EX-99.1 2 brcd-8keprxfy13q4xex991.htm PRESS RELEASE BRCD-8K EPR - FY13Q4 - Ex 99.1

Exhibit 99.1
BROCADE CONTACTS
 
 
Public Relations
John Noh
Tel: 408-333-5108
jnoh@brocade.com
Investor Relations
Ben Jones
Tel: 408-333-6601
bjones@brocade.com
Brocade Reports Fourth Quarter and Fiscal 2013 Earnings
FY2013 GAAP EPS increased 10% Yr./Yr. and non-GAAP EPS increased 21% Yr./Yr.
SAN JOSE, Calif., November 18, 2013 — Brocade® (NASDAQ: BRCD) today reported financial results for its fourth quarter and full fiscal year 2013 ended October 26, 2013. Brocade reported fourth quarter revenue of $559 million, representing a decrease of 3% year-over-year and an increase of 4% quarter-over-quarter. Revenue for fiscal year 2013 was $2,223 million, down 1% year-over-year. The resulting GAAP diluted earnings-per-share (EPS) was $0.14 for Q4 and $0.45 for fiscal 2013, up 27% and 10% year-over-year, respectively. Non-GAAP diluted EPS was $0.24 for Q4 and $0.80 for fiscal 2013, up 41% and 21% year-over-year, respectively.
“Q4 was a quarter in which we executed successfully across many facets of our business strategy,” said Lloyd Carney, CEO of Brocade. “We exceeded expectations for non-GAAP operating margin, non-GAAP EPS, and cash flow despite the U.S. Federal budget issues and continued softness in the overall storage market. This resulted in record non-GAAP net income and non-GAAP EPS for both Q4 and fiscal 2013. Our solid performance in our fourth quarter was a great end to a transformative year for Brocade. I am pleased with the focus and execution of our team and excited about building upon our success in fiscal year 2014 and beyond."
Summary of Q4 and fiscal 2013 results:
Q4 2013 Storage Area Networking (SAN) business revenue, including products and services, was $380 million, down 4% year-over-year and up 3% quarter-over-quarter. The lower year-over-year SAN business revenue was impacted by continued soft demand in the overall storage market. Brocade Gen 5 (16 Gbps) Fibre Channel products represented 69% of director and switch revenue in the quarter, up from 34% in Q4 2012. Fiscal 2013 SAN business revenue was $1,540 million, down 2% year-over-year.
Q4 2013 IP Networking business revenue, including products and services, was $179 million, down 3% year-over-year and up 7% quarter-over-quarter. From a product standpoint, Ethernet switch revenue was down 8% year-over-year and up 4% quarter-over-quarter, while routing revenue was up 1% year-over-year and up 28% quarter-over-quarter. From a customer standpoint, both Service Provider and Enterprise revenues were up sequentially and year-over-year. Federal revenue was up sequentially, but down year-over-year in a challenging Federal spending environment. Fiscal 2013 IP Networking business revenue was $682 million, up 3% year-over-year.
Q4 2013 GAAP gross margin was 64.9%, compared to 62.4% in Q4 2012 and 63.0% in Q3 2013. Non-GAAP gross margin was 67.2%, compared to 64.8% in Q4 2012 and 65.6% in Q3 2013. Fiscal 2013 GAAP and non-GAAP gross margin improved to 63.4% and 66.0%, respectively, compared to 61.8% and 64.5%, respectively, in fiscal 2012. The year-over-year and sequential improvements in gross margin were due to a favorable product mix within the IP Networking business and lower manufacturing and overhead costs.
Q4 2013 GAAP operating margin was 15.0%, compared to 14.9% in Q4 2012 and 13.9% in Q3 2013, and includes $25 million in restructuring and related costs. Non-GAAP operating margin was 26.6% in Q4 2013, compared to 22.5% in Q4 2012 and 21.6% in Q3 2013. Fiscal 2013 GAAP and non-GAAP operating margin improved to 13.9% and 22.7%, respectively, compared to 12.4% and 20.5%, respectively, in fiscal 2012. The year-over-year and sequential improvements in operating margin were a result of expanded gross margin and lower operating expenses. Based on the Q4 2013 results, the Company has achieved its spending reduction goal of $100 million in annualized savings, as compared to Q1 2013.
Q4 2013 GAAP net income was $64 million, compared to $54 million in Q4 2012 and $119 million in Q3 2013. Non-GAAP net income was $109 million, compared to $78 million in Q4 2012 and $87 million in Q3 2013. Fiscal 2013 GAAP and non-GAAP net income increased to $209 million and $373 million, respectively, compared to $195 million and $311 million, respectively, in fiscal 2012.


