<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 June 30, 1997
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.
------------------------------------------------------
(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.)
1000 FORE Drive, Warrendale, Pennsylvania 15086-7502
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (412) 742-4444
--------------
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.
Class Outstanding at July 31, 1997
- ---------------------------- ----------------------------
Common Stock, $.01 par value 98,952,771 Shares
<PAGE> 2
FORM 10-Q
FORE SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FORE Systems, Inc. Consolidated Balance
Sheet as of June 30, 1997 and
March 31, 1997 3
FORE Systems, Inc. Consolidated Statement
of Income for the three months ended
June 30, 1997 and 1996 4
FORE Systems, Inc. Consolidated Statement
of Cash Flows for the three months ended
June 30, 1997 and 1996 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
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
</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 DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, MARCH 31,
1997 1997
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 113,854 $ 129,424
Short-term investments 173,404 170,258
Accounts receivable, net of allowance for doubtful
accounts of $5,597 at June 30, 1997 and
$4,090 at March 31, 1997 84,653 84,997
Inventories 54,168 50,769
Deferred income taxes 29,551 29,296
Prepaid income taxes 17,505 19,153
Prepaid expenses and other current assets 13,424 6,774
-------------- ---------------
Total current assets 486,559 490,671
Fixed assets, net 55,282 47,906
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Total assets $ 541,841 $ 538,577
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,451 $ 36,919
Accrued payroll and related costs 13,126 13,909
Other current liabilities 10,465 10,230
Accrued merger costs 3,683 4,869
Deferred revenue 18,435 18,471
-------------- ---------------
Total current liabilities 79,160 84,398
============== ===============
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share; 300,000,000
shares authorized; shares issued:
98,766,598 at June 30, 1997 and 97,792,458
at March 31, 1997 409,434 405,768
Retained earnings 58,113 53,130
Treasury stock, at cost: 120,000 shares (3,248) (3,248)
Cumulative translation adjustment 93 53
Valuation allowance for short-term investments (1,711) (1,524)
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Total stockholders' equity 462,681 454,179
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Total liabilities and stockholders' equity $ 541,841 $ 538,577
============== ===============
</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
JUNE 30
----------------------------------------
1997 1996
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<S> <C> <C>
Revenue $ 95,359 $ 83,357
Cost of sales 42,184 34,912
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Gross profit 53,175 48,445
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Operating expenses:
Research and development 15,905 11,190
Sales and marketing 27,938 18,761
General and administrative 4,781 3,849
------------------ ----------------
Total operating expenses 48,624 33,800
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Income from operations 4,551 14,645
Interest income, net 3,029 3,158
Other income (expense) (30) (2)
------------------ ----------------
Income before provision for income taxes 7,550 17,801
Provision for income taxes 2,567 6,408
------------------ ----------------
Net income $ 4,983 $ 11,393
================== ================
Net income per common share $ 0.05 $ 0.12
================== ================
Weighted average common and common
equivalent shares outstanding 100,497,749 96,768,218
================== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FORE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,983 $ 11,393
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 5,514 3,438
Deferred income tax benefit (255) (749)
Income tax benefit related to stock options -- 7,577
Cumulative translation adjustment 40 --
Change in operating assets and liabilities:
Accounts receivable 344 (14,984)
Inventories (3,399) (8,101)
Prepaid expenses and other current assets (6,713) (5,134)
Accounts payable (3,468) (188)
Accrued liabilities (527) 2,646
Prepaid income taxes and income taxes payable 1,648 (8,667)
Accrued merger costs (1,186) (9,848)
Deferred revenue (36) 958
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Net cash used by operating activities (3,055) (21,659)
-------- --------
Cash flows from investing activities:
Purchases of short-term investments (48,645) (54,233)
Redemption and sale of short-term investments 45,312 21,096
Capitalization of software development costs (10) (182)
Purchases of fixed assets (12,817) (10,056)
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Net cash used in investing activities (16,160) (43,375)
-------- --------
Cash flows from financing activities:
Principal payments on notes payable and capital lease
obligations (21) (43)
Proceeds from issuance of common stock 3,666 8,346
-------- --------
Net cash provided by financing activities 3,645 8,303
-------- --------
Decrease in cash and cash equivalents (15,570) (56,731)
Cash and cash equivalents at beginning of period 129,424 204,013
-------- --------
Cash and cash equivalents at end of period $113,854 $147,282
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
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 the results for such period. The results of operations for the
three month period ending June 30, 1997 are not necessarily indicative of
results which may be achieved for the entire fiscal year ending March 31, 1998.
