3Com Reports Fiscal Q1 Results.Business Editors MARLBOROUGH, Mass.--(BUSINESS WIRE)--Sept. 18, 2003 3Com Corporation (Nasdaq: COMS COMS 3Com Corporation (stock symbol) COMS Certified Orientation and Mobility Specialist COMS Continuous Opacity Monitoring Systems COMS City of Manchester Stadium (UK) ) today reported financial results for its first quarter of fiscal year 2004 ended August 29, 2003. Revenues for the quarter were $162 million. Gross margins were $50 million, or 31 percent of revenues. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were $166 million, including $49 million of restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. . The net loss was approximately $106 million, or $0.29 per share. This compares to a net loss of $38 million, or $0.11 per share, in the previous quarter and a net loss of $98 million, or $0.27 per share, in the first quarter of the prior fiscal year. These results have been presented on a U.S. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). (Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ) basis and are not comparable to First Call earnings estimates. The company ended the quarter with $1.5 billion in cash and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments, approximately flat compared to the previous quarter. Strong working capital management continued with average inventory turnover of 17 times and a cash-to-cash cycle of negative 17 days. NOTE: Attached is the full text of 3Com's fiscal first quarter 2004 formal earnings remarks. Additional financial data is also attached. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. This press release and Mr. Claflin's and Mr. Slaven's remarks on the quarterly results contain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the federal securities laws, including statements regarding the following: sales of connectivity products during our second fiscal quarter and in future quarters; increased sales of products other than connectivity products during our second fiscal quarter; the expected number of weeks of our channel inventory during the next few quarters; our gross margins and operating expenses over the remainder of this fiscal year; the cash charges associated with our recently announced reduction in force; the amount of cash used to fund our investment in the joint venture with Huawei Technologies; our cash flows from operations through the fourth quarter of fiscal year 2004; the anticipated commencement of operations of the joint venture with Huawei Technologies and our first shipment of enterprise routers sourced from Huawei Technologies; the timing of our enhancements to our router router Portable electric power tool used in carpentry and furniture making that consists of an electric motor, a base, two handle knobs, and bits (cutting tools). A router can cut fancy edges for shelving, grooves for storm windows and weather stripping, circles and ovals line and its effect on our profile with VARs and end-customers; the timing of our outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. of manufacturing and related activities to Flextronics and Jabil and the effect of such transition on costs and capital demands; and the timing of certain cost reductions. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially, including the following: possible fluctuations in the demand for our products and in economic conditions affecting the markets for our products; our ability to successfully manage costs and expenses; possible delays or inability to collect accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying ; continued or increased reductions in capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. in the technology and networking sectors; possible development or marketing delays relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc our product offerings or the product offerings of the joint venture with Huawei Technologies; our ability to plan and forecast channel and company inventory; possible defects in our product offerings or the product offerings of the joint venture with Huawei Technologies; and the introduction of new products by competitors or entry of new competitors into the markets for our products or the markets for the products of the joint venture with Huawei Technologies. A detailed discussion of other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in 3Com's most recent filings with the Securities and Exchange Commission, including 3Com's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended May 30, 2003. 3Com undertakes no obligation to update forward-looking statements to reflect events or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or occurring after the date of this press release. About 3Com Corporation 3Com is a tier-one provider of innovative, practical and high-value voice and data networking products, services and solutions for enterprises of all sizes and public sector organizations. For further information, please visit www.3com.com, or the press site www.3com.com/pressbox. Comments on the First Quarter of Fiscal 2004 To be delivered during the analyst conference call by Mark Slaven, 3Com executive vice president and chief financial officer I will now take you through our financial results for the first quarter of fiscal 2004. As described in our recently filed 10-K, we are now operating the Company as a single business segment and reporting the results accordingly. Revenue Revenues for the quarter were approximately $162 million, ahead of the First Call consensus estimate of $155 million, and down $13 million from the previous quarter. Contributing to the decline was a sequential reduction in sales of desktop, mobile, and server connectivity products of approximately $9 million. Channel inventory was reduced by approximately $13 million during the quarter. Approximately one-third of the channel inventory reduction related to the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. connectivity products, and two-thirds to the balance of the product portfolio. -- Revenue in the Americas declined 5 percent sequentially, though we had sequential growth in our fixed configuration Gigabit switching, wireless LAN A local area network that transmits over the air typically in the 2.4 GHz or 5 GHz unlicensed frequency band. It does not require line of sight between sender and receiver. Wireless base stations (access points) are wired to an Ethernet network and transmit a radio frequency over an area , and modular switching product categories. -- Revenue in EMEA (Europe, Middle East, Africa) Refers to that region of the world. For example, one