under
the credit agreement and the Company was in compliance with
all required covenants. During the three months ended August 31,
1997, the Company repaid $168.1 million of short-term
borrowings incurred by U.S. Robotics, which included $33.3
million of borrowings that occurred between May 25 and June
12, 1997.
In November 1997, the $110 million aggregate principal amount
of convertible subordinated notes become redeemable at the
option of the Company at an initial redemption price of
102.929% of the principal amount. The notes are convertible
at the option of the note holders into the Company's common
stock at an initial conversion price of $34.563 per share.
The Company has reserved 3,182,640 shares of common stock for
the conversion of these notes. The notes mature in 2001, and
interest is payable semi-annually at 10.25 percent per annum.
The Company is evaluating the opportunities for redemption of
these notes.
During the quarter ended August 31, 1997, the Company
completed the merger transaction with U.S. Robotics. As a
result, the Company recorded merger-related charges of $269.8
million. The remaining merger-related accrual at August 31,
1997 was approximately $221 million. Total expected cash
expenditures relating to the merger charge are estimated to be
approximately $148 million, of which approximately $48 million
was disbursed prior to August 31, 1997. Termination benefits
paid to 300 employees terminated through August 31, 1997
(approximately 30 percent of the total planned severances)
were approximately $17 million. The remaining severance and
outplacement amounts are expected to be paid within the next
twelve months.
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 February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
128 (SFAS 128), "Earnings per Share." This Statement
establishes and simplifies standards for computing and
presenting earnings per share. SFAS 128 will be effective for
the Company's third quarter of fiscal 1998, and requires
restatement of all previously reported earnings per share data
that are presented. Early adoption of this Statement is not
permitted. SFAS 128 replaces primary and fully diluted
earnings per share with basic and diluted earnings per share.
Under SFAS 128, the Company's reported earnings per share for
the first fiscal quarter of 1998 and 1997 would have been
:
Three Months Ended August 31,
1997 1996
---- ----
Basic $(0.15) $0.32
Diluted $(0.15) $0.30
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 and its counsel believe that it has
meritorious defenses in all lawsuits in which the Company or
its subsidiaries is a defendant. The Company notes that (i)
litigation in general and patent 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.
On October 13, 1995, the Company acquired Chipcom, which had
already been named as a defendant in the litigation described
below. Five complaints were filed between May 30, 1995 and
June 16, 1995 that alleged violations by the defendants of
Sections 10(b) and 20(a) of the Securities and Exchange Act of
1934, and sought unspecified damages. The cases were
consolidated for pretrial purposes pursuant to an order
entered by the Court on June 15, 1995. The consolidated
action is entitled In re: Chipcom Securities Litigation, Civil
Action No. 95-111114-DPW. A Consolidated Complaint was filed
on September 13, 1995, and an Amended Consolidated Complaint
was filed on November 30, 1995.
The defendants' motion to dismiss the Amended Consolidated
Complaint was granted without leave to amend on May 1, 1996.
The dismissal covers all five cases. The plaintiffs appealed
the order granting the dismissal. On October 1, 1996, the
parties to these cases agreed upon what the Company considers
to be favorable financial terms for settlement of all five
cases, which amount the Company does not consider material to
its operations, financial position, or liquidity. Pursuant to
the settlement which was approved by the District Court on
June 26, 1997, all claims of all persons which are related to
the subject matter of the Consolidated Complaint were settled
and released.
On March 24, 1997, a putative shareholder class action
lawsuit, entitled Hirsch v. 3Com Corporation, et al., Civil
Action No. CV764977, was filed against the Company and certain
of its officers and directors in the California Superior
Court, Santa Clara County (the Superior Court). The complaint
alleges, among other things, fraud, negligent
misrepresentation and violations of the California securities
laws, including that during the putative class period, sales
of the Company's stock by officers and directors of 3Com and
acquisitions made with the Company's stock occurred at
inflated prices in light of undisclosed information.
Specifically, the complaint alleges violations of Sections
25400 and 25500 of the California Corporations Code, Sections
1709 and 1710 of the California Civil Code, and Sections 17200
et seq. and 17500 et seq. of the California Business and
Professions Code. The complaint, which covers a putative
period of September 24, 1996 through February 10, 1997, does
not specify the damages sought. On July 30, 1997, the
Superior Court sustained in part and overruled in part the
Company's demurrer to the complaint. As a result of such
ruling, the Civil Code and Business and Professions Codes
allegations have been stricken from the complaint. The
Company is in the process of appealing the Superior Court's
ruling with respect to the remaining Corporations Code
allegations. Management believes that the action is not
meritorious and intends to vigorously contest it. An adverse
resolution of the action could have a material adverse effect
on the Company's results of operations and financial condition
in the quarter in which such adverse resolution occurs.
U.S. Robotics and certain of its directors were named as
defendants in eleven lawsuits relating to the merger between
the Company and U.S. Robotics brought in the Delaware Chancery
Court (In re: U.S. Robotics Corporation Shareholder's
Litigation, Delaware Chancery Court Consolidated Civil Action
No. 15580). The Company has been named as a defendant in nine
of these actions. The lawsuits, which purport to be
stockholder class actions brought on behalf of all U.S.
Robotics stockholders, allege, inter alia, that the directors
of U.S. Robotics have breached their fiduciary duties by
approving the Merger Agreement, and that the Company aided and
abetted this alleged breach of duty. An agreement in
principle to settle this litigation has been reached with
plaintiffs' counsel on what the Company considers to be
favorable financial terms, which amount the Company does not
consider to be material to its operations, financial position,
or liquidity. Pursuant to the settlement which was approved
by the Delaware Chancery Court on October 7, 1997, all claims
of all persons which are related to the subject matter were
settled and released.
