EX-99.1 3 f92435exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 [BROCADE LOGO] FOR IMMEDIATE RELEASE BROCADE CONTACTS INVESTOR RELATIONS MEDIA RELATIONS Shirley Stacy Lee Davis Tel: 408.333.5752 Tel: 408-333-5177 sstacy@brocade.com ldavis@brocade.com BROCADE REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS STORAGE NETWORKING LEADER INCREASES REVENUE, NET INCOME, AND EPS ON A SEQUENTIAL BASIS SAN JOSE, CALIF. -- AUGUST 13, 2003 -- Brocade Communications Systems, Inc. (Brocade(R)) (Nasdaq: BRCD) reported today financial results for its third quarter of fiscal year 2003 (Q3 03), which ended July 26, 2003. Net revenue for Q3 03 was $133.5 million, an increase from the $130.9 million reported in the second quarter of fiscal year 2003 (Q2 03). Net revenue reported in the third quarter of fiscal year 2002 (Q3 02) was $151.2 million. Non-GAAP net income for Q3 03 was $2.0 million, or $0.01 per share, as compared to a non-GAAP net loss of $1.0 million or $0.00 per share in Q2 03. Non-GAAP net income for Q3 03 excludes deferred stock compensation related to the acquisition of Rhapsody Networks, Inc. (Rhapsody) that was completed in Q2 03. A reconciliation between GAAP and non-GAAP information is contained in the tables below. Reporting on a Generally Accepted Accounting Principles (GAAP) basis, net income for Q3 03 was $1.9 million, or $0.01 per share. This compares to a GAAP net loss for Q2 03 of $146.0 million, or $0.57 per share, and GAAP net income of $18.3 million or $0.08 per share in Q3 02. There was no difference between GAAP and non-GAAP net income in Q3 02. "We are pleased with our results for our third fiscal quarter in which we delivered increased revenue, operating income, and earnings per share to our shareholders," said Greg Reyes, Brocade Chairman and CEO. "Although the economic environment continues to be challenging, storage area networking remains an important area of IT investment as companies optimize their storage, server and application infrastructures to reduce cost and improve productivity. The actions that we have taken over the last several quarters have resulted in a more efficient and flexible business model more closely aligned with our go to market strategy. Moving forward, we are confident of our market position, and believe that we are well positioned for continued revenue and earnings growth." Q3 03 FINANCIAL HIGHLIGHTS - Cash and investments were $909.1 million at the end of Q3 03, an increase of $4.4 million from Q2 03. BROCADE COMMUNICATIONS SYSTEMS, INC. 1745 Technology Dr. San Jose, CA 95110 T 408.487.8000 F 408.487.8101 www.brocade.com BROCADE REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS PAGE 2 - Days sales outstanding (DSO) in accounts receivable at the end of Q3 03 were 52 days, compared to 46 days at the end of Q2 03. Brocade's historical range of DSO has been between 50 and 60 days. - Brocade completed a voluntary stock option exchange program (Exchange Program) for employees. In accordance with the Exchange Program, during Q3 03 Brocade issued 26.6 million new stock options in exchange for 58.7 million stock options that were cancelled during Q1 03. The non-GAAP, formerly pro forma, information provided in this press release is a supplement to, and not a substitute for, our financial results presented in accordance with GAAP. The non-GAAP results exclude certain expenses and income to provide what we believe is a more complete understanding of our underlying operational results and trends. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses relating to our acquisition of Rhapsody and the restructuring of business operations that we believe are not indicative of our core operating results. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting of future periods. Brocade management refers to these non-GAAP financial measures in making decisions regarding the Company's operational performance and to facilitate internal comparisons to the Company's historical operating results and to competitors' operating results. CONFERENCE CALL Brocade will host a conference call on Wednesday, August 13, 2003, at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time to discuss its third quarter fiscal year 2003 results. The conference call will also be web cast live via the Internet at www.brocade.com/investors. A replay of the conference call will be available via web cast for twelve months at www.brocade.com/investors. 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(R) 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. BROCADE REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS PAGE 3 CAUTIONARY STATEMENT This press release contains forward-looking statements, as defined under Federal Securities Laws. These forward-looking statements include statements regarding the company's future market position, revenue, earnings and profitability. 