might see products packaged differently for the UK, EMEA and Asia Pacific markets. declined 13 percent sequentially. -- Revenue in the Asia Pacific region was flat sequentially. Late in the quarter we began shipping the Switch 7700, a new modular Layer 3 switch that we are sourcing from Huawei, and we have begun winning business with this product in some of our target verticals, such as education and government. Gross Margin Gross margins were approximately 31 percent, down approximately 5 points sequentially. Contributing to the decline was a two-point impact due to impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of manufacturing assets and a one-time royalty payment. An additional one to two points of decline is attributable to duty refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies benefits realized in the previous quarter. The balance of the decline was due to price reductions and relatively fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). spread over lower revenue, partially offset by component cost takedowns and favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. mix. Operating Expenses Total operating expenses were approximately $166 million, including approximately $49 million in restructuring charges and $3 million in amortization and write down of intangibles. The $49 million in restructuring charges consisted of the following: 1) $35 million in write-downs of property; 2) $7 million in severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when related expenses, and; 3) $7 million in miscellaneous other expenses. Sales and marketing expenses were $63 million in Q1, a slight decrease from Q4. Research and development expenses were $27 million, flat compared to the prior quarter. General and administrative expenses were $24 million, an increase of $2 million compared to the prior quarter, and includes a $3 million litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement. The number of full time employees at the end of Q1 was approximately 3,100, as compared to approximately 3,300 at the end of the prior quarter. Last week we announced several actions that we are taking as part of our overall strategy and to further improve efficiency and reduce cost across our operations. We anticipate an additional reduction in workforce of approximately 1,000 people as a result of those actions. Operating Loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. The operating loss was approximately $116 million. Interest and Other Income Interest and other income, net, was approximately $4 million. Income Tax Benefit There was an income tax benefit of approximately $6 million consisting of an $8.5 million benefit from a net operating loss carry-back The name given to the method provided under federal tax law that allows a taxpayer to apply net operating losses incurred during one year to the recomputation of Income Tax owed to the government for three preceding taxable years. , offset by a $2.5 million provision for state and foreign income taxes. Net Loss, Net Loss per Share, Shares Outstanding The net loss per share was approximately $106 million or 29 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. . Basic shares outstanding for Q1 were approximately 368 million, up approximately 4 million shares from the prior quarter primarily due to stock option exercises. We did not repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. any shares during the quarter. Stock Options Outstanding Stock options outstanding at the end of Q1 were approximately 84 million, down from the previous quarter's ending balance of 85.5 million. We know that many of our shareholders have been concerned about potential dilution potential dilution The decrease in the proportional equity position of a share of stock that will occur eventually if additional authorized shares are actually issued. and value transfer as a result of the option overhang Overhang Calculated as stock options granted, plus the remaining options to still be granted, and then divided by the total shares outstanding. Notes: A high percentage for the overhang is usually a bad thing. resulting from the spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. of Palm three years ago. To address this concern we have taken a number of proactive steps, outlined in our proxy, to reduce potential shareholder value transfer. As a result of the steps proposed, we now meet the guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. established by Institutional Shareholder Services (ISS ISS See Institutional Shareholder Services (ISS). ) for shareholder value transfer. Cash and Short Term Investments Cash and short-term investment balances were flat at $1.48 billion. -- Cash used in operations was approximately $44 million, including $5 million in separation related payments. -- Cash from investing activities was approximately $31 million, with approximately $36 million in proceeds from the sale of our Rolling Meadows Rolling Meadows, city (1990 pop. 22,591), Cook co., NE Ill., a suburb of Chicago; inc. 1955. There is research and development and the manufacture of office supplies and electronic components. facility offset by capital expenditures and other investments. -- Cash from financing activities was approximately $13 million, including $9 million in proceeds from stock option exercises and $4 million received on a note. The cash cycle was a negative 17 days. Forward-Looking Guidance My remaining comments will include forward-looking statements about various matters pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to fiscal 2004. Please refer to the safe harbor language in the earnings release, available on our website, for factors that could cause actual results to vary. -- Sales of desktop, mobile and server connectivity products, which include NICs, PC cards, and related ASICs, are likely to be flat to slightly down in Q2 as positive seasonality factors offset the underlying decline in demand for those products. We expect this to be a one-quarter phenomenon with subsequent quarterly reductions of 10 to 20 percent per quarter. Sales across the balance of the product portfolio are expected to increase modestly in Q2. -- We ended Q1 with approximately 4.5 weeks of channel inventory, down substantially from last quarter. We expect to operate our business with no greater than 4.5 weeks of channel inventory over the next few quarters. -- The actions announced last week are expected to have the impact of reducing our workforce by approximately 1,000 people. We do not expect the savings from these actions to be fully realized until