EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

BROCADE CONTACTS       LOGO

Public Relations

John Noh

Tel: 408-333-5108

jnoh@brocade.com

   

Investor Relations

Robert Eggers

Tel: 408-333-8797

reggers@brocade.com

   

Brocade Reports All-Time Record Revenue for Company in Fiscal Q4 10

Performance Driven by Record Revenue for Ethernet Business

SAN JOSE, Calif., Nov. 22, 2010 — Brocade® (NASDAQ: BRCD) today reported financial results for its fourth fiscal quarter and full fiscal year ended October 30, 2010. Brocade recorded quarterly revenues of $550 million, an all-time record for the company in terms of revenue, representing an increase of over nine percent quarter-over-quarter, resulting in diluted earnings per share (EPS) of $0.05 on a GAAP basis and $0.14 on a non-GAAP basis.

Brocade attributed the record performance to a number of factors including an all-time company high in revenue for its Ethernet business which is composed of products and services. On a quarterly basis, Brocade also experienced strong sequential revenue growth in its storage networking business as well as solid performances from its Americas and Asia Pacific operations.

“We are pleased with our Q4 performance which drove record revenues, growth in our Ethernet business and a strong finish to fiscal 2010,” said Michael Klayko, CEO of Brocade. “Looking forward to FY11, we are particularly excited about Brocade’s successful launch of the industry’s first Ethernet fabric products and technologies, which we believe will serve as a catalyst for customers to rapidly migrate to virtualized data centers and cloud-optimized networks.”

In addition to this press release, Brocade management has posted prepared comments and slides on its Fiscal Q4 results and outlook at www.brcd.com. Brocade will host a live webcast conference call to answer questions from investors and analysts today at 2:30 p.m. Pacific time. Questions may also be submitted in advance to ir@brocade.com.

Other Q4 product, customer and partner announcements are available at http://newsroom.brocade.com/.

Financial Highlights and Additional Financial Information

 

  •  

Q4 revenue was $550 million, increasing 9.3% sequentially and 5.5% year-over-year.

 

  •  

Q4 GAAP EPS (diluted) was $0.05, sequentially level, and decreasing from $0.07 in Q4 2009.

 

  •  

Q4 non-GAAP EPS (diluted) was $0.14, sequentially increasing $0.01, and decreasing $0.01 year-over-year.

 

  •  

Q4 non-GAAP gross margin was 62.3% verses 60.4% in Q3 2010. 2010 gross margins now exclude system engineer costs which have been reclassified as operating expense (see footnote #2).

 

  •  

Q4 non-GAAP operating margin was 20.4% versus 17.3% in Q3 2010 and 22.7% in Q4 2009.

 

  •  

Q4 effective GAAP tax rate was 20.4%; non-GAAP effective tax rate was 23.2%.

 

  •  

Q4 Adjusted EBITDA was $128 million, increasing from $102 million in Q3 2010 and roughly flat from $130 million in Q4 2009.

 

  •  

Q4 total Storage Area Networking (SAN) port shipments were approximately 1.1 million.

 

  •  

Q4 ending headcount was 4,651, up 581 or 14.3% compared to Q4 2009.

 

     Q4 2010     Q3 2010     Q4 2009  

Revenue

    $ 550M      $ 504M      $ 522M   

GAAP net income (1)

    $ 23M      $ 22M      $ 32M   

Non-GAAP net income

    $ 66M      $ 64M      $ 73M   

GAAP EPS – diluted (1)

    $ 0.05      $ 0.05      $ 0.07   

Non-GAAP EPS – diluted

    $ 0.14      $ 0.13      $ 0.15   

Non-GAAP gross margin (2)

      62.3 %      60.4 %      59.5 % 

Non-GAAP operating margin

      20.4 %      17.3 %      22.7 % 

Adjusted EBITDA (3)

    $ 128M      $ 102M      $ 130M   

Cash provided by operations

    $ 106M      $ 55M      $ 155M   

Please see important note of explanation on Non-GAAP measures below, including a detailed reconciliation between GAAP and Non-GAAP information in the tables included herein.

