Exhibit 99.1
| BROCADE CONTACTS
|
| |||
| Public Relations John Noh Tel: 408-333-5108 jnoh@brocade.com |
Investor Relations Robert Eggers Tel: 408-333-8797 reggers@brocade.com |
Brocade Reports Q3 FY2011 Results
SAN JOSE, Calif., Aug 18, 2011 — Brocade® (NASDAQ: BRCD) today reported financial results for its third fiscal quarter ended July 30, 2011. Brocade reported quarterly revenue of $503 million, representing flat revenue performance year-over-year and resulting in breakeven diluted earnings per share (EPS) on a GAAP basis and $0.09 on a non-GAAP basis. The Company’s reported third quarter revenue and non-GAAP EPS results are consistent with the anticipated ranges it provided on August 5, 2011.
Revenue for Brocade’s Storage business, including product and services was $334.3 million in the third quarter, down 6% year-over-year. The lower revenue for Storage reflects a reduction in the third quarter of approximately one-half week of Fibre Channel inventory held at the OEMs, representing approximately $24 million. In addition, the Company experienced weaker-than-expected Storage end-user demand, which was down approximately 1% from the previous quarter.
Revenue for Brocade’s Ethernet business was $168.5 million in the third quarter, an increase of 13% year-over-year. The year-over-year growth in Ethernet was driven primarily by Service Provider and Enterprise customers, with revenues from those customers up 28% from the prior year. The Federal Ethernet business was down 33% year-over-year, but up 32% sequentially, as Federal spending improved in the third quarter.
“Headwinds in the IT market, federal spending, and overall global economy made for a challenging quarter for the Company,” said Michael Klayko, CEO of Brocade. “While we are doing well in areas such as our Ethernet business including the adoption and deployment of Ethernet fabric solutions, we recognize that there are opportunities to optimize and improve our business. We have already taken, and will continue to take, important steps to generate growth, improve our profitability and make ourselves more efficient. Our goal is to ensure that our resources and priorities are well-aligned with our go-forward strategies for long-term success in the networking industry.”
In addition to this press release, Brocade management will host a conference call to discuss fiscal third quarter results and fiscal fourth quarter outlook today at 2:30 p.m. PT (5:30 p.m. ET). This call will include management discussion as well as a Q&A section. To access the webcast please go to www.brcd.com/events.cfm. A replay of the conference call, as well as corresponding slides and written transcript, will be available at www.brcd.com. Questions may also be submitted in advance to ir@brocade.com.
Other Q3 product, customer and partner announcements are available at http://newsroom.brocade.com/.
Financial Highlights and Additional Financial Information
| Q3 2011 | Q2 2011 (1) | Q3 2010 (1) | ||||||||||
| Revenue |
$ | 503M | $ | 548M | $ | 504M | ||||||
| GAAP net income |
$ | 2M | $ | 26M | $ | 23M | ||||||
| Non-GAAP net income |
$ | 46M | $ | 61M | $ | 64M | ||||||
| GAAP EPS – diluted |
$ | 0.00 | $ | 0.05 | $ | 0.05 | ||||||
| Non-GAAP EPS – diluted |
$ | 0.09 | $ | 0.12 | $ | 0.13 | ||||||
| Non-GAAP gross margin (2) |
61.8 | % | 63.4 | % | 60.5 | % | ||||||
| Non-GAAP operating margin |
14.0 | % | 17.9 | % | 17.4 | % | ||||||
| Adjusted EBITDA (3) |
$ | 91M | $ | 121M | $ | 102M | ||||||
| Cash provided by operations |
$ | 11M | $ | 114M | $ | 55M | ||||||
Brocade
130 Holger Way, San Jose, CA. 95134
T. 408.333.8000 F. 408.333.8101
www.brocade.com
| • | Q3 effective GAAP tax benefit was 123.2% and non-GAAP effective tax rate was 13.8%. |
| • | Q3 total Storage Area Networking (SAN) port shipments were approximately 1.0 million. |
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.
