November 21, 2011

Brocade Reports Fiscal Q4 2011 Results

Brocade Sets Company Revenue Records in Ethernet Business for Q4 and for FY 2011; Repurchases $200 Million in Stock in Q4

SAN JOSE, CA -- (MARKET WIRE) -- 11/21/11 -- Brocade® (NASDAQ: BRCD) today reported financial results for its fourth fiscal quarter and full fiscal year ended October 29, 2011. Brocade reported fourth quarter revenue of $550 million, representing an increase of over 9% quarter-over-quarter and up slightly year-over-year, and resulting in a diluted loss per share of $(0.01) on a GAAP basis and diluted earnings per share of $0.16 on a non-GAAP basis.

During the fourth quarter, Brocade generated strong operating cash flow of $206 million, repurchased 46.5 million shares of common stock, over 9% of the outstanding shares, valued at approximately $200 million, and paid down $50 million on its existing term loan balance. For the fiscal year, Brocade reduced the outstanding amount of the term loan by a total of $161 million, a 46% reduction from the beginning-year balance, which resulted in a balance of $190 million exiting fiscal year 2011.

Revenue for Brocade's Storage business, including products and services, was $361.3 million in the fourth quarter, up 8% sequentially and down 4% year-over-year. The higher sequential revenue for Storage reflected strong demand across all Storage product families including the ramp of its next-generation 16 gigabit-per-second (Gbps) Fibre Channel products which reached approximately $40 million in the quarter.

Revenue for Brocade's Ethernet business, including products and services, was a record $189.2 million in the fourth quarter, an increase of 12% quarter-over-quarter and an increase of 11% 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 18% from the prior year. The Federal Ethernet business was down 14% year-over-year, but up 39% sequentially, as Federal orders improved in the fourth quarter. Revenue for the Ethernet business for the full fiscal year 2011 was a record $670 million, up 11% compared to fiscal 2010, driven by growth in Service Provider and Enterprise customers.

"Brocade achieved outstanding results in Q4 that were led by record revenues for our Ethernet business, fast adoption of our 16 Gbps Fibre Channel products, improvements in profitability, and a record cash flow quarter from operations," said Michael Klayko, CEO of Brocade. "These strong performances demonstrate that we are executing well on our long-term strategy. Looking at FY 12, we plan to leverage this momentum along with our highly differentiated innovation strategy, expanding product portfolio, and our strong routes to market."

In addition to this press release, Brocade management will host a conference call to discuss fiscal fourth quarter results and fiscal first quarter 2012 outlook today at 2:30 p.m. PT (5:30 p.m. ET). 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.

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

Financial Highlights and Additional Financial Information


                                         Q4 2011     Q3 2011     Q4 2010 (1)

                                         ----------- ----------- -----------

Revenue                                  $550M       $503M       $549M

GAAP net income (loss)                   $(4M)       $2M         $22M

Non-GAAP net income                      $79M        $46M        $65M

GAAP EPS - diluted                       $(0.01)     $0.00       $0.05

Non-GAAP EPS - diluted                   $0.16       $0.09       $0.13

Non-GAAP gross margin                    62.9%       61.8%       62.2%

Non-GAAP operating margin                21.0%       14.0%       20.2%

Adjusted EBITDA (2)                      $138M       $91M        $126M

Cash provided by operations              $206M       $11M        $106M



  • Q4 effective GAAP tax rate was 110.5% and non-GAAP effective tax rate was 22.9%.
  • Q4 total Storage Area Networking (SAN) port shipments were approximately 1.1 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                 Q4 2011     Q3 2011     Q4 2010 (1)

                                         ----------- ----------- -----------

OEM revenues                             62%         61%         61%

Channel/Direct revenues                  38%         39%         39%

10% or greater customer revenues         41%         43%         44%

Domestic revenues                        62%         61%         65%

International revenues                   38%         39%         35%

Data Storage Revenues                    55%         55%         57%

Ethernet Products Revenues               29%         28%         26%

Global Services Revenue                  16%         17%         17%

Ethernet Business Revenues (3)           34%         34%         31%

As a % of Ethernet Business Revenues

 (3):

