<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission file number 0-24156
FORE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 25-1628117
------------------------------- -------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
174 THORN HILL ROAD, WARRENDALE, PENNSYLVANIA 15086-7586
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 772-6600
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT OCTOBER 31, 1996
- ---------------------------- -------------------------------
<S> <C>
Common Stock, $.01 par value 91,053,304 Shares
</TABLE>
<PAGE> 2
FORM 10-Q
FORE SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FORE Systems, Inc. Consolidated Balance
Sheet as of September 30, 1996 and
March 31, 1996 3
FORE Systems, Inc. Consolidated Statement
of Income for the three months and
six months ended September 30, 1996 and 1995 4
FORE Systems, Inc. Consolidated Statement
of Cash Flows for the three months and
six months ended September 30, 1996 and 1995 5
Notes to Unaudited Consolidated Financial
Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FORE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1996 1996
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $129,437 $204,013
Short-term investments 140,551 92,142
Accounts receivable, net of allowance for doubtful
accounts of $4,359 at September 30, 1996 and
$1,087 at March 31, 1996 80,628 49,990
Inventories 39,445 27,495
Deferred income taxes 21,225 19,574
Prepaid expenses and other current assets 6,792 6,382
-------- --------
Total current assets 418,078 399,596
Fixed assets, net 37,732 24,766
-------- --------
Total assets $455,810 $424,362
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,743 $ 32,430
Accrued payroll and related costs 10,052 10,723
Other current liabilities 3,065 13,120
Accrued merger costs 6,790 20,045
Deferred revenue 12,387 12,054
-------- --------
Total current liabilities 65,037 88,372
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share; 300,000,000
shares authorized; shares issued:
90,708,259 at September 30, 1996 and 87,982,594
at March 31, 1996 356,644 323,134
Retained earnings 38,128 13,384
Treasury stock, at cost: 120,000 shares (3,248) --
Valuation allowance for short-term investments (751) (528)
-------- --------
Total stockholders' equity 390,773 335,990
-------- --------
Total liabilities and stockholders' equity $455,810 $424,362
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FORE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ---------------------------------
1996 1995 1996 1995
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 98,019 $ 52,062 $ 181,376 $ 95,944
Cost of sales 41,646 21,894 76,558 40,390
------------ ----------- ------------ ------------
Gross profit 56,373 30,168 104,818 55,554
------------ ----------- ------------ ------------
Operating expenses:
Research and development 12,619 6,866 23,809 12,548
Sales and marketing 21,460 12,202 40,221 22,479
General and administrative 4,462 2,477 8,313 4,765
Merger-related - - - 1,587
------------ ----------- ------------ ------------
Total operating expenses 38,541 21,545 72,343 41,379
------------ ----------- ------------ ------------
Income from operations 17,832 8,623 32,475 14,175
Interest income, net 3,029 1,808 6,187 3,339
------------ ----------- ------------ ------------
Income before provision for income taxes 20,861 10,431 38,662 17,514
Provision for income taxes 7,510 3,697 13,918 6,718
------------ ----------- ------------ ------------
Net income $ 13,351 $ 6,734 $ 24,744 $ 10,796
============ =========== ============ ============
Net income per common share $ 0.14 $ 0.08 $ 0.26 $ 0.13
============ =========== ============ ============
Weighted average common and common
equivalent shares outstanding 95,931,187 83,483,810 96,349,703 82,749,352
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
FORE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1996 1995 1996 1995
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,351 $ 6,734 $ 24,744 $ 10,796
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 4,345 1,904 7,783 3,369
Deferred income tax benefit (902) 1,414 (1,651) 698
Change in operating assets and liabilities:
Accounts receivable (15,654) (5,735) (30,638) (8,804)
Inventories (3,849) 1,179 (11,950) (1,703)
Prepaid assets and other current assets 4,549 (113) (585) (678)
Accounts payable 501 (730) 313 2,401
Accrued liabilities 3,975 1,293 5,531 4,757
Accrued merger costs (3,407) - (13,255) -
Deferred revenue (625) 822 333 944
--------- --------- --------- --------
Net cash provided (used) by operating activities 2,284 6,768 (19,375) 11,780
--------- --------- --------- --------
Cash flows from investing activities:
Purchases of short-term investments (91,111) (24,488) (145,344) (55,511)
Redemption and sale of short-term investments 75,616 17,522 96,712 26,029
