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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 22, 2008
3COM CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation)
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0-12867
(Commission
File Number)
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94-2605794
(IRS Employer
Identification No.) |
350 Campus Drive
Marlborough, Massachusetts
01752
(Address of Principal Executive Offices)
(Zip Code)
Registrants telephone number, including area code: (508) 323-1000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
TABLE OF CONTENTS
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ITEM 2.02 |
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Results of Operations and Financial Condition |
Financial Results.
On September 22, 2008, 3Com Corporation (the Company) (i) issued a press release regarding
its financial results for its fiscal quarter ended August 29, 2008 and (ii) posted supplementary
financial information concerning the Company to the investor relations portion of its web site,
www.3Com.com. The full text of the press release is attached hereto as Exhibit 99.1. The
supplementary financial material is attached hereto as Exhibit 99.2.
The information in Item 2.02 of this Form 8-K and the exhibits attached hereto as Exhibit 99.1
and Exhibit 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended (the Exchange Act), or incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by
specific reference in such a filing.
Non-GAAP Financial Measures.
The attached press release contains non-GAAP financial measures. In evaluating the Companys
performance, management uses certain non-GAAP financial measures to supplement consolidated
financial statements prepared under generally accepted accounting principles in the United States
(GAAP).
More specifically, the Company uses the following non-GAAP financial measures: non-GAAP
operating profit/loss (and margin), non-GAAP net income/loss (and margin), non-GAAP net income/loss
per share and non-GAAP research and development, sales and marketing and general and administrative
expenses.
Discussion. The Company uses these measures in its public statements. Management believes
these non-GAAP measures help indicate the Companys baseline performance before gains, losses or
charges that are considered by management to be outside on-going operating results. Accordingly,
management uses these non-GAAP measures to gain a better understanding of the Companys comparative
operating performance from period-to-period and as a basis for planning and forecasting future
periods. Management believes these non-GAAP measures, when read in conjunction with the Companys
GAAP financials, provide useful information to investors by offering:
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the ability to make more meaningful period-to-period comparisons of the Companys
on-going operating results; |
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the ability to better identify trends in the Companys underlying business and perform
related trend analysis; |
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a higher degree of transparency for certain expenses (particularly when a specific
charge impacts multiple line items); |
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a better understanding of how management plans and measures the Companys underlying
business; and |
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an easier way to compare the Companys most recent results of operations against
investor and analyst financial models. |
In order to provide meaningful comparisons, the Company believes that it needs to adjust for
gains as well as charges that are outside the core operations. Accordingly, certain gains are
excluded, as discussed below.
The non-GAAP operating loss or income (and margin) measure used by the Company is
defined to exclude the following charges and benefits: restructuring, amortization, in-process
research and development, stock-based compensation expense and special items that management
believes are unusual and outside of the Companys on-going operations, such as, for some of the
periods presented in the press release, the inventory-related adjustment portion of the purchase
accounting effects of the Companys acquisition of 49% of H3C, a patent litigation success fee, a
VAT recovery dispute, IPO write-off fees, a goodwill impairment charge, a benefit in the form of an
offset to operating expenses for the $70 million Realtek patent dispute resolution, and expenses
related to the Companys terminated acquisition by affiliates of Bain Capital.
Restructuring
Management believes the costs related to restructuring activities are not indicative of the
Companys normal operating costs. The restructuring charge consists primarily of severance expense
and facility closure costs.
Amortization of Intangibles
Management also believes that the expense associated with the amortization of
acquisition-related intangible assets is appropriate to be excluded because a significant portion
of the purchase price for acquisitions may be allocated to intangible assets that have short lives
and exclusion of the amortization expense allows comparisons of operating results that are
consistent over time for both the Companys newly acquired and long-held businesses. Also,
amortization is a non-cash charge for the periods presented.
In-process R&D Expenses
In addition, the Company has non-recurring in-process research and development expenses which
are non-cash and related to acquisitions as opposed to the Companys core operations.
Stock-based Compensation
Further, stock-based compensation expenses are non-cash charges that relate to restricted
stock amortization and stock-based compensation costs associated with acquisitions, as well as
additional stock-based compensation expense that represents the fair value of stock-based
compensation required pursuant to FAS 123 (R). The expense related to acquisitions is not part of
the Companys normal operating costs and is non-cash. The FAS 123 (R)-related expense is excluded
because management believes as a non-cash charge it does not provide a meaningful indicator of the
core operating business results. Management manages the business primarily without regard to these
non-cash expenses. In addition, because the calculation of these expenses is dependent on factors
such as forfeiture rate, volatility of the Companys stock and a risk-free interest rate, all of
which are subject to fluctuation, these charges are expected to be variable over time, and
therefore may not provide a meaningful comparison of core operating results among periods. It is
useful to note that these factors are generally outside the Companys control.
Inventory-Related Adjustment from H3C Acquisition
The Company has excluded the purchase accounting inventory-related adjustment from the 49%
acquisition of H3C. Similar to IPR&D and amortization described above with respect to
acquisitions, these adjustments represent non-cash, one-time items relating to a specific
acquisition as opposed to core operations.
Patent Litigation Success Fee
The Company won a recent jury verdict as a plaintiff in a patent litigation case, and is
obligated to pay its external counsel certain contingent fees based on the size of the award. This
is a one-time, non-recurring cost tied to the success of the case, and not based on hourly rates
charged by the law firm. Because it is not part of our core operations or expenses, management has
determined it is appropriate to exclude it from our operational results. Management does not
measure the performance of the business with this figure included.
