3Com Reports First Quarter of Fiscal 1999 Results; Net Income Increases
32 Percent Sequentially
Business Wire - September 22, 1998 16:45
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SANTA CLARA, Calif.--(BUSINESS WIRE)--Sept. 22, 1998--3Com Corporation (Nasdaq: COMS), a leading global
networking company, today reported financial results for its first fiscal quarter ended August 28. Sales were $1.406 billion
compared to $1.375 billion reported in the previous quarter. First quarter net income of $93.7 million, or $0.26 per share
included a net pre-tax credit of $10.2 million to the previously recorded restructuring accrual for the U.S. Robotics transaction
last year. This compares to net income of $63.6 million, or $0.17 per share posted in the previous quarter, which included an
$8.4 million pre-tax charge for purchased in-process technology associated with the Lanworks Technologies, Inc. acquisition,
and a net pre-tax credit of $4.9 million related to past merger activities and the disposition of real estate. Excluding these items,
pro forma net income in the first quarter of $86.7 million, or $0.24 per share increased 32 percent sequentially from the pro
forma net income of $65.9 million, or $0.18 per share reported in the fourth quarter.
For the first fiscal quarter, sales of Systems products, which primarily include switches, hubs, remote access concentrators,
routers and network management software totaled $683.6 million, an increase of two percent from the previous quarter. Client
Access product sales, which primarily include network interface cards (NICs) and modems increased three percent
sequentially to $721.9 million.
"We are pleased to report continuous sequential improvements in our financial performance despite the historical effects of
summer seasonality. We are starting to see the benefits of our new product cycle through stronger sales of recently introduced
products across our four customer markets - large enterprise, small-medium enterprise, carrier and service provider, and
consumer/SOHO," said Eric Benhamou, 3Com chairman and CEO. "Additionally, continued expense management and
operational focus drove gross margin and operating income toward our long-term financial model."
During the quarter, market research firms published reports that show 3Com increased its leadership position in several key
segments including NICs, hubs, switches and handheld connected organizers, for the first half of calendar 1998.(1) 3Com
achieved unprecedented market share leadership in Ethernet technologies by becoming the first vendor to attain top positions in
all seven categories of Ethernet technology for the LAN workgroup. A joint report by The Dell'Oro Group and Cahner In-Stat
Group attributed 3Com's market position to increasing customer demand for the company's market-leading SuperStack(R) II
10/100/1000 Mbps enterprise workgroup networking solutions, OfficeConnect(R) small business networking solutions, and
Fast EtherLink(R) XL desktop NICs and chipsets.(2)
Also during the quarter, 3Com began shipping the ATM version of its CoreBuilder(TM) 9000 large enterprise switching
platform, whose flexible ATM-Gigabit Ethernet architecture was introduced at year-end calendar 1997. With three times the
performance of the closest competing product, the CoreBuilder 9000 platform paves an unmatched performance growth path
for deploying mission-critical data and converged voice/video/data applications.
3Com further advanced its converged network strategy across its four customer markets - large enterprise, small-medium
enterprise, carrier and service provider, and consumer/SOHO - through key strategic alliances, technology innovation and
customer wins. Please refer to the "Q199 Highlights" for further details at 3com.com.
About 3Com
3Com Corporation enables individuals and organizations worldwide to stay more connected by communicating and sharing
information and resources anytime, anywhere. As one of the world's preeminent suppliers of data, voice and video
communications technology, 3Com has delivered networking solutions to more than 200 million customers worldwide. The
company provides large enterprise, small and medium enterprise, carriers and network service providers, and consumers with
comprehensive, innovative information access products and system solutions for building intelligent, reliable and high
performance local and wide area networks. For further information, visit 3Com's World Wide Web site at
3com.com or the press site at 3com.com.
(1) Source: Cahners/In-Stat Group and The Dell'Oro Group, August 1998. (2) Source: Cahners/In-Stat Group and The
Dell'Oro Group, August 1998.
Note to Editors: 3Com, Superstack, OfficeConnect, and EtherLink are registered trademarks of 3Com Corporation.
CoreBuilder is a trademark of 3Com Corporation.
3Com Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
Quarters Ended
Aug. 28, 1998 Aug. 31, 1997
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(unaudited)
Sales $ 1,405,511 $ 1,597,516
Cost of sales 775,775 831,429
----------- -----------
Gross margin 629,736 766,087
Operating expenses:
Sales and marketing 303,578 302,378
Research and development 148,834 142,798
General and administrative 59,406 62,865
Merger-related (credits) charges (10,218) 269,787
----------- -----------
Total operating expenses 501,600 777,828
----------- -----------
Operating income (loss) 128,136 (11,741)
Other income, net 9,645 2,961
----------- -----------
Income (loss) before income taxes 137,781 (8,780)
Income tax provision 44,090 42,453
----------- -----------
Net income (loss) $ 93,691 $ (51,233)
=========== ===========
Net income (loss) per share:
Basic $ 0.26 $ (0.15)
Diluted $ 0.26 $ (0.15)
Shares used in computing per share amount:
Basic 358,533 341,718
Diluted 366,425 341,718
Net income for the quarter ended August 28, 1998 included a net pre-tax credit of $10.2 million ($0.02 per s hare) associated
with the merger with U.S. Robotics, Inc. (U.S. Robotics). Excluding this pre-tax credit, net income for the quarter ended
August 28, 1998 was $86.7 million ($0.24 per share).
Net loss for the quarter ended August 31, 1997 included a pre-tax charge of approximately $269.8 million ($0.62 per share)
associated with the merger with U.S. Robotics. Excluding this pre-tax charge, net income was $169.6 million ($0.47 per
share).
3Com Corporation
Condensed Consolidated Balance Sheets
(In thousands)
Aug. 28, 1998 May 31, 1998
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and investments $ 1,237,090 $ 1,076,078
Accounts receivable, net 980,254 849,640
Inventories, net 501,278 644,771
Deferred income taxes 394,713 430,182
Other 113,723 134,001
----------- ----------- ----------- ----------- ----------
Total current assets 3,227,058 3,134,672
Property and equipment, net 831,556 858,779
Deposits and other assets 62,219 87,069
----------- -----------
Total assets $ 4,120,833 $ 4,080,520
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 332,070 $ 332,992
Accrued liabilities and other 647,456 673,311
Income taxes payable 193,052 177,612
----------- -----------
Total current liabilities 1,172,578 1,183,915
Long-term debt 24,000 35,878
Other long-term obligations 49,989 53,232
Stockholders' equity:
Common stock 1,712,277 1,730,676
Unamortized restricted stock grants (5,680) (4,157)
Retained earnings 1,173,466 1,079,775
Unrealized gain on investments, net 1,923 827
Accumulated translation adjustments (7,720) 374
--------- ---------
Total stockholders' equity 2,874,266 2,807,495
--------- ---------
Total liabilities and stockholders' equity $ 4,120,833 $ 4,080,520
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