| As a % of total revenues | Q3 2011 | Q2 2011 (1) | Q3 2010 (1) | |||||||||
| OEM revenues |
61% | 64% | 64% | |||||||||
| Channel/Direct revenues |
39% | 36% | 36% | |||||||||
| 10% or greater customer revenues |
43% | 53% | 44% | |||||||||
| Domestic revenues |
61% | 62% | 64% | |||||||||
| International revenues |
39% | 38% | 36% | |||||||||
| Data Storage Revenues |
55% | 60% | 58% | |||||||||
| Ethernet Products Revenues |
28% | 23% | 24% | |||||||||
| Global Services Revenue |
17% | 17% | 18% | |||||||||
| Ethernet Business Revenues (4) |
34% | 29% | 30% | |||||||||
| As a % of Ethernet Business Revenues (4): |
||||||||||||
| Enterprise, excluding Federal |
53% | 61% | 54% | |||||||||
| Federal |
15% | 12% | 25% | |||||||||
| Service Provider |
32% | 27% | 21% | |||||||||
| Q3 2011 | Q2 2011 (1) | Q3 2010 (1) | ||||||||||
| Cash, cash equivalents and investments |
$ | 473M | $ | 466M | $ | 296M | ||||||
| Deferred revenues |
$ | 264M | $ | 272M | $ | 248M | ||||||
| Capital expenditures |
$ | 26M | $ | 27M | $ | 47M | ||||||
| Total debt, net of discount |
$ | 839M | $ | 836M | $ | 957M | ||||||
| Days sales outstanding |
54 days | 48 days | 52 days | |||||||||
| Employees at end of period |
4,772 | 4,762 | 4,520 | |||||||||
| 1) | The Company’s prior period financial results, including Q2 2011 and Q3 2010, have been adjusted to reflect an immaterial correction. During the third fiscal quarter of 2011, the Company identified an error related to its accounting for certain sales discounts. The Company concluded that the error was not material to any of its prior period financial statements and revised its prior period financial statements using SEC guidance for immaterial corrections. The correction resulted in immaterial changes to sales discounts and allowances which effected net revenues during the fiscal years prior to and including 2009 and 2010 and the six months ended April 30, 2011, resulting in an overstatement of net revenues in some periods and an understatement in other periods. |
As a result of the revisions, net current assets and stockholders’ equity was decreased by $8.6 million as of October 30, 2010. Additionally, net income was increased by $0.6 million for the three months ended July 31, 2010, and decreased by $1.1 million for the nine months ended July 31, 2010, $1.5 million for the three months ended April 30, 2011 and $1.8 million for the six months ended April 30, 2011.
| 2) | Q3 2010 is as adjusted due to the prior reclassification of system engineer costs from cost of revenues to sales and marketing expenses. |
| 3) | Adjusted EBITDA is as defined in the Term Debt Credit Agreement. |
| 4) | Ethernet Business revenues include product and support revenues. |
Page 2 of 10
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: (i) provision or benefit from certain pre-acquisition litigations (ii) legal fees associated with certain pre-acquisition litigation, (iii) legal fees associated with indemnification obligations and other related costs, net, (iv) acquisition and integration costs, (v) loss on sale of property, (vi) interest expense related to adoption of new standard relating to convertible debt instruments, and (vii) original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing.
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 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 3 of 10
Cautionary Statement
This press release contains statements that are forward-looking in nature, including statements regarding IT spending and end-user demand, customer adoption of Brocade’s Ethernet fabric solutions, and Brocade’s initiatives to generate growth and improve profitability. 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 government sector, Brocade’s ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business, 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 April 30, 2011. 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)
Brocade and the B-wing symbol are registered 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.
© 2011 Brocade Communications Systems, Inc. All Rights Reserved.