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, 1997
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>
June 30, 1997 March 31, 1997
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<S> <C> <C>
Raw Materials $ 20,080 $16,054
Work in Process 3,752 5,097
Finished Goods 30,336 29,618
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Total Inventories $ 54,168 $50,769
======== =======
</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 is now occupying 200,000 square feet of the facilities and the
remaining 100,000 is still under construction. The Company is leasing 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 $3.4 million and are expected to commence in fiscal
1998. During the construction period, the Company has guaranteed the repayment
of up to approximately $37 million of the lessor's construction financing for
the facilities.
Accordingly, as part of the above lease transaction, the Company
pledged $28.7 million, as of June 30, 1997, of securities it holds as
collateral for specified obligations of the lessor. 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.
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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NOTE 4. Legal Proceedings
In July 1997, the Company was notified that it is a party to four
nearly identical class action lawsuits alleging certain violations of federal
securities laws by the Company and certain of its officers, who are named as
defendants in the suit, arising from alleged misstatements or omissions by the
Company. Plaintiffs seek compensatory damages for injuries allegedly incurred
by purchasers of the Company's stock during the period from October 17, 1996
through April 1, 1997, inclusive. The Company believes the allegations in each
complaint are completely without merit and intends to defend these actions
vigorously. Management believes that the ultimate outcome of these claims will
not have a material adverse effect on the results of operations or financial
position of the Company.
NOTE 5. New Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings per share" ("SFAS 128") was issued by the Financial Accounting
Standards Board ("FASB"). SFAS 128 specifies modifications to the calculation
of earnings per share from that currently used by the Company. Under SFAS 128,
"basic earnings per share" will be calculated based upon the weighted average
number of common shares actually outstanding, and "diluted earnings per share"
will be calculated based upon the weighted average number of common shares
outstanding and other potential common shares if they are dilutive. SFAS 128 is
effective for the Company's third quarter of 1998 and will be adopted at that
time. Prior periods will be restated. Had the Company determined earnings per
share in accordance with SFAS 128, basic earnings per share and diluted earnings
per share for the quarter ended June 30, 1997 would have been $.05 and $.05,
respectively, as compared to $.13 and $.12, respectively, for the corresponding
period in 1996.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). The Company will implement
SFAS No. 130 and SFAS No. 131 as required in fiscal 1999 which require the
Company to report and display certain information related to comprehensive
income and operating segments.
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<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 significantly
greater scalability 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
for enterprise applications, TNX(TM) ATM switches for service provider
applications, PowerHub(R) local area network ("LAN") switches and ES-3810
Ethernet switches for ATM connectivity, ForeRunner(R) ATM adapter cards,
CellPath(TM) wide area network ("WAN") multiplexing products for WAN access,
ForeThought(TM) internetworking software, ForeView(R) network management
software and the StreamRunner(TM) ATM video product line.
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.
Certain statements made herein, including, without limitation, statements
regarding increased market acceptance of ATM and LAN switching products,
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 that
involve risks and uncertainties. Such statements should be read in conjunction
with certain cautionary statements set forth herein and the list of factors set
forth in the Company's Annual Report on Form 10-K for the year ended March 31,
1997 (the "Form 10-K"). Such factors could cause actual results to differ
materially from those expressed in any forward-looking statements contained
herein.