Brocade

130 Holger Way, San Jose, CA. 95134

T. 408.333.8000 F. 408.333.8101

www.brocade.com

     Q4 2010     Q3 2010     Q4 2009  

As a % of total revenues

       

OEM revenues

      61 %      64 %      65 % 

Channel/Direct revenues

      39 %      36 %      35 % 

10% or greater customer revenues

      44 %      44 %      46 % 

Domestic revenues

      65 %      64 %      63 % 

International revenues

      35 %      36 %      37 % 

Data Storage Revenues

      57 %      58 %      58 % 

Ethernet Products Revenues

      26 %      24 %      25 % 

Global Services Revenue

      17 %      18 %      17 % 

Ethernet Business Revenues (4)

      31 %      30 %      29 % 

As a % of Ethernet Business Revenues (4):

       

Enterprise, including Federal (5)

      75 %      79 %      82 % 

Federal only

      23 %      25 %      29 % 

Service Provider (5)

      25 %      21 %      18 % 
     Q4 2010     Q3 2010     Q4 2009  

Cash, cash equivalents and investments

    $ 336M      $ 296M      $ 339M   

Deferred revenues

    $ 251M      $ 248M      $ 235M   

Capital expenditures – non-campus related

    $ 24M      $ 23M      $ 17M   

Capital expenditures – campus related

    $ 22M      $ 24M      $ 28M   

Total debt, net of discount (1)

    $ 930M      $ 957M      $ 1,082M   

Days sales outstanding

      54 days        54 days        52 days   

Employees at end of period

      4,651        4,520        4,070   

 

1) Retrospectively adjusted as a result of applying new standard that changed the accounting for convertible debt instruments.
2) During Q4 2010, we reviewed the classification of our system engineer (‘SE’) costs. The SE’s primary role has migrated over time from assisting with customer support to primarily performing pre-sales activity to generate future business. As a result of this review, we have reclassified the SE costs within our Consolidated Statements of Operations starting in 2010. These costs are now presented within sales and marketing expenses, as opposed to cost of revenues. This reclassification did not impact revenue, income from operations, net income, or earnings per share for 2010. Non-GAAP gross margins for Q4 2010 and Q3 2010 reflect the new cost classification for SEs. Prior period numbers have not been updated for the new cost classification implemented in 2010. For comparison purposes, had the Company affected the reclassification for Q4 2009, the adjusted non-GAAP gross margin would have been 65.6% reflecting a reduction of total cost of revenues by $31.6M, and sales and marketing expenses would have been higher by this same amount.
3) Adjusted EBITDA is as defined in the Term Debt Credit Agreement.
4) Ethernet Business revenues include product and support revenues.
5) In prior periods, Service Provider (“SP”) revenue was determined based on the customer “Bill-to” identification. As more SP revenue has gone through Brocade Channels, customer “Ship-to” information has become more representative of Service Provider revenue than “Bill-to” information, as previously reported. Beginning this quarter we have based Service Provider revenue on “Ship-to” information and a defined list of customers who have been historically identified in the Service Provider market. Service Provider revenue for Q3 2010 and Q4 2009 has been reclassified to be consistent with this definition. All other revenue not specifically identified as Service Provider is included in Enterprise.

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.

 

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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: (i) provision for certain pre-acquisition litigation, (ii) legal fees associated with certain pre-acquisition litigation, (iii) legal fees associated with indemnification obligations to former directors and officers and other related costs, net, (iv) acquisition and integration costs (in connection with the Foundry acquisition), (v) restructuring costs and facilities leases losses (vi) in-process research and development charges (in connection with the Foundry acquisition), (vii) goodwill and acquisition related intangibles impairment, (viii) loss on sale of property, (ix) acquisition-related financing charges, and (x) interest expense related to adoption of new standard relating to convertible debt instruments.

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 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 (loss) and net income (loss) 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.

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s expected financial performance, and diversified business model and strength in innovation. 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, Brocade’s ability to continue to successfully innovate new products and services on a timely basis and achieve widespread market acceptance, the effect of changes in IT spending levels in one or more of our target markets and geographical regions, increasing market competition and changes in the industry, and Brocade’s ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business. 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 31, 2010. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

 

Page 3 of 10

About Brocade

Brocade® (NASDAQ GS: BRCD) develops extraordinary networking solutions that enable today’s complex, data-intensive businesses to optimize information connectivity and maximize the business value of their data. For more information, visit www.brocade.com.