the fourth quarter of this fiscal year. In the meantime Adv. 1. in the meantime - during the intervening time; "meanwhile I will not think about the problem"; "meantime he was attentive to his other interests"; "in the meantime the police were notified" meantime, meanwhile , we expect gross margins to remain in the low thirties and we expect a slight decline in operating expenses, excluding restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). . We also anticipate cash charges of approximately $20 to $30 million associated with this action. -- We also expect to use $160 million in cash to fund our investment in the joint venture with Huawei. -- We are targeting breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses in the fourth quarter of this fiscal year. Over the next two quarters, combined, we anticipate that cash flow from operations will be approximately negative $50 million. -- Finally, we plan to provide much more detail on our financial model, and forward-looking guidance, during the Investor Conference to be held in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of in January. Comments on the First Quarter of Fiscal 2004 To be delivered during the analyst conference call by Bruce Claflin, 3Com president and chief executive officer As you know, the enterprise market represents the future growth opportunity of the company. Therefore, it is encouraging that, adjusted for changes in channel inventory, we had sequential growth from our enterprise products despite it being in a seasonally slow quarter. In addition, in August we began shipping our Switch 7700, a core modular switch sourced from our partner, Huawei, as well as our VCX VCX Virtual Component Exchange VCX Voice Core Exchange VCX Virtual Channel Crossconnect V7000 Voice over IP (VoIP) solution. Both product lines have been installed in several accounts. While Q1 revenues were minimal, these key early customer wins signal that we are competitive and we are confident they can increasingly contribute to growth going forward. We continue to make progress with our plans to begin operations of the joint venture with Huawei. The implementation of the joint venture's IT and other operational systems is going very well. We have received regulatory approvals from city and provincial Chinese governments Ever since Republic of China founded in January 1st, 1912, China has had several regional and national governments. List
A bolster (etymology: Middle English, derived from Old English, and before that the Germanic word bulgstraz our product portfolio and broaden our addressable Reachable. When something is addressable, it can be identified and manipulated independently of its surroundings. For example, screen pixels and RAM memory are addressable. Each of the screen's picture elements can be individually turned on and off, and each of the memory's bytes can be market, while improving our profile with both VARs and enterprise customers. Another important partnership entered into this past quarter is our alliance with Aspect Communications. This relationship provides us with improved go-to-market capabilities for our VoIP platform as well as a highly scalable call center application for large enterprises. As the leading call center provider serving over two-thirds of the Fortune 50, Aspect Communications has a direct sales force targeted at large enterprises and a solid installed base of large enterprise customers. As part of the alliance, Aspect Communications will sell our VoIP solution with their call center applications. We also will collaborate on future product development and jointly pursue new enterprise customer accounts. As we improve revenue performance, it is important for our cost structure to support profitable growth. Therefore, we need a lower cost structure. To that end, last week we announced a number of restructuring initiatives. Key among them is the decision to outsource manufacturing and related activities from our Dublin, Ireland facility to Flextronics and Jabil. The transition to these partners will be completed in our fiscal Q3 and will result in improved costs and reduced capital demands. In addition, we have taken other actions to reduce costs in a number of areas including G&A and selective sales and R&D reductions. We expect these actions to be largely implemented over the next two quarters. Last, let me comment on the movement of our headquarters from Santa Clara Santa Clara, city, Cuba Santa Clara (sän`tä klä`rä), city (1994 est. pop. 217,000), capital of Villa Clara prov., central Cuba. , Calif. to Marlborough, Mass. As you know, we made this decision in order to simplify our structure and drive higher accountability. Officers who were transferring have relocated re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. their primary work locations and are now fully engaged out of this facility. Early last quarter we announced Nick Ganio in a new position as executive vice president of worldwide sales. Since then, we have also added a new vice president of sales for the Americas, vice president of worldwide services, and a vice president of marketing. In addition we are joined by two new officers of the company: Susan H. Bowman as senior vice president, worldwide human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. , and Neal D. Goldman as senior vice president, general counsel and corporate secretary. All of these new people are highly skilled and respected in the industry and will make an enormous contribution to our business. They all will be working out of our Marlborough facility and so the transition to Marlborough and the staffing of key positions is largely complete. In summary, we start the new fiscal year with an expanded set of products, an enhanced set of partners, and a highly motivated mo·ti·vate tr.v. mo·ti·vat·ed, mo·ti·vat·ing, mo·ti·vates To provide with an incentive; move to action; impel. mo and experienced management team. The industry outlook, after a prolonged pro·long tr.v. pro·longed, pro·long·ing, pro·longs 1. To lengthen in duration; protract. 2. To lengthen in extent. downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. , is beginning to show signs of growth and we are seeing increased customer interest in our products and solutions. While it would be premature to suggest an industry or company turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. , we are encouraged and look forward to describing our plans in more detail both on next quarter's earnings call but also during our investor day to be held in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. in January.