Page 4 of 10
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Jul 30, 2011 |
Jul 31, 2010 |
Jul 30, 2011 |
Jul 31, 2010 |
|||||||||||||
| Net revenues |
||||||||||||||||
| Product (1) |
$ | 414,298 | $ | 415,441 | $ | 1,328,821 | $ | 1,272,207 | ||||||||
| Service |
88,552 | 88,811 | 268,148 | 270,316 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total net revenues |
502,850 | 504,252 | 1,596,969 | 1,542,523 | ||||||||||||
| Cost of revenues (2) |
||||||||||||||||
| Product (2) |
149,321 | 175,392 | 498,012 | 502,211 | ||||||||||||
| Service (2) |
47,002 | 43,439 | 142,939 | 132,467 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total cost of revenues |
196,323 | 218,831 | 640,951 | 634,678 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross margin |
306,527 | 285,421 | 956,018 | 907,845 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
87,320 | 85,884 | 270,669 | 265,317 | ||||||||||||
| Sales and marketing (2) |
153,345 | 134,793 | 462,991 | 388,871 | ||||||||||||
| General and administrative |
16,617 | 17,540 | 53,176 | 49,719 | ||||||||||||
| Legal fees associated with indemnification obligations and other related costs, net |
— | (74 | ) | 124 | 504 | |||||||||||
| Amortization of intangible assets |
15,023 | 16,190 | 46,236 | 49,433 | ||||||||||||
| Acquisition and integration costs |
— | — | — | 204 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
272,305 | 254,333 | 833,196 | 754,048 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from operations |
34,222 | 31,088 | 122,822 | 153,797 | ||||||||||||
| Interest and other income (loss), net |
(673 | ) | (1,399 | ) | (297 | ) | (2,231 | ) | ||||||||
| Interest expense |
(42,066 | ) | (22,061 | ) | (84,357 | ) | (63,656 | ) | ||||||||
| Gain (loss) on sale of investments and property, net |
154 | (24 | ) | 137 | (8,599 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income (loss) before income tax benefit |
(8,363 | ) | 7,604 | 38,305 | 79,311 | |||||||||||
| Income tax benefit (1) |
(10,300 | ) | (14,926 | ) | (16,629 | ) | (14,985 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (1) |
$ | 1,937 | $ | 22,530 | $ | 54,934 | $ | 94,296 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income per share – basic (1) |
$ | 0.00 | $ | 0.05 | $ | 0.12 | $ | 0.21 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income per share – diluted (1) |
$ | 0.00 | $ | 0.05 | $ | 0.11 | $ | 0.20 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Shares used in per share calculation – basic |
483,744 | 449,489 | 474,020 | 443,795 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Shares used in per share calculation – diluted |
509,548 | 481,863 | 500,741 | 481,764 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | The three and nine months ended July 31, 2010 and the nine months ended July 30, 2011 are as adjusted due to the correction of an immaterial error. |
| (2) | The three and nine months ended July 31, 2010 are as adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses. |
Page 5 of 10
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| Jul 30, 2011 |
Oct 30, 2010 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 472,559 | $ | 333,984 | ||||
| Short-term investments |
781 | 1,998 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents and short-term investments |
473,340 | 335,982 | ||||||
| Accounts receivable, net of allowances of $8,377 and $6,721 at July 30, 2011 and October 30, 2010, respectively (1) |
296,030 | 317,363 | ||||||
| Inventories |
78,430 | 76,808 | ||||||
| Deferred tax assets (1) |
80,719 | 70,296 | ||||||
| Prepaid expenses and other current assets |
63,653 | 65,017 | ||||||
|
|
|
|
|
|||||
| Total current assets |
992,172 | 865,466 | ||||||
| Property and equipment, net |
534,179 | 539,117 | ||||||
| Goodwill |
1,635,499 | 1,644,950 | ||||||
| Intangible assets, net |
254,364 | 344,000 | ||||||
| Non-current deferred tax assets |
226,267 | 203,454 | ||||||
| Other assets |
38,444 | 48,203 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 3,680,925 | $ | 3,645,190 | ||||
|
|
|
|
|
|||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 115,476 | $ | 147,130 | ||||
| Accrued employee compensation |