Capitalization of software development costs (242) (273) (424) (522)
Net cash from merger-related activity - - - 184
Purchases of fixed assets (10,094) (4,666) (20,150) (8,147)
--------- -------- --------- ---------
Net cash used in investing activities (25,831) (11,905) (69,206) (37,967)
--------- -------- --------- ---------
Cash flows from financing activities:
Principal payments on notes payable and capital lease
obligations (28) (76) (71) (146)
Purchase of treasury stock (3,248) - (3,248) -
Proceeds from issuance of common stock 8,978 2,112 17,324 82,585
--------- -------- --------- ---------
Net cash provided by financing activities 5,702 2,036 14,005 82,439
--------- -------- --------- ---------
Increase (decrease) in cash and cash equivalents (17,845) (3,101) (74,576) 56,252
Cash and cash equivalents at beginning of period 147,282 98,336 204,013 38,983
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 129,437 $ 95,235 $ 129,437 $ 95,235
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE 1. Interim Financial Statements
The accompanying unaudited interim consolidated financial statements of
FORE Systems, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, these statements include all adjustments,
consisting of normal and recurring adjustments, considered necessary for a fair
presentation of these results for such periods. The results of operations for
the three and six month periods ending September 30, 1996, are not necessarily
indicative of results which may be achieved for the entire fiscal year ending
March 31, 1997. The unaudited consolidated interim financial statements should
be read in conjunction with the financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 as filed with the Securities and Exchange Commission.
NOTE 2. Inventories (in thousands)
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method, and include raw material
components, processing costs and manufacturing overhead costs. Inventories are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
<S> <C> <C>
Raw Materials $ 14,028 $ 9,408
Work in Process 6,863 10,939
Finished Goods 18,554 7,148
-------- --------
Total Inventories $ 39,445 $ 27,495
======== ========
</TABLE>
NOTE 3. Lease Commitments
In December 1995, the Company entered into agreements to lease
headquarters and operating facilities to be constructed on land which was
purchased by the Company. The lessor and an additional lender have committed to
fund up to a maximum of $41 million for the construction of the buildings. The
Company will lease the facilities under a ten-year operating lease and has
options to renew the lease for two additional five-year terms. Future annual
minimum rental payments under the lease are approximately $3.5 million and are
expected to commence in the current fiscal year. During the construction
period, the Company has guaranteed the repayment of approximately $37 million
of the lessor's construction financing for the facilities.
The Company may, at its option, purchase the facilities during or at the
expiration of the term of the lease at an amount equal to the remaining balance
of any debt of the lessor related to the construction of the facilities plus
any applicable prepayment penalties. If the Company does not exercise the
purchase option at the end of the lease, the Company will guarantee the
residual value of the facilities of approximately $24 million, an amount which
was determined at the lease inception date.
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<PAGE> 7
As part of the above lease transaction, the Company pledged $15.1 million
of marketable securities (valued at September 30, 1996) as collateral for
specified obligations of the lessor. These securities will be pledged until
construction of the facilities is completed and will be managed by the Company
under its investment policy. In addition, under the terms of the lease, the
Company is required to comply with certain financial covenants including the
maintenance of a minimum tangible net worth. Other restrictive covenants limit
indebtedness and the payment of dividends.
NOTE 4. Stock Option Plan
On June 17, 1996, the Board of Directors adopted and approved the FORE
Systems, Inc. 1996 Stock Option Plan (the "Plan"), under which awards of
options to acquire shares of Common Stock may be made to employees, directors,
consultants and advisors of the Company or any of its subsidiaries
("Discretionary Awards") and awards of options will automatically be made to
Directors of the Company. The maximum number of shares of Common Stock as to
which awards may be granted under the Plan is 5,500,000 shares. Discretionary
awards may be in the form of options which qualify as incentive stock options
within the meaning of the Internal Revenue Code of 1986, as amended ("Incentive
Stock Options") or options which do not so qualify.