Page 1 of 12


Average diluted shares outstanding for Q4 2013 were 14.0 million lower compared to Q4 2012 and down slightly from Q3 2013. The Company repurchased 41.2 million shares ($240 million) during fiscal 2013, including 7.8 million shares ($53 million) in Q4 2013. Share repurchases in Q1 2014 to date total 8.1 million ($65 million).
Operating cash flow was $170 million in Q4 2013, down 19% year-over-year and up 66% quarter-over-quarter. Fiscal 2013 operating cash flow was $451 million, down 24% year-over-year. The changes in cash flow for Q4 2013 and fiscal 2013 are due to an increase in accounts receivable and timing of variable compensation payments. During the quarter, the Company received a $71 million payment relating to the A10 Networks litigation settlement and ended the year with a cash balance of $987 million or $382 million, net of senior debt and capitalized leases.
Brocade management will host a conference call today at 2:30 p.m. PT (5:30 p.m. ET) to discuss Q4 and fiscal 2013 results, as well as a Q1 2014 outlook. To access the webcast please go to www.brcd.com/events.cfm. A replay of the conference call and the prepared comments and slides will be available at www.brcd.com.
Other Q4 2013 product, customer, and partner announcements are available at http://newsroom.brocade.com/.

Financial Highlights and Additional Financial Information
 
Q4 2013
 
Q3 2013
 
Q4 2012
Revenue
$
559
M
 
$
537
M
 
$
578
M
GAAP net income
$
64
M
 
$
119
M
 
$
54
M
Non-GAAP net income
$
109
M
 
$
87
M
 
$
78
M
GAAP EPS — diluted
$
0.14

 
$
0.26

 
$
0.11

Non-GAAP EPS — diluted
$
0.24

 
$
0.19

 
$
0.17

GAAP gross margin
64.9
%
 
63.0
%
 
62.4
%
Non-GAAP gross margin
67.2
%
 
65.6
%
 
64.8
%
GAAP operating income
$
84
M
 
$
74
M
 
$
86
M
Non-GAAP operating income
$
148
M
 
$
116
M
 
$
130
M
GAAP operating margin
15.0
%
 
13.9
%
 
14.9
%
Non-GAAP operating margin
26.6
%
 
21.6
%
 
22.5
%
Adjusted EBITDA (1)
$
149
M
 
$
213
M
 
$
153
M
Effective GAAP tax provision rate
14.2
%
 
16.3
%
 
25.1
%
Effective Non-GAAP tax provision rate
21.6
%
 
18.2
%
 
32.4
%
Cash provided by operations
$
170
M
 
$
102
M
 
$
210
M
Storage Area Networking (SAN) port shipments
1.1
M
 
1.0
M
 
1.1
M
Please see important note of explanation on non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
1)
Adjusted EBITDA is as defined in the Term Debt Credit Agreement.

Page 2 of 12


Financial Highlights and Additional Financial Information (Continued)
 
Q4 2013
 
Q3 2013
 
Q4 2012
Routes to market as a % of total net revenues:
 
 
 
 
 
OEM revenues
65
%
 
66
%
 
65
%
Channel/Direct revenues
35
%
 
34
%
 
35
%
10% or greater customer revenues
46
%
 
47
%
 
46
%
Geographic split as a % of total net revenues:
 
 
 
 
 
Domestic revenues
62
%
 
61
%
 
63
%
International revenues
38
%
 
39
%
 
37
%
Segment split as a % of total net revenues:
 
 
 
 
 
SAN product revenues
58
%
 
59
%
 
59
%
IP Networking product revenues
26
%
 
25
%
 
26
%
Global Services revenues
16
%
 
16
%
 
15
%
SAN business revenues (2)
68
%
 
69
%
 
68
%
IP Networking business revenues (2)
32
%
 
31
%
 
32
%
Estimates as a % of IP Networking business revenues:
 
 
 
 
 