3Com Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended
------------------------------
August May August
29, 30, 30,
2003 2003 2002
---------- --------- ---------
Sales $161,879 $175,000 $269,177
Cost of sales 111,935 111,600 144,509
---------- --------- ---------
Gross margin 49,944 63,400 124,668
---------- --------- ---------
Operating expenses:
Sales and marketing 62,607 64,224 56,687
Research and development 26,927 26,927 31,477
General and administrative 24,139 22,168 24,711
Restructuring charges 48,624 55,969 19,587
Amortization and write down of
intangibles 3,387 1,483 1,950
Losses on land and facilities,
net - - 1,152
---------- --------- ---------
Total operating expenses 165,684 170,771 135,564
---------- --------- ---------
Operating loss (115,740) (107,371) (10,896)
Gain (loss) on investments, net 58 (3,009) (11,465)
Interest and other income, net 3,944 1,475 9,597
---------- --------- ---------
Loss from continuing operations before
income taxes and cumulative effect of
change in accounting principle (111,738) (108,905) (12,764)
Income tax provision (benefit) (6,035) (10,701) 3,677
---------- --------- ---------
Loss from continuing operations before
cumulative effect of change in
accounting principle (105,703) (98,204) (16,441)
Discontinued operations, net of taxes (1) (291) 59,786 (35,693)
Cumulative effect of change in
accounting principle (1) - - (45,447)
---------- --------- ---------
Net loss $(105,994) $(38,418) $(97,581)
========== ========= =========
Basic and diluted earnings (loss) per
share:
Continuing operations $(0.29) $(0.27) $(0.05)
Discontinued operations - 0.16 (0.09)
Cumulative effect of change in
accounting principle - - (0.13)
---------- --------- ---------
Net loss per share $(0.29) $(0.11) $(0.27)
========== ========= =========
Shares used in computing basic and
diluted per share amounts 367,879 364,282 357,437
(1) During the quarter ended November 29, 2002, we completed the
transitional goodwill impairment evaluation prescribed by FAS 142
and recorded a charge totaling approximately $65.6M effective June
1, 2002. Of this amount $45.4M is presented as cumulative effect
of change in accounting principle, and $20.2M is included in
discontinued operations, net of taxes.
3Com Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
August 29, May 30,
2003 2003
----------- -----------
ASSETS
Current assets:
Cash and short-term investments $1,484,418 $1,484,588
Accounts receivable, net 83,609 90,290
Inventories 26,232 27,068
Other current assets 49,576 51,234
----------- -----------
Total current assets 1,643,835 1,653,180
Deferred income taxes 2,094 2,211
Property & equipment, net, and assets held for
sale 272,951 350,073
Goodwill, intangibles, deposits, and other
assets 54,223 56,896
----------- -----------
Total assets $1,973,103 $2,062,360
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $105,497 $105,583
Accrued liabilities and other 237,047 233,239
Current debt obligations 173 346
----------- -----------
Total current liabilities 342,717 339,168
Other long-term obligations 4,902 4,595
Stockholders' equity 1,625,484 1,718,597
----------- -----------
Total liabilities and stockholders' equity $1,973,103 $2,062,360
=========== ===========
Additional Financial Data
(in thousands, except percentages and per share amounts)
(unaudited)
Sales by Geography
Three Months Ended
August 29, May 30, $ %
2003 2003 Change Change
---------- ---------- --------- ------
Americas $ 68,603 $ 72,583 $ (3,980) -5%
EMEA 63,819 73,023 (9,204) -13%
Asia Pacific Rim 29,457 29,394 63 +0%
---------- ---------- ---------
Total Sales $ 161,879 $175,000 $(13,121) -7%
Stock Options
Outstanding Options as of August 29, 2003
-----------------------------------------
Range of Number Weighted average
exercise prices of shares exercise price
-----------------------------------------------------------
$ 0.13 - 4.29 9,741 $ 3.92
4.30 - 5.10 14,066 4.83
5.11 - 5.54 19,098 5.37
5.55 - 6.09 14,440 5.93
6.10 - 10.09 15,004 8.32
10.10 - 21.57 11,811 13.51
------- -----
Total 84,160 $ 6.88
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