The Compensation Committee of the Board of Directors will determine the
terms and conditions of each Discretionary Award, provided that (i)
Discretionary Awards will be granted at an exercise price of not less than 100%
of the fair market value of the Common Stock on the date of grant (or less than
110% of the fair market value in the case of Incentive Stock Options granted to
an optionee (a "10% Holder") holding more than 10% of the voting stock of the
Company), and (ii) the period within which a Discretionary Award may be
exercised will not exceed ten years from the date of grant (five years in the
case of a grant of Incentive Stock Options to a 10% Holder).
On July 25, 1996, the Company's stockholders approved the Plan.
-7-
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
GENERAL
FORE Systems, Inc. (the "Company") is a leader in the design, development,
manufacture and sale of high-performance networking products based on
Asynchronous Transfer Mode ("ATM") technology. ATM provides dramatically
greater speed and total capacity than conventional networking technologies. ATM
improves the performance of today's network applications, and also enables new
applications, including integrated video, audio and data communications. The
Company believes that it currently offers the most comprehensive ATM product
line available, including ForeRunner(R) ATM switches and adapter cards,
PowerHub(R) LAN switches for ATM connectivity, CellPath(TM) WAN multiplexing
products for WAN access, ForeThought(TM) Internetworking Software and
ForeView(TM) Network Management Software.
In view of the Company's growth, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. In addition, the Company's results of operations may fluctuate
from period to period in the future.
QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH QUARTER AND SIX
MONTHS ENDED SEPTEMBER 30, 1995
REVENUE. Revenue increased by 88% to $98.0 million in the quarter ended
September 30, 1996, from $52.1 million in the quarter ended September 30, 1995.
The distribution of revenue from sales to domestic and foreign customers was
67% and 33%, respectively, in the quarter ended September 30, 1996. This
compares with 68% and 32%, respectively, in the corresponding period in 1995.
Revenue increased by 89% to $181.4 million for the six month period ended
September 30, 1996, as compared to $95.9 million in the corresponding six month
period in 1995. The increase in revenue dollars was attributable to the
increased market acceptance of ATM and LAN switching products.
The Company measures overall unit volume for its switching products based
on the number of ATM ports or network connections shipped. The total number of
ATM ports shipped in the quarter ended September 30, 1996 was 22,853, as
compared with 10,419 in the previous year's corresponding period. The total
installed base of ATM ports as of September 30, 1996 was 104,323. The total
number of LAN switching products shipped in the quarter ended September 30,
1996 was 2,067, as compared with 723 in the previous year's corresponding
period. The total number of adapter cards shipped in the quarter ended
September 30, 1996 was 8,361, as compared with 3,963 in the previous year's
corresponding period. The total installed base of adapter cards as of
September 30, 1996 was 43,838. In the period ended September 30, 1996, revenue
mix, as a percentage of revenue, among ATM switching products, LAN switching
products, adapter cards and other revenue (principally service support and
development contracts) was 54%, 33%, 5% and 8%, respectively. Revenue mix for
the corresponding quarter in 1995 was 49%, 34%, 9% and 8%. Average selling
price per port during the quarter ended September 30, 1996 was $2,308, as
compared to $2,460 in the corresponding quarter in 1995. Average selling price
for adapter cards shipped during the quarter ended September 30, 1996 was $647,
as compared to $1,174 in the previous year's quarter ended September 30, 1995.
In May of 1996, the Company reduced the price of certain of its ATM switches by
up to 40%. At the same time, prices of the Company's adapter cards were reduced
by 50%.
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<PAGE> 9
The Company believes that reductions in price per port on switching
products and price reductions on adapter cards will help stimulate demand for
its products. However, many risk factors, including the risk that networking
products based on ATM may fail to achieve broad commercial acceptance, the risk
of competition from larger and better financed competitors and the risk that
new technologies may render the Company's products obsolete or noncompetitive,
may cause actual results to differ.
GROSS PROFIT. Gross profit increased to $56.4 million or 57.5% as a
percentage of revenue in the quarter ended September 30, 1996, as compared to
gross profit of $30.2 million or 57.9% as a percentage of revenue in the
corresponding quarter in 1995. The dollar increase in gross profit was largely
attributable to the increase in revenue. The gross margin percentage decline
primarily resulted from continued pricing pressure and product mix of low-end
LAN switching products. Gross profit of $104.8 million or 57.8% as a percentage
of revenue for the six month period ended September 30, 1996, compares to gross
profit of $55.6 million or 57.9% as a percentage of revenue during the same
period in the previous year. The Company intends to price its products
competitively in order to continue to capture market share and to stimulate
demand for its products. In future periods, gross margins may be adversely
affected by price competition or changes in sales channels, increases in the
costs of goods or changes in the mix of products sold.
