10-Q: 3COM CORP
Last update: 9:05 a.m. EDT April 8, 2009
(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
§ The formation and subsequent 100 percent acquisition of our China-based subsidiary, H3C;
§ Financing a portion of the purchase price for our acquisition of H3C by entering into a $430 million senior secured credit agreement;
§ Restructuring activities, which included outsourcing of information technology, certain manufacturing activities in our Networking business, significant headcount reductions in other functions, and selling excess facilities;
§ Integration activities following our H3C acquisition, including in our research and development and supply chain organizations and integrating our TippingPoint segment; and
§ Changing our reporting segments to align with the way we manage our business.
Our products and services can generally be classified in the following categories:
§ Voice; and
We have introduced multiple new products targeted at the small, medium and large enterprise markets, including modular and multi-service switches and routers; converged IP solutions such as voice, video and surveillance; security; and unified switching solutions. Our recent product introductions and future product strategy are designed to offer a compelling value proposition to our customers, by leveraging open platform technology with options to integrate best-of-breed application solutions directly into their networks. Business Environment and Future Trends
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Our strategy to address these adverse business conditions is to market our solutions as providing exceptional quality for a good value and to remain competitive in the enterprise market. At the same time, we recognize that global spending on networking products and solutions is likely to continue to be under significant pressure for the foreseeable future.
Our strategy involves leveraging our significant China-based engineering team and strong brand of networking solutions designed for enterprise and government accounts into greater success in markets outside of China, as further described below.
Developed global markets - Our ability to achieve our goal of sales growth in developed markets depends to a substantial degree on our ability to take market share from our competitors. Our strategy is to focus on larger enterprise and government accounts and to implement this strategy we intend to increase go to market resources to address this opportunity. Our initiatives include increasing enterprise sales by offering these customers our comprehensive end to end solutions and highlighting our products' price to performance value proposition and energy efficiency. As discussed earlier, the results of these efforts have been hampered by the global economic slowdown.
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Profitability and Cash Generation Objectives We believe that our long-term success is also dependent on our ability to increase our overall profit and cash generation. We believe that by continuing to deliver on the integration of our worldwide operations we can achieve further operational efficiencies which will allow us to support our continued investment in sales and marketing that we require to grow our business. We may also continue to require certain targeted investments in the integration of our business infrastructure designed to drive more profitable near and long-term growth. Integration has involved, and is expected to continue to involve, consolidation, streamlining and aligning our product line management, research and development and supply chain activities, among others.
§ Our gross margin improved to 57.2 percent in the three months ended February 28, 2009 from 53.4 percent in the three months ended February 28, 2008.
§ Our operating expenses (income) in the three months ended February 28, 2009 were $184.3 million, compared to $185.7 million in the three months ended February 28, 2008, a net decrease of $1.4 million, or 0.8 percent.
§ Our net income in the three months ended February 28, 2009 was $1.9 million, compared to a net loss of $7.8 million in the three months ended February 28, 2008.
§ Our balance sheet contains cash and equivalents of $560.0 million as of February 28, 2009, compared to cash and equivalents of $503.6 million at the end of fiscal 2008. The balance sheet also includes debt of $213 million with $61 million classified as a current liability as of February 28, 2009 compared with debt of $301 million with $48 million classified as a current liability at the end of fiscal 2008.
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Summary of Nine Months Ended February 28, 2009 Financial Performance § Our sales in the nine months ended February 28, 2009 were $1,021.9 million, compared to sales of $973.6 million in the nine months ended February 28, 2008, an increase of $48.3 million, or 5.0 percent.
§ Our gross margin improved to 56.3 percent in the nine months ended February 28, 2009 from 49.4 percent in the nine months ended February 28, 2008.
§ Our operating expenses (income) in the nine months ended February 28, 2009 were $496.0 million, compared to $553.8 million in the nine months ended February 28, 2008, a net decrease of $57.8 million, or 10.4 percent. Included in operating expenses (income) for the nine months ended February 28, 2009 is $70.0 million of income related to the Realtek patent dispute resolution.
§ Our net income in the nine months ended February 28, 2009 was $94.6 million, compared to a net loss of $62.1 million in the nine months ended February 28, 2008. Included in net income for the nine months ended February 28, 2009 is $70.0 million of income related to the Realtek patent dispute resolution.