##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 2, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-12867
 3COM CORPORATION
  Delaware
    
    94-2605794(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 350 Campus DriveMarlborough, Massachusetts
    
    01752(Address of principal executive offices)
    
    (Zip Code)
 (508) 323-1000
 N/A
 :
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.01 par value per share
    
    NASDAQ Global Select MarketPreferred Stock Purchase Rights
    
    NASDAQ Global Select Market
 NONE
  þ o
 Yes  o     No  þ
 þ o
 o
  þ o o
 o þ
   Class
    
    Outstanding at July 28, 2006Common Stock, $0.01 par value per share
    
    394,119,756 shares
 DOCUMENTS INCORPORATED BY REFERENCE
 Document
    
    Parts Into Which IncorporatedProxy
Statement for the Annual Meeting of Shareholders to be held
September 20, 2006 (Proxy Statement)
    
    Part III, to the extent stated herein




---



##### 



3Com Corporation
Form 10-K Annual Report
For the Fiscal Year Ended June 2, 2006
Table of Contents
 PagePart IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    14Item 1B.
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    25Item 6.
    
    Selected Financial Data
    
    
    26Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 8.
    
    Financial Statements and Supplementary Data
    
    
    45Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    81Item 9A.
    
    Controls and Procedures
    
    
    81Item 9B.
    
    Other information
    
    
    84Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    84Item 11.
    
    Executive Compensation
    
    
    84Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    84Item 13.
    
    Certain Relationships and Related Transactions
    
    
    84Item 14.
    
    Principal Accountants Fees and Services
    
    
    84Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    85Exhibit Index
    
    
    86Signatures
    
    
    89Financial Statement Schedule
    
    
    90Ex-10.16 Offer Letter - Donald M. Halsted IIIEx-10.17 Offer Letter - Neal D. GoldmanEx-10.18 Offer Letter - Marc Willebeek-LeMairEx-10.33 Shareholders' AgreementEx-10.34 Amendment No. 1 to the Shareholders' AgreementEx-10.35 Amendment No. 2 to the Shareholders' AgreementEx-21.1 Subsidiaries of RegistrantEx-23.1 Consent of Deloitte & Touche LLPEx-31.1 Section 302 Certification of P.E.O.Ex-31.2 Section 302 Certification of P.F.O.Ex-32.1 Section 906 Certification of P.E.O & P.F.O
  ii




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iii




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PRESENTATION OF DISCONTINUED OPERATIONSCOMMWORKS
  
 iv




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 GENERAL
      §
    
    Continued advances in products and solutions; and§
    
    Increased focus on our customer-facing capabilities in the areas of sales and marketing.
   www.3Com.com
 1




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##### Table of Contents



SECURED, CONVERGED NETWORKING SCN SEGMENT PRODUCTS AND SERVICES
   §
    
    Security;§
    
    IP Telephony;§
    
    Networking;and§
    
    Services.
   Security
   §
    
    Intrusion Prevention Systems; and§
    
    Firewalls
 Intrusion Prevention Systems
    2




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##### Table of Contents



®
  §
    
    5000E (5 Gigabits per second (Gbps));§
    
    2400 (2 Gbps);§
    
    2400E (2 Gbps);§
    
    1200 (1 Gbps);§
    
    1200E (1 Gbps);§
    
    400 (400 Mbps);§
    
    200 (200 Mbps);§
    
    100E (100 Mbps);§
    
    50 (50 Mbps);§
    
    X505 (integrated IPS, VPN, firewall, Web content filtering);§
    
    SMS appliance for management;and§
    
    Digital Vaccine service.
 Firewalls
   §
    
    E-mail firewall;§
    
    Secure Router;§
    
    ADSL Wireless 11g Firewall Router;and§
    
    Content Filter Services.
 Internet Protocol (IP) Telephony
  §
    
    IP Telephony Platforms;§
    
    Convergence Application Suite;and§
    
    IP Phones.
 IP Telephony Platforms
 3




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##### Table of Contents



®
 Convergence Application Suite
  §
    
    IP Telephony Module.Scalable and flexibly-deployed NBX and VCX solutions delivering proven
reliability and cost-effective capabilities for organizations of all sizes.§
    
    IP Messaging Module.Messaging with server software for centralized voice mail, fax mail, and
e-mail services.§
    
    IP Presence Module.Software for improving collaboration and communications.§
    
    IP Conferencing Module.Audio, video, and data sharing to cost-effectively enhance collaboration.
IP Mobility Module. 802.11 wireless phone and remote telecommuting options designed to address
the increasing needs of a mobile workforce.§
    
    IP Contact Center Module.Complete multi-media customer interaction management application.
 IP Phones
   §
    
    3108 Wireless Phone;§
    
    3106/3107 Cordless Phones;§
    
    3105 Attendant Console;§
    
    3103 Manager Phone;§
    
    3102 Business Phone;§
    
    3101 Basic Phone;and§
    
    3100 Entry Phone.
 Networking
  4




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##### Table of Contents



§
    
    Local Area Network (LAN) Switches;§
    
    Routers and Gateways;§
    
    Mobility and Wireless LAN;and§
    
    Network and Security Management.
 LAN Switches
   §
    
    Core Switching. We offer modular chassis core networking solutions in
our Switch 8800 series and Switch 7700 series of products. They are
highly resilient, secure and convergence-ready, with Layer 2 and Layer
3 IPv4 and IPv6 Gigabit Ethernet and 10-Gigabit connectivity. The
7700 series can also be used in conjunction with the 8800 as either an
aggregation or edge switch capable of delivering PoE, as well as
Quarantine Protection, a feature of our TippingPoint Security
Management System.§
    
    Gigabit Edge Switching. Our Switch 5500G and Switch 3800 families of
products address the growing requirements for Gigabit speeds at the
edge of the network as well as features such as PoE, security and
Quarantine Protection. These stackable switches are offered in both
24- and 48-port models and include a built-in 10-Gigabit expansion
slot.§
    
    Workgroup/Desktop Switching. We offer a full range of
fixed-configuration switches that deliver performance and flexibility
to the edge of the network. These include enterprise-class offerings
such as the Switch 5500 family, Switch 4500 and Switch 4200 families
of products, as well as our OfficeConnect® and Baseline series.
Several of these switches are available in managed and unmanaged
configurations, offer line speeds of 10/100/1000 Mbps and incorporate
PoE technology allowing power from the wiring closet to be supplied to
any compliant device, including IP phones, wireless LAN access points
and IntelliJack® products.
 Routers and Gateways
   §
    
    Router 6000 Products. The Router 6000 series of products bring
enterprise-class WAN routing features, redundancy and performance to
the regional offices of large enterprise customers and to the
headquarters of medium-sized businesses.§
    
    Router 5000 Products. The Router 5000 series of modular products are
designed to connect corporate sites, from small branch to large
regional offices.§
    
    Router 3000 Products. The Router 3000 series of products provide a
fixed configuration platform to securely connect small offices and
remote offices of large enterprises.
 5




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##### Table of Contents



Mobility and Wireless LAN
   §
    
    Wireless LAN Access Points  stand-alone and managed;§
    
    Wireless Controllers and Switches;§
    
    Wireless Routers;§
    
    Wireless Bridges;and§
    
    Wireless Switch Manager.
 Network and Security Management
  §
    
    Network Supervisor.Practical, easy-to-use software, downloadable
from the Internet, maps and monitors the network and quickly alerts
administrators to emerging problems.§
    
    Network Director.Turnkey management application suite offering
advanced monitoring and control features to IT managers.§
    
    Enterprise Management Suite.Comprehensive and flexible solutions for
very large enterprise environments.§
    
    Solutions for Open Management Platforms.A selection of solutions
that enable enterprises to choose management applications that meet
their business and technical needs.§
    
    Security Management System.A scalable and flexible reporting tool
used to manage our intrusion prevention system, TippingPoint SMS
enables users to manage multiple devices and reports on network
security activity.
 Services
   6




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##### Table of Contents



HUAWEI-3COM H-3C
     H-3C SEGMENT PRODUCTS
  §
    
    Networking  LAN Switches and Routers;§
    
    Security  Firewalls and VPN Gateways; and§
    
    Network Management  Network Management Software and Access Control Server.
  LAN Switches
  §
    
    Core Routing Switches. The S8500 Series 10G Multi-service Core
Routing Switch is a new generation high performance switch. It is
typically used as the core layer of E-government networks, campus
networks, education networks and other enterprise networks as the core
layer or aggregation layer of carriers IP Metro Area Networks (MANs).
Moreover, based on the 10G platform, it supports the new generation
high-speed 10Gbps interface card that provides interconnection between
MANs, campus networks and data centers to construct end-to-end
Ethernet, providing a cost-efficient, high performance and reliable
means to support an enterprises most critical services. Furthermore,
it provides Layer 2 and Layer 3 wire-speed packet forwarding and
distributed MPLS wire-speed forwarding by its high performance, high
density and high reliability chassis architecture design. It also
provides rich service functions, such as a QoS guarantee,
comprehensive security management and high reliability.
 7




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§
    
    Multi-Service Switches. The S6500 Series high-end multi-service
switch features high performance, high port density and high
flexibility. It can be applied to the core layer of enterprise
networks, campus networks and education MANs, to the convergence layer
of carriers IP MANs, and to the access layer of data centers. The
S6500 Series switch can provide Layer 2 and Layer 3 switching. It can
provide high-speed links for MAN, campus networks and data centers
based on the 10GE platform and offer service functions, such as
NAT/NetStream/PBR and PoE solutions, a powerful QoS guarantee,
comprehensive security management mechanism and high level
carrier-class reliability.§
    
    Layer 3 Intelligent and Resilient Switches. The S5600 Series Switches
are innovative switches that improve LAN operating efficiency by
integrating leading technology such as H-3Cs Intelligent Resilient
Framework (IRF). These switches allow high stacking bandwidth up to
96G, high density GE, 10GE uplink and a swappable power supply unit.
We believe that this series represents the next generation of desktop
switches, which can help customers implement a gigabit Ethernet core
network or aggregation layer with high availability as well as
scalability.§
    
    Layer 2 Intelligent Gigabit Ethernet Switches.The S5000 Series are
intelligent Layer 2 wire-speed Gigabit Ethernet switching products
that provide high capacity with a full range of features. With the
high performance ASIC and flexible modular structure, they provide
Layer 2-Layer 7 intelligent flow classification and ACL policies.
They implement comprehensive service control and user management, and
therefore are suitable for the access layer switches in enterprise
networks and MANs.§
    
    Ethernet Layer 3 Intelligent and Resilient Switches.The S3900 Series
Ethernet Switches are a new generation of premier multi-layer switches
that are designed to achieve a unified, highly resilient network. One
of the most important and innovative highlights of this series is its
use of stackable technology, which allows network managers to build
cost-effective networks with high resilience, flexibility and the
exceptional performance of larger systems.§
    
    10/100 Mbps Enhanced Layer 3 Switches.The S3500 Series Switches are
Layer 3 wire-speed Ethernet switches with 10/100M aggregation in
service provider data centers, server cluster, wiring cabinet and
MANs. Running on H-3Cs VRP networking operating system, this series
of products provides robust routing protocols, VLAN switching, traffic
management, QoS, bandwidth control and user management.§
    
    10/100 Mbps Enhanced Layer 2 Intelligent and Access Switches.The
S3000 and S2000-EI Series are intelligent Layer 2 wire-speed Ethernet
switching products that are designed to meet the needs of
large-capacity switching and high QoS requirements. This series
utilizes high performance ASICs and a flexible modular structure,
providing Layer 2-Layer 7 intelligent flow classification,
comprehensive QoS, robust service control and subscriber management.§
    
    Unmanaged Ethernet Switches.The S1000/1200 Series is a
non-intelligent, Layer 2 wire speed switch. By deploying plug and
play power and fan-less design, it provides a perfect silent desktop
access solution that is uniquely designed for office use. The S1000
series provides 10/100M Ethernet ports while the S1200 series supports
10/100/1000M Ethernet ports.
 Routers
  8




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§
    
    Terabit and Gigabit Core Routers.The NetEngine family of core
routers consist of products from a high capacity core router, which
can be applied in national backbone networks, provincial backbone
networks and other very large networks, to those that can serve at the
backbone network edge and MAN core, to those working at the core
networks of industries and enterprises. Incorporating advanced
technologies such a 10G/40G interface, three-stage switching fabric,
optical shelf interconnecting for multi-chassis stack, network
processors (NP) for forwarding engine, and the mature, stable VRP
routing software, it is designed to meet the availability requirements
and the multi-service demands of carrier-class and large enterprise
networks.§
    
    Intelligent Multi-Service Enterprise Core Routers.The AR46
Intelligent Multi-Service Enterprise Core Routers are multi-service
routers with high performance and reliability developed for
enterprise, industry and carrier networks. AR46 routers can serve as
central routers for carrier networks. The AR46 routers are designed
to meet enterprise and carrier requirements for network performance,
service integration, high reliability, high security and three-in-one
solutions.§
    
    Modular Branch Routers.The AR28 Series are modular multi-service
branch routers, providing flexible LAN and WAN options, comprehensive
security and VPN solutions, and voice and data integration. The
extended performance, high density, enhanced security and concurrent
applications enable the AR28 Series to meet the growing demands of
enterprises.§
    
    Fixed Port Branch Routers.The AR18 Series Access Routers are
fixed-port products for small-sized enterprises and branch offices.
They feature enhanced security, superior reliability and advanced QoS
services.
 Firewalls
  VPN Gateways
  Network Management System
  Comprehensive Access Management Server (CAMS)
  9




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##### Table of Contents



CUSTOMERS AND MARKETS
   §
    
    View their networks as mission-critical tools that help them to deliver mandatory
and/or value-add differentiated services to their customers or constituents;§
    
    Seek convergence-ready voice and data solutions and wireless solutions that are
standards-based to reduce complexity and protect their investments; and§
    
    Value networking solutions that are affordable to acquire, operate, maintain and expand.
 SALES, MARKETING AND DISTRIBUTION
   COMPETITION
    §
    