Enterprise, excluding Federal            57%         53%         52%

Federal                                  18%         15%         23%

Service Provider                         25%         32%         25%



                                         Q4 2011     Q3 2011     Q4 2010 (1)

                                         ----------- ----------- -----------

Cash, cash equivalents and short-term

 investments                             $415M       $473M       $336M

Deferred revenues                        $270M       $264M       $251M

Capital expenditures                     $20M        $26M        $46M

Total debt, net of discount              $789M       $839M       $930M

Days sales outstanding                   41 days     54 days     53 days

Employees at end of period (4)           4,546       4,772       4,651



 1) The Company's prior period financial results, including Q4 2010, have

    been revised to reflect an immaterial correction identified in Q3 2011.

    As a result of the revision, net income was decreased by $1.2 million

    for the three months ended October 30, 2010, $2.3 million for the year

    ended October 30, 2010, and $1.8 million for the six months ended April

    30, 2011.



 2) Adjusted EBITDA is as defined in the Term Debt Credit Agreement.



 3) Ethernet Business revenues include product and global services revenues.



 4) The reduction of headcount from Q3 2011 includes the sale of Strategic

    Business Systems, Inc., its wholly-owned subsidiary during Q4 2011.

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 litigation (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 the adoption of new standards relating to convertible debt instruments, (vii) original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing, and (viii) loss on sale of a subsidiary.

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.

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding the networking industry, Brocade's strategy, Brocade's Ethernet and Storage solutions, and its routes to markets. 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 July 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, the B-wing symbol, DCX, Fabric OS, and SAN Health are registered trademarks, and Brocade Assurance, Brocade NET Health, Brocade One, CloudPlex, MLX, VCS, VDX, and When the Mission Is Critical, the Network Is Brocade are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned are or may be trademarks or service marks of their respective owners.

© 2011 Brocade Communications Systems, Inc. All Rights Reserved.






                    BROCADE COMMUNICATIONS SYSTEMS, INC.

            GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                  (in thousands, except per share amounts)

                                (unaudited)



                               Three Months Ended       Fiscal Year Ended

                             ----------------------  ----------------------

                               Oct 29,     Oct 30,     Oct 29,     Oct 30,

                                2011        2010        2011        2010

                             ----------  ----------  ----------  ----------

Net revenues

  Product                    $  460,993  $  456,606  $1,789,814  $1,728,814

  Service                        89,479      92,023     357,628     362,339

                             ----------  ----------  ----------  ----------

    Total net revenues          550,472     548,629   2,147,442   2,091,153

Cost of revenues

  Product                       179,184     181,276     677,196     683,486

  Service                        43,773      44,079     186,712     176,547

                             ----------  ----------  ----------  ----------

    Total cost of revenues      222,957     225,355     863,908     860,033

                             ----------  ----------  ----------  ----------

      Gross margin              327,515     323,274   1,283,534   1,231,120

Operating expenses:

  Research and development       83,733      88,943     354,401     354,260

  Sales and marketing           145,523     145,586     608,513     534,458

  General and administrative     16,330      18,129      69,506      67,848

  Legal fees associated with

   indemnification

   obligations and other

   related costs, net                --        (666)        125        (163)

  Amortization of intangible

   assets                        14,476      16,190      60,713      65,623

  Acquisition and

   integration costs                 --          --          --         204

  Restructuring costs and

   facilities lease loss             --       1,059          --       1,059

  Loss on sale of subsidiary

   (1)                           12,756          --      12,756          --

                             ----------  ----------  ----------  ----------

    Total operating expenses    272,818     269,241   1,106,014   1,023,289

                             ----------  ----------  ----------  ----------

Income from operations           54,697      54,033     177,520     207,831

Interest and other income

 (loss), net                        (81)     (4,222)       (378)     (6,452)