Enterprise, excluding Federal
54
%
 
55
%
 
45
%
Federal
13
%
 
12
%
 
24
%
Service Provider
33
%
 
33
%
 
31
%
Additional information:
Q4 2013
 
Q3 2013
 
Q4 2012
Cash and cash equivalents
$
987
M
 
$
790
M
 
$
713
M
Deferred revenues
$
303
M
 
$
300
M
 
$
293
M
Capital expenditures
$
10
M
 
$
10
M
 
$
17
M
Total debt, net of discount
$
599
M
 
$
599
M
 
$
601
M
Cash, net of senior debt and capitalized leases
$
382
M
 
$
186
M
 
$
108
M
Days sales outstanding
41 days
 
37 days
 
37 days
Employees at end of period (3)
4,169
 
4,565
 
4,536
2) SAN and IP Networking business revenues include product, support and services revenues.
3)  Q4 2013 ending headcount excludes 224 employees that were notified of their termination during the quarter, but were still on Brocade payroll as of the end of the quarter.



Page 3 of 12


Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. In evaluating Brocade's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.
Management believes that non-GAAP financial measures used in this press release allow management to gain a better understanding of Brocade's comparative operating performance both from period to period, and to its competitors' operating results. Management also believes these non-GAAP financial measures help indicate Brocade's baseline performance before gains, losses or charges that are considered by management to be outside ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations performance and the allocation of resources. Management believes these non-GAAP financial measures, when read in conjunction with Brocade's GAAP financials, provide useful information to investors by offering:
the ability to make more meaningful period-to-period comparisons of Brocade's ongoing operating results;
the ability to make more meaningful comparisons of Brocade's operating performance against industry and competitor companies;
the ability to better identify trends in Brocade's underlying business and to perform related trend analysis;
a better understanding of how management plans and measures Brocade's underlying business; and
an easier way to compare Brocade's most recent results of operations against investor and analyst financial models.
Management excludes certain gains or losses and benefits or costs in determining non-GAAP net income that are the result of infrequent events or arise outside the ordinary course of Brocade's continuing operations. Management believes that it is appropriate to evaluate Brocade's operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include, but are not limited to: (i) legal provision or recovery associated with certain pre-acquisition litigation, (ii) legal fees associated with indemnification obligations and other related costs, net, (iii) call premium cost and original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing, (iv) settlement gain associated with certain pre-acquisition related litigation, (v) restructuring and related costs, net and (vi) specific non-cash and non-recurring tax benefits or detriments.
Management also excludes the following non-cash charges in determining non-GAAP net income (i) stock-based compensation expense and (ii) amortization of purchased intangible assets. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, management believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Management also believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for Brocade's newly acquired and long-held businesses.
Finally, management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.
Limitations These non-GAAP financial measures have limitations, however, because they do not include all items of income and expense that impact the Company. Management compensates for these limitations by also considering Brocade's GAAP results. The non-GAAP financial measures that Brocade uses are not prepared in accordance with, and should not be considered an alternative to measurements required by GAAP, such as operating income, net income and net income per-share, and should not be considered measurements of Brocade's liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies.

Page 4 of 12


Cautionary Statement
This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s strategy, business prospects, organizational and business alignment, profitability, expense management, cash flow, and market conditions. These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, changes in IT spending levels in one or more of our target markets including the data center, Federal government and service provider sectors, customer acceptance of Brocade’s Ethernet fabric solutions, Brocade’s ability to continue to successfully innovate new products and services on a timely basis and achieve widespread market acceptance, and the effect of increasing market competition and changes in the industry. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 27, 2013 and in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 27, 2012. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.
About Brocade
Brocade (NASDAQ: BRCD) networking solutions help the world’s leading organizations transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)
ADX, AnyIO, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, ICX, MLX, MyBrocade, OpenScript, VCS, VDX, and Vyatta are registered trademarks, and HyperEdge, The Effortless Network, and The On-Demand Data Center are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned may be trademarks of their respective owners.

© 2013 Brocade Communications Systems, Inc. All Rights Reserved.