    Maintain tier-one capability and presence.To maintain tier-one
capability and presence, a provider must have a comprehensive
distribution channel and a strong financial position. In addition,
that provider must have a globally-recognized and preferred brand and
provide strong service and support capabilities.§
    
    Offer innovative products and solutions.To be considered innovative a
provider must deliver a broad line of products and solutions and
maintain a substantial intellectual property portfolio.
 RESEARCH AND DEVELOPMENT
  10




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SIGNIFICANT CUSTOMERS AND PRODUCTS
  INTERNATIONAL OPERATIONS
   BACKLOG
  SEASONALITY
  MANUFACTURING AND COMPONENTS
   11




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INTELLECTUAL PROPERTY AND RELATED MATTERS
    EMPLOYEES
 TotalSales and marketing
    
    
    1,927Customer service and supply chain operations
    
    
    792Research and development
    
    
    2,315General and administrative
    
    
    538Total
    
    
    5,572
   12




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EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionR. Scott Murray1
    
    42
    
    President and Chief Executive OfficerDonald M. Halsted, III
    
    49
    
    Executive Vice President and Chief Financial OfficerRobert Dechant
    
    44
    
    Senior Vice President, Worldwide Sales and MarketingNeal D. Goldman
    
    55
    
    Senior Vice President, Management Services, General Counsel and SecretaryMarc Willebeek-LeMair
    
    44
    
    Chief Technology Officer and Senior Vice President Product Operations
 R. Scott Murray
 Donald M. Halsted, III
 Robert Dechant
 Neal D. Goldman
 
 1
    
    Mr. Murray has submitted his resignation as President and Chief Executive Officer and a member of our Board of Directors,
effective as of the close of business on August 17, 2006. 13




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Marc Willebeek-LeMair
 Newly-Appointed Officers
  Edgar Masri
 Robert Y. L. Mao
 
 ITEM 1A RISK FACTORS
  We have incurred significant net losses in recent fiscal periods, including $101 million for the
year ended May 31, 2006, $196 million for year ended May 31, 2005, and $349 million for year ended
May 31, 2004, and we may not be able to return to profitability.
   14




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##### Table of Contents




    
    declining sales due to price competition and reduced incoming order rate;
    
    risk of increased excess and obsolete inventories;
    
    excess facilities;
    
    operating expenses that, as a percentage of sales, have exceeded our desired financial model; and
    
    disruptions resulting from our workforce reductions and employee attrition.
 We focus primarily on enterprise networking, and our results of operations may fluctuate based on
factors related entirely to conditions in this market.
  If we do not respond effectively to increased competition caused by industry volatility and
consolidation our business could be harmed.
  
    
    industry volatility resulting from rapid product development cycles;
    
    increasing price competition due to maturation of basic networking technologies;
    
    industry consolidation resulting in competitors with greater financial,
marketing, and technical resources; and
    
    the presence of existing competitors with greater financial resources together
with the potential emergence of new competitors with lower cost structures and
more competitive offerings.
 We may not be able to compensate for lower sales or unexpected cash outlays with cost reductions
sufficient to generate positive net income or cash flow.
   Efforts to reduce operating expenses have involved, and could involve further, workforce
reductions, closure of offices and sales or discontinuation of businesses, leading to reduced sales
and other disruptions in our business.
  15




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We are significantly dependent on our H-3C joint venture in China and if H-3C is not successful,
it could materially and adversely impact our business, business prospects and operating results.
   Sales from our H-3C joint venture and therefore China constitute a material portion of our total
sales, and our business, financial condition and results of operations will to a significant degree
be subject to economic, political and social events in China.
  Our China joint venture, H-3C, is dependent on Huawei, our co-owner in this venture, in several
material respects, including as an important customer; should Huawei reduce its business with or
operational assistance to H-3C, our business could be materially affected.
  If we fail to adequately evolve our financial and managerial control and reporting systems and
processes, including the management of our H-3C segment, our ability to manage and grow our
business will be negatively affected.
  We may not be able to complete or finance a transaction with Huawei to purchase additional interest
in our joint venture, H-3C, on favorable terms or at all; if we cannot complete a transaction, our
strategy to further invest in H-3C may not occur, we will be subject to the risks of the bid
process described below and our business may suffer.
  16




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We, and our joint venture partner, Huawei, each have the right, starting in November 2006, to
initiate a bid process to buy the other out of our China joint venture, H-3C; if Huawei wins the
bid process, we will no longer be able to consolidate H-3Cs results and may, over time, lose the
right to source and resell H-3Cs products.
  We may not be successful at identifying and responding to new and emerging market and product
opportunities, or at responding quickly enough to technologies or markets that are in decline.
  
    
    identify new market and product opportunities;
    
    predict which technologies and markets will see declining demand;
    
    develop and introduce new products and solutions in a timely manner;
    
    gain market acceptance of new products and solutions, particularly in targeted emerging markets; and
    
    rapidly and efficiently transition our customers from older to newer enterprise networking technologies.
  
    
    there is a delay in introducing new products;
    
    we lose certain channels of distribution or key partners;
    
    our products do not satisfy customers in terms of features, functionality or quality; or
    
    our products cost more to produce than we expect.
  Our success is dependent on continuing to hire and retain qualified managers and other personnel;
if we are not successful in attracting and retaining these personnel, our business will suffer.
  17




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We expect to utilize strategic relationships and other alliances as key elements in our strategy.
If we are not successful in forming desired ventures and alliances or if such ventures and
alliances are not successful, our ability to achieve our growth and profitability goals could be
adversely affected.
   Our strategy of outsourcing functions and operations may fail to reduce cost and may disrupt our
operations.
   Our reliance on industry standards, technological change in the marketplace, and new product
initiatives may cause our sales to fluctuate or decline.
  
    
    the convergence of technologies, such as voice, data and video on
single, secure networks;
    
    the timely adoption and market acceptance of industry standards, and
timely resolution of conflicting U.S. and international industry
standards; and
    
    our ability to influence the development of emerging industry
standards and to introduce new and enhanced products that are
compatible with such standards.
  A significant portion of our sales is derived from a small number of resellers. If any of these
partners reduces its business with us, our business could be seriously harmed.
  18




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We depend on distributors who maintain inventories of our products. If the distributors reduce
their inventories of our products, our sales could be adversely affected.
  If we are unable to successfully develop relationships with system integrators, service providers,
and enterprise VARs, our sales may be negatively affected.
  The members of the board of our China joint venture designated by our co-owner, Huawei, have
protective rights over the approval of certain matters; accordingly if Huawei does not agree with
us on these matters, these rights could harm 3Coms business by preventing us from taking desired
actions.
  
    
    any amendment to the Articles or charter documents;
    
    any voluntary bankruptcy, liquidation, dissolution or winding up;
    
    changes in authorized capital stock or the issuance of capital stock (or rights to
acquire capital stock);
    
    any significant merger, acquisition, disposition or other corporate reorganization;
    
    determining the amount of dividends to pay and whether to pay special dividends
not required by the dividend policy;
    
    related party transactions, including loans and capital contributions;
    
    incurrence of debt over a specified amount that falls outside of the approved
budget; and
    
    any sale, exclusive license or other transfer or disposition of any significant
technology or intellectual property.
  Our competition with Huawei in the enterprise networking market could have a material adverse
effect on our sales and our results of operations.
  19




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We may pursue acquisitions of other companies that, if not successful, could adversely affect our
business, financial position and results of operations.
  We may be unable to manage our supply chain successfully, which would adversely impact our sales,
gross margin and profitability.
  
    
    in the past, some key components have had limited availability;
    
    as integration of networking features on a reduced number of computer
chips continues, we are increasingly facing competition from parties
who are our suppliers;
    
    our ability to accurately forecast demand is diminished;
    
    our reliance on, and long-term arrangements with, third-party
manufacturers places much of the supply chain process out of our
direct control and heightens the need for accurate forecasting and
reduces our ability to transition quickly to alternative supply chain
strategies; and
    
    we may experience disruptions to our logistics.
     Our strategies to outsource the majority of our manufacturing requirements to contract
manufacturers may not result in meeting our cost, quality or performance standards. The inability
of any contract manufacturer to meet our cost, quality or performance standards could adversely
affect our sales and overall results from operations.
   20




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##### Table of Contents



Chinas governmental and regulatory reforms and changing economic environment may impact our
ability to do business in China.
  
    
    the promulgation of new laws and regulations and the interpretation of those
laws and regulations;
    
    enforcement and application of rules and regulations by the Chinese government;
    
    the introduction of measures to control inflation or stimulate growth; or
    
    any actions that limit our ability to develop, manufacture, import or sell our
products in China, or to finance and operate our business in China.
  Uncertainties with respect to the Chinese legal system may adversely affect us.
  If tax benefits available to our China joint venture, H-3C, are reduced or repealed, our business
could suffer.
  H-3C is subject to restrictions on paying dividends and making other payments to us.
  If we fail to maintain an effective system of internal control over financial reporting that
includes our China joint venture, H-3C, we may not be able to accurately report our financial
results or prevent fraud.
 21




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##### Table of Contents



We are subject to risks relating to currency rate fluctuations and exchange controls and we do not
hedge this risk in China.
   We may need to engage in complex and costly litigation in order to protect, maintain or enforce our
intellectual property rights; in some jurisdictions, such as China, our rights may not be as strong
as the rights we enjoy in the U.S.
   We may not be able to defend ourselves successfully against claims that we are infringing the
intellectual property rights of others.
  22




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##### Table of Contents



Fluctuations in our operating results and other factors may contribute to volatility in the market
price of our stock.
  
    
    fluctuations in our quarterly results of operations and cash flow;
    
    changes in our cash and equivalents and short term investment balances;
    
    variations between our actual financial results and published analysts expectations; and
    
    announcements by our competitors.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   Location
    
    Sq. Ft.
    
    Owned/Leased
    
    Primary UseUnited StatesBoston Area
    
    
    201,000
    
    
    Leased
    
    Corporate
headquarters,
office, research
and development,
and customer
service.United StatesSan Francisco
Bay Area
    
    
    120,000
    
    
    Owned
    
    Office, research
and development,
and customer
service. Under
contract for sale.
See discussion
below.United StatesSan Francisco
Bay Area
    
    
    132,000
    
    
    Leased
    
    Subleased to
third-party tenant.
Under contract for
sale. See
discussion below.United StatesAustin Area
    
    
    44,000
    
    
    Leased
    
    Office, research
and development,
and customer
service.United StatesChicago Area
    
    
    43,000
    
    
    Leased
    
    Office, research
and development,
and customer
service.EuropeU.K.
    
    
    113,000
    
    
    Owned
    
    Office, research
and development,
and customer
service. Currently
not being
 23




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##### Table of Contents



Location
    
    Sq. Ft.
    
    Owned/Leased
    
    Primary Useutilized.
See Hemel
explosion
discussion below.EuropeU.K.
    
    
    39,000
    
    
    Leased
    
    Office, research
and development,
and customer
service.ChinaHangzhou
    
    
    1,682,000
    
    
    Leased
    
    Office, research
and development,
manufacturing,
sales, and
training. Used by
our H-3C segment
and leased from
Huawei, our 49%
partner in the H-3C
joint venture.ChinaBeijing
    
    
    481,000
    
    
    Leased
    
    Research and
development,
training, sales and
customer service.
Used by our H-3C
segment and leased
from Huawei, our
49% partner in the
H-3C joint venture.
     
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  24




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  Fiscal 2006
    
    High
    
    Low
    
    Fiscal 2005
    
    High
    
    LowFirst Quarter
    
    $
    4.00
    
    
    $
    3.21
    
    
    First Quarter
    
    $
    6.94
    
    
    $
    4.00Second Quarter
    
    
    4.30
    
    
    
    3.37
    
    
    Second Quarter
    
    
    4.93
    
    
    
    4.03Third Quarter
    
    
    5.27
    
    
    
    3.47
    
    
    Third Quarter
    
    
    4.74
    
    
    
    3.48Fourth Quarter
    
    
    5.70
    
    
    
    4.25
    
    
    Fourth Quarter
    
    
    3.80
    
    
    
    2.96
   Total Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value of SharesTotal Number
    
    
    
    
    Average
    
    
    Part of Publicly
    
    
    that May Yet Beof Shares
    
    
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    
    
    per Share
    
    
    Programs(1)
    
    
    Plans or ProgramsMarch 4, 2006 through March 31, 2006
    
    
    2,972
    
    (2
    )
    
    $
    4.85
    
    
    
    
    
    
    $
    100,000,000April 1, 2006 through April 28, 2006
    
    
    53,142
    
    (2
    )
    
    
    5.28
    
    
    
    
    
    
    
    100,000,000April 29, 2006 through June 3, 2006
    
    
    992
    
    (2
    )
    
    
    4.79
    
    
    
    
    
    
    
    100,000,000Total
    
    
    57,106
    
    
    
    
    $
    5.25
    
    
    
    
    
    
    $
    100,000,000
 
 (1)
    
    On March 23, 2005, our Board of Directors approved a stock repurchase program providing for
expenditures of up to $100.0 million through March 31, 2007, provided that all repurchases are
pre-approved by the Audit and Finance Committee of the Board of Directors. We did not
repurchase shares of our common stock pursuant to this authorization in the year ended May 31,
2006.(2)
    
    Represents shares surrendered to us to satisfy tax withholding obligations that arose upon
the vesting of restricted stock awards. 25




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ITEM 6. SELECTED FINANCIAL DATA
   Fiscal Year May 31,(In thousands, except per share amounts)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Sales
    
    $
    794,807
    
    
    $
    651,244
    
    
    $
    698,884
    
    
    $
    932,866
    
    
    $
    1,258,969Net (loss)
    
    
    (100,675
    )
    
    
    (195,686
    )
    
    
    (349,263
    )
    
    
    (283,754
    )
    
    
    (595,950
    )(Loss) from continuing operations
before cumulative effect of accounting
change
    
    
    (100,675
    )
    
    
    (195,686
    )
    
    
    (346,863
    )
    