89,310 | 91,688 | ||||||
| Deferred revenue |
197,330 | 185,623 | ||||||
| Current liabilities associated with facilities lease losses |
2,168 | 5,992 | ||||||
| Current portion of capital lease obligations |
1,839 | 1,761 | ||||||
| Current portion of term loan |
48,552 | 28,779 | ||||||
| Other accrued liabilities (1) |
77,653 | 107,957 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
532,328 | 568,930 | ||||||
| Non-current capital lease obligations, net of current portion |
5,392 | 6,782 | ||||||
| Term loan, net of current portion |
187,854 | 297,118 | ||||||
| Senior Secured Notes |
595,692 | 595,373 | ||||||
| Non-current liabilities associated with facilities lease losses |
2,601 | 3,984 | ||||||
| Non-current deferred revenue |
66,835 | 65,242 | ||||||
| Non-current income tax liability |
63,372 | 61,421 | ||||||
| Other non-current liabilities |
10,371 | 8,671 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
1,464,445 | 1,607,521 | ||||||
|
|
|
|
|
|||||
| Stockholders’ equity: |
||||||||
| Common stock |
490 | 461 | ||||||
| Additional paid-in capital |
2,174,341 | 2,047,563 | ||||||
| Accumulated other comprehensive loss |
(5,757 | ) | (2,827 | ) | ||||
| Retained earnings (Accumulated deficit) (1) |
47,406 | (7,528 | ) | |||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
2,216,480 | 2,037,669 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 3,680,925 | $ | 3,645,190 | ||||
|
|
|
|
|
|||||
| (1) | Amounts as of October 30, 2010 are as adjusted due to the correction of an immaterial error. |
Page 6 of 10
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended Jul 30, 2011 and Jul 31, 2010
(in thousands)
(unaudited)
| Three Months Ended | ||||||||
| Jul 30, 2011 |
Jul 31, 2010 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (1) |
$ | 1,937 | $ | 22,530 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Excess tax benefits or detriments from stock-based compensation |
(796 | ) | (5,255 | ) | ||||
| Depreciation and amortization |
51,220 | 50,493 | ||||||
| Loss on disposal of property and equipment |
136 | 379 | ||||||
| Write off of debt issuance costs and original issue discount |
25,465 | — | ||||||
| Amortization of debt issuance costs and original issue discount |
2,729 | 4,635 | ||||||
| Net gains on investments |
(338 | ) | (7 | ) | ||||
| Provision for doubtful accounts receivable and sales allowances |
2,986 | 2,840 | ||||||
| Non-cash compensation expense |
20,969 | 24,682 | ||||||
| Capitalization of interest cost |
— | (720 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable (1) |
(10,229 | ) | (2,572 | ) | ||||
| Inventories |
14,733 | (10,705 | ) | |||||
| Prepaid expenses and other assets |
2,838 | 6,071 | ||||||
| Deferred tax assets (1) |
53 | 185 | ||||||
| Accounts payable |
(21,621 | ) | 38,522 | |||||
| Accrued employee compensation |
(41,898 | ) | (49,490 | ) | ||||
| Deferred revenue |
(7,870 | ) | 1,229 | |||||
| Other accrued liabilities (1) |
(26,902 | ) | (24,201 | ) | ||||
| Liabilities associated with facilities lease losses |
(2,353 | ) | (3,356 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
11,059 | 55,260 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchases of short-term investments |
— | (17 | ) | |||||
| Proceeds from maturities and sale of short-term investments |
1,584 | — | ||||||
| Purchases of property and equipment |
(26,086 | ) | (46,582 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(24,502 | ) | (46,599 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Payment of debt issuance fees related to the Senior Secured Notes |
— | (664 | ) | |||||
| Payment of fees related to the term loan |
(1,090 | ) | — | |||||
| Payment of principal related to the term loan |
(211,258 | ) | (30,564 | ) | ||||
| Common stock repurchases |
(10,044 | ) | (5,000 | ) | ||||
| Payment of principal related to capital leases |
(443 | ) | (494 | ) | ||||
| Proceeds from issuance of common stock, net |
45,945 | 30,064 | ||||||
| Proceeds from term loan |
198,949 | — | ||||||
| Excess tax benefits or detriments from stock-based compensation |
796 | 5,255 | ||||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
22,855 | (1,403 | ) | |||||
|
|
|
|
|
|||||