RESEARCH AND DEVELOPMENT. Research and development expense was $12.6
million or 12.9% of revenue in the quarter ended September 30, 1996, as
compared to $6.9 million or 13.2% of revenue in the corresponding quarter in
1995. Research and development expense for the six month period ended
September 30, 1996 was $23.8 million or 13.1% of revenue, as compared to $12.5
million or 13.1% of revenue in the year ago six month period. The increase in
research and development expense in dollars was largely attributable to
increased hiring of engineering employees, including recruiting expenses, along
with increased purchases of research and development materials. The reduction
in research and development expense as a percentage of revenue for the quarter
was the result of increased revenue volume absorbing a greater portion of fixed
overhead associated with research and development activities and consolidation
of research and development staff. The number of employees of the Company
engaged in research and development increased from 239 at September 30, 1995,
to 400 at September 30, 1996.
SALES AND MARKETING. Sales and marketing expense was $21.5 million or
21.9% of revenue for the quarter ended September 30, 1996, as compared to $12.2
million or 23.4% of revenue in the corresponding quarter in 1995. Sales and
marketing expense for the six month period ended September 30, 1996 was $40.2
million or 22.2% of revenue, as compared to $22.5 million or 23.4% of revenue
in the year ago six month period. The increase in sales and marketing expense
was largely the result of hiring additional sales, marketing and support
personnel (including training and documentation) and increased promotion costs.
The reduction in sales and marketing expense as a percentage of revenue was the
result of further implementation of the Company's indirect channel sales
strategy which has allowed the Company to reduce fixed overhead. The number of
employees of the Company engaged in sales and marketing activities increased
from 303 at September 30, 1995, to 551 at September 30, 1996. The Company
expects to increase sales and marketing expenses both domestically and
internationally as part of its continuing effort to expand its markets,
introduce new products, build marketing staff and programs and expand its
international presence.
GENERAL AND ADMINISTRATIVE. General and administrative expense was $4.5
million or 4.5% of revenue in the quarter ended September 30, 1996, as compared
to $2.5 million or 4.8% of revenue in the corresponding quarter in 1995.
General and administrative expense for the six month period ended September 30,
1995 was $8.3 million or 4.6% of revenue, as compared to $4.8 million or 5.0%
of revenue in the year ago six month period. The dollar increase was largely
due to increased hiring of administrative staff, including those engaged in
systems administration, accounting and human resources. The reduction in
general and administrative expense as a percentage of revenue was the result of
increased revenue
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<PAGE> 10
volume absorbing a greater portion of fixed overhead associated with general and
administrative activities. The number of employees of the Company engaged in
general and administrative activities increased from 78 at September 30, 1995,
to 142 at September 30, 1996. The Company plans to make appropriate expenditures
in the general and administrative organization as necessary and does not expect
the overall cost as a percentage of revenue to decline in the next twelve
months.
MERGER-RELATED EXPENSES. The Company had no merger-related expenses during
the quarter ended September 30, 1996. Total merger-related expenses of $1.6
million were expensed in the six month period ended September 30, 1995, upon
completion of the Applied Network Technology, Inc. and RainbowBridge
Communications, Inc. acquisitions. These expenses included fees to financial
advisors, legal and accounting fees and other related expenses.
INTEREST INCOME. Interest income, net of interest expense, was $3.0
million and $6.2 million, respectively, in the quarter and six months ended
September 30, 1996, as compared to $1.8 million and $3.3 million in the
corresponding quarter and six month period in 1995. The increase in interest
income resulted largely from interest earned on the net proceeds received from
common stock offerings in April and October of 1995.
INCOME TAXES. The provision for income taxes was $7.5 million, or an
effective rate of 36%, in the quarter ended September 30, 1996 as compared to
$3.7 million, or an effective rate of 35%, in the previous year's quarter ended
September 30, 1995. The provision for income taxes recorded in the six month
period ended September 30, 1996 was $13.9 million, or an effective rate of 36%,
as compared to $6.7 million, or an effective rate of 38%, in the corresponding
six month period in 1995. Excluding the effect of the aforementioned
merger-related expenses, the effective tax rate for the first six months ended
September 30, 1995 would have been 35%.