    
    (230,093
    )
    
    
    (453,652
    )(Loss) per share from continuing
operations before cumulative effect of
accounting changeBasic and diluted
    
    $
    (0.26
    )
    
    $
    (0.51
    )
    
    $
    (0.91
    )
    
    $
    (0.64
    )
    
    $
    (1.30
    )
  Balances as of May 31,(In thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Cash, equivalents and short-term investments
    
    $
    864,347
    
    
    $
    844,104
    
    
    $
    1,383,356
    
    
    $
    1,484,588
    
    
    $
    1,382,048Total assets
    
    
    1,861,361
    
    
    
    1,592,967
    
    
    
    1,820,818
    
    
    
    2,062,360
    
    
    
    2,526,792Working capital, net of
discontinued operations of Palm (1)
    
    
    778,064
    
    
    
    667,949
    
    
    
    1,213,108
    
    
    
    1,314,012
    
    
    
    1,159,822Deferred revenue and long-term obligations
    
    
    13,788
    
    
    
    8,484
    
    
    
    15,135
    
    
    
    4,595
    
    
    
    73,365Retained earnings (deficit)
    
    
    (1,087,512
    )
    
    
    (967,952
    )
    
    
    (755,244
    )
    
    
    (405,981
    )
    
    
    35,814Stockholders equity
    
    
    1,202,362
    
    
    
    1,274,923
    
    
    
    1,499,114
    
    
    
    1,718,597
    
    
    
    1,950,205
 
 (1)
    
    Working capital is defined as total current assets less total current liabilities.   26




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 INTRODUCTION
   BUSINESS OVERVIEW
   §
    
    Networking;§
    
    Security;§
    
    Voice;§
    
    Services; and§
    
    Connectivity Products.
  §
    
    significant headcount reductions and consolidation of facilities;§
    
    restructuring activities which included outsourcing of information
technology, all manufacturing activity in our SCN segment, and other
functions, and selling excess facilities;§
    
    significant changes to our executive leadership;§
    
    forming the Huawei-3Com joint venture (H-3C);§
    
    acquisition of majority ownership of H-3C;§
    
    acquiring TippingPoint Technologies, Inc.; and§
    
    realigning our sales and marketing channels and expenditures.
  Significant Events
  27




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##### Table of Contents



â
     §
    
    continued advances in products; and§
    
    increased focus on our customer facing capabilities in the areas of sales and marketing.
   Business Environment and Future Trends
  §
    
    Intense competition in the market for higher end, enterprise core routing and switching products;§
    
    Aggressive product pricing by competitors targeted at gaining share in market segments where we
 28




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##### Table of Contents



have had a strong position historically, such as the small to medium-sized enterprise market;
and§
    
    The advanced nature and ready availability of merchant silicon, which allows low-end competitors
to deliver competitive products and makes it increasingly difficult for us to differentiate our
products.
        BASIS OF PRESENTATION
  29




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CRITICAL ACCOUNTING POLICIES
  Revenue recognition:
  30




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##### Table of Contents



Allowance for doubtful accounts:
 Inventory:
 Goodwill and intangible assets:
 Equity securities and other investments:
 31




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##### Table of Contents



Restructuring charges:
 Warranty:
 Income taxes:
 32




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RESULTS OF OPERATIONS
 YEARS ENDED MAY 31, 2006, 2005, AND 2004
   2006
    
    2005
    
    2004Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    58.7
    
    
    
    64.0
    
    
    
    65.2Gross profit margin
    
    
    41.3
    
    
    
    36.0
    
    
    
    34.8Operating expenses:Sales and marketing
    
    
    34.6
    
    
    
    37.4
    
    
    
    35.0Research and development
    
    
    12.8
    
    
    
    14.5
    
    
    
    13.6General and administrative
    
    
    9.1
    
    
    
    9.2
    
    
    
    10.6Amortization and write-down of intangible assets
    
    
    2.6
    
    
    
    1.4
    
    
    
    1.0In-process research and development
    
    
    0.1
    
    
    
    1.0
    
    
    
    Restructuring charges
    
    
    1.8
    
    
    
    3.7
    
    
    
    22.9Total operating expenses
    
    
    61.0
    
    
    
    67.2
    
    
    
    83.1Operating loss
    
    
    (19.7
    )
    
    
    (31.2
    )
    
    
    (48.3
    )Gain (loss) on investments, net
    
    
    0.5
    
    
    
    0.2
    
    
    
    (1.6
    )Interest income, net
    
    
    3.6
    
    
    
    3.3
    
    
    
    2.4Other income (expense), net
    
    
    1.0
    
    
    
    (0.7
    )
    
    
    (0.1
    )Loss from continuing operations before income taxes,
equity interest in income (loss) of unconsolidated joint
venture and minority interest in income of consolidated joint venture
    
    
    (14.6
    )
    
    
    (28.4
    )
    
    
    (47.6
    )Income tax (provision) benefit
    
    
    1.9
    
    
    
    (0.5
    )
    
    
    0.4Equity interest in income (loss) of unconsolidated joint
venture
    
    
    1.4
    
    
    
    (1.1
    )
    
    
    (2.5
    )Minority interest in income of consolidated joint venture
    
    
    (1.4
    )
    
    
    
    
    
    
    Net loss from continuing operations
    
    
    (12.7
    )%
    
    
    (30.0
    )%
    
    
    (49.7
    )%
 33




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##### Table of Contents



Comparison of fiscal 2006 and 2005
 Sales
   Fiscal Year2006
    
    
    2005Networking
    
    $
    577.0
    
    
    
    72.6
    %
    
    $
    494.5
    
    
    
    75.9
    %Security
    
    
    88.0
    
    
    
    11.1
    
    
    
    25.8
    
    
    
    4.0Voice
    
    
    56.6
    
    
    
    7.1
    
    
    
    44.9
    
    
    
    6.9Services
    
    
    33.4
    
    
    
    4.2
    
    
    
    32.0
    
    
    
    4.9Connectivity Products
    
    
    39.8
    
    
    
    5.0
    
    
    
    54.0
    
    
    
    8.3Total
    
    $
    794.8
    
    
    
    
    
    
    $
    651.2
      34




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##### Table of Contents



Fiscal Year2006
    
    
    2005North America
    
    $
    248.5
    
    
    
    31.3
    %
    
    $
    214.1
    
    
    
    32.9
    %Latin and South America
    
    
    72.2
    
    
    
    9.1
    
    
    
    57.7
    
    
    
    8.9Europe, Middle East, and Africa
    
    
    298.5
    
    
    
    37.5
    
    
    
    294.7
    
    
    
    45.2Asia Pacific
    
    
    175.6
    
    
    
    22.1
    
    
    
    84.7
    
    
    
    13.0Total
    
    $
    794.8
    
    
    
    
    
    
    $
    651.2
  Gross Profit Margin
  1) Increased sales of security products and inclusion of
TippingPoint higher margin products for full current period
    
    
    3.6
    %2) Consolidation of H-3C higher margin products
    
    
    2.13) SCN product mix and selling price reductions
    
    
    (2.4
    )4) Royalty payment reductions
    
    
    1.15) Other
    
    
    0.9Total
    
    
    5.3
    %
 
 1)
    
    The increase was the result of higher average selling prices and margin for
TippingPoints security products compared to other SCN products as well as the
inclusion of a full year of TippingPoint results in fiscal year 2006.2)
    
    The increase is due to the inclusion of two months of results of H-3C which
generally have higher gross margins.3)
    
    The decrease in the SCN margin was the result of lower average selling prices and
an unfavorable shift in product mix. These declines were partially offset by
product cost reductions.4)
    
    Fiscal year 2005 included final disbursements on two significant royalty payments.5)
    
    Other cost reduction activities included freight consolidation, and a reduction
in the Connectivity Products business that consequently caused a decrease in unit
shipment per revenue dollar which lowered variable costs. Operating Expenses
   35




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Sales and Marketing.
 Research and Development
 General and Administrative
 Amortization and Write-Down of Intangibles.
 In-process research and development.
 Restructuring Charges
   Gain (Loss) on Investments, Net
 36




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Interest Income and Other Income (Expense), Net
  Income Tax (Provision) Benefit
  Equity Interest in Income (Loss) of Unconsolidated Joint Venture
  Minority Interest of Huawei in the (income) of Consolidated Huawei-3Com Joint Venture
  Comparison of fiscal 2005 and 2004
 Sales
  Fiscal Year2005
    
    
    2004Enterprise networking
    
    $
    597.2
    
    
    
    92
    %
    
    $
    585.9
    
    
    
    84
    %Desktop, mobile and server
connectivity
    
    
    54.0
    
    
    
    8
    %
    
    
    113.0
    
    
    
    16
    %Total
    
    $
    651.2
    
    
    
    
    
    
    $
    698.9
  37




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##### Table of Contents



Fiscal Year2005
    
    
    2004Americas
    
    $
    271.8
    
    
    
    42
    %
    
    $
    263.4
    
    
    
    38
    %Europe, Middle East, and Africa
    
    
    294.7
    
    
    
    45
    %
    
    
    319.7
    
    
    
    46
    %Asia Pacific
    
    
    84.7
    
    
    
    13
    %
    
    
    115.8
    
    
    
    16
    %Total
    
    $
    651.2
    
    
    
    
    
    
    $
    698.9
  Gross Profit Margin
  Outsourced manufacturing and facility closure
    
    
    2.9
    %IT and facilities-related expenses
    
    
    1.1Volume-related impacts
    
    
    (2.3
    )Other
    
    
    (0.5
    )Total
    
    
    1.2
    %
 §
    
    Gross profit margin benefited compared to fiscal 2004 due to effects
associated with our decision to outsource our remaining manufacturing
operations in Dublin, Ireland during fiscal 2004. In addition to the
absence of impairment and transition costs that were incurred in
fiscal 2004 and not in fiscal 2005, these actions also resulted in
lower operating costs.§
    
    We allocate and report both IT and facilities-related expenses as a
component of cost of sales and operating expenses. The portion of
such expenses allocated to cost of sales decreased in fiscal 2005 due
to the outsourcing of our IT operations.§
    
    Volume-related impacts include higher post-sale technical support
costs, manufacturing overhead costs, royalty fees and warranty costs
as a percent of sales. These costs did not decline at the same rate
as sales since a portion of these costs is not directly variable with
sales.§
    
    In the second quarter of fiscal 2005, we entered into an agreement to
contract with Siemens Business Services and enhance our customer
service offerings. This agreement resulted in transition costs in
fiscal 2005 that were not incurred in fiscal 2004.
 Operating Expenses
 38




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##### Table of Contents



Sales and Marketing.
 Research and Development
 General and Administrative
 Amortization and Write-Down of Intangibles.
 In-process research and development.
 39




---



##### Table of Contents



Restructuring Charges
  Gain (Loss) on Investments, Net
  Interest Income and Other Income (Expense), Net
  Income Tax (Provision) Benefit
  Equity Interest in Loss of Unconsolidated Joint Venture
  40




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Discontinued Operations
  LIQUIDITY AND CAPITAL RESOURCES
  2006
    
    
    2005
    
    
    2004Cash and cash equivalents
    
    $
    501.1
    
    
    $
    268.5
    
    
    $
    476.3Short-term investments
    
    
    363.2
    
    
    
    575.6
    
    
    
    907.1Cash and cash equivalents and short term investments
    
    $
    864.3
    
    
    $
    844.1
    
    
    $
    1,383.4
   Years Ended May 31,(in millions)
    
    2006
    
    
    2005
    
    
    2004Cash and equivalents, beginning of period
    
    $
    268.5
    
    
    $
    476.3
    
    
    $
    415.8Net cash provided by (used in) operating activities
    
    
    (86.2
    )
    
    
    (135.6
    )
    
    
    (175.3
    )Net cash provided by (used in) investing activities
    
    
    300.8
    
    
    
    (12.7
    )
    
    
    106.6Net cash provided by (used in) financing activities
    
    
    15.7
    
    
    
    (59.4
    )
    
    
    128.5Other
    
    
    2.3
    
    
    
    (0.1
    )
    
    
    0.7Cash and equivalents, end of period
    
    $
    501.1
    
    
    $
    268.5
    
    
    $
    476.3
   41




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##### Table of Contents



Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations (1)
    
    Total
    
    
    one year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating leases
    
    $
    60.5
    
    
    $
    27.0
    
    
    $
    29.6
    
    
    $
    3.9
    
    
    $
    Purchase commitments with
contract manufacturers
(2)
    
    
    63.9
    
    
    
    63.9
    
    
    
    
    
    
    
    
    
    
    
    Outsourcing agreements (3)
    
    
    118.4
    
    
    
    24.1
    
    
    
    65.5
    
    
    
    28.8
    
    
    
    Total
    
    $
    242.8
    
    
    $
    115.0
    
    
    $
    95.1
    
    
    $
    32.7
    
    
    $
    
 
 (1)
    
    Includes SCN segment obligations as of May 31, 2006 and H-3C segment obligations as of
March 31, 2006.(2)
    
    We have entered into purchase agreements with our contract manufacturers. Pursuant to these
agreements, if our actual orders and purchases fall below forecasted levels, we may be required to
purchase finished goods inventory manufactured to meet our requirements. In addition, we may be
required to purchase raw material and work in process inventory on-hand that is unique to our
products, and we may be required to compensate the contract manufacturers with respect to their
non-cancelable purchase orders for such inventory. The amount shown in the table above represents
our estimate of inventory held by contract manufacturers that we could be required to purchase
within the next 12 months. We do not expect any such required purchases to exceed our requirements
for inventory to meet expected sales of our products to our customers.(3)
    
    Under our customer service, IT outsourcing agreements and research and development agreement we
are subject to service level commitments and contractor commitments levels providing for annual
minimum payments that vary depending on the levels we choose. The amounts shown in the table above
represent the amounts that would be payable, based on current levels, through the expiration of the
agreements. However, our IT agreement may be terminated at any time upon 120 days notice and the
payment of a termination fee ranging from approximately $0.9 million to $1.3 million, and our
research and development agreement may be terminated at any time with a $0.8 million payment. Our
customer service agreement with Siemens expires in 2011 but may be terminated for convenience
beginning in 2007 subject to certain fees that decline over time.     42




