8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (date of earliest event reported): November 21, 2002

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 000-25601
Commission File No.
77-0409517
(I.R.S. Employer
Identification Number)

1745 Technology Drive
San Jose, California 95110
(Address of principal executive offices)

(408) 487-8000
(Registrant’s telephone number, including area code)

TABLE OF CONTENTS

	ITEM 5. OTHER EVENTS
	ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURE
EXHIBIT INDEX
EXHIBIT 99.1

ITEM 5. OTHER EVENTS

On November 21, 2002, Brocade Communications Systems, Inc. issued a press release announcing financial results for its fourth quarter and fiscal year ended October 26, 2002. The press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

         (c)  Exhibits.

Exhibit 99.1 Brocade Communications Systems, Inc. Press Release issued November 21, 2002.

SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Brocade Communications Systems, Inc. (Registrant)
Date: November 25, 2002	By:	/s/ Antonio Canova
		Antonio Canova Vice President, Finance and Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number
99.1	Brocade Communications Systems, Inc. Press Release issued November 21, 2002.

EX-99.1 3 f86230exv99w1.htm EXHIBIT 99.1

Exhibit 99.1

BROCADE ANNOUNCES Q4 AND FISCAL 2002 FINANCIAL RESULTS

Storage Networking Leader Achieves 31 Percent Year over Year Revenue Growth in Q4 02;
Reports Record Revenue for Fiscal 2002 of $562.4 Million

SAN JOSE, Calif.—November 21, 2002—Brocade Communications Systems, Inc. (Brocade®) (Nasdaq: BRCD) announced today financial results for its fourth quarter ended October 26, 2002 (Q4 02). For Q4 02, net revenue was $153.1 million, an increase of 31 percent from $116.5 million reported in the fourth quarter of fiscal 2001 (Q4 01). This compares to $151.2 million reported in the third quarter of fiscal 2002 (Q3 02). For fiscal 2002 (FY 02), revenue was a record $562.4 million, an increase of 10 percent from $513.0 million reported in fiscal 2001 (FY 01).

Net income for Q4 02 was $15.7 million, or $0.07 per share. This compares to a net loss of $53.7 million for Q4 01 or $0.24 per share. For FY 02, net income was $59.7 million or $0.25 per share, as compared to net income of $2.8 million or $0.01 per share, reported in FY 01.

Deferred revenue at the end of Q4 02 was $22.4 million, an increase of $4.1 million from $18.3 million at the end of Q3 02. During Q4 02, gross margins were 58.5 percent.

During Q4 02 Brocade generated $20.6 million in cash flow from operations. For the year, cash flow from operations was $110.6 million. Excluding the proceeds from the convertible debt offering, cash and investments balances grew by $95.6 million for FY 02.

“As the storage networking market leader, we are pleased with our progress in expanding our leadership position in fiscal 2002. In a challenging economic environment we grew revenue and market share, expanded our intelligent platform for networking storage, increased our installed base to more than 2 million ports, strengthened our OEM relationships worldwide, and helped accelerate time to market for our broad ecosystem of partners,” said Greg Reyes, Brocade Chairman and CEO.

Brocade also announced today that it has realigned the organization and reduced its expense structure. Brocade expects these and other actions to result in a cost savings of more than $8 million in the first quarter of fiscal 2003. These actions include aligning the organization to better serve customers and streamlining management levels, resulting in a flatter, more efficient organization. These actions resulted in a workforce reduction of approximately 12 percent. Total employees worldwide is now approximately 1200.

Reyes continued, “Aligning the company required some difficult decisions, but we believe that we made the right decisions for the business. With the expense reduction plan that we have implemented, and the strategic investments that we continue to make in our business, we believe that we are well positioned as the economy recovers. Our technology and market leadership, large installed base, storage networking expertise, and the industry’s broadest ecosystem of application partners are a powerful combination that will uniquely position Brocade to lead the next phase of the evolution of the storage networking market.”

Conference Call Information

Brocade will host a conference call today, Thursday, November 21 at 1:30 p.m. Pacific Time to discuss these financial results. To participate in this conference call, please call (877) 407-2753 or (706) 634-7602 access code: “Brocade”. A simultaneous webcast of the conference call will be available at www.brocade.com/investors. An archive of the conference call will be available through Thursday, November 28 at (800) 642-1687 or (706) 645-9291, passcode 6273871.

About Brocade Communications Systems, Inc.

Brocade (Nasdaq: BRCD) offers the industry’s leading intelligent platform for networking storage. The world’s leading systems, applications, and storage vendors have selected Brocade to provide a networking foundation for their SAN solutions. The Brocade SilkWorm® family of fabric switches and software is designed to optimize data availability and storage and server resources in the enterprise. Using Brocade solutions, companies can simplify the implementation of storage area networks, reduce the total cost of ownership of data storage environments, and improve network and application efficiency. For more information, visit the Brocade website at www.brocade.com or contact the company at info@brocade.com.