# # #

Brocade, the B-wing symbol, BigIron, DCX, Fabric OS, FastIron, IronPoint, IronShield, IronView, IronWare, JetCore, NetIron, SecureIron, ServerIron, StorageX and TurboIron are registered trademarks, and DCFM, Extraordinary Networks and SAN Health are trademarks of Brocade Communications Systems, Inc., in the United States and/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.

© 2010 Brocade Communications Systems, Inc. All Rights Reserved.

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended     Fiscal Year Ended  
     Oct 30,
2010		     Oct 31,
2009 (1) (2)		     Oct 30,
2010 (2)		     Oct 31,
2009 (1) (2)		  

Net revenues

         

Product

    $ 458,352      $ 432,394      $ 1,732,024      $ 1,615,511   

Service

      92,023        89,361        362,339        337,415   
                                

Total net revenues

      550,375        521,755        2,094,363        1,952,926   

Cost of revenues

         

Product

      181,276        203,442        683,486        739,354   

Service

      44,079        47,466        176,547        180,072   
                                

Total cost of revenues

      225,355        250,908        860,033        919,426   
                                

Gross margin

      325,020        270,847        1,234,330        1,033,500   

Operating expenses:

         

Research and development

      88,943        95,345        354,260        354,809   

Sales and marketing

      145,586        103,452        534,458        385,155   

General and administrative

      18,129        22,209        67,848        84,962   

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

      (666 )      (14,612 )      (163 )      23,941   

Amortization of intangible assets

      16,190        17,052        65,623        68,718   

Acquisition and integration costs

      —          333        204        5,127   

Restructuring costs and facilities lease loss

      1,059        —          1,059        2,329   

In-process research and development

      —          —          —          26,900   

Goodwill and acquisition-related intangible assets impairment

      —          —          —          53,306   
                                

Total operating expenses

      269,241        223,779        1,023,289        1,005,247   
                                

Income from operations

      55,779        47,068        211,041        28,253   

Interest and other income (loss), net

      (4,222 )      530        (6,452 )      (2,382 ) 

Interest expense

      (22,202 )      (22,766 )      (85,858 )      (99,294 ) 

Gain (loss) on sale of investments and property, net

      49        (27 )      (8,551 )      (602 ) 
                                

Income (loss) before income tax provision (benefit)

      29,404        24,805        110,180        (74,025 ) 

Income tax provision (benefit)

      5,988        (7,296 )      (8,672 )      7,359   
                                

Net income (loss)

    $ 23,416      $ 32,101      $ 118,852      $ (81,384 ) 
                                

Net income (loss) per share – basic

    $ 0.05      $ 0.08      $ 0.27      $ (0.20 ) 
                                

Net income (loss) per share – diluted

    $ 0.05      $ 0.07      $ 0.25      $ (0.20 ) 
                                

Shares used in per share calculation – basic

      456,597        425,530        446,996        398,948   
                                

Shares used in per share calculation – diluted

      485,672        480,091        482,741        398,948   
                                

 

(1) As adjusted due to adoption of update to ASC 470-20 relating to accounting for convertible debt instruments.
(2) Fiscal year 2010 is as adjusted due to the reclassification of system engineer costs from cost of revenue to sales and marketing expenses. Q4 2009 and fiscal year 2009 have not been updated for the new cost classification implemented in 2010. For comparison purposes, had the Company affected the reclassification for 2009, the total cost of revenues would have been lower by $34.3M for Q4 2009 and $120.5M for fiscal year 2009, and sales and marketing expenses would have been higher by these amounts respectively. There would have been no impact on revenue, income from operations, net income, or earnings per share for fiscal year 2009.

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

     Oct 30,
2010		     Oct 31,
2009 (1)		  

Assets

     

Current assets:

     

Cash and cash equivalents

    $ 333,984      $ 334,193   

Short-term investments

      1,998        4,678   

Restricted cash

      —          12,502   
                

Total cash, cash equivalents and short-term investments and restricted cash

      335,982        351,373   

Accounts receivable, net

      329,564        297,819   

Inventories

      76,808        72,152   

Deferred tax assets

      67,080        84,629   

Prepaid expenses and other current assets

      65,017        79,302   
                

Total current assets

      874,451        885,275   

Property and equipment, net

      539,117        442,408   

Goodwill

      1,644,950        1,659,934   

Intangible assets, net

      344,000        470,872   

Non-current deferred tax assets

      203,454        184,713   

Other assets

      48,203        28,218   
                

Total assets

    $ 3,654,175      $ 3,671,420   
                

Liabilities and Stockholders’ Equity

  