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EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
  
 ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk Disclosures
 Interest Rate Sensitivity
 Foreign Currency Exchange Risk
 43




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Equity Security Price Risk
 44




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 PageFinancial Statements:Report of Independent Registered Public Accounting Firm
    
    
    46Consolidated Statements of Operations for the years ended May 31, 2006, 2005, and 2004
    
    
    47Consolidated Balance Sheets as of May 31, 2006 and 2005
    
    
    48Consolidated Statements of Stockholders Equity for the years ended May 31, 2006,
2005, and 2004
    
    
    49Consolidated Statements of Cash Flows for the years ended May 31, 2006, 2005, and 2004
    
    
    50Notes to Consolidated Financial Statements
    
    
    51Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts and Reserves
    
    
    90
  45




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
  
 46




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3COM CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended May 31,2006
    
    
    2005
    
    
    2004Sales
    
    $
    794,807
    
    
    $
    651,244
    
    
    $
    698,884Cost of sales
    
    
    466,743
    
    
    
    416,916
    
    
    
    455,813Gross profit
    
    
    328,064
    
    
    
    234,328
    
    
    
    243,071Operating expenses:Sales and marketing
    
    
    274,745
    
    
    
    243,700
    
    
    
    244,703Research and development
    
    
    101,870
    
    
    
    94,584
    
    
    
    95,195General and administrative
    
    
    72,596
    
    
    
    59,833
    
    
    
    74,245Amortization and write-down of intangible assets
    
    
    20,903
    
    
    
    8,989
    
    
    
    7,026In-process research and development
    
    
    650
    
    
    
    6,775
    
    
    
    Restructuring charges
    
    
    14,403
    
    
    
    23,922
    
    
    
    159,727Total operating expenses
    
    
    485,167
    
    
    
    437,803
    
    
    
    580,896Operating loss
    
    
    (157,103
    )
    
    
    (203,475
    )
    
    
    (337,825
    )Gain (loss) on investments, net
    
    
    4,333
    
    
    
    1,580
    
    
    
    (10,899
    )Interest income, net
    
    
    29,085
    
    
    
    21,406
    
    
    
    16,534Other income (expense), net
    
    
    8,235
    
    
    
    (4,785
    )
    
    
    (629
    )Loss from continuing operations before income taxes, equity
interest in income (loss) of unconsolidated joint venture, and
minority interest in income of consolidated joint venture
    
    
    (115,450
    )
    
    
    (185,274
    )
    
    
    (332,819
    )Income tax benefit (provision)
    
    
    14,833
    
    
    
    (3,490
    )
    
    
    3,135Equity interest in income (loss) of unconsolidated joint venture
    
    
    11,016
    
    
    
    (6,922
    )
    
    
    (17,179
    )Minority interest in income of consolidated joint venture
    
    
    (11,074
    )
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (100,675
    )
    
    
    (195,686
    )
    
    
    (346,863
    )Discontinued operations, net of taxes (Note 3)
    
    
    
    
    
    
    
    
    
    
    (2,400
    )Net loss
    
    $
    (100,675
    )
    
    $
    (195,686
    )
    
    $
    (349,263
    )Basic and diluted net loss per share:Continuing operations
    
    $
    (0.26
    )
    
    $
    (0.51
    )
    
    $
    (0.91
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Net loss
    
    $
    (0.26
    )
    
    $
    (0.51
    )
    
    $
    (0.92
    )Shares used in computing per share amounts:Basic and diluted
    
    
    386,801
    
    
    
    382,309
    
    
    
    379,766
 The accompanying notes are an integral part of these consolidated financial statements.
 47




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3COM CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 May 31,2006
    
    
    2005ASSETSCurrent assets:Cash and equivalents
    
    $
    501,097
    
    
    $
    268,535Short-term investments
    
    
    363,250
    
    
    
    575,569Notes receivable
    
    
    63,224
    
    
    
    Accounts receivable, less allowance for doubtful accounts of
$16,422 and $15,090, respectively
    
    
    115,120
    
    
    
    61,664Inventories
    
    
    148,819
    
    
    
    29,311Other current assets
    
    
    57,835
    
    
    
    42,430Total current assets
    
    
    1,249,345
    
    
    
    977,509Investment in joint venture
    
    
    
    
    
    
    135,969Property and equipment, less accumulated depreciation and
amortization of $232,944 and $238,945, respectively
    
    
    89,109
    
    
    
    69,535Goodwill
    
    
    354,259
    
    
    
    310,367Intangible assets, net
    
    
    111,845
    
    
    
    65,882Deposits and other assets
    
    
    56,803
    
    
    
    33,705Total assets
    
    $
    1,861,361
    
    
    $
    1,592,967LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    153,245
    
    
    $
    99,632Accrued liabilities and other
    
    
    318,036
    
    
    
    209,928Total current liabilities
    
    
    471,281
    
    
    
    309,560Deferred revenue and long-term obligations
    
    
    13,788
    
    
    
    8,484Minority interest
    
    
    173,930
    
    
    
    Stockholders equity:Preferred stock, $0.01 par value, 10,000 shares authorized;
none outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 990,000 shares authorized;
shares issued: 393,442 and 393,377, respectively
    
    
    2,300,396
    
    
    
    2,302,190Treasury stock, at cost, of zero and 8,135 shares, respectively
    
    
    
    
    
    
    (39,821
    )Unamortized stock-based compensation
    
    
    (7,565
    )
    
    
    (14,011
    )Retained deficit
    
    
    (1,087,512
    )
    
    
    (967,952
    )Accumulated other comprehensive loss
    
    
    (2,957
    )
    
    
    (5,483
    )Total stockholders equity
    
    
    1,202,362
    
    
    
    1,274,923Total liabilities and stockholders equity
    
    $
    1,861,361
    
    
    $
    1,592,967
 The accompanying notes are an integral part of these consolidated financial statements.
 48




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##### Table of Contents



3COM CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedUnamortized
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Treasury Stock
    
    
    Note
    
    
    Stock-based
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Receivable
    
    
    Compensation
    
    
    Deficit
    
    
    Income (Loss)
    
    
    TotalBalances, June 1, 2003
    
    
    367,796
    
    
    $
    2,138,016
    
    
    
    
    
    
    $
    
    
    
    $
    (8,421
    )
    
    $
    (1,474
    )
    
    $
    (405,981
    )
    
    $
    (3,543
    )
    
    $
    1,718,597Components of comprehensive income loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349,263
    )
    
    
    
    
    
    
    (349,263
    )Unrealized loss on available-for-sale
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,612
    )
    
    
    (2,612
    )Net unrealized gain on derivative
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    141Accumulated translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    726
    
    
    
    726Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (351,008
    )Common stock issued under stock plans, net
of cancellations
    
    
    24,942
    
    
    
    122,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,252
    )
    
    
    
    
    
    
    
    
    
    
    120,423Stock-based compensation expense
    
    
    
    
    
    
    1,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,149
    
    
    
    
    
    
    
    
    
    
    
    2,681Collection on note receivable for warrants
issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,421Balances, May 31, 2004
    
    
    392,738
    
    
    
    2,262,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,577
    )
    
    
    (755,244
    )
    
    
    (5,288
    )
    
    
    1,499,114Components of comprehensive income loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (195,686
    )
    
    
    
    
    
    
    (195,686
    )Unrealized loss on available-for-sale
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    (213
    )Net unrealized gain on derivative
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    (81
    )Accumulated translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    99Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (195,881
    )Repurchase of common stock
    
    
    (36
    )
    
    
    (181
    )
    
    
    (14,983
    )
    
    
    (73,364
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,545
    )Common stock issued under stock plans, net
of cancellations
    
    
    675
    
    
    
    3,698
    
    
    
    6,848
    
    
    
    33,543
    
    
    
    
    
    
    
    (4,760
    )
    
    
    (17,022
    )
    
    
    
    
    
    
    15,459Stock-based compensation expense
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,446
    
    
    
    
    
    
    
    
    
    
    
    2,841Stock issued in connection with acquisition
    
    
    
    
    
    
    36,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,120
    )
    
    
    
    
    
    
    
    
    
    
    26,935Balances, May 31, 2005
    
    
    393,377
    
    
    
    2,302,190
    
    
    
    (8,135
    )
    
    
    (39,821
    )
    
    
    
    
    
    
    (14,011
    )
    
    
    (967,952
    )
    
    
    (5,483
    )
    
    
    1,274,923Components of comprehensive income loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,675
    )
    
    
    
    
    
    
    (100,675
    )Unrealized loss on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    300Accumulated translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,226
    
    
    
    2,226Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98,149
    )Repurchase of common stock
    
    
    (588
    )
    
    
    (2,848
    )
    
    
    (864
    )
    
    
    (4,228
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,076
    )Common stock issued under stock plans, net
of cancellations
    
    
    653
    
    
    
    2,230
    
    
    
    8,999
    
    
    
    44,049
    
    
    
    
    
    
    
    (4,593
    )
    
    
    (18,885
    )
    
    
    
    
    
    
    22,801Stock-based compensation expense
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,664
    
    
    
    
    
    
    
    
    
    
    
    9,863Reduction of shares reserved for issuance
of options in connection with acquisition
    
    
    
    
    
    
    (1,375
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,375
    
    
    
    
    
    
    
    
    
    
    
    Balances, May 31, 2006
    
    
    393,442
    
    
    $
    2,300,396
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (7,565
    )
    
    $
    (1,087,512
    )
    
    $
    (2,957
    )
    
    $
    1,202,362
 The accompanying notes are an integral part of these consolidated financial statements.
 49




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##### Table of Contents



3COM CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended May 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Loss from continuing operations
    
    $
    (100,675
    )
    
    $
    (195,686
    )
    
    $
    (346,863
    )Adjustments to reconcile loss from continuing operations to net
cash provided by (used in) operating activities:Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (2,400
    )Depreciation and amortization
    
    
    44,685
    
    
    
    51,852
    
    
    
    109,407Write-down of intangibles
    
    
    
    
    
    
    1,404
    
    
    
    2,307(Gain) loss on property and equipment disposals
    
    
    (646
    )
    
    
    (4,741
    )
    
    
    41,034Minority interest
    
    
    11,074
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    9,863
    
    
    
    2,841
    
    
    
    2,681(Gain) loss on investments, net
    
    
    (235
    )
    
    
    (1,580
    )
    
    
    10,899Deferred income taxes
    
    
    121
    
    
    
    3,044
    
    
    
    (533
    )In-process research and development
    
    
    650
    
    
    
    6,775
    
    
    
    Equity interest in (income) loss of unconsolidated joint venture
    
    
    (11,016
    )
    
    
    6,922
    
    
    
    17,179Changes in assets and liabilities:Accounts receivable
    
    
    5,913
    
    
    
    4,708
    
    
    
    23,918Inventories
    
    
    (23,047
    )
    
    
    (9,629
    )
    
    
    (12,999
    )Other assets
    
    
    1,891
    
    
    
    748
    
    
    
    1,620Accounts payable
    
    
    3,430
    
    
    
    19,224
    
    
    
    (25,175
    )Other liabilities
    
    
    (28,172
    )
    
    
    (21,476
    )
    
    
    3,605Net cash used in operating activities
    
    
    (86,164
    )
    
    
    (135,594
    )
    
    
    (175,320
    )Cash flows from investing activities:Purchases of investments
    
    
    (421,279
    )
    
    
    (618,320
    )
    
    
    (908,874
    )Proceeds from maturities and sales of investments
    
    
    629,036
    
    
    
    931,122
    
    
    
    1,056,597Purchases of property and equipment
    
    
    (17,404
    )
    
    
    (21,121
    )
    
    
    (16,014
    )Businesses acquired in purchase transactions, net of cash
acquired
    
    
    110,407
    
    
    
    (355,686
    )
    
    
    Proceeds from sale of property and equipment
    
    
    
    
    
    
    51,300
    
    
    
    134,855Investment in Huawei-3Com joint venture
    
    
    
    
    
    
    
    
    
    
    (160,000
    )Net cash provided by (used in) investing activities
    
    
    300,760
    
    
    
    (12,705
    )
    
    
    106,564Cash flows from financing activities:Issuances of common stock
    
    
    22,801
    
    
    
    15,459
    
    
    
    120,423Repurchases of common stock
    
    
    (7,076
    )
    
    
    (73,545
    )
    
    
    Repayments of borrowings
    
    
    
    
    
    
    (1,308
    )
    
    
    Repayments of capital lease obligations
    
    
    
    
    
    
    
    
    
    
    (346
    )Collection of note receivable issued for warrants
    
    
    
    
    
    
    
    
    
    
    8,421Net cash provided by (used in) financing activities
    
    
    15,725
    
    
    
    (59,394
    )
    
    
    128,498Effect of exchange rate changes on cash and equivalents
    
    
    2,241
    
    
    
    (46
    )
    
    
    734Net change in cash and equivalents during period
    
    
    232,562
    
    
    
    (207,739
    )
    
    
    60,476Cash and equivalents, beginning of period
    
    
    268,535
    
    
    
    476,274
    
    
    
    415,798Cash and equivalents, end of period
    
    $
    501,097
    
    
    $
    268,535
    
    
    $
    476,274Other cash flow informationInterest paid
    
    $
    212
    
    
    $
    528
    
    
    $
    1,143Income tax (payments) refunds received, net
    
    
    (2,230
    )
    
    
    10,402
    
    
    
    5,696Inventory transferred to property and equipment
    
    
    16,995
    
    
    
    7,996
    
    
    
    12,388
 The accompanying notes are an integral part of these consolidated financial statements.
 50




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1: Description of Business
  Note 2: Significant Accounting Policies
 Fiscal year
  Use of estimates in the preparation of consolidated financial statements
  Basis of presentation
  Segment reporting
  Cash equivalents
  Short-term investments
  51