Page 5 of 12


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
 
For the Year Ended
 
October 26,
2013
 
October 27,
2012
 
October 26,
2013
 
October 27,
2012
 
(In thousands, except per-share amounts)
Net revenues
 
 
 
 
 
 
 
Product
$
468,581

 
$
491,169

 
$
1,870,567

 
$
1,890,856

Service
90,219

 
87,188

 
352,297

 
346,914

Total net revenues
558,800

 
578,357

 
2,222,864

 
2,237,770

Cost of revenues
 
 
 
 
 
 
 
Product
158,947

 
176,635

 
658,362

 
689,856

Service
37,213

 
41,032

 
155,623

 
164,895

Total cost of revenues
196,160

 
217,667

 
813,985

 
854,751

Gross margin
362,640

 
360,690

 
1,408,879

 
1,383,019

Operating expenses:
 
 
 
 
 
 
 
Research and development
89,433

 
90,310

 
378,521

 
363,090

Sales and marketing
134,090

 
150,581

 
567,637

 
608,502

General and administrative
16,878

 
18,831

 
74,518

 
74,583

Amortization of intangible assets
13,125

 
14,737

 
54,256

 
59,204

Restructuring, integration and indemnification costs (recoveries)
25,464

 
(89
)
 
25,464

 
(89
)
Total operating expenses
278,990

 
274,370

 
1,100,396

 
1,105,290

Income from operations
83,650

 
86,320

 
308,483

 
277,729

Interest expense
(9,214
)
 
(14,684
)
 
(55,261
)
 
(52,488
)
Interest and other income (loss), net
458

 
505

 
77,239

 
(840
)
Income before income tax
74,894

 
72,141

 
330,461

 
224,401

Income tax expense
10,661

 
18,140

 
121,838

 
29,220

Net income
$
64,233

 
$
54,001

 
$
208,623

 
$
195,181

Net income per-share — basic
$
0.14

 
$
0.12

 
$
0.46

 
$
0.43

Net income per-share — diluted
$
0.14

 
$
0.11

 
$
0.45

 
$
0.41

Shares used in per-share calculation — basic
444,642

 
459,333

 
450,516

 
456,629

Shares used in per-share calculation — diluted
460,237

 
474,213

 
463,705

 
472,343


Page 6 of 12


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
For the Year Ended
 
October 26,
2013
 
October 27,
2012
 
October 26,
2013
 
October 27,
2012
 
(In thousands)
Net income
$
64,233

 
$
54,001

 
$
208,623

 
$
195,181

Other comprehensive income and loss, net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized gains and losses
1,250

 
4,332

 
(1,748
)
 
(3,468
)
Net gains and losses reclassified into earnings
(162
)
 
2,411

 
(376
)
 
7,433

Net unrealized gains (losses) on cash flow hedges
1,088

 
6,743

 
(2,124
)
 
3,965

Foreign currency translation adjustments
2,156

 
2,594

 
(1,456
)
 
(1,833
)
Total other comprehensive income (loss)
3,244

 
9,337

 
(3,580
)
 
2,132

Total comprehensive income
$
67,477

 
$
63,338

 
$
205,043

 
$
197,313




Page 7 of 12


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
October 26, 2013
 
October 27, 2012
 
(In thousands, except par value)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
986,997

 
$
713,226

Accounts receivable, net of allowances for doubtful accounts of $575 and $833 at October 26, 2013, and October 27, 2012, respectively
249,598

 
233,139

Inventories
45,344

 
68,179

Deferred tax assets
98,018

 
91,539

Prepaid expenses and other current assets
42,846

 
49,496

Total current assets
1,422,803

 
1,155,579

Property and equipment, net
472,940

 
518,940

Goodwill
1,645,437

 
1,624,089

Intangible assets, net
40,258

 
109,265

Non-current deferred tax assets
1,585

 
136,175

Other assets
38,368

 
37,213

Total assets
$
3,621,391

 
$
3,581,261

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
88,218

 
$
117,350

Accrued employee compensation
145,996

 
182,597

Deferred revenue
226,696

 
216,283

Current restructuring liabilities
16,418

 
976

Current portion of long-term debt
2,996

 
1,977

Other accrued liabilities
80,339

 
91,285

Total current liabilities
560,663

 
610,468

Long-term debt, net of current portion
596,208

 
599,203

Non-current restructuring liabilities
1,008

 
1,606

Non-current deferred revenue
76,426

 
76,907

Non-current income tax liability
38,680

 
55,387

Other non-current liabilities
1,593

 
1,870

Total liabilities
1,274,578

 
1,345,441

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding

 