  

Current liabilities:

  

  

Accounts payable

    $ 147,130      $ 181,249   

Accrued employee compensation

      91,688        160,832   

Deferred revenue

      185,623        174,870   

Current liabilities associated with facilities lease losses

      5,992        10,769   

Current portion of capital lease obligations

      1,761        —     

Revolving credit facility

      —          14,050   

Current portion of term loan

      28,779        38,822   

Convertible subordinated debt

      —          169,332   

Other accrued liabilities

      108,310        105,263   
                

Total current liabilities

      569,283        855,187   

Non-current capital lease obligations, net of current portion

      6,782        —     

Term loan, net of current portion

      297,118        860,114   

Senior Secured Notes

      595,373        —     

Non-current liabilities associated with facilities lease losses

      3,984        10,150   

Non-current deferred revenue

      65,242        60,575   

Non-current income tax liability

      61,421        92,276   

Other non-current liabilities

      8,671        15,114   
                

Total liabilities

      1,607,874        1,893,416   
                

Stockholders’ equity:

  

  

Common stock

      461        434   

Additional paid-in capital

      2,047,563        1,901,238   

Accumulated other comprehensive loss

      (2,830 )      (5,920 ) 

Retained earnings (Accumulated deficit)

      1,107        (117,748 ) 
                

Total stockholders’ equity

      2,046,301        1,778,004   
                

Total liabilities and stockholders’ equity

    $ 3,654,175      $ 3,671,420   
                

 

(1) As adjusted due to adoption of update to ASC 470-20 relating to accounting for convertible debt instruments.

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended Oct 30, 2010 and Oct 31, 2009

(in thousands)

(unaudited)

 

     Three Months Ended  
     Oct 30,
2010		     Oct 31,
2009 (1)		  

Cash flows from operating activities:

     

Net income

    $ 23,416      $ 32,101   

Adjustments to reconcile net income to net cash provided by

operating activities:

     

Change in excess tax benefits and detriments from share-based

compensation

      3,157        (192 ) 

Depreciation and amortization

      51,531        51,486   

Loss on disposal of property and equipment

      574        110   

Amortization of debt issuance costs and original issue discount

      4,681        6,267   

Net (gains) losses on investments and marketable equity securities

      (299 )      27   

Provision for doubtful accounts receivable and sales allowances

      3,105        3,148   

Non-cash compensation expense

      25,274        35,714   

Non-cash facilities lease loss expense

      513        —     

Capitalization of interest cost

      —          (2,737 ) 

Changes in assets and liabilities:

     

Restricted Cash

      —          (12,502 ) 

Accounts receivable

      (35,039 )      821   

Inventories

      10,716        (18,560 ) 

Prepaid expenses and other assets

      (2,973 )      (3,305 ) 

Deferred tax assets

      4,216        2,440   

Accounts payable

      3,701        30,815   

Accrued employee compensation

      (2,856 )      27,425   

Deferred revenue

      2,917        5,376   

Other accrued liabilities

      16,187        (118 ) 

Liabilities associated with facilities lease losses

      (2,399 )      (3,004 ) 
                

Net cash provided by operating activities

      106,422        155,312   
                

Cash flows from investing activities:

     

Purchases of short-term investments

      (12 )      (22 ) 

Purchases of non-marketable minority equity investments

      (200 )      —     

Proceeds from maturities and sale of short-term investments

      1,467        1,056   

Proceeds from maturities and sale of long-term investments

      —          —     

Purchases of property and equipment

      (45,651 )      (44,491 ) 
                

Net cash used in investing activities

      (44,396 )      (43,457 ) 
                

Cash flows from financing activities:

     

Payment of principal related to the term loan

      (30,221 )      (57,881 ) 

Payment of principal related to capital leases

      (679 )      —     

Proceeds from issuance of common stock, net

      11,710        35,375   

Change in excess tax benefits and detriments from share-based

compensation

      (3,157 )      192   
                

Net cash used in financing activities

      (22,347 )      (22,314 ) 
                

Effect of exchange rate fluctuations on cash and cash equivalents

      1,768        473   
                

Net increase in cash and cash equivalents

      41,447        90,014   

Cash and cash equivalents, beginning of period

      292,537        244,179   
                

Cash and cash equivalents, end of period

    $ 333,984      $ 334,193   
                

 

(1) As adjusted due to adoption of update to ASC 470-20 relating to accounting for convertible debt instruments.