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##### Table of Contents



Notes receivable
  Non-marketable equity securities and other investments
  Concentration of credit risk
  Inventories
  Property and equipment
  Long-lived assets
  Depreciation and amortization
  Goodwill and purchased intangible assets
 52




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##### Table of Contents



Revenue recognition
     Product warranty
  Advertising
  Restructuring charges
  Foreign currency remeasurement and translation
  53




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Comprehensive income (loss)
   AccumulatedAccumulated
    
    
    OtherUnrealized
    
    
    Translation
    
    
    ComprehensiveGain (Loss)
    
    
    Adjustment
    
    
    Income (Loss)Balance as of June 1, 2003
    
    $
    364
    
    
    $
    (3,907
    )
    
    $
    (3,543
    )Change in period
    
    
    (2,471
    )
    
    
    726
    
    
    
    (1,745
    )Balance as of May 31, 2004
    
    
    (2,107
    )
    
    
    (3,181
    )
    
    
    (5,288
    )Change in period
    
    
    (294
    )
    
    
    99
    
    
    
    (195
    )Balance as of May 31, 2005
    
    
    (2,401
    )
    
    
    (3,082
    )
    
    
    (5,483
    )Change in period
    
    
    300
    
    
    
    2,226
    
    
    
    2,526Balance as of May 31, 2006
    
    $
    (2,101
    )
    
    $
    (856
    )
    
    $
    (2,957
    )
 54




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##### Table of Contents



Stock-based compensation
  Years Ended May 31,2006
    
    
    2005
    
    
    2004Net loss as reported
    
    $
    (100,675
    )
    
    $
    (195,686
    )
    
    $
    (349,263
    )Add stock-based compensation included in
reported net loss, net of tax
    
    
    9,863
    
    
    
    2,841
    
    
    
    2,681Deduct total stock-based compensation
determined
by the fair value-based method, net of tax
    
    
    (25,496
    )
    
    
    (16,203
    )
    
    
    (19,041
    )Pro forma net loss
    
    $
    (116,308
    )
    
    $
    (209,048
    )
    
    $
    (365,623
    )Net loss per share:As reportedbasic and diluted
    
    $
    (0.26
    )
    
    $
    (0.51
    )
    
    $
    (0.92
    )Pro formabasic and diluted
    
    
    (0.30
    )
    
    
    (0.55
    )
    
    
    (0.96
    )
  Net loss per share
  Recently issued accounting pronouncements
    55




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##### Table of Contents



Note 3: Discontinued Operations
   Note 4: Acquisitions
 Huawei-3Com
    56




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##### Table of Contents



2006InvestmentCash paid for common stock
    
    $
    28.0Assets contributed
    
    
    Acquisition direct costs
    
    
    0.2Total purchase price
    
    $
    28.2
  2006InvestmentNet tangible assets assumed
    
    $
    7.4Amortizable intangible assets:Existing technology
    
    
    17.8Distributor agreements
    
    
    0.4Total amortizable intangible assets
    
    
    18.2In-process research and development
    
    
    0.7Goodwill
    
    
    1.9Total preliminary purchase price allocation
    
    $
    28.2
     57




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##### Table of Contents



Fiscal Year(in millions, except per share amounts)
    
    2006
    
    2005Net sales
    
    $
    1,151.4
    
    
    $
    1,120.3Net loss
    
    
    (102.2
    )
    
    
    (177.7
    )Basic and diluted net loss per share
    
    
    ($0.26
    )
    
    $
    (0.46
    )
   TippingPoint
    Cash paid for common stock
    
    $
    389.5Fair value of outstanding stock options assumed
    
    
    36.1Acquisition direct costs
    
    
    4.4Total purchase price
    
    $
    430.0
  Net tangible assets assumed
    
    $
    37.4Amortizable intangible assets:Existing technology
    
    
    39.1Maintenance agreements
    
    
    19.0Other
    
    
    11.8Total amortizable intangible assets
    
    
    69.9In-process research and development
    
    
    5.1Deferred compensation on unvested stock options
    
    
    9.4Goodwill
    
    
    308.2Total purchase price
    
    $
    430.0
 58




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##### Table of Contents



®
  Fiscal Year(in millions, except per share amounts)
    
    2005
    
    2004Net sales
    
    $
    675.8
    
    
    $
    707.4Net loss
    
    
    (228.3
    )
    
    
    (387.7
    )Basic and diluted loss per share
    
    
    (0.60
    )
    
    
    (1.02
    )
 Note 5: Restructuring Charges
   §
    
    announced the integration of the support infrastructure of two of our business units
to leverage a common infrastructure in order to drive additional costs out of the
business;§
    
    organized around independent businesses that utilized shared central services;§
    
    outsourced the manufacturing of certain high volume desktop, mobile and server
connectivity products in a contract manufacturing arrangement;§
    
    entered into an agreement to outsource certain information technology (IT) functions;§
    
    reduced our workforce; and§
    
    continued efforts to consolidate and dispose of excess facilities.
 59




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##### Table of Contents



§
    
    Reductions in workforce;§
    
    outsourcing of our remaining manufacturing operations in Dublin, Ireland; and§
    
    continued efforts to consolidate and dispose of excess facilities.
  §
    
    Reductions in workforce; and§
    
    continued efforts to consolidate and dispose of excess facilities.
  §
    
    Reductions in workforce; and§
    
    continued efforts to consolidate and dispose of excess facilities.
   Fiscal 2006 Actions
  Employee
    
    
    Long-term
    
    
    Facilities-
    
    
    OtherSeparation
    
    
    Asset
    
    
    related
    
    
    RestructuringExpense
    
    
    Write-downs
    
    
    Charges
    
    
    Costs
    
    
    TotalBalance as of June 1, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provisions
    
    
    9,558
    
    
    
    
    
    
    
    1,635
    
    
    
    
    
    
    
    11,193Payments and non-cash charges
    
    
    (4,681
    )
    
    
    
    
    
    
    (744
    )
    
    
    
    
    
    
    (5,425
    )Balance as of May 31, 2006
    
    $
    4,877
    
    
    $
    
    
    
    $
    891
    
    
    $
    
    
    
    $
    5,768
  Fiscal 2005 Actions
  Employee
    
    
    Long-term
    
    
    Facilities-
    
    
    OtherSeparation
    
    
    Asset
    
    
    related
    
    
    RestructuringExpense
    
    
    Write-downs
    
    
    Charges
    
    
    Costs
    
    
    TotalBalance as of June 1, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provisions
    
    
    23,391
    
    
    
    1,021
    
    
    
    468
    
    
    
    768
    
    
    
    25,648Payments and non-cash charges
    
    
    (15,186
    )
    
    
    (766
    )
    
    
    (80
    )
    
    
    (755
    )
    
    
    (16,787
    )
 60




---



##### Table of Contents



Employee
    
    
    Long-term
    
    
    Facilities-
    
    
    OtherSeparation
    
    
    Asset
    
    
    related
    
    
    RestructuringExpense
    
    
    Write-downs
    
    
    Charges
    
    
    Costs
    
    
    TotalBalance as of May 31, 2005
    
    
    8,205
    
    
    
    255
    
    
    
    388
    
    
    
    13
    
    
    
    8,861Provisions
    
    
    1,873
    
    
    
    221
    
    
    
    32
    
    
    
    364
    
    
    
    2,490Payments and non-cash charges
    
    
    (8,235
    )
    
    
    (221
    )
    
    
    (420
    )
    
    
    (364
    )
    
    
    (9,240
    )Balance as of May 31, 2006
    
    $
    1,843
    
    
    $
    255
    
    
    $
    
    
    
    $
    13
    
    
    $
    2,111
     Fiscal 2004 Actions
  Employee
    
    
    Long-term
    
    
    Facilities-
    
    
    OtherSeparation
    
    
    Asset
    
    
    related
    
    
    RestructuringExpense
    
    
    Write-downs
    
    
    Charges
    
    
    Costs
    
    
    TotalBalance as of June 1, 2003
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provisions
    
    
    59,170
    
    
    
    2,052
    
    
    
    89,702
    
    
    
    1,165
    
    
    
    152,089Payments and non-cash charges
    
    
    (53,641
    )
    
    
    (2,052
    )
    
    
    (89,172
    )
    
    
    (1,165
    )
    
    
    (146,030
    )Balance as of May 31, 2004
    
    
    5,529
    
    
    
    
    
    
    
    530
    
    
    
    
    
    
    
    6,059Provisions
    
    
    (2,829
    )
    
    
    12
    
    
    
    (1,956
    )
    
    
    278
    
    
    
    (4,495
    )Payments and non-cash charges
    
    
    (2,700
    )
    
    
    (12
    )
    
    
    2,419
    
    
    
    (278
    )
    
    
    (571
    )Balance as of May 31, 2005
    
    
    
    
    
    
    
    
    
    
    993
    
    
    
    
    
    
    
    993Provisions
    
    
    
    
    
    
    90
    
    
    
    257
    
    
    
    
    
    
    
    347Payments and non-cash charges
    
    
    
    
    
    
    (90
    )
    
    
    (270
    )
    
    
    
    
    
    
    (360
    )Balance as of May 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    980
    
    
    $
    
    
    
    $
    980
   61




---



##### Table of Contents



Fiscal 2001, 2002, and 2003 Actions
  Employee
    
    
    Long-term
    
    
    Facilities-
    
    
    OtherSeparation
    
    
    Asset
    
    
    related
    
    
    RestructuringExpense
    
    
    Write-downs
    
    
    Charges
    
    
    Costs
    
    
    TotalBalance as of June 1, 2001
    
    $
    39,902
    
    
    $
    
    
    
    $
    
    
    
    $
    1,782
    
    
    $
    41,684Provisions
    
    
    43,356
    
    
    
    13,636
    
    
    
    47,824
    
    
    
    4,379
    
    
    
    109,195Payments and non-cash charges
    
    
    (78,305
    )
    
    
    (13,636
    )
    
    
    (42,470
    )
    
    
    (2,714
    )
    
    
    (137,125
    )Balance as of May 31, 2002
    
    
    4,953
    
    
    
    
    
    
    
    5,354
    
    
    
    3,447
    
    
    
    13,754Provisions
    
    
    20,194
    
    
    
    6,630
    
    
    
    157,581
    
    
    
    475
    
    
    
    184,880Payments and non-cash charges
    
    
    (20,630
    )
    
    
    (6,630
    )
    
    
    (154,214
    )
    
    
    (2,691
    )
    
    
    (184,165
    )Balance as of May 31, 2003
    
    
    4,517
    
    
    
    
    
    
    
    8,721
    
    
    
    1,231
    
    
    
    14,469Provisions
    
    
    (39
    )
    
    
    1,317
    
    
    
    6,343
    
    
    
    17
    
    
    
    7,638Payments and non-cash charges
    
    
    (4,478
    )
    
    
    (1,317
    )
    
    
    (5,775
    )
    
    
    (1,166
    )
    
    
    (12,736
    )Balance as of May 31, 2004
    
    
    
    
    
    
    
    
    
    
    9,289
    
    
    
    82
    
    
    
    9,371Provisions
    
    
    
    
    
    
    
    
    
    
    2,769
    
    
    
    
    
    
    
    2,769Payments and non-cash charges
    
    
    
    
    
    
    
    
    
    
    (4,310
    )
    
    
    (77
    )
    
    
    (4,387
    )Balance as of May 31, 2005
    
    
    
    
    
    
    
    
    
    
    7,748
    
    
    
    5
    
    
    
    7,753Provisions
    
    
    
    
    
    
    
    
    
    
    352
    
    
    
    
    
    
    
    352Payments and non-cash charges
    
    
    
    
    
    
    
    
    
    
    (3,439
    )
    
    
    
    
    
    
    (3,439
    )Balance as of May 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    4,661
    
    
    $
    5
    
    
    $
    4,666
     62




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##### Table of Contents



Note 6: Investment in Unconsolidated Joint Venture
     January 31,
    
    March 31,2006
    
    2005Balance SheetCurrent assets
    
    $
    404,068
    
    
    $
    259,369Non-current assets
    
    
    132,130
    
    
    
    149,571Current liabilities
    
    
    210,853
    
    
    
    109,097Non-current liabilities
    
    
    8,866
    
    
    
    8,866Statement of Operations:Sales
    
    $
    399,612
    
    
    $
    297,977Gross profit
    
    
    181,553
    
    
    
    120,498Income (loss) from operations
    
    
    10,132
    
    
    
    (17,064
    )Net income (loss)
    
    
    22,487
    
    
    
    (14,125
    )
   63




---



##### Table of Contents



Note 7: Investments
  May 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueState and municipal securities
    
    $
    22,816
    
    
    $
    
    
    
    $
    (96
    )
    
    $
    22,720U.S. Government and agency securities
    
    
    136,317
    
    
    
    13
    
    
    
    (486
    )
    
    
    135,844Corporate debt securities
    
    
    205,793
    
    
    
    13
    
    
    
    (1,120
    )
    
    
    204,686Short-term investments
    
    
    364,926
    
    
    
    26
    
    
    
    (1,702
    )
    
    
    363,250Publicly traded corporate equity securities
    
    
    309
    
    
    
    93
    
    
    
    
    
    
    
    402Total
    
    $
    365,235
    
    
    $
    119
    
    
    $
    (1,702
    )
    
    $
    363,652
 May 31, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueState and municipal securities
    
    $
    41,280
    
    
    $
    
    
    
    $
    (58
    )
    
    $
    41,222U.S. Government and agency securities
    
    
    171,420
    
    
    
    6
    
    
    
    (573
    )
    
    
    170,853Corporate debt securities
    
    
    364,764
    
    
    
    38
    
    
    
    (1,308
    )
    
    
    363,494Short-term investments
    
    
    577,464
    
    
    
    44
    
    
    
    (1,939
    )
    
    
    575,569Publicly traded corporate equity securities
    
    
    122
    
    
    
    12
    
    
    
    (2
    )
    
    
    132Total
    
    $
    577,586
    
    
    $
    56
    
    
    $
    (1,941
    )
    