Common stock, $0.001 par value, 800,000 shares authorized:
 
 
 
Issued and outstanding: 445,285 and 456,913 shares at October 26, 2013, and October 27, 2012, respectively
445

 
457

Additional paid-in capital
1,915,152

 
2,009,190

Accumulated other comprehensive loss
(13,444
)
 
(9,864
)
Retained earnings
444,660

 
236,037

Total stockholders’ equity
2,346,813

 
2,235,820

Total liabilities and stockholders’ equity
$
3,621,391

 
$
3,581,261



Page 8 of 12


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
October 26,
2013
 
October 27,
2012
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
64,233

 
$
54,001

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Excess tax (benefits) detriments from stock-based compensation
3,720

 
(3,803
)
Depreciation and amortization
45,109

 
47,535

Loss on disposal of property and equipment
2,679

 
479

Amortization of debt issuance costs and original issue discount
277

 
4,021

Net gains on investments

 
(144
)
Provision for doubtful accounts receivable and sales allowances
2,324

 
1,768

Non-cash compensation expense
16,527

 
18,423

Changes in assets and liabilities:
 
 
 
Accounts receivable
(33,459
)
 
(3,753
)
Inventories
5,258

 
6,755

Prepaid expenses and other assets
3,016

 
1,312

Deferred tax assets
4,481

 
1,075

Accounts payable
(7,118
)
 
(756
)
Accrued employee compensation
24,598

 
42,125

Deferred revenue
2,649

 
13,367

Other accrued liabilities
20,026

 
28,315

Current restructuring liabilities
15,449

 
(228
)
Net cash provided by operating activities
169,769

 
210,492

Cash flows from investing activities:
 
 
 
Proceeds from maturities and sale of short-term investments

 
952

Purchases of property and equipment
(10,422
)
 
(16,792
)
Proceeds from collection of convertible note receivable
70,000

 

Net cash provided by (used in) investing activities
59,578

 
(15,840
)
Cash flows from financing activities:
 
 
 
Payment of principal related to the term loan

 
(30,000
)
Payment of principal related to capital leases
(91
)
 
(477
)
Common stock repurchases
(52,640
)
 
(60,056
)
Proceeds from issuance of common stock
21,913

 
22,319

Excess tax benefits (detriments) from stock-based compensation
(3,720
)
 
3,803

Net cash used in financing activities
(34,538
)
 
(64,411
)
Effect of exchange rate fluctuations on cash and cash equivalents
2,095

 
2,359

Net increase in cash and cash equivalents
196,904

 
132,600

Cash and cash equivalents, beginning of period
790,093

 
580,626

Cash and cash equivalents, end of period
$
986,997

 
$
713,226


Page 9 of 12


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
For the Year Ended
 
October 26,
2013
 
October 27,
2012
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
208,623

 
$
195,181

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Excess tax benefits from stock-based compensation
(3,189
)
 
(5,141
)
Non-cash tax charges
78,206

 

Depreciation and amortization
184,114

 
192,218

Loss on disposal of property and equipment
6,709

 
883

Amortization of debt issuance costs and original issue discount
1,214

 
7,788

Original issue discount and debt issuance costs related to lenders that did not participate in refinancing
5,360

 

Net gains on investments

 
(179
)
Provision for doubtful accounts receivable and sales allowances
9,221

 
11,301

Non-cash compensation expense
73,618

 
77,169

Changes in assets and liabilities:
 
 
 
Accounts receivable
(25,509
)
 
4,701

Inventories
24,173

 
4,656

Prepaid expenses and other assets
(66,001
)
 
3,987

Deferred tax assets
4,825

 
1,256

Accounts payable
(28,862
)
 
7,720

Accrued employee compensation
(57,859
)
 
47,679

Deferred revenue
8,599

 
22,744

Other accrued liabilities
12,944

 
20,277

Current restructuring liabilities
14,843

 
(1,370
)
Net cash provided by operating activities
451,029

 
590,870

Cash flows from investing activities:
 
 
 
Proceeds from maturities and sale of short-term investments

 
952

Purchases of property and equipment
(52,371
)
 
(72,797
)
Net cash paid in connection with acquisition
(44,629
)
 