NET INCOME. Net income for the quarter ended September 30, 1996 was $13.4
million, or $.14 per share, compared to $6.7 million, or $.08 per share, for
the quarter ended September 30, 1995. Net income for the six month period ended
September 30, 1996 was $24.7 million, or $.26 per share, as compared to $10.8
million, or $.13 per share, for the first six months of fiscal year 1995. Net
income for the six month period ended September 30, 1995 included the
aforementioned $1.6 million in merger-related expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed most of its working capital and capital
expenditure requirements to date primarily through cash received from public
offerings and cash generated from operations.
The Company used $19.4 million in cash in operations for the six months
ended September 30, 1996. Net cash used by operations was the result of
increased accounts receivable and inventories and a decrease in accrued merger
costs, offset by net income and increased current liabilities. The increase in
accounts receivable and inventories was due to increased revenue. Cash provided
by operations was $11.8 million for the six months ended September 30, 1995,
which resulted from net income and increased current liabilities, offset by
increased accounts receivable and inventories. The Company's investing
activities to date have been primarily for the purchase of fixed assets to
support the Company's growth.
At September 30, 1996, the Company had cash and cash equivalents of
approximately $129.4 million, short-term investments of $140.6 million and an
unused line of credit of $20 million. The Company believes that the proceeds
from its public offerings, together with its existing sources of liquidity and
internally generated cash, will satisfy the Company's projected cash needs
through at least the next twelve months. The Company may require additional
sources of liquidity to fund future growth, including additional equity
offerings or debt financing.
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<PAGE> 11
In April and October of 1995, public stock offerings were completed, with
aggregate net proceeds to the Company of approximately $208 million.
In addition, during fiscal 1996, the Company entered into arrangements to
lease headquarters and operating facilities to be constructed on land purchased
by the Company. These arrangements include an operating lease pursuant to which
the Company has committed to make annual minimum rental payments of
approximately $3.5 million commencing in the current fiscal year, and a
guarantee by the Company of the repayment of approximately $37 million of the
lessor's construction financing for the facilities.
As part of the lease transaction, the Company, as of September 30, 1996,
has pledged $15.1 million of marketable securities (valued at September 30,
1996) as collateral for specified obligations of the lessor. The Company is
also required to comply with certain financial covenants including the
maintenance of a minimum tangible net worth and limitations on the incurrence of
debt and the payment of dividends.
To date, inflation has not had a material impact on the Company's
financial results.
In December 1995, Congress enacted the Private Securities Litigation
Reform Act of 1995 (the "Act"). Subject to certain conditions, the Act provides
a "safe harbor" from liability in any private action that is based on an
alleged untrue statement of a material fact or alleged omission of a material
fact necessary to make the statement not misleading. The Company wishes to take
advantage of the "safe harbor" provided by the Act. To the extent that any of
the statements made herein, including, without limitation, statements regarding
the Company's pricing strategies and resulting effects on revenue and gross
margins and statements regarding the Company's sales and marketing strategies,
may be deemed to be forward-looking statements, reference is made to the list
of factors set forth in the Company's Annual Report on Form 10-K for the year
ended March 31, 1996, for important factors that could cause actual results to
differ materially from those expressed in any such forward-looking statements.
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<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In April 1994, ALANTEC Corporation ("ALANTEC"), a wholly owned
subsidiary of the Company which was acquired in February 1996, was notified
that, in March 1994, a suit had been filed in the Santa Clara County,
California Superior Court by two founders and one former employee of ALANTEC
against certain former directors, a former officer and several stockholders
of ALANTEC ("Defendants"), seeking damages for alleged breaches of fiduciary
duties by the Defendants in the course of various transactions in which
ALANTEC obtained additional financing in exchange for the issuance of
convertible preferred stock. While ALANTEC was not named as a defendant in
the suit, ALANTEC's former bylaws and indemnification agreements between
ALANTEC and certain of the Defendants require ALANTEC to fund certain ongoing
legal fees associated with defending the suit on behalf of the Defendants.