QUARTER ENDED JUNE 30, 1997 COMPARED WITH QUARTER ENDED JUNE 30, 1996
REVENUE. Revenue increased by 14% to $95.4 million in the quarter ended
June 30, 1997, from $83.4 million in the quarter ended June 30, 1996. The
distribution of revenue from sales to domestic and foreign customers was 71% and
29%, respectively, in the quarter ended June 30, 1997. This compares with 59%
and 41%, respectively, in the corresponding quarter in 1996. In the quarter
ended June 30, 1997, the distribution of revenue from sales to foreign customers
by geographic region was 16%, 4% and 9% for Europe, Pacific Rim and other,
respectively. Geographic mix for the corresponding quarter in 1996 was 14%, 22%
and 5%, respectively. The increase in domestic revenue dollars was
attributable to the increased market acceptance of ATM and LAN switching
products. The decrease in foreign revenue in dollars and as a percentage of
revenue, was largely attributable to a decrease in sales in Japan. The decrease
in Japanese sales is largely attributable to a decrease in sales to the Japanese
government, increased competition and slower overall acceptance of ATM
technology. In the quarter ended June 30, 1997, the Company experienced slower
sales in the Pacific Rim and there can be no assurance that the Company's
revenue from international sales will return to or continue to constitute the
same historical percentage of revenue as experienced in previous fiscal years.
There can be no assurance that revenue from sales of the Company's products will
continue to grow at its historical growth rate, given the competitive nature of
the market for networking products, the fact that such market is characterized
by evolving industry standards, frequent new product introductions and rapid
technological development which could render the Company's products
noncompetitive or obsolete and the fact that many of the
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<PAGE> 9
Company's competitors have significantly greater financial, technological and
personnel resources than does the Company. For these and other risk factors
affecting the Company, see the list of risk factors set forth in the Form 10-K.
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 June 30, 1997 was approximately 25,000
as compared with almost 17,000 in the corresponding quarter in 1996. The total
installed base of ATM ports as of June 30, 1997 was approximately 185,000 as
compared with over 81,000 at June 30, 1996. The total number of LAN switching
ports shipped in the quarter ended June 30, 1997 was approximately 107,000 as
compared with approximately 44,000 in the previous year's corresponding
quarter. The total number of adapter cards shipped in the quarter ended June
30, 1997 was almost 7,100 as compared with approximately 7,500 in the previous
year's corresponding quarter. The total installed base of adapter cards as of
June 30, 1997 was over 69,000 as compared with over 35,000 as of June 30, 1996.
In the quarter ended June 30, 1997, 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%, 30%,
4% and 12%, respectively. Revenue mix for the corresponding quarter in 1996
was 49%, 37%, 7% and 7%, respectively. Average selling price per ATM port
during the quarter ended June 30, 1997 was $2,100 as compared to $2,400 in the
corresponding quarter in 1996. Average selling price per LAN switching port
was $270 in the quarter ended June 30, 1997 as compared to $650 in the
corresponding quarter in 1996. Average selling price for adapter cards
shipped during the quarter ended June 30, 1997 was $525, as compared to $725 in
the previous year's quarter ended June 30, 1996. In May of 1996, the Company
reduced the price of certain of its ATM switches by up to 40%. The Company
reduced the price of certain of its LAN switching products by up to 15% in
September 1996. The Company believes that reductions in price per port on ATM
and LAN switching products will help stimulate demand for those products.
However, many risk factors, including the risk that networking products based
on ATM may not 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 $53.2 million or 55.8% as a
percentage of revenue in the quarter ended June 30, 1997 as compared to gross
profit of $48.4 million or 58.1% as a percentage of revenue in the
corresponding quarter in 1996. The dollar increase in gross profit was largely
attributable to the increase in revenue. The decline in gross margin
percentage primarily resulted from absorbing a higher fixed manufacturing
overhead base, principally associated with start-up expenses connected with the
Company's new manufacturing operation in Dublin, Ireland. The Company intends
to price its products competitively in order to continue to increase revenue
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 $15.9
million or 16.7% of revenue in the quarter ended June 30, 1997 as compared to
$11.2 million or 13.4% of revenue in the corresponding quarter in 1996. The
increase in research and development expense in dollars and as a percentage of
revenue was largely attributable to increased hiring of engineering employees,
including recruiting expenses, additional engineering costs associated with
acquisitions, along with increased purchases of research and development
materials. The number of employees of the Company engaged in research and
development increased to 420 at June 30, 1997 from 371 at June 30, 1996.