Forward-Looking Safe Harbor Statement

This press release contains forward-looking statements, as defined under Federal Securities Laws. These forward-looking statements include statements regarding the company’s ability to reduce expenses, the company’s ability to make strategic investments, the demand and market for storage area networking products and the company’s investment in future products. These statements are just predictions and involve risks and uncertainties, such that actual results may differ significantly. These risks include, but are not limited to, quarterly fluctuations in our revenues and operating results; our failure to manage expansion effectively; our ability to develop new and enhanced products that achieve widespread market acceptance; the effect of competition, including pricing pressure; our failure to adequately anticipate future OEM and end-user product needs or to accurately forecast end-user demand; risks associated with increased international sales activity; the existence of undetected errors in our products; our dependence on OEM customers; our failure to extend distribution channels or to manage distribution relationships;

adverse changes in our relationship with Solectron Corporation, the sole manufacturer of many of our products; our dependence on sole source and limited source suppliers for certain key components including ASICs and power supplies; possible fluctuations in future expenses. These and other risks are set forth in more detail in the Company’s Form 10-K for the year ended October 27, 2001 and the Company’s Form 10-Q for the quarter ended July 27, 2002. Brocade expressly assumes no obligation to update any such forward-looking statements.

###

Brocade, the B weave logo and SilkWorm are registered trademarks of Brocade Communications Systems, Inc. or its subsidiaries in the United States or in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners. All products, plans, and dates are subject to change without notice.

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

				October 26,			October 27,
				2002			2001
Assets
Current assets:
	Cash and cash equivalents			$	516,535		$	150,118
	Short-term investments				50,988			105,030
		Total cash, cash equivalents, and short-term investments			567,523			255,148
	Marketable equity securities				226			332
	Accounts receivable, net				97,707			68,900
	Inventories, net				5,402			10,307
	Deferred tax assets, net				28,418			28,025
	Prepaid expenses and other current assets				16,429			10,022
		Total current assets			715,705			372,734
Long-term investments					320,865			—
Property and equipment, net					143,625			97,457
Deferred tax assets, net					221,878			207,209
Convertible subordinated debt issuance costs					10,274			—
Other assets					9,316			6,322
			Total assets	$	1,421,663		$	683,722
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable			$	57,538		$	25,082
	Accrued employee compensation				23,930			21,994
	Deferred revenue				22,430			12,630
	Current liabilities associated with lease losses				8,204			11,339
	Other accrued liabilities				49,364			43,895
		Total current liabilities			161,466			114,940
Non-current liabilities associated with lease losses					22,602			30,896
Convertible subordinated debt					550,000			—
Stockholders’ equity:
	Common stock				577,406			493,968
	Deferred stock compensation				(69	)		(1,038	)
	Accumulated other comprehensive income				6,078			522
	Retained earnings				104,180			44,434
		Total stockholders’ equity			687,595			537,886
			Total liabilities and stockholders’ equity	$	1,421,663		$	683,722

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

			Three Months Ended						Fiscal Year Ended
			October 26,			October 27,			October 26,			October 27,
			2002			2001 (1)			2002			2001 (1)
Net revenues			$	153,107		$	116,521		$	562,369		$	513,030
Cost of revenues				63,464			54,345			226,414			212,956
		Gross margin		89,643			62,176			335,955			300,074
Operating expenses:
	Research and development			36,682			28,797			132,205			110,749
	Sales and marketing			35,408			25,299			118,130			94,931
	General and administrative			4,697			4,364			18,836			17,737
	Amortization of deferred compensation			242			242			969			1,082
	Facilities lease losses and other charges			—			49,888			—			49,888
		Total operating expenses		77,029			108,590			270,140			274,387
Income (loss) from operations				12,614			(46,414	)		65,815			25,687
Interest and other income, net				5,845			1,485			22,668			8,207
Interest expense				(3,370	)		—			(11,427	)		—
Gain (loss) on investments, net				7,095			(18,024	)		7,095			(16,092	)
		Income (loss) before income taxes		22,184			(62,953	)		84,151			17,802
Provision for (benefit from) income taxes				6,435			(9,273	)		24,405			14,954
Net income (loss)			$	15,749		$	(53,680	)	$	59,746		$	2,848
Net income (loss) per share – basic			$	0.07		$	(0.24	)	$	0.26		$	0.01
Net income (loss) per share – diluted			$	0.07		$	(0.24	)	$	0.25		$	0.01
Shares used in per share calculation – basic				233,905			225,350			231,591			221,051
Shares used in per share calculation – diluted				237,830			225,350			242,962			243,162

⁽¹⁾ The three months and year ended October 27, 2001 include the impact of the following items recorded during the three months ended October 27, 2001: charges to cost of revenues of $7.7 million primarily associated with the accrual of purchase commitments for excess inventory components related to a transition of product offerings from 1 to 2 Gigabit per second (Gbit/sec) technology; charges included in operating expenses of $45.5 million related to estimated facilities lease losses and the impairment of certain related leasehold improvements following a comprehensive evaluation of real estate facility requirements; charges included in operating expenses of $4.4 million related to the impairment of equipment no longer used in research and development and sales and marketing efforts associated with a transition of product offerings from 1 to 2 Gbit/sec technology and other charges; and losses on investments of $19.5 million related to other-than-temporary declines in the fair value of private minority equity investments in non-publicly traded companies as a result of significant deterioration in the private equity markets, and related adjustment for income tax provisions. The above charges and resulting income tax effects resulted in reductions to net income per share on a diluted basis of $0.29 and $0.27 for the three months and year ended October 27, 2001, respectively.

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EX-99.1

Exhibit 99.1