VAT Recovery Dispute
Value-added tax is not typically charged to a companys income statement because it is
collected by the company on behalf of a governmental agency and remitted to that agency, or paid by
the company to a third party and later recovered by the company from the government. In this case,
management has deemed it appropriate to exclude a one-time, non-cash charge relating to European
VAT tax matters under dispute. We are currently seeking recovery of these amounts as we believe we
are entitled to collect them from the European tax authorities, but under applicable accounting
regulations have determined we need to take a charge for the amount at this time.
IPO Fees Write-Off
The Company excludes external expenses (primarily accounting, auditing and legal) related to
the proposed IPO of its TippingPoint division which has been postponed. These expenses are
one-time charges that are not indicative of core operations as they relate to a one-time specific
transaction to take TippingPoint public that would normally be netted against IPO sales proceeds as
opposed to being included in operating expenses.
Goodwill Impairment Charge
Our recent stock price decline triggered an accounting impairment review of our goodwill
booked for our H3C and TippingPoint acquisitions, resulting in an impairment charge on the goodwill
we booked in connection with our 2005 acquisition of TippingPoint. This charge is a one-time,
non-cash charge. We believe that it is unlikely that such an impairment will be a recurring event.
Ultimately, this is not a measurement of our ongoing operations, and management does not consider
this charge when measuring our business.
Benefit from Realtek Patent Resolution
We recorded a $70 million benefit in the form of an offset to operating expenses for the
payments we received in connection with a one-time patent dispute resolution with Realtek. This is
a non-recurring item, and not part of our ordinary course business operations. Accordingly, it is
was determined by management to adjust our results to exclude this benefit. Management does not
measure our performance with this benefit included.
Terminated Bain Acquisition Expenses
The Company excludes external expenses (including bankers, accounting and legal fees) related
to its terminated acquisition by affiliates of Bain Capital. These expenses are one-time charges
that are not indicative of core operations as they relate to a one-time specific transaction to
take the Company private that did not occur.
The Company also uses a non-GAAP net income/loss measure. All of the items described
above are relevant to why management believes this measure is meaningful. In addition, the
following further items, which are special items for the relevant fiscal periods, were excluded,
from this measure: gains/losses on sales of assets and investments, gain from insurance
settlement, tax reserve release and change in tax status in PRC.
Gains/Losses on Asset Sales and Investments
Gains/losses on asset sales and investments are outside of the ordinary course of business and
not representative of core operations.
Gain on Insurance Settlement
The insurance settlement related to monies paid under a policy insuring our Hemel, UK property
which was destroyed by an oil depot explosion are outside the ordinary course of business and are
not operational. This was a one-time unusual event. We do not own any other real property.
Tax Reserve Release
We recently resolved two tax matters in our favor resulting in a reserve release that provides
a benefit to the income statement relating to a booked reserve. Accordingly, we believe an
adjustment is appropriate, as this positive impact to our results is not indicative of our ongoing
operations.
3Com also uses a non-GAAP net income/loss measure on a per share basis. All of the
adjustments described above are relevant to this per share measure. The Company believes that it
is important to provide per
share metrics, in addition to absolute dollar measures, when describing its business,
including when presenting non-GAAP measures. To the extent 3Com is in an income position on a
non-GAAP basis, we use our diluted shares (as opposed to our basic shares) in order to
calculate the non-GAAP per share measures.
Finally, the Company uses non-GAAP research and development, sales and marketing and
general and administrative expenses measures, which are adjusted to exclude some of the items
described above for the reasons discussed above.
For the Companys forward-looking non-GAAP measures, the Company is unable to provide a
quantitative reconciliation because the information is not available without unreasonable effort.
General. These non-GAAP measures have limitations, however, because they do not include all
items of income and expense that impact the Companys operations. Management compensates for these
limitations by also considering the Companys GAAP results. The non-GAAP financial measures the
Company uses are not prepared in accordance with, and should not be considered an alternative to,
measurements required by GAAP, such as operating loss, net loss and loss per share, and should not
be considered measures of the Companys liquidity. The presentation of this additional information
is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP
measures. In addition, these non-GAAP financial measures may not be comparable to similar measures
reported by other companies.
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ITEM 7.01 |
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Regulation FD Disclosure |
As required by its senior secured credit facility the Company made available to its senior
secured bank lenders certain summary financial information concerning H3C. This financial data is
attached hereto as Exhibit 99.3 and is hereby incorporated by reference into this Item 7.01.
The information in Item 7.01 of this Form 8-K and the exhibit attached hereto as Exhibit 99.3
shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the Exchange Act), or incorporated by reference in any filing under the Securities Act
of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific
reference in such a filing.
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ITEM 9.01 |
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Financial Statements and Exhibits |
(d) Exhibits
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Exhibit Number |
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Description |
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99.1
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Text of Press Release, dated September 22, 2008, titled 3Com Reports First Quarter Fiscal
Year 2009 Results. |
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99.2
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Supplemental Financial Information Fiscal Quarter Ended August 29, 2008 |
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99.3
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H3C - Summary Financial Information Provided to Bank Lenders |
SIGNATURE
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 hereunto duly authorized.
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3COM CORPORATION
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Date: September 22, 2008 |
By: |
/s/ Jay Zager
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Jay Zager |
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Executive Vice President, Chief Financial Officer |
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EXHIBIT INDEX
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Exhibit Number |
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Description |
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99.1
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Text of Press Release, dated September 22, 2008, titled 3Com Reports First Quarter Fiscal
Year 2009 Results. |
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99.2
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Supplemental Financial Information Fiscal Quarter Ended August 29, 2008 |
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99.3
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H3C - Summary Financial Information Provided to Bank Lenders |