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; the effect of changes in IT spending levels; the effect of competition, including pricing pressure; our dependence on OEM partners; declines in the prices of our products; our ability to develop new and enhanced products that achieve widespread market acceptance; our ability to manage the transition between new and older products; risks associated with international political instability; our failure to manage expansion effectively; 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; our failure to manage distribution channels and relationships; the loss of our third-party contract manufacturers; our dependence on sole source and limited source suppliers for certain key components including ASICs, microprocessors, logic chips and programmable logic devices; the existence of undetected errors in our products; risks related to our acquisition of Rhapsody; and possible fluctuations in future expenses. These and other risks are set forth in more detail in the Company's reports on Form 10-Q for the fiscal quarter ended April 26, 2003 and on Form 10-K for the fiscal year ended October 26, 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 REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS PAGE 4 BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RECONCILIATION OF GAAP TO NON-GAAP OPERATING RESULTS (*) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED JULY 26, 2003 ---------------------------------------- JULY 27, 2002 GAAP ADJUSTMENTS NON-GAAP GAAP (**) --------- ----------- --------- --------- Net revenues $ 133,458 $ -- $ 133,458 $ 151,234 Cost of revenues 61,226 -- 61,226 60,299 --------- --------- --------- --------- Gross margin 72,232 -- 72,232 90,935 Operating expenses: Research and development 37,158 -- 37,158 33,209 Sales and marketing 27,526 -- 27,526 30,338 General and administrative 5,539 -- 5,539 4,756 Restructuring costs (15) 15 (a) -- -- Amortization of deferred stock compensation 213 (213)(b) -- 243 --------- --------- --------- --------- Total operating expenses 70,421 (198) 70,223 68,546 --------- --------- --------- --------- Income from operations 1,811 198 2,009 22,389 Interest and other income, net 4,290 -- 4,290 6,827 Interest expense (3,417) -- (3,417) (3,387) --------- --------- --------- --------- Income before provision for income taxes 2,684 198 2,882 25,829 Income tax provision 773 63 (d) 836 7,481 --------- --------- --------- --------- Net income $ 1,911 $ 135 $ 2,046 $ 18,348 ========= ========= ========= ========= Net income per share - basic $ 0.01 $ 0.01 $ 0.08 ========= ========= ========= Net income per share - diluted $ 0.01 $ 0.01 $ 0.08 ========= ========= ========= Shares used in per share calculation - basic 255,873 255,873 233,017 ========= ========= ========= Shares used in per share calculation - diluted 259,444 259,444 240,106 ========= ========= =========
BROCADE REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS PAGE 5 BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RECONCILIATION OF GAAP TO NON-GAAP OPERATING RESULTS (*) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
NINE MONTHS ENDED JULY 26, 2003 ---------------------------------------- JULY 27, 2002 GAAP ADJUSTMENTS NON-GAAP GAAP (**) --------- ----------- --------- --------- Net revenues $ 387,520 $ -- $ 387,520 $ 409,262 Cost of revenues 178,511 -- 178,511 162,950 --------- --------- --------- --------- Gross margin 209,009 -- 209,009 246,312 Operating expenses: Research and development 105,576 -- 105,576 95,523 Sales and marketing 90,249 -- 90,249 82,722 General and administrative 15,805 -- 15,805 14,139 Restructuring costs 20,991 (20,991)(a) -- -- Amortization of deferred stock compensation 494 (425)(b) 69 727 In-process research and development 134,898 (134,898)(c) -- -- --------- --------- --------- --------- Total operating expenses 368,013 (156,314) 211,699 193,111 --------- --------- --------- --------- Income (loss) from operations (159,004) 156,314 (2,690) 53,201 Interest and other income, net 14,720 -- 14,720 16,823 Interest expense (10,129) -- (10,129) (8,057) --------- --------- --------- --------- Income (loss) before provision for income taxes (154,413) 156,314 1,901 61,967 Income tax (benefit) provision (3,417) 3,968(d) 551 17,970 --------- --------- --------- --------- Net income (loss) $(150,996) $ 152,346 $ 1,350 $ 43,997 ========= ========= ========= ========= Net income (loss) per share - basic $ (0.61) $ 0.01 $ 0.19 ========= ========= ========= Net income (loss) per share - diluted $ (0.61) $ 0.01 $ 0.18 ========= ========= ========= Shares used in per share calculation - basic 248,486 248,486 230,819 ========= ========= ========= Shares used in per share calculation - diluted 248,486 251,634 244,672 ========= ========= =========
