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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):
March 19, 2009
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)
Registrant’s 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))
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TABLE OF CONTENTS
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| ITEM 2.02 |
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Results of Operations and Financial Condition |
Financial Results.
On March 19, 2009, 3Com Corporation (the “Company”) (i) issued a press release regarding its
financial results for its fiscal quarter ended February 27, 2009 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 Company’s
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 gross
margin, non-GAAP operating profit/loss (and margin), non-GAAP net income/loss (and margin),
non-GAAP net income/loss per share, non-GAAP research and development, sales and marketing and
general and administrative expenses and non-GAAP operating profit/loss before taxes.
Discussion. The Company uses these measures in its public statements. Management believes
these non-GAAP measures help indicate the Company’s 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 Company’s 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 Company’s
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 Company’s
on-going operating results; |
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the ability to better identify trends in the Company’s 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 Company’s underlying
business; and |
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an easier way to compare the Company’s 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 gross margin measure used by the Company is defined to exclude the
inventory-related adjustment portion of the purchase accounting effects of the Company’s
acquisition of 49% of H3C and stock-based compensation expense, each of which is discussed below
under the next section.
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, stock-based
compensation expense and special items that management believes are unusual and outside of the
Company’s 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 Company’s
acquisition of 49% of H3C, fees related to facilitation of a more autonomous
operation for a Company subsidiary, a benefit in the form of an offset to operating expenses
for the $70 million Realtek patent dispute resolution, expenses related to the Company’s terminated
acquisition by affiliates of Bain Capital, impairment of property and equipment and legal
contingency accruals.
Restructuring
Management believes the costs related to restructuring activities are not indicative of the
Company’s 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 Company’s newly acquired and long-held businesses. Also,
amortization is a non-cash charge for the periods presented.
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 Company’s 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 Company’s 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 Company’s control.
Inventory-Related Adjustment from H3C Acquisition
The Company has excluded the purchase accounting inventory-related adjustment from the 49%
acquisition of H3C. These adjustments represent non-cash, one-time items relating to a specific
acquisition as opposed to core operations.
Fees to Facilitate More Autonomous Operation of Subsidiary
The
Company also excluded fees related to costs incurred for a now-ceased
initiative to facilitate a more autonomous
operation for a Company subsidiary. These fees are one-time items.
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 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. The Company does not exclude expenses
for its ongoing litigation against 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.
Impairment of Property and Equipment
We conducted an impairment review of the carrying value of our Hemel UK property, and took a
charge for impairment. This charge is a 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.
Legal Contingency Accrual
We accrued for certain contingencies for current litigation, primarily patent litigation
involving claims made
by entities that own patents but to our knowledge do not conduct commercial operations.
From time-to-time we do engage
in litigation over our patent portfolio. Ultimately, management
believes these contingencies are not useful in measuring our ongoing
operations, and accordingly management does not consider this charge when measuring our business.
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 and gain on insurance
settlement.
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.
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 and non-GAAP profit/loss before taxes
measures, which are adjusted to exclude some of the items described above for the reasons
discussed above. The last item also includes the following measure:
Change related to Change in Tax Rates in PRC
The Company excludes a certain tax liability provision because (1) it represents a cumulative
effect (year-to-date) of a higher tax rate in China based on the current tax law and without giving
effect to any concessions or new tax status to which we may be entitled and (2) it is possible that
once Chinese tax authorities clarify their position on our tax rate, and similarly situated
companies, the provision will be reversed.
For the Company’s 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 Company’s operations. Management compensates for these
limitations by also
considering the Company’s 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 Company’s 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.
ITEM 9.01 Financial Statements and Exhibits
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Description |
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99.1
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Text of Press Release, dated March 19, 2009, titled “3Com Reports Third Quarter Results for
Fiscal 2009.” |
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99.2
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Supplemental Financial Information – Fiscal Quarter Ended February 27, 2009 |
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: March 19, 2009 |
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 March 19, 2009, titled “3Com Reports Third Quarter Results for
Fiscal 2009.” |
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99.2
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Supplemental Financial Information – Fiscal Quarter Ended February 27, 2009 |