    $
    575,701
  May 31, 2006Initial Cost
    
    
    Carrying ValueInvestments in limited partnership venture capital funds
    
    $
    25,498
    
    
    $
    15,794Direct investments in private companies
    
    
    12,262
    
    
    
    91Total private equity investments
    
    $
    37,760
    
    
    
    15,885Publicly traded corporate equity securities
    
    
    
    
    
    
    402Total corporate equity securities
    
    
    
    
    
    $
    16,287
 May 31, 2005Initial Cost
    
    
    Carrying ValueInvestments in limited partnership venture capital funds
    
    $
    23,441
    
    
    $
    13,886Direct investments in private companies
    
    
    12,262
    
    
    
    91Total private equity investments
    
    $
    35,703
    
    
    
    13,977Publicly traded corporate equity securities
    
    
    
    
    
    
    132Total corporate equity securities
    
    
    
    
    
    $
    14,109
  64




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##### Table of Contents



Years Ended May 31,2006
    
    
    2005
    
    
    2004Gross realized gains
    
    $
    5,149
    
    
    $
    3,594
    
    
    $
    7,154Gross realized losses
    
    
    (872
    )
    
    
    (2,014
    )
    
    
    (18,053
    )Total
    
    $
    4,277
    
    
    $
    1,580
    
    
    $
    (10,899
    )
  AmortizedCost
    
    
    Fair ValueWithin one year
    
    $
    299,296
    
    
    $
    298,285Between one year and three years
    
    
    65,630
    
    
    
    64,965Total
    
    $
    364,926
    
    
    $
    363,250
 Note 8: Inventories
  May 31,2006
    
    
    2005Finished goods
    
    $
    69,386
    
    
    $
    27,703Work-in-process
    
    
    12,777
    
    
    
    611Raw materials
    
    
    66,656
    
    
    
    997Total
    
    $
    148,819
    
    
    $
    29,311
 Note 9: Property and Equipment
  May 31,2006
    
    
    2005Land
    
    $
    6,999
    
    
    $
    6,999Buildings and improvements
    
    
    11,122
    
    
    
    38,287Machinery and equipment
    
    
    202,407
    
    
    
    161,656Software
    
    
    63,814
    
    
    
    69,203Furniture and fixtures
    
    
    21,161
    
    
    
    20,546Leasehold improvements
    
    
    13,667
    
    
    
    10,523Construction in progress
    
    
    2,883
    
    
    
    1,266Total
    
    
    322,053
    
    
    
    308,480Accumulated depreciation and amortization
    
    
    (232,944
    )
    
    
    (238,945
    )Property and equipment, net
    
    $
    89,109
    
    
    $
    69,535
 65




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##### Table of Contents



Significant property and equipment transactions
 For the Year Ended May 31, 2006.
 For the Year Ended May 31, 2005.
  For the Year Ended May 31, 2004.
     66




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##### Table of Contents



Note 10: Intangible Assets
  May 31, 2006
    
    
    May 31, 2005Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedGross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetExisting technology
    
    $
    203,946
    
    
    $
    (114,235
    )
    
    $
    89,711
    
    
    $
    74,431
    
    
    $
    (36,685
    )
    
    $
    37,746Maintenance contracts
    
    
    19,000
    
    
    
    (4,222
    )
    
    
    14,778
    
    
    
    19,000
    
    
    
    (1,056
    )
    
    
    17,944Other
    
    
    15,301
    
    
    
    (7,945
    )
    
    
    7,356
    
    
    
    12,170
    
    
    
    (1,978
    )
    
    
    10,192Total
    
    $
    238,247
    
    
    $
    (126,402
    )
    
    $
    111,845
    
    
    $
    105,601
    
    
    $
    (39,719
    )
    
    $
    65,882
      2007
    
    2008
    
    2009
    
    2010
    
    2011Amortization expense
    
    $
    41,830
    
    
    $
    28,429
    
    
    $
    21,826
    
    
    $
    11,658
    
    
    $
    8,102
 67




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##### Table of Contents



Note 11: Accrued Liabilities and Other
  May 31,2006
    
    
    2005Accrued payroll and related expenses
    
    $
    88,305
    
    
    $
    38,346Accrued rebates
    
    
    60,301
    
    
    
    28,114Deferred revenue
    
    
    57,050
    
    
    
    21,756Accrued product warranty
    
    
    41,791
    
    
    
    41,782Income and other taxes payable
    
    
    25,759
    
    
    
    46,037Restructuring
    
    
    13,525
    
    
    
    17,607Other
    
    
    31,305
    
    
    
    16,286Total
    
    $
    318,036
    
    
    $
    209,928
 Note 12: Accrued Warranty and Other Guarantees
   Years Ended May 31,2006
    
    
    2005
    
    
    2004Accrued warranty, beginning of period
    
    $
    41,782
    
    
    $
    43,825
    
    
    $
    44,775Cost of warranty claims
    
    
    (32,958
    )
    
    
    (32,910
    )
    
    
    (34,645
    )Accrual for warranties issued during the period
    
    
    28,424
    
    
    
    30,867
    
    
    
    33,795Adjustments to preexisting warranties
    
    
    
    
    
    
    
    
    
    
    (100
    )Reserves related to H-3C at date of acquisition
    
    
    4,543
    
    
    
    
    
    
    
    Accrued warranty, end of period
    
    $
    41,791
    
    
    $
    41,782
    
    
    $
    43,825
 Note 13: Borrowing Arrangements and Commitments
    68




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##### Table of Contents



Future Lease
    
    
    Future RentalFiscal year
    
    Payments
    
    
    Income2007
    
    $
    27,053
    
    
    $
    3,8062008
    
    
    18,210
    
    
    
    1,3282009
    
    
    11,356
    
    
    
    5412010
    
    
    3,786
    
    
    
    3232011
    
    
    135
    
    
    
    Thereafter
    
    
    
    
    
    
    Total
    
    $
    60,540
    
    
    $
    5,998
   Note 14: Common Stock
 Employee Stock Awards.
  69




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##### Table of Contents



Number of
    
    
    Weighted Averageshares
    
    
    Exercise PriceOutstanding, June 1, 2003
    
    
    85,502
    
    
    $
    7.03Granted
    
    
    10,046
    
    
    
    5.58Exercised
    
    
    (22,288
    )
    
    
    5.01Canceled
    
    
    (16,375
    )
    
    
    8.35Outstanding, May 31, 2004
    
    
    56,885
    
    
    
    7.18Granted
    
    
    10,002
    
    
    
    4.22TippingPoint options assumed
    
    
    13,886
    
    
    
    1.31Exercised
    
    
    (4,273
    )
    
    
    2.01Canceled
    
    
    (13,141
    )
    
    
    6.90Outstanding, May 31, 2005
    
    
    63,359
    
    
    
    5.83Granted
    
    
    21,974
    
    
    
    4.22Exercised
    
    
    (5,467
    )
    
    
    2.07Canceled
    
    
    (18,445
    )
    
    
    5.83Outstanding, May 31, 2006
    
    
    61,421
    
    
    $
    5.71
 Outstanding Options as of May 31, 2006
    
    
    Exercisable as of May 31, 2006Weighted AverageRange of
    
    Number of
    
    
    Weighted Average
    
    
    Remaining
    
    
    Number of
    
    
    Weighted AverageExercise Prices
    
    Shares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Shares
    
    
    Exercise Price(in thousands)
    
    
    
    
    
    
    (in years)
    
    
    (in thousands)$  0.00 - $ 4.00
    
    
    13,879
    
    
    $
    2.82
    
    
    
    6.4
    
    
    
    3,350
    
    
    $
    2.084.01 -   5.00
    
    
    17,869
    
    
    
    4.63
    
    
    
    6.2
    
    
    
    5,351
    
    
    
    4.625.01 -   6.00
    
    
    16,222
    
    
    
    5.66
    
    
    
    4.5
    
    
    
    10,854
    
    
    
    5.646.01 -   7.00
    
    
    2,229
    
    
    
    6.24
    
    
    
    2.7
    
    
    
    1,952
    
    
    
    6.237.01 -   8.00
    
    
    1,433
    
    
    
    7.71
    
    
    
    2.0
    
    
    
    1,245
    
    
    
    7.748.01 - 22.00
    
    
    9,789
    
    
    
    11.44
    
    
    
    3.9
    
    
    
    9,737
    
    
    
    11.45Total
    
    
    61,421
    
    
    $
    5.71
    
    
    
    5.2
    
    
    
    32,489
    
    
    $
    6.96
  Stock-based Compensation.
 Employee Stock Purchase Plan.
 70




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##### Table of Contents



Preferred Shares Rights Plan.
 Stock Reserved for Issuance.
 Stock option and restricted stock plans for granted shares
    
    
    61,421Stock option and restricted stock plans for future grants
    
    
    27,712Employee stock purchase plan
    
    
    4,935Total shares reserved for issuance
    
    
    94,068
  Stock Repurchase and Option Programs.
  Accounting for Stock-Based Compensation.
  71




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##### Table of Contents



Employee Stock Option Plans
    
    Employee Stock Purchase Plan2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Risk-free interest rate
    
    
    4.3
    %
    
    
    3.5
    %
    
    
    2.6
    %
    
    
    4.4
    %
    
    
    2.6
    %
    
    
    1.1
    %Volatility
    
    
    41.9
    %
    
    
    53.2
    %
    
    
    66.0
    %
    
    
    38.1
    %
    
    
    39.2
    %
    
    
    42.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Per-share fair value
    
    $
    1.52
    
    
    $
    1.89
    
    
    $
    2.88
    
    
    $
    1.20
    
    
    $
    1.04
    
    
    $
    1.79
  Repatriation of earnings.
 Note 15: Financial Instruments
  May 31, 2006
    
    May 31, 2005Carrying
    
    Estimated
    
    Carrying
    
    Estimated(in thousands)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueCash and equivalents
    
    $
    501,097
    
    
    $
    501,097
    
    
    $
    268,535
    
    
    $
    268,535Short-term investments
    
    
    363,250
    
    
    
    363,250
    
    
    
    575,569
    
    
    
    575,569Corporate equity securities
    
    
    16,287
    
    
    
    16,174
    
    
    
    14,109
    
    
    
    13,613
  Cash and equivalents
 Short-term investments
 Corporate equity securities.
 Foreign exchange contracts.
  72




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Note 16: Interest and Other Income (Expense), Net
  Years Ended May 31,2006
    
    
    2005
    
    
    2004Interest income
    
    $
    29,297
    
    
    $
    22,807
    
    
    $
    19,309Interest expense
    
    
    (212
    )
    
    
    (1,401
    )
    
    
    (2,775
    )Interest income, net
    
    $
    29,085
    
    
    $
    21,406
    
    
    $
    16,534Other income (expense), net
    
    $
    8,235
    
    
    $
    (4,785
    )
    
    $
    (629
    )
  73




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##### Table of Contents



Note 17: Income Taxes
  Years Ended May 31,2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    200
    
    
    
    308
    
    
    
    520Foreign
    
    
    (14,421
    )
    
    
    138
    
    
    
    (2,929
    )Total current
    
    
    (14,221
    )
    
    
    446
    
    
    
    (2,409
    )DeferredFederal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    (612
    )
    
    
    3,044
    
    
    
    (726
    )Total deferred
    
    
    (612
    )
    
    
    3,044
    
    
    
    (726
    )Total
    
    $
    (14,833
    )
    
    $
    3,490
    
    
    $
    (3,135
    )
  May 31,
    
    
    May 31,2006
    
    
    2005Gross deferred tax assets:Operating loss carryforwards
    
    $
    975,506
    
    
    $
    949,680Amortization and depreciation
    
    
    42,725
    
    
    
    47,423Tax credit carryforwards
    
    
    60,075
    
    
    
    55,534Unrealized losses on private investments, net
    
    
    19,053
    
    
    
    29,393Royalty and purchased research and development
    
    
    9,916
    
    
    
    3,639Other
    
    
    16,748
    
    
    
    4,155Gross deferred tax assets
    
    
    1,124,023
    
    
    
    1,089,824Gross deferred tax liabilities:Reserves recognized in different periods for tax purposes
    
    
    (146,565
    )
    
    
    (151,480
    )Acquired intangibles
    
    
    (25,375
    )
    
    
    (25,348
    )Other
    
    
    (1,021
    )
    
    
    (968
    )Gross deferred tax liabilities
    
    
    (172,961
    )
    
    
    (177,796
    )Valuation allowance
    
    
    (942,758
    )
    
    
    (912,135
    )Net deferred tax (liabilities) assets
    
    $
    8,304
    
    
    $
    (107
    )
   74




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##### Table of Contents



Years Ended May 31,2006
    
    2005
    
    2004Tax computed at federal statutory rate
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%State income taxes, net of federal effect
    
    
    (2.1
    )
    
    
    (2.5
    )
    
    
    (0.5
    )Provision for combined foreign and U.S.
taxes on certain foreign income at rates
greater than U.S. rates
    
    
    15.2
    
    
    
    10.9
    
    
    
    26.5Valuation allowance
    
    
    24.1
    
    
    
    27.5
    
    
    
    34.0Income tax benefit arising from settlement
of foreign tax audit
    
    
    (19.9
    )
    
    
    
    
    
    
    Non-deductible purchased in-process
technology and merger-related charges
    
    
    3.2
    
    
    
    0.9
    
    
    
    (0.3
    )Reversal of previously accrued taxes on
undistributed earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    (26.1
    )Other
    
    
    1.7
    
    
    
    0.1
    
    
    
    0.5Total
    
    
    (12.8
    )%
    
    
    1.9
    %
    
    
    (0.9
    )%
     75




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##### Table of Contents



Note 18: Net Loss per Share
  Years Ended May 31,2006
    
    
    2005
    
    
    2004Loss from continuing operations
    
    $
    (100,675
    )
    
    $
    (195,686
    )
    
    $
    (346,863
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (2,400
    )Net loss
    
    $
    (100,675
    )
    
    $
    (195,686
    )
    
    $
    (349,263
    )Weighted average shares  Basic
    
    
    386,801
    
    
    
    382,309
    
    
    