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For Fiscal Year Ended Oct 30, 2010 and Oct 31, 2009

(in thousands)

(unaudited)

 

     Fiscal Year Ended  
     Oct 30,
2010		     Oct 31,
2009 (1)		  

Cash flows from operating activities:

     

Net income (loss)

    $ 118,852      $ (81,384 ) 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

     

Change in excess tax benefits and detriments from share-based

compensation

      (2,161 )      794   

Depreciation and amortization

      199,637        196,573   

Loss on disposal of property and equipment

      10,412        1,478   

Amortization of debt issuance costs and original issue discount

      21,100        24,051   

Net (gains) losses on investments and marketable equity securities

      (523 )      597   

Provision for doubtful accounts receivable and sales allowances

      11,811        12,681   

Non-cash compensation expense

      101,625        137,219   

Non-cash facilities lease loss benefit

      513        (339 ) 

Capitalization of interest cost

      (7,755 )      (9,093 ) 

Intangible asset impairment charge

      —          53,306   

In-process research and development

      —          26,900   

Changes in assets and liabilities, net of acquired assets and assumed liabilities:

     

Restricted cash

      12,502        (12,502 ) 

Accounts receivable

      (42,458 )      (74,965 ) 

Inventories

      (4,657 )      25,338   

Prepaid expenses and other assets

      13,657        999   

Deferred tax assets

      4,216        3,091   

Accounts payable

      (26,421 )      (11,052 ) 

Accrued employee compensation

      (100,826 )      (28,685 ) 

Deferred revenue

      15,420        26,454   

Other accrued liabilities

      (15,200 )      (5,543 ) 

Liabilities associated with facilities lease losses

      (11,231 )      (10,394 ) 

Liability associated with class action lawsuit

      —          (160,000 ) 
                

Net cash provided by operating activities

      298,513        115,524   
                

Cash flows from investing activities:

     

Purchases of short-term investments

      (53 )      (138 ) 

Purchases of non-marketable minority equity investments

      (200 )      —     

Proceeds from maturities and sale of short-term investments

      3,255        155,986   

Proceeds from maturities and sale of long-term investments

      —          30,173   

Purchases of property and equipment

      (201,621 )      (162,770 ) 

Proceeds from sale of property and equipment

      30,185        —     

Decrease in restricted cash

      —          1,075,079   

Net cash paid in connection with acquisitions

      —          (1,297,482 ) 
                

Net cash used in investing activities

      (168,434 )      (199,152 ) 
                

Cash flows from financing activities:

     

Payment of senior underwriting fees related to term loan

      —          (30,525 ) 

Payment of convertible subordinated debt

      (172,500 )      —     

Payment of fees related to issuance of bonds

      (3,666 )      —     

Payment of principal related to the term loan

      (583,029 )      (166,022 ) 

Payment of principal related to the revolving credit facility

      (14,050 )      —     

Payment of principal related to capital leases

      (1,173 )      —     

Common stock repurchases

      (25,004 )      —     

Proceeds from issuance of common stock, net

      81,593        145,655   

Proceeds from revolving credit facility

      —          14,050   

Proceeds from Senior Secured Notes

      587,968        —     

Change in excess tax benefits and detriments from share-based

compensation

      2,161        (794 ) 
                

Net cash used in financing activities

      (127,700 )      (37,636 ) 
                

Effect of exchange rate fluctuations on cash and cash equivalents

      (2,588 )      1,573   
                

Net decrease in cash and cash equivalents

      (209 )      (119,691 ) 

Cash and cash equivalents, beginning of year

      334,193        453,884   
                

Cash and cash equivalents, end of year

    $ 333,984      $ 334,193   
                

Supplemental disclosure of cash flow information

     

Cash paid for interest

      59,549        83,397   
                

Cash paid for (refunded from) income taxes

    $ 8,801      $ (20,000 ) 
                

Supplemental Schedule of non-cash investing activities:

     

Fair value of stock options and unvested awards assumed in exchange for acquired Foundry assets

    $ —        $ 254,312   
                

Acquisition of property and equipment through capital leases

    $ 9,716      $ —     
                

 

(1) As adjusted due to adoption of update to ASC 470-20 relating to accounting for convertible debt instruments.