On February 13, 1997, Motorola, Inc. filed suit against U.S.
Robotics in the United States District Court for the District
of Massachusetts (Motorola, Inc. v. U.S. Robotics Corporation,
et al., Civil Action No. 97-10339RCL), claiming infringement
of eight United States patents. The complaint alleges willful
infringement and prays for unspecified damages and injunctive
relief. In a separate statement announcing the filing of the
lawsuit published on PRNewswire on the same date, Motorola
alleged that the patents at issue cover "technologies
essential to the International Telecommunications Union (ITU)
V.34 modem standard." In the same statement, a Motorola
officer is quoted as saying that Motorola is "committed" to
making its technology incorporated in standards available on a
"fair, reasonable and non-discriminatory basis." U.S.
Robotics has filed an answer to Motorola's claims setting
forth its defenses and asserting counterclaims which allege
infringement of a U.S. Robotics patent, violation of antitrust
laws, promissory estoppel and unfair competition. Although
the Company believes it has meritorious defenses to Motorola's
claims and intends to contest this lawsuit vigorously, an
adverse outcome of such litigation could have a material
adverse effect on the business, results of operations or
financial condition of the Company in the quarter in which
such adverse resolution occurs.
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 Corp., No. 97-CV-6182T),
claiming infringement of one United States Patent. The
complaint alleges willful infringement and prays for
unspecified damages and injunctive relief. In a press release
dated April 30, 1997, Xerox alleged that its patent, issued
January 21, 1997, "covers the use and recognition of
handwritten text using an alphabet system designed especially
for reliable recognition in pen computers," and that Palm
Computing Corporation's (Palm) PalmPilotTM hand-held computer
and "Graffiti" software in its PalmTM operating system
infringe the Xerox patent. Palm is a wholly-owned subsidiary
of the Company. The Company believes it has meritorious
defenses to Xerox's claims and intends to contest the lawsuit
vigorously. An adverse resolution of the action could have a
material adverse effect on the Company's results of operations
and financial condition in the quarter in which such adverse
resolution occurs.
On April 21, 1997, U.S. Robotics and three of its customers,
Best Buy Co., Inc., Egghead, Inc. and Fry's Electronics, Inc.,
were sued in a purported consumer class action filed in
Superior Court in Marin County, California (Bendall et al v.
U.S. Robotics Corporation et al, No. 170441). The named
plaintiffs are residents of the states of Alabama, California,
Tennessee and Washington and they purport to represent various
classes of persons who have purchased or otherwise acquired
U.S. Robotics' new x2 products and products upgradeable to x2.
Damages, including punitive damages, and other relief are
sought under the California Consumer Legal Remedies Act and
the California Song-Beverly Consumer Warranty Act, and under
various common law theories, including breach of contract,
fraud and deceit, negligent misrepresentation, breach of
implied warranty and unjust enrichment. The Company believes
it has meritorious defenses to this lawsuit and intends to
contest the lawsuit vigorously. An adverse resolution of the
action could have a material adverse effect on the Company's
results of operations and financial condition in the quarter
in which such adverse resolution occurs.
Another lawsuit, purporting to be "For the interests of the
General Public" was filed against U.S. Robotics in the same
court on March 13, 1997 (Levy v. U.S. Robotics Corporation,
No. 170968). This action alleges that U.S. Robotics'
promotion and advertising of x2 products constituted unfair
competition and deceptive, untrue and misleading advertising
in violation of the California Business and Professional Code,
and seeks injunctive relief, including "restitution of all
revenues" and an award of attorney fees. Additionally, a
purported public interest plaintiff sued U.S. Robotics on
January 29, 1997 in California Superior Court in San Francisco
(Intervention Inc. v. U.S. Robotics Corporation, Case No.
984352) under the same statute, alleging various
misrepresentations in connection with the promotion and
advertising of U.S. Robotics' x2 products, and seeking
injunctive and other relief, including attorney's fees. The
Company believes it has meritorious defenses to this lawsuit
and intends to contest the lawsuit vigorously. An adverse
resolution of the action could have a material adverse effect
on the Company's results of operations and financial condition
in the quarter in which such adverse resolution occurs.
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) The Special Meeting of Shareholders was held on
June 12, 1997.
(b) The following are the voting results on each of the
proposals:
Proposal I In Favor Opposed Abstain No Vote
- ---------- -------- ------- ------- -------
To approve and adopt an
Amended and Restated
Agreement and Plan of
Merger 114,552,862 754,643 488,536 7,377,365
Proposal II
- -----------
To approve and adopt
an amendment to the
Company's Articles of
Incorporation to increase
the number of authorized
shares of 3Com capital
stock from 403,000,000
to 1,000,000,000 shares 113,176,896 9,103,780 892,730 0
Proposal III
- ------------
To change 3Com's state
of incorporation from
California to Delaware 89,551,087 25,505,914 739,040 7,377,365
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation
3.2 Certificate of Correction Filed to Correct a Certain Error
in the Certificate of Incorporation
3.3 Certificate of Merger
3.4 Bylaws of 3Com Corporation, As Amended
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
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
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
10.20 Purchase Agreement between BNP Leasing Corporation and 3Com
Corporation, effective as of July 29, 1997 for the Marlborough site
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
10.22 Purchase Agreement between BNP Leasing Corporation and 3Com
Corporation, effective as of August 11, 1997 for the Rolling Meadows site
10.23 First Amendment to Credit Agreement
* 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 January15, 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 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)
(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 June 26, 1997,
reporting under Item 2 the completion of the merger with U.S.
Robotics Corporation effective June 12, 1997.
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: March 18, 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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</TABLE>