(*) The non-GAAP, formerly pro-forma, information provided in this press release is a supplement to, and not a substitute for, our financial results presented in accordance with GAAP. The non-GAAP results exclude certain expenses and income to provide what we believe is a more complete understanding of our underlying operational results and trends. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses relating to our acquisition of Rhapsody and the restructuring of business operations that we believe are not indicative of our core operating results. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting of future periods. Brocade management refers to these non-GAAP financial measures in making decisions regarding the Company's operational performance and to facilitate internal comparisons to the Company's historical operating results and to competitors' operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. BROCADE REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS PAGE 6 (**) For the three- and nine-month periods ended July 27, 2002, there were no differences between GAAP and non-GAAP results. (a) Severance and related benefits, asset impairment charges, and contract termination charges related to the restructuring of business operations. (b) Deferred stock compensation related to the acquisition of Rhapsody. (c) In-process research and development costs related to the acquisition of Rhapsody. (d) Income tax effects associated with non-GAAP adjustments. BROCADE REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS PAGE 7 BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
JULY 26, OCTOBER 26, 2003 2002 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 487,580 $ 516,535 Short-term investments 71,039 50,988 ------------ ------------ Total cash, cash equivalents, and short-term investments 558,619 567,523 Marketable equity securities 757 226 Accounts receivable, net 76,866 97,707 Inventories, net 4,529 5,402 Deferred tax assets, net 28,418 28,418 Prepaid expenses and other current assets 11,836 16,429 ------------ ------------ Total current assets 681,025 715,705 Long-term investments 350,443 320,865 Property and equipment, net 129,113 143,625 Deferred tax assets, net 221,489 221,878 Convertible subordinated debt issuance costs 8,424 10,274 Other assets 3,794 9,316 ------------ ------------ Total assets $ 1,394,288 $ 1,421,663 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 46,613 $ 57,538 Accrued employee compensation 26,344 23,930 Deferred revenue 20,183 22,430 Current liabilities associated with lease losses 8,260 8,204 Other accrued liabilities 39,939 49,364 ------------ ------------ Total current liabilities 141,339 161,466 Non-current liabilities associated with lease losses 18,277 22,602 Convertible subordinated debt 550,000 550,000 Stockholders' equity: Common stock 725,713 577,406 Deferred stock compensation (1,252) (69) Accumulated other comprehensive income 7,027 6,078 Accumulated earnings (deficit) (46,816) 104,180 ------------ ------------ Total stockholders' equity 684,672 687,595 ------------ ------------ Total liabilities and stockholders' equity $ 1,394,288 $ 1,421,663 ============ ============
BROCADE REPORTS THIRD QUARTER FISCAL 2003 FINANCIAL RESULTS PAGE 8 BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RECONCILIATION OF GAAP TO NON-GAAP OPERATING RESULTS (*) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED APRIL 26, 2003 ----------------------------------------- GAAP ADJUSTMENTS NON-GAAP --------- ---------- ---------- Net revenues $ 130,946 $ -- $ 130,946 Cost of revenues 60,262 -- 60,262 --------- --------- --------- Gross margin 70,684 -- 70,684 Operating expenses: Research and development 36,548 -- 36,548 Sales and marketing 31,962 -- 31,962 General and administrative 5,304 -- 5,304 Restructuring costs 10,888 (10,888)(a) -- Amortization of deferred stock compensation 212 (212)(b) -- In-process research and development 134,898 (134,898)(c) -- --------- --------- --------- Total operating expenses 219,812 (145,998) 73,814 --------- --------- --------- Loss from operations (149,128) 145,998 (3,130) Interest and other income, net 5,097 -- 5,097 Interest expense (3,362) -- (3,362) --------- --------- --------- Income (loss) before provision for income taxes (147,393) 145,998 (1,395) Income tax (benefit) provision (1,376) 971 (d) (405) --------- --------- --------- Net income (loss) $(146,017) $ 145,027 $ (990) ========= ========= ========= Net income (loss) per share - basic $ (0.57) $ 0.00 ========= ========= Net income (loss) per share - diluted $ (0.57) $ 0.00 ========= ========= Shares used in per share calculation - basic 254,687 254,687 ========= ========= Shares used in per share calculation - diluted 254,687 254,687