| Effect of exchange rate fluctuations on cash and cash equivalents |
(415 | ) | (1,954 | ) | ||||
|
|
|
|
|
|||||
| Net increase in cash and cash equivalents |
8,997 | 5,304 | ||||||
| Cash and cash equivalents, beginning of period |
463,562 | 287,233 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 472,559 | $ | 292,537 | ||||
|
|
|
|
|
|||||
| (1) | The three months ended July 31, 2010 is as adjusted due to the correction of an immaterial error. |
Page 7 of 10
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended Jul 30, 2011 and Jul 31, 2010
(in thousands)
(unaudited)
| Nine Months Ended | ||||||||
| Jul 30, 2011 |
Jul 31, 2010 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (1) |
$ | 54,934 | $ | 94,296 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Excess tax benefits or detriments from stock-based compensation |
81 | (5,318 | ) | |||||
| Depreciation and amortization |
155,453 | 148,106 | ||||||
| Loss on disposal of property and equipment |
2,046 | 9,838 | ||||||
| Write off of debt issuance costs and original issue discount |
25,465 | — | ||||||
| Amortization of debt issuance costs and original issue discount |
11,924 | 16,419 | ||||||
| Net gains on investments |
(348 | ) | (224 | ) | ||||
| Provision for doubtful accounts receivable and sales allowances |
8,057 | 8,706 | ||||||
| Non-cash compensation expense |
63,405 | 76,351 | ||||||
| Capitalization of interest cost |
— | (7,755 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| Restricted Cash |
— | 12,502 | ||||||
| Accounts receivable (1) |
13,802 | (5,980 | ) | |||||
| Inventories |
(2,931 | ) | (15,373 | ) | ||||
| Prepaid expenses and other assets |
(4,069 | ) | 16,629 | |||||
| Deferred tax assets (1) |
23 | (281 | ) | |||||
| Accounts payable |
(31,874 | ) | (30,122 | ) | ||||
| Accrued employee compensation |
(22,184 | ) | (97,970 | ) | ||||
| Deferred revenue |
13,299 | 12,503 | ||||||
| Other accrued liabilities (1) |
(38,877 | ) | (31,405 | ) | ||||
| Liabilities associated with facilities lease losses |
(5,207 | ) | (8,832 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
242,999 | 192,090 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchases of short-term investments |
(38 | ) | (41 | ) | ||||
| Proceeds from maturities and sale of short-term investments |
1,604 | 1,788 | ||||||
| Proceeds from sale of property |
— | 30,185 | ||||||
| Purchases of property and equipment |
(76,661 | ) | (155,970 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(75,095 | ) | (124,038 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Payment of debt issuance fees related to the Senior Secured Notes |
— | (3,665 | ) | |||||
| Payment of principal related to the revolving credit facility |
— | (14,050 | ) | |||||
| Payment of principal related to convertible subordinate debt |
— | (172,500 | ) | |||||
| Proceeds from issuance of Senior Secured Notes |
— | 587,968 | ||||||
| Payment of fees related to the term loan |
(1,090 | ) | — | |||||
| Payment of principal related to the term loan |
(309,897 | ) | (552,808 | ) | ||||
| Common stock repurchases |
(10,044 | ) | (25,004 | ) | ||||
| Payment of principal related to capital leases |
(1,311 | ) | (494 | ) | ||||
| Proceeds from issuance of common stock, net |
93,333 | 69,883 | ||||||
| Proceeds from term loan |
198,949 | — | ||||||
| Excess tax benefits or detriments from stock-based compensation |
(81 | ) | 5,318 | |||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(30,141 | ) | (105,352 | ) | ||||
|
|
|
|
|
|||||
| Effect of exchange rate fluctuations on cash and cash equivalents |
812 | (4,356 | ) | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
138,575 | (41,656 | ) | |||||
| Cash and cash equivalents, beginning of period |
333,984 | 334,193 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 472,559 | $ | 292,537 | ||||
|
|
|
|
|
|||||
| (1) | The nine months ended July 31, 2010 and July 30, 2011 are as adjusted due to the correction of an immaterial error. |
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 | ||||||||
| Jul 30, 2011 |
Jul 31, 2010 |
|||||||
| Net income on a GAAP basis (1) |
$ | 1,937 | $ | 22,530 | ||||
| Adjustments: |
||||||||
| Stock-based compensation expense included in cost of revenues |