 

Page 8 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended  
     Oct 30,
2010		     Oct 31,
2009 (1)		  

Net income on a GAAP basis

    $ 23,416      $ 32,101   

Adjustments:

     

Stock-based compensation expense included in cost of revenues

      3,179        7,062   

Amortization of intangible assets expense included in cost of revenues

      14,466        17,898   

Provision for certain pre-acquisition litigation

      —          14,335   

Legal fees associated with certain pre-acquisition litigation

      243        546   
                

Total gross margin adjustments

      17,888        39,841   
                

Legal fees associated with indemnification obligations and other related costs

      (666 )      (14,612 ) 

Stock-based compensation expense included in research and development

      6,287        10,251   

Stock-based compensation expense included in sales and marketing

      11,420        12,934   

Stock-based compensation expense included in general and administrative

      4,389        5,468   

Amortization of intangible assets expense included in operating expenses

      16,190        17,052   

Acquisition and integration costs

      —          333   

Restructuring costs and facilities lease losses, net

      1,059        —     
                

Total operating expense adjustments

      38,679        31,426   
                

Total operating income adjustments

      56,567        71,267   

Interest expense related to adoption of new standards relating to convertible debt instruments

      —          2,085   

Income tax effect of adjustments

      (13,974 )      (32,091 ) 
                

Non-GAAP net income

    $ 66,009      $ 73,362   
                

Non-GAAP net income per share – basic

    $ 0.14      $ 0.17   
                

Non-GAAP net income per share – diluted

    $ 0.14      $ 0.15   
                

Shares used in non-GAAP per share calculation – basic

      456,597        425,530   
                

Shares used in non-GAAP per share calculation – diluted

      485,672        492,174   
                

 

(1) As adjusted due to adoption of update to ASC 470-20 relating to accounting for convertible debt instruments.

See explanation of non-GAAP information included herein.

 

Page 9 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Fiscal Year Ended  
     Oct 30,
2010		     Oct 31,
2009 (1)		  

Net income (loss) on a GAAP basis

    $ 118,852      $ (81,384 ) 

Adjustments:

     

Stock-based compensation expense included in cost of revenues

      13,552        25,654   

Amortization of intangible assets expense included in cost of revenues

      61,249        65,803   

Provision for certain pre-acquisition litigation

      1,604        14,335   

Legal fees associated with certain pre-acquisition litigation

      573        546   
                

Total gross margin adjustments

      76,978        106,338   
                

Legal fees associated with indemnification obligations and other related costs

      (163 )      23,941   

Stock-based compensation expense included in research and development

      27,795        40,365   

Stock-based compensation expense included in sales and marketing

      45,233        48,820   

Stock-based compensation expense included in general and administrative

      15,046        22,380   

Amortization of intangible assets expense included in operating expenses

      65,623        68,718   

Acquisition and integration costs

      204        5,127   

Restructuring costs and facilities lease losses

      1,059        2,329   

In-process research and development

      —          26,900   

Goodwill and acquisition related intangibles impairment

      —          53,306   
                

Total operating expense adjustments

      154,797        291,886   
                

Total operating income adjustments

      231,775        398,224   

Loss on sale of property

      8,737        —     

Acquisition-related financing charges

      —          4,366   

Interest expense related to adoption of new standards relating to convertible debt instruments

      2,490        8,013   

Income tax effect of adjustments

      (75,475 )      (89,800 ) 
                

Non-GAAP net income

    $ 286,379      $ 239,419   
                

Non-GAAP net income per share – basic

    $ 0.64      $ 0.60   
                

Non-GAAP net income per share – diluted

    $ 0.59      $ 0.53   
                

Shares used in non-GAAP per share calculation – basic

      446,996        398,948   
                

Shares used in non-GAAP per share calculation – diluted

      486,293        454,293   
                

 

(1) As adjusted due to adoption of update to ASC 470-20 relating to accounting for convertible debt instruments.

See explanation of non-GAAP information included herein.

 

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