SALES AND MARKETING. Sales and marketing expense was $27.9 million or
29.3% of revenue for the quarter ended June 30, 1997 as compared to $18.8
million or 22.5% of revenue in the corresponding quarter in 1996. 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 marketing promotion costs. The number of employees of the
Company engaged in sales and marketing activities
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increased to 587 at June 30, 1997 from 486 at June 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. Such efforts are subject to a number of risk factors,
including competition in the networking industry, the timing and nature of any
new product introductions by the Company or its competitors, the level of
customer demand, and others, and there can be no assurance that such efforts
will be successful.
GENERAL AND ADMINISTRATIVE. General and administrative expense was $4.8
million or 5.0% of revenue in the quarter ended June 30, 1997 as compared to
$3.8 million or 4.6% of revenue in the corresponding quarter in 1996. The
increase in general and administrative expense was largely due to increased
salary costs, increased hiring of administrative staff, including those engaged
in systems administration, accounting and human resources and increased costs
for professional services. The number of employees of the Company engaged in
general and administrative activities increased to 146 at June 30, 1997 from
137 at June 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 significantly in the
next twelve months.
INTEREST INCOME. Interest income, net of interest expense, was $3.0
million in the quarter ended June 30, 1997 as compared to $3.2 million in the
corresponding quarter in 1996. The decrease in interest income is principally
due to a shift to tax-exempt investments.
INCOME TAXES. The provision for income taxes was $2.6 million, or an
effective rate of 34%, in the quarter ended June 30, 1997 as compared to $6.4
million, or 36%, in the previous year's quarter ended June 30, 1996. The
decrease in the effective tax rate is primarily the result of certain tax
advantages associated with the opening of the Dublin, Ireland manufacturing
facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed most of its working capital and capital
expenditure requirements to date primarily through cash proceeds from public
offerings and cash generated from operations.
Net cash used by operations was $3.1 million for the quarter ended June 30,
1997. Net cash used by operations was the result of increased prepaid assets
and other current assets and inventories, offset by net income. The increase in
inventories was due to increased revenue. Net cash used by operations was $21.7
million for the quarter ended June 30, 1996 which resulted from increased
accounts receivable and inventories, offset by net income. The increase in
accounts receivable and inventories was due to increased revenue. The Company's
investing activities to date have been for the purchase of fixed assets to
support the Company's growth.
At June 30, 1997, the Company had cash and cash equivalents of
approximately $113.9 million, short-term investments of $173.4 million and an
unused line of credit of $20 million.
During fiscal 1996, the Company entered into arrangements to lease
headquarters and operating facilities to be constructed on land purchased by the
Company. The facilities have largely been completed and the Company is
occupying 200,000 square feet of the facilities while the remaining 100,000
square feet is still under construction. These arrangements include a ten year
operating lease pursuant to which the Company has committed to make annual
minimum rental payments of approximately $3.4 million commencing in fiscal 1998,
and a guarantee by the Company of the repayment of approximately $37 million of
the lessor's construction financing for the facilities.
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As part of the lease transaction, the Company, as of March 31, 1997,
pledged $28.7 million of marketable securities 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.
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.
In July 1997, the Company was notified that it is a party to four nearly
identical class action lawsuits alleging certain violations of federal
securities laws by the Company and certain of its officers, who are named as
defendants in the suit, arising from alleged misstatements or omissions by the
Company. Plaintiffs seek compensatory damages for injuries allegedly incurred
by purchasers of the Company's stock during the period from October 17, 1996
through April 1, 1997, inclusive. The Company believes the allegations in each
complaint are completely without merit and intends to defend these actions
vigorously. Management believes that the ultimate outcome of these claims will
not have a material adverse effect on the results of operations or financial
position of the Company.