    379,766Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    Restricted stock
    
    
    
    
    
    
    
    
    
    
    Weighted average shares  Diluted
    
    
    386,801
    
    
    
    382,309
    
    
    
    379,766Net loss per share  Basic and DilutedContinuing operations
    
    $
    (0.26
    )
    
    $
    (0.51
    )
    
    $
    (0.91
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Net loss
    
    $
    (0.26
    )
    
    $
    (0.51
    )
    
    $
    (0.92
    )
  Note 19: Segment Information
    76




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##### Table of Contents



Year Ended May 31, 2006SCN
    
    H-3C
    
    Eliminations
    
    TotalRevenue
    
    $
    705,339
    
    
    $
    108,290
    
    
    $
    (18,822
    )
    
    $
    794,807Gross profit
    
    
    276,627
    
    
    
    51,437
    
    
    
    
    
    
    
    328,064Sales and marketing,
research and
development, and
general and
administrative
    
    
    419,008
    
    
    
    30,203
    
    
    
    
    
    
    
    449,211Restructuring,
amortization, and
in-process
research and
development
    
    
    29,579
    
    
    
    6,377
    
    
    
    
    
    
    
    35,956Operating (loss) income
    
    
    (171,960
    )
    
    
    14,857
    
    
    
    
    
    
    
    (157,103
    )Net (loss) income
    
    $
    (114,420
    )
    
    $
    21,568
    
    
    $
    (7,823
    )
    
    $
    (100,675
    )Assets
    
    $
    1,482,670
    
    
    $
    406,981
    
    
    $
    (28,290
    )
    
    $
    1,861,361
  Years Ended May 31,2006
    
    
    2005
    
    
    2004Networking
    
    $
    577,038
    
    
    
    72.6
    %
    
    $
    494,492
    
    
    
    75.9
    %
    
    $
    516,562
    
    
    
    73.9
    %Security
    
    
    88,012
    
    
    
    11.1
    
    
    
    25,760
    
    
    
    4.0
    
    
    
    15,298
    
    
    
    2.2Voice
    
    
    56,632
    
    
    
    7.1
    
    
    
    44,950
    
    
    
    6.9
    
    
    
    33,899
    
    
    
    4.9Services
    
    
    33,357
    
    
    
    4.2
    
    
    
    32,062
    
    
    
    4.9
    
    
    
    32,495
    
    
    
    4.6Connectivity Products
    
    
    39,768
    
    
    
    5.0
    
    
    
    53,980
    
    
    
    8.3
    
    
    
    100,630
    
    
    
    14.4Total
    
    $
    794,807
    
    
    
    
    
    
    $
    651,244
    
    
    
    
    
    
    $
    698,884
   Years Ended May 31,Customer
    
    2006
    
    2005
    
    2004Ingram Micro, Inc.
    
    
    19
    %
    
    
    21
    %
    
    
    20
    %Tech Data Corporation
    
    
    11
    
    
    
    13
    
    
    
    13Total
    
    
    30
    %
    
    
    34
    %
    
    
    33
    %
  Note 20: Geographical Information
  Years Ended May 31,2006
    
    
    2005
    
    
    2004SalesAmericas
    
    $
    248,532
    
    
    $
    214,051
    
    
    $
    211,574Latin and South America
    
    
    72,164
    
    
    
    57,717
    
    
    
    51,854Europe, Middle East, and Africa
    
    
    298,545
    
    
    
    294,753
    
    
    
    319,705Asia Pacific
    
    
    175,566
    
    
    
    84,723
    
    
    
    115,751Total
    
    $
    794,807
    
    
    $
    651,244
    
    
    $
    698,884
 77




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##### Table of Contents



May 31,
    
    
    May 31,2006
    
    
    2005Property and Equipment:United States
    
    $
    41,186
    
    
    $
    39,937United Kingdom
    
    
    10,325
    
    
    
    24,693China
    
    
    32,859
    
    
    
    Other
    
    
    4,739
    
    
    
    4,905Total
    
    $
    89,109
    
    
    $
    69,535
    §
    
    During the second quarter of fiscal 2005, we sold our 468,000 square
foot facility, with an adjacent parcel of land, in Dublin, Ireland.§
    
    During the third quarter of fiscal 2005, we sold 111,000 square feet
of our facility in Hemel Hempstead, U.K.
  Note 21: Employee Benefit Plan
  78




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##### Table of Contents



Note 22: Litigation
  Xerox Corporation v. 3Com Corporation, U.S. Robotics Corporation, U.S. Robotics
Access Corporation, Palm Computing, Inc., and Palm, Inc.
 In re Initial Public Offering Securities Litigation, Brian Levey vs.
TippingPoint Technologies, Inc., et al.
 79




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##### Table of Contents



Note 23: Impairment Charge
  Note 24: Quarterly Results of Operations (Unaudited)
 Fiscal 2006
    
    Fiscal 2005First
    
    Second
    
    Third
    
    Fourth
    
    First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter(In thousands, except per share data)Sales
    
    $
    177,636
    
    
    $
    184,332
    
    
    $
    177,563
    
    
    $
    255,276
    
    
    $
    162,349
    
    
    $
    151,068
    
    
    $
    161,185
    
    
    $
    176,642Gross profit
    
    
    70,066
    
    
    
    74,315
    
    
    
    72,406
    
    
    
    111,277
    
    
    
    62,095
    
    
    
    52,691
    
    
    
    57,360
    
    
    
    62,182Gross profit margin %
    
    
    39.4
    %
    
    
    40.3
    %
    
    
    40.8
    %
    
    
    43.6
    %
    
    
    38.2
    %
    
    
    34.9
    %
    
    
    35.6
    %
    
    
    35.2
    %Operating loss
    
    
    (46,685
    )
    
    
    (42,226
    )
    
    
    (47,272
    )
    
    
    (20,920
    )
    
    
    (34,909
    )
    
    
    (49,924
    )
    
    
    (56,311
    )
    
    
    (62,331
    )Net loss
    
    
    (42,041
    )
    
    
    (10,700
    )
    
    
    (32,760
    )
    
    
    (15,174
    )
    
    
    (35,545
    )
    
    
    (48,811
    )
    
    
    (53,005
    )
    
    
    (58,325
    )Basic and diluted loss per share
    
    $
    (0.11
    )
    
    $
    (0.03
    )
    
    $
    (0.08
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.13
    )
    
    $
    (0.14
    )
    
    $
    (0.15
    )
  80




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal
Control-Integrated Framework
 (1)
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect our transactions and dispositions of our
assets;(2)
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations
of our management and board of directors; and(3)
    
    provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that
could have a material effect on our financial statements.
  81




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##### Table of Contents



Important Considerations
  82




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated
Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 83




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 (a) Directors
  (b) Executive Officers
  (c) Compliance with Section 16(a) of the Exchange Act
  (d) Code of Ethics
 http://www.3com.com http://www.3com.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED                  STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  84




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    (1) Financial Statements  See Index to Consolidated Financial Statements and
Financial Statement Schedule at page 45 of this Form 10-K.(2) Financial Statement Schedule  See Financial Statement Schedule at page 90 of this Form 10-K.(3) Exhibits  See Exhibit Index at page 86 of this Form 10-K.(b)
    
    See Exhibit Index at page 86 of this Form 10-K.(c)
    
    See Index to Consolidated Financial Statements and Financial Statement Schedule at page
45 of this Form 10-K.
 85




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith2.1
    
    Master Separation and Distribution
Agreement between the Registrant and Palm,
Inc. effective as of December 13, 1999
    
    10-Q
    
    002-92053
    
    
    2.1
    
    
    4/4/002.2
    
    Indemnification and Insurance Matters
Agreement between the Registrant and Palm,
Inc.
    
    10-Q
    
    002-92053
    
    
    2.11
    
    
    4/4/002.3
    
    Asset Purchase Agreement by and between the
Registrant and UTStarcom, Inc. dated March
4, 2003
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    6/9/032.4
    
    Agreement and Plan of Merger, dated
December 13, 2004, by and among the
Registrant, Topaz Acquisition Corporation
and TippingPoint Technologies, Inc.
    
    8-K
    
    000-12867
    
    
    2.1
    
    
    12/16/042.5
    
    Securities Purchase Agreement by and among
3Com Corporation, 3Com Technologies, Huawei
Technologies Co., Ltd. and Shenzen Huawei
Investment & Holding Co., Ltd., dated as of
October 28, 2005
    
    8-K/A
    
    000-12867
    
    
    2.1
    
    
    3/30/063.1
    
    Corrected Certificate of Merger filed to
correct an error in the Certificate of
Merger
    
    10-Q
    
    002-92053
    
    
    3.4
    
    
    10/8/993.2
    
    Registrants Bylaws, as amended on March
23, 2005
    
    8-K
    
    000-12867
    
    
    3.1
    
    
    3/28/053.3
    
    Certificate of Designation of Rights,
Preferences and Privileges of Series A
Participating Preferred Stock
    
    10-Q
    
    000-12867
    
    
    3.6
    
    
    10/11/014.1
    
    Third Amended and Restated Preferred Shares
Rights Agreement, dated as of November 4,
2002
    
    8-A/A
    
    000-12867
    
    
    4.1
    
    
    11/27/0210.1
    
    3Com Corporation 1983 Stock Option Plan, as
amended and restated effective September
30, 2001*
    
    10-Q
    
    000-12867
    
    
    10.1
    
    
    1/11/0210.2
    
    3Com Corporation 1984 Employee Stock
Purchase Plan, as amended and restated as
of July 15, 2003*
    
    10-K
    
    000-12867
    
    
    10.3
    
    
    8/1/0310.3
    
    3Com Corporation Director Stock
Option Plan, as amended*
    
    10-Q
    
    000-12867
    
    
    10.4
    
    
    10/10/0310.4
    
    3Com Corporation Restricted Stock Plan, as
amended July 1, 2001*
    
    10-K
    
    000-12867
    
    
    10.6
    
    
    8/2/0210.5
    
    3Com Corporation 1994 Stock Option Plan, as
amended and restated effective April 30,
2002*
    
    10-K
    
    000-12867
    
    
    10.7
    
    
    8/2/0210.6
    
    3Com Corporation 2003 Stock Plan,
as amended*
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    10/3/0510.7
    
    Stand Alone Stock Option Agreement dated
January 25, 2006 by and between R. Scott
Murray and 3Com Corporation *
    
    10-Q
    
    000-12867
    
    
    10.8
    
    
    4/10/0610.8
    
    Form of Stock Option Agreement for 2003
Stock Plan (Non-Employee Directors)
    
    10-K
    
    000-12867
    
    
    10.7
    
    
    8/5/0510.9
    
    Form of Stock Option Agreement for 2003
Stock Plan (Employees)*
    
    10-K
    
    000-12867
    
    
    10.8
    
    
    8/5/0510.10
    
    Form of Performance Accelerated Vesting
Restricted Stock Agreement*
    
    10-K
    
    000-12867
    
    
    10.9
    
    
    8/5/05
 86




---



##### Table of Contents



Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith10.11
    
    Form of Performance Vesting Restricted
Stock Agreement*
    
    10-Q
    
    000-12867
    
    
    10.6
    
    
    4/10/0610.12
    
    Form of Restricted Stock Grant Agreement 
Standard 4-Year Vesting*
    
    10-K
    
    000-12867
    
    
    10.10
    
    
    8/5/0510.13
    
    Form of Restricted Stock Agreement
(Time-Based Vesting)*
    
    8-K
    
    000-12867
    
    
    10.2
    
    
    11/17/0510.14
    
    R. Scott Murray Employment Agreement,
amended and restated as of February 2,
2006, between the registrant and R. Scott
Murray *
    
    8-K/A
    
    000-12867
    
    
    10.1
    
    
    2/6/0610.15
    
    Performance Vesting Restricted Stock
Agreement dated January 25, 2006 by and
between R. Scott Murray and 3Com
Corporation *
    
    10-Q
    
    000-12867
    
    
    10.7
    
    
    4/10/0610.16
    
    Offer Letter dated June 19, 2004 between
the Registrant and Donald M, Halsted III*
    
    
    
    
    
    
    
    
    
    
    
    X10.17
    
    Offer Letter dated September 12, 2003
between the Registrant and Neal D. Goldman*
    
    
    
    
    
    
    
    
    
    
    
    X10.18
    
    Offer Letter dated November 2, 2005 between
the Registrant and Marc Willebeek-LeMair*
    
    
    
    
    
    
    
    
    
    
    
    X10.19
    
    Employment Agreement with Bruce Claflin,
effective as of January 1, 2001*
    
    10-Q
    
    000-12867
    
    
    10.26
    
    
    1/16/0110.20
    
    Management Retention Agreement between the
Registrant and Bruce Claflin effective July
15, 2003*
    
    10-Q
    
    000-12867
    
    
    10.1
    
    
    1/12/0410.21
    
    Severance Agreement dated January 11, 2006
between the registrant and Bruce L. Claflin
*
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    1/11/0610.22
    
    Executive Officer Fiscal 2007 Compensation
    
    8-K
    
    000-12867
    
    Text of Item 1.01
    
    6/26/0610.23
    
    Section 16 Officer Severance Plan, Amended
and Restated Effective March 29, 2006 *
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    4/4/0610.24
    
    Executive Team Severance Plan effective
March 29, 2006 *
    
    8-K
    
    000-12867
    
    
    10.2
    
    
    4/4/0610.25
    
    Form of Severance Benefits Agreement *
    
    8-K
    
    000-12867
    
    
    10.3
    
    
    4/4/0610.26
    
    Form of Management Retention Agreement
between the Registrant and each of its
executive officers (other than Messrs.
Murray and Dechant)*
    
    10-K
    
    000-12867
    
    
    10.15
    
    
    8/5/0510.27
    
    3Com Corporation Deferred Compensation Plan*
    
    10-K
    
    000-12867
    
    
    10.23
    
    
    8/9/0410.28
    
    Form of Indemnity Agreement between the
Registrant and its officers and directors
    