For the year ended March 31, 1996, the Company incurred $360,000 for
litigation expenses related to these matters. While the Company expects to
continue to incur legal expenses with respect to the litigation, the Company
believes that the ultimate resolution of the litigation will not have a
material adverse effect on the Company's financial position or results of
operations. The lawsuit is in the discovery stage and a trial has been
scheduled for January 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 1996 Annual Meeting of Stockholders of the Company was held
on Thursday, July 25, 1996.
(b) Not applicable, pursuant to Instruction 3 to Item 4 of this
Form 10-Q.
(c) A description of the matters voted upon at the meeting along
with an indication of the results of the votes on such matters
are set forth below:
1. The election of two class III directors to serve
for a term of three years and until their respective
successors are duly elected and qualified:
Votes Authority
For Withheld
--- --------
John C. Baker 78,303,010 890,469
Francois J. Bitz 78,138,800 1,054,679
2. The approval of the FORE Systems, Inc. 1996 Stock Option
Plan:
For: 51,734,191; Against: 14,088,084;
Abstentions: 131,657; Broker non-votes: 13,239,547; and
3. Ratification of the selection of Price Waterhouse LLP,
independent accountants, to audit the books and accounts of
the Company for the year ending March 31, 1997:
For: 79,102,709; Against: 37,983; Abstentions: 52,787.
(d) Not applicable.
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<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
The exhibits listed below are filed or incorporated
by reference as part of this quarterly report on
Form 10-Q:
3.1 Amended and Restated Certificate of
Incorporation of FORE Systems, Inc. (as amended by
Certificate of Amendment dated May 6, 1996)
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996).
3.2 Amended and Restated Bylaws of FORE
Systems, Inc. (incorporated by reference to exhibit
4.1 of the Company's Registration Statement on Form
S-8, File No. 333-1728).
11.1. Statement regarding Computation of Per Share
Earnings.
27.1. Financial Data Schedule.
b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K
during the quarter ended September 30, 1996.
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<PAGE> 14
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.
FORE SYSTEMS, INC.
(Registrant)
Date: November 13, 1996 /s/ ERIC C. COOPER
-------------------------------
Eric C. Cooper
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1996 /s/ THOMAS J. GILL
-------------------------------
Thomas J. Gill
Vice President, Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Chief
Accounting Officer)
-14-
<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description
11.1 Statement Re Computation of per Share Earnings
27.1 Financial Data Schedule
-15-
<PAGE> 1
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted Average Common and Common
Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 89,848,965 73,307,056 89,309,000 72,446,412
Weighted Average Common Equivalent
Shares 6,082,222 10,176,754 7,040,703 10,302,940
----------- ----------- ----------- -----------
95,931,187 83,483,810 96,349,703 82,749,352
=========== =========== =========== ===========
Net income $13,351,000 $ 6,734,000 $24,744,000 $10,796,000
=========== =========== =========== ===========
Net income per common share $ 0.14 $ 0.08 $ 0.26 $ 0.13
=========== =========== =========== ===========
</TABLE>
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Weighted Average Common and Common
Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 89,848,965 $73,307,056 89,309,000 72,446,474
Weighted Average Common Equivalent
Shares 7,730,058 10,294,262 7,765,491 10,383,518
----------- ----------- ----------- ------------
97,579,023 83,601,318 97,074,491 82,829,992
=========== =========== =========== ============
Net income $13,351,000 $ 6,734,000 $24,744,000 $ 10,796,000
=========== =========== =========== ============
Net income per common share $ 0.14 $ 0.08 $ 0.25 $ 0.13
=========== =========== =========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 129,437
<SECURITIES> 140,551
<RECEIVABLES> 84,987
<ALLOWANCES> 4,359
<INVENTORY> 39,445
<CURRENT-ASSETS> 418,078
<PP&E> 56,281
<DEPRECIATION> 18,549
<TOTAL-ASSETS> 455,810
<CURRENT-LIABILITIES> 65,037
<BONDS> 0
0
0
<COMMON> 356,644
<OTHER-SE> 34,129
<TOTAL-LIABILITY-AND-EQUITY> 455,810
<SALES> 181,376
<TOTAL-REVENUES> 181,376
<CGS> 76,558
<TOTAL-COSTS> 76,558
<OTHER-EXPENSES> 72,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,662
<INCOME-TAX> 13,918
<INCOME-CONTINUING> 24,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,744
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0
</TABLE>