To date, inflation has not had a material impact on the Company's financial
results.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings per share" ("SFAS 128") was issued by the Financial Accounting
Standards Board ("FASB"). SFAS 128 specifies modifications to the calculation
of earnings per share from that currently used by the Company. Under SFAS 128,
"basic earnings per share" will be calculated based upon the weighted average
number of common shares actually outstanding, and "diluted earnings per share"
will be calculated based upon the weighted average number of common shares
outstanding and other potential common shares if they are dilutive. SFAS 128 is
effective for the Company's third quarter of 1998 and will be adopted at that
time. Prior periods will be restated. Had the Company determined earnings per
share in accordance with SFAS 128, basic earnings per share and diluted earnings
per share for the quarter ended June 30, 1997 would have been $.05 and $.05,
respectively, as compared to $.13 and $.12, respectively, for the corresponding
period in 1996.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). The Company will implement SFAS No. 130 and
SFAS No. 131 as required in fiscal 1999 which require the Company to report and
display certain information related to comprehensive income and operating
segments.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In July 1997, the Company was notified that four separate complaints
(Robert K. Bell, et al. v. FORE Systems, Inc., et al., Alexander Haff v. FORE
Systems, Inc., et al., Neil Lazzaro v. FORE Systems, Inc., et al. and Oscar
Federbusch v. FORE Systems, Inc., et al.) were filed in the United States
District Court for the Western District of Pennsylvania alleging certain
violations of federal securities laws by the Company and certain of its
officers, who are named as defendants in the suit, arising from alleged
misstatements or omissions by the Company. Each suit, each of which is
identical in nature to the others, was filed as a class action on behalf of the
named plaintiffs and others who are purportedly similarly situated. Plaintiffs
seek compensatory damages for injuries allegedly incurred by purchasers of the
Company's stock during the period from October 17, 1996 through April 1, 1997,
inclusive. The Company believes the allegations in each complaint are completely
without merit and intends to defend these actions vigorously.
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 Second Amended and Restated Bylaws of FORE
Systems, Inc. (as amended through March 5, 1997)
(incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1997).
11.1. Statement regarding Computation of Per
Share Earnings.
27.1. Financial Data Schedule.
b) Reports on Form 8-K.
On April 21, 1997, the Company filed a report under
Item 5 of Form 8-K, dated April 1, 1997, regarding
the announcement of preliminary financial results
for its fourth fiscal quarter and year ended March
31, 1997.
On May 19, 1997, the Company filed a report under
Item 5 of Form 8-K, dated April 24, 1997, regarding
the announcement of final financial results for its
fourth fiscal quarter and year ended March 31, 1997.
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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: August 13, 1997 /s/ ERIC C. COOPER
------------------------------------
Eric C. Cooper
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1997 /s/ THOMAS J. GILL
-------------------------------
Thomas J. Gill
Chief Operating Officer, Chief
Financial Officer and Treasurer
(Principal Financial and Chief
Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.1 Statement Re Computation of Per Share
Earnings
27.1 Financial Data Schedule
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EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30,
--------------------------------
1997 1996
------------ ----------
<S> <C> <C>
Weighted Average Common and Common
Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 98,324,196 88,769,034
Weighted Average Common Equivalent
Shares 2,173,553 7,999,184
------------ ------------
100,497,749 96,768,218
============ ===========
Net income $ 4,983,000 $11,393,000
============ ===========
Net income per common share $ 0.05 $ 0.12
============ ===========
FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS ENDED
June 30,
--------------------------------
1996 1995
------------ ----------
Weighted Average Common and Common
Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 98,324,196 88,769,034
Weighted Average Common Equivalent
Shares 2,176,494 7,800,924
------------ ------------
100,500,690 96,569,958
============ ===========
Net income $ 4,983,000 $11,393,000
============ ===========
Net income per common share $ 0.05 $ 0.12
============ ===========
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 113,854
<SECURITIES> 173,404
<RECEIVABLES> 90,250
<ALLOWANCES> 5,597
<INVENTORY> 54,168
<CURRENT-ASSETS> 486,559
<PP&E> 88,651
<DEPRECIATION> 33,369
<TOTAL-ASSETS> 541,841
<CURRENT-LIABILITIES> 79,160
<BONDS> 0
0
0
<COMMON> 409,434
<OTHER-SE> 53,247
<TOTAL-LIABILITY-AND-EQUITY> 541,841
<SALES> 95,359
<TOTAL-REVENUES> 95,359
<CGS> 42,184
<TOTAL-COSTS> 42,184
<OTHER-EXPENSES> 48,624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,550
<INCOME-TAX> 2,567
<INCOME-CONTINUING> 4,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,983
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