    S-3/A
    
    333-102591
    
    
    10.1
    
    
    4/9/0310.29
    
    Office Lease, dated as of November 26,
2002, by and between Marlborough Campus
Limited Partnership and the Registrant
    
    10-K
    
    000-12867
    
    
    10.7
    
    
    8/9/0410.30
    
    First Amendment to Lease, dated as of
November 26, 2002, by and between
Marlborough Campus Limited Partnership and
the Registrant
    
    10-K
    
    000-12867
    
    
    10.17
    
    
    8/5/0510.31
    
    Second Amendment to Lease, dated as of July
18, 2005, by and between 3Com Corporation
and Marlborough Campus Limited Partnership
    
    10-Q
    
    000-12867
    
    
    10.2
    
    
    4/4/05
 87




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##### Table of Contents



Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith10.32
    
    Third Amendment to Lease, dated as of July
18, 2005, by and between 3Com Corporation
and Marlborough Campus Limited Partnership
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    7/22/0510.33
    
    Shareholders Agreement by and among
Shenzhen Huawei Investment & Holding Co.
Ltd., 3Com Technologies and Huawei-3Com
Co., Ltd. (the Shareholders Agreement)
dated as of November 15, 2003 (Certain
Portions Omitted; Confidential Treatment
Requested)
    
    
    
    
    
    
    
    
    
    
    
    X10.34
    
    Amendment No. 1 to the Shareholders
Agreement dated as of July 31, 2004
(Certain Potions Omitted; Confidential
Treatment Requested)
    
    
    
    
    
    
    
    
    
    
    
    X10.35
    
    Amendment No. 2 to the Shareholders
Agreement dated as of January 27, 2006
(Certain Portions Omitted; Confidential
Treatment Requested)
    
    
    
    
    
    
    
    
    
    
    
    X21.1
    
    Subsidiaries of Registrant
    
    
    
    
    
    
    
    
    
    
    
    X23.1
    
    Consent of Independent Registered Public
Accounting Firm  Deloitte & Touche LLP
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of Principal Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Principal Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification of Chief Executive Officer
and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
    
    
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    Indicates a management contract or compensatory plan or arrangement 88




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##### Table of Contents



SIGNATURES
 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 11th day of August, 2006.
 3COM CORPORATION
(Registrant)By
    /s/ R. Scott MurrayR. Scott MurrayPresident and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities indicated on the
11th day of August, 2006
 Signature
    
    
    
    TitlePresident, Chief Executive Officer/s/
    R. Scott Murray
    
    
    
    and Director(R. Scott Murray)
    
    
    
    (Principal Executive Officer)Executive Vice President, Finance/s/
    Donald M. Halsted, III
    
    
    
    and Chief Financial Officer(Donald M. Halsted, III)
    
    
    
    (Principal Financial and Accounting Officer)/s/
    Eric A. Benhamou
    
    
    
    Chairman of the Board(Eric A. Benhamou)/s/
    Gary T. DiCamillo
    
    
    
    Director(Gary T. DiCamillo)/s/
    James R. Long
    
    
    
    Director(James R. Long)/s/
    Raj Reddy
    
    
    
    Director(Raj Reddy)/s/
    Julie St. John
    
    
    
    Director(Julie St. John)/s/
    David C. Wajsgras
    
    
    
    Director(David C. Wajsgras)/s/
    Paul G. Yovovich
    
    
    
    Director(Paul G. Yovovich)
 89




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##### Table of Contents



Additions ChargedBalance at
    
    to Costs and
    
    
    
    
    
    
    
    
    
    Balance at End ofDescription
    
    Beginning of Period
    
    Expenses
    
    Other
    
    Deductions
    
    PeriodYear ended May 31, 2004:Allowance for doubtful accounts
    
    $
    22,323
    
    
    $
    (5,033
    )
    
    $
    
    
    
    $
    1,014
    (1)
    
    $
    16,276Allowance for product returns
    
    
    5,808
    
    
    
    27,216
    
    
    
    
    
    
    
    27,107
    
    
    
    5,917Accrued product warranty
    
    
    44,775
    
    
    
    33,695
    
    
    
    
    
    
    
    34,645
    
    
    
    43,825Year ended May 31, 2005:Allowance for doubtful accounts
    
    $
    16,276
    
    
    $
    (2,251
    )
    
    $
    793
    (2)
    
    $
    (272
    )(1)
    
    $
    15,090Allowance for product returns
    
    
    5,917
    
    
    
    20,578
    
    
    
    
    
    
    
    21,443
    
    
    
    5,052Accrued product warranty
    
    
    43,825
    
    
    
    30,867
    
    
    
    
    
    
    
    32,910
    
    
    
    41,782Year ended May 31, 2006:Allowance for doubtful accounts
    
    $
    15,090
    
    
    $
    1,000
    
    
    $
    165
    (3)
    
    $
    (167
    )(1)
    
    $
    16,422Allowance for product returns
    
    
    5,052
    
    
    
    15,288
    
    
    
    6,768
    (3)
    
    
    18,416
    
    
    
    8,692Accrued product warranty
    
    
    41,782
    
    
    
    28,424
    
    
    
    4,543
    (3)
    
    
    32,958
    
    
    
    41,791
 
 (1)
    
    Accounts written off  net of recoveries(2)
    
    Represents reserves related to the TippingPoint acquisition(3)
    
    Represents reserves related to the H-3C acquisition 90




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith2.1
    
    Master Separation and Distribution
Agreement between the Registrant and Palm,
Inc. effective as of December 13, 1999
    
    10-Q
    
    002-92053
    
    
    2.1
    
    
    4/4/002.2
    
    Indemnification and Insurance Matters
Agreement between the Registrant and Palm,
Inc.
    
    10-Q
    
    002-92053
    
    
    2.11
    
    
    4/4/002.3
    
    Asset Purchase Agreement by and between the
Registrant and UTStarcom, Inc. dated March
4, 2003
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    6/9/032.4
    
    Agreement and Plan of Merger, dated
December 13, 2004, by and among the
Registrant, Topaz Acquisition Corporation
and TippingPoint Technologies, Inc.
    
    8-K
    
    000-12867
    
    
    2.1
    
    
    12/16/042.5
    
    Securities Purchase Agreement by and among
3Com Corporation, 3Com Technologies, Huawei
Technologies Co., Ltd. and Shenzen Huawei
Investment & Holding Co., Ltd., dated as of
October 28, 2005
    
    8-K/A
    
    000-12867
    
    
    2.1
    
    
    3/30/063.1
    
    Corrected Certificate of Merger filed to
correct an error in the Certificate of
Merger
    
    10-Q
    
    002-92053
    
    
    3.4
    
    
    10/8/993.2
    
    Registrants Bylaws, as
amended on March
23, 2005
    
    8-K
    
    000-12867
    
    
    3.1
    
    
    3/28/053.3
    
    Certificate of Designation of Rights,
Preferences and Privileges of Series A
Participating Preferred Stock
    
    10-Q
    
    000-12867
    
    
    3.6
    
    
    10/11/014.1
    
    Third Amended and Restated Preferred Shares
Rights Agreement, dated as of November 4,
2002
    
    8-A/A
    
    000-12867
    
    
    4.1
    
    
    11/27/0210.1
    
    3Com Corporation 1983 Stock Option Plan, as
amended and restated effective September
30, 2001*
    
    10-Q
    
    000-12867
    
    
    10.1
    
    
    1/11/0210.2
    
    3Com Corporation 1984 Employee Stock
Purchase Plan, as amended and restated as
of July 15, 2003*
    
    10-K
    
    000-12867
    
    
    10.3
    
    
    8/1/0310.3
    
    3Com Corporation Director Stock
Option
Plan, as amended*
    
    10-Q
    
    000-12867
    
    
    10.4
    
    
    10/10/0310.4
    
    3Com Corporation Restricted Stock Plan, as
amended July 1, 2001*
    
    10-K
    
    000-12867
    
    
    10.6
    
    
    8/2/0210.5
    
    3Com Corporation 1994 Stock Option Plan, as
amended and restated effective April 30,
2002*
    
    10-K
    
    000-12867
    
    
    10.7
    
    
    8/2/0210.6
    
    3Com Corporation 2003 Stock Plan, as
amended*
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    10/3/0510.7
    
    Stand Alone Stock Option Agreement dated
January 25, 2006 by and between R. Scott
Murray and 3Com Corporation *
    
    10-Q
    
    000-12867
    
    
    10.8
    
    
    4/10/0610.8
    
    Form of Stock Option Agreement for 2003
Stock Plan (Non-Employee Directors)
    
    10-K
    
    000-12867
    
    
    10.7
    
    
    8/5/0510.9
    
    Form of Stock Option Agreement for 2003
Stock Plan (Employees)*
    
    10-K
    
    000-12867
    
    
    10.8
    
    
    8/5/0510.10
    
    Form of Performance Accelerated Vesting
Restricted Stock Agreement*
    
    10-K
    
    000-12867
    
    
    10.9
    
    
    8/5/05
 91




---



##### Table of Contents



Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith10.11
    
    Form of Performance Vesting Restricted
Stock Agreement*
    
    10-Q
    
    000-12867
    
    
    10.6
    
    
    4/10/0610.12
    
    Form of Restricted Stock Grant Agreement 
Standard 4-Year Vesting*
    
    10-K
    
    000-12867
    
    
    10.10
    
    
    8/5/0510.13
    
    Form of Restricted Stock Agreement
(Time-Based Vesting)*
    
    8-K
    
    000-12867
    
    
    10.2
    
    
    11/17/0510.14
    
    R. Scott Murray Employment Agreement,
amended and restated as of February 2,
2006, between the registrant and R. Scott
Murray *
    
    8-K/A
    
    000-12867
    
    
    10.1
    
    
    2/6/0610.15
    
    Performance Vesting Restricted Stock
Agreement dated January 25, 2006 by and
between R. Scott Murray and 3Com
Corporation *
    
    10-Q
    
    000-12867
    
    
    10.7
    
    
    4/10/0610.16
    
    Offer Letter dated June 19, 2004 between
the Registrant and Donald M, Halsted III*
    
    
    
    
    
    
    
    
    
    
    
    X10.17
    
    Offer Letter dated September 12, 2003
between the Registrant and Neal D. Goldman*
    
    
    
    
    
    
    
    
    
    
    
    X10.18
    
    Offer Letter dated November 2, 2005 between
the Registrant and Marc Willebeek-LeMair*
    
    
    
    
    
    
    
    
    
    
    
    X10.19
    
    Employment Agreement with Bruce Claflin,
effective as of January 1, 2001*
    
    10-Q
    
    000-12867
    
    
    10.26
    
    
    1/16/0110.20
    
    Management Retention Agreement between the
Registrant and Bruce Claflin effective July
15, 2003*
    
    10-Q
    
    000-12867
    
    
    10.1
    
    
    1/12/0410.21
    
    Severance Agreement dated January 11, 2006
between the registrant and Bruce L. Claflin
*
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    1/11/0610.22
    
    Executive Officer Fiscal 2007 Compensation
    
    8-K
    
    000-12867
    
    Text of Item 1.01
    
    6/26/0610.23
    
    Section 16 Officer Severance Plan, Amended
and Restated Effective March 29, 2006 *
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    4/4/0610.24
    
    Executive Team Severance Plan effective
March 29, 2006 *
    
    8-K
    
    000-12867
    
    
    10.2
    
    
    4/4/0610.25
    
    Form of Severance Benefits Agreement *
    
    8-K
    
    000-12867
    
    
    10.3
    
    
    4/4/0610.26
    
    Form of Management Retention Agreement
between the Registrant and each of its
executive officers (other than Messrs.
Murray and Dechant)*
    
    10-K
    
    000-12867
    
    
    10.15
    
    
    8/5/0510.27
    
    3Com Corporation Deferred Compensation Plan*
    
    10-K
    
    000-12867
    
    
    10.23
    
    
    8/9/0410.28
    
    Form of Indemnity Agreement between the
Registrant and its officers and directors
    
    S-3/A
    
    333-102591
    
    
    10.1
    
    
    4/9/0310.29
    
    Office Lease, dated as of November 26,
2002, by and between Marlborough Campus
Limited Partnership and the Registrant
    
    10-K
    
    000-12867
    
    
    10.7
    
    
    8/9/0410.30
    
    First Amendment to Lease, dated as of
November 26, 2002, by and between
Marlborough Campus Limited Partnership and
the Registrant
    
    10-K
    
    000-12867
    
    
    10.17
    
    
    8/5/0510.31
    
    Second Amendment to Lease, dated as of July
18, 2005, by and between 3Com Corporation
and Marlborough Campus Limited Partnership
    
    10-Q
    
    000-12867
    
    
    10.2
    
    
    4/4/05
 92




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##### Table of Contents



Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith10.32
    
    Third Amendment to Lease, dated as of July
18, 2005, by and between 3Com Corporation
and Marlborough Campus Limited Partnership
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    7/22/0510.33
    
    Shareholders Agreement by and among
Shenzhen Huawei Investment & Holding Co.
Ltd., 3Com Technologies and Huawei-3Com
Co., Ltd. (the Shareholders Agreement)
dated as of November 15, 2003 (Certain
Portions Omitted; Confidential Treatment
Requested)
    
    
    
    
    
    
    
    
    
    
    
    X10.34
    
    Amendment No. 1 to the Shareholders
Agreement dated as of July 31, 2004
(Certain Potions Omitted; Confidential
Treatment Requested)
    
    
    
    
    
    
    
    
    
    
    
    X10.35
    
    Amendment No. 2 to the Shareholders
Agreement dated as of January 27, 2006
(Certain Portions Omitted; Confidential
Treatment Requested)
    
    
    
    
    
    
    
    
    
    
    
    X21.1
    
    Subsidiaries of Registrant
    
    
    
    
    
    
    
    
    
    
    
    X23.1
    
    Consent of Independent Registered Public
Accounting Firm  Deloitte & Touche LLP
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of Principal Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Principal Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification of Chief Executive Officer
and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
    
    
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    Indicates a management contract or compensatory plan or arrangement 93