4,234 | 3,324 | ||||||
| Amortization of intangible assets expense included in cost of revenues |
14,466 | 14,466 | ||||||
| Provision for (benefit from) certain pre-acquisition litigation |
(14,334 | ) | 1,604 | |||||
| Legal fees associated with certain pre-acquisition litigation |
92 | 13 | ||||||
|
|
|
|
|
|||||
| Total gross margin adjustments |
4,458 | 19,407 | ||||||
|
|
|
|
|
|||||
| Legal fees associated with indemnification obligations and other related costs, net |
— | (74 | ) | |||||
| Stock-based compensation expense included in research and development |
5,582 | 6,392 | ||||||
| Stock-based compensation expense included in sales and marketing |
8,668 | 10,970 | ||||||
| Stock-based compensation expense included in general and administrative |
2,483 | 3,996 | ||||||
| Amortization of intangible assets expense included in operating expenses |
15,023 | 16,191 | ||||||
|
|
|
|
|
|||||
| Total operating expense adjustments |
31,756 | 37,475 | ||||||
|
|
|
|
|
|||||
| Total operating income adjustments |
36,214 | 56,882 | ||||||
| Original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing |
25,465 | — | ||||||
| Income tax effect of adjustments (1) |
(17,657 | ) | (15,247 | ) | ||||
|
|
|
|
|
|||||
| Non-GAAP net income (1) |
$ | 45,959 | $ | 64,165 | ||||
|
|
|
|
|
|||||
| Non-GAAP net income per share – basic |
$ | 0.10 | $ | 0.14 | ||||
|
|
|
|
|
|||||
| Non-GAAP net income per share – diluted |
$ | 0.09 | $ | 0.13 | ||||
|
|
|
|
|
|||||
| Shares used in non-GAAP per share calculation – basic |
483,744 | 449,489 | ||||||
|
|
|
|
|
|||||
| Shares used in non-GAAP per share calculation – diluted |
509,548 | 481,863 | ||||||
|
|
|
|
|
|||||
| (1) | The three months ended July 31, 2010 is as adjusted due to the correction of an immaterial error. |
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)
| Nine Months Ended | ||||||||
| Jul 30, 2011 |
Jul 31, 2010 |
|||||||
| Net income on a GAAP basis (1) |
$ | 54,934 | $ | 94,296 | ||||
| Adjustments: |
||||||||
| Stock-based compensation expense included in cost of revenues |
11,261 | 10,373 | ||||||
| Amortization of intangible assets expense included in cost of revenues |
43,398 | 46,783 | ||||||
| Provision for (benefit from) certain pre-acquisition litigation |
(14,334 | ) | 1,604 | |||||
| Legal fees associated with certain pre-acquisition litigation |
385 | 330 | ||||||
|
|
|
|
|
|||||
| Total gross margin adjustments |
40,710 | 59,090 | ||||||
|
|
|
|
|
|||||
| Legal fees associated with indemnification obligations and other related costs, net |
124 | 504 | ||||||
| Stock-based compensation expense included in research and development |
14,976 | 21,508 | ||||||
| Stock-based compensation expense included in sales and marketing |
27,079 | 33,813 | ||||||
| Stock-based compensation expense included in general and administrative |
10,088 | 10,657 | ||||||
| Amortization of intangible assets expense included in operating expenses |
46,236 | 49,433 | ||||||
| Acquisition and integration costs |
— | 203 | ||||||
|
|
|
|
|
|||||
| Total operating expense adjustments |
98,503 | 116,118 | ||||||
|
|
|
|
|
|||||
| Total operating income adjustments |
139,213 | 175,208 | ||||||
| Loss on sale of property |
— | 8,737 | ||||||
| Original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing |
25,465 | — | ||||||
| Interest expense related to adoption of new standards relating to convertible debt instruments |
— | 2,490 | ||||||
| Income tax effect of adjustments (1) |
(51,903 | ) | (61,369 | ) | ||||
|
|
|
|
|
|||||
| Non-GAAP net income (1) |
$ | 167,709 | $ | 219,362 | ||||
|
|
|
|
|
|||||
| Non-GAAP net income per share – basic (1) |
$ | 0.35 | $ | 0.49 | ||||
|
|
|
|
|
|||||
| Non-GAAP net income per share – diluted (1) |
$ | 0.33 | $ | 0.45 | ||||
|
|
|
|
|
|||||
| Shares used in non-GAAP per share calculation – basic |
474,020 | 443,795 | ||||||
|
|
|
|
|
|||||
| Shares used in non-GAAP per share calculation – diluted |
500,742 | 486,500 | ||||||
|
|
|
|
|
|||||
| (1) | The nine months ended July 31, 2010 and July 30, 2011 are as adjusted due to the correction of an immaterial error. |
See explanation of non-GAAP information included herein.
Page 10 of 10