Proceeds from collection of convertible note receivable
70,000

 

Proceeds from sale of subsidiary

 
35

Net cash used in investing activities
(27,000
)
 
(71,810
)
Cash flows from financing activities:
 
 
 
Proceeds from senior unsecured notes
296,250

 

Payment of principal related to senior secured notes
(300,000
)
 

Payment of principal related to the term loan

 
(190,000
)
Payment of debt issuance costs related to senior unsecured notes
(992
)
 

Payment of principal related to capital leases
(1,627
)
 
(1,866
)
Common stock repurchases
(240,000
)
 
(130,209
)
Proceeds from issuance of common stock
93,771

 
98,791

Excess tax benefits from stock-based compensation
3,189

 
5,141

Net cash used in financing activities
(149,409
)
 
(218,143
)
Effect of exchange rate fluctuations on cash and cash equivalents
(849
)
 
(1,893
)
Net increase in cash and cash equivalents
273,771

 
299,024

Cash and cash equivalents, beginning of year
713,226

 
414,202

Cash and cash equivalents, end of year
$
986,997

 
$
713,226


Page 10 of 12


BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(Unaudited)
 
Three Months Ended
 
October 26,
2013
 
October 27,
2012
 
(In thousands, except per-share amounts)
Net income on a GAAP basis
$
64,233

 
$
54,001

Adjustments:
 
 
 
Stock-based compensation expense included in cost of revenues
3,174

 
3,388

Amortization of intangible assets expense included in cost of revenues
9,650

 
10,713

Total gross margin adjustments
12,824

 
14,101

Legal recovery associated with indemnification obligations and other related costs, net

 
(89
)
Stock-based compensation expense included in research and development
4,304

 
4,211

Stock-based compensation expense included in sales and marketing
6,104

 
8,311

Stock-based compensation expense included in general and administrative
2,945

 
2,513

Amortization of intangible assets expense included in operating expenses
13,125

 
14,737

Restructuring and other related costs, net
25,464

 

Total operating expense adjustments
51,942

 
29,683

Total operating income adjustments
64,766

 
43,784

Income tax effect of non-tax adjustments
(19,506
)
 
(19,443
)
Non-GAAP net income
$
109,493

 
$
78,342

Non-GAAP net income per-share — basic
$
0.25

 
$
0.17

Non-GAAP net income per-share — diluted
$
0.24

 
$
0.17

Shares used in non-GAAP per-share calculation — basic
444,642

 
459,333

Shares used in non-GAAP per-share calculation — diluted
460,237

 
474,213


Page 11 of 12


BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(Unaudited)
 
For the Year Ended
 
October 26,
2013
 
October 27,
2012
 
(In thousands, except per-share amounts)
Net income on a GAAP basis
$
208,623

 
$
195,181

Adjustments:
 
 
 
Stock-based compensation expense included in cost of revenues
14,519

 
15,433

Amortization of intangible assets expense included in cost of revenues
39,731

 
46,229

Legal provision (recovery) associated with certain pre-acquisition litigation
3,460

 
(465
)
Total gross margin adjustments
57,710

 
61,197

Legal recovery associated with indemnification obligations and other related costs, net

 
(89
)
Stock-based compensation expense included in research and development
17,509

 
17,952

Stock-based compensation expense included in sales and marketing
29,425

 
33,257

Stock-based compensation expense included in general and administrative
12,165

 
10,527

Amortization of intangible assets expense included in operating expenses
54,256

 
59,204

Restructuring and other related costs, net
25,464

 

Total operating expense adjustments
138,819

 
120,851

Total operating income adjustments
196,529

 
182,048

Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing
15,299

 

Gain on A10 litigation settlement, net
(76,816
)
 

Tax provision impact from passage of California Proposition 39 - Single Sales Factor apportionment
78,206

 

Income tax effect of non-tax adjustments
(48,891
)
 
(66,458
)
Non-GAAP net income
$
372,950

 
$
310,771

Non-GAAP net income per-share — basic
$
0.83

 
$
0.68

Non-GAAP net income per-share — diluted
$
0.80

 
$
0.66

Shares used in non-GAAP per-share calculation — basic
450,516

 
456,629

Shares used in non-GAAP per-share calculation — diluted
463,705

 
472,343


Page 12 of 12