Interest expense                (13,481)    (22,202)    (97,838)    (85,858)

Gain (loss) on sale of

 investments and property,

 net                                (13)         49         124      (8,551)

                             ----------  ----------  ----------  ----------

Income before income tax

 provision (benefit)             41,122      27,658      79,428     106,970

Income tax provision

 (benefit)                       45,446       5,431      28,818      (9,553)

                             ----------  ----------  ----------  ----------

Net income (loss)            $   (4,324) $   22,227  $   50,610  $  116,523

                             ==========  ==========  ==========  ==========

Net income (loss) per share

 - basic                     $    (0.01) $     0.05  $     0.11  $     0.26

                             ==========  ==========  ==========  ==========

Net income (loss) per share

 - diluted                   $    (0.01) $     0.05  $     0.10  $     0.24

                             ==========  ==========  ==========  ==========

Shares used in per share

 calculation - basic            474,975     456,597     474,259     446,996

                             ==========  ==========  ==========  ==========

Shares used in per share

 calculation - diluted          474,975     485,672     497,030     482,741

                             ==========  ==========  ==========  ==========






 1) The Company completed the sale of Strategic Business Systems, Inc., its

    wholly-owned subsidiary during Q4 2011.





                    BROCADE COMMUNICATIONS SYSTEMS, INC.

                 GAAP CONDENSED CONSOLIDATED BALANCE SHEETS

                               (in thousands)

                                (unaudited)



                                                     Oct 29,      Oct 30,

                                                       2011         2010

                                                   -----------  -----------

Assets

Current assets:

  Cash and cash equivalents                        $   414,202  $   333,984

  Short-term investments                                   774        1,998

                                                   -----------  -----------

  Total cash, cash equivalents and short-term

   investments                                         414,976      335,982

  Accounts receivable, net of allowances of $6,399

   and $6,721 at October 29, 2011 and October 30,

   2010, respectively                                  249,141      317,363

  Inventories                                           74,172       76,808

  Deferred tax assets                                   53,604       71,118

  Prepaid expenses and other current assets             52,308       65,017

                                                   -----------  -----------

    Total current assets                               844,201      866,288



Long-term investments                                    1,218           --

Property and equipment, net                            532,384      539,117

Goodwill                                             1,630,967    1,644,950

Intangible assets, net                                 214,697      344,000

Non-current deferred tax assets                        210,028      203,454

Other assets                                            40,813       48,203

                                                   -----------  -----------

      Total assets                                 $ 3,474,308  $ 3,646,012

                                                   ===========  ===========



Liabilities and Stockholders' Equity

Current liabilities:

  Accounts payable                                 $   109,471  $   147,130

  Accrued employee compensation                        118,298       91,688

  Deferred revenue                                     201,421      185,623

  Current liabilities associated with facilities

   lease losses                                          1,456        5,992

  Current portion of capital lease obligations           1,866        1,761

  Current portion of term loan                          38,673       28,779

  Other accrued liabilities                             94,802      111,133

                                                   -----------  -----------

    Total current liabilities                          565,987      572,106



Non-current capital lease obligations, net of

 current portion                                         4,916        6,782

Term loan, net of current portion                      148,185      297,118

Senior Secured Notes                                   595,803      595,373

Non-current liabilities associated with facilities

 lease losses                                            2,496        3,984

Non-current deferred revenue                            69,024       65,242

Non-current income tax liability                        63,593       61,421

Other non-current liabilities                           10,166        8,581

                                                   -----------  -----------

      Total liabilities                              1,460,170    1,610,607

                                                   -----------  -----------



Stockholders' equity:

  Common stock                                             448          461

  Additional paid-in capital                         1,984,830    2,047,525

  Accumulated other comprehensive loss                 (11,996)      (2,827)

  Retained earnings (Accumulated deficit)               40,856       (9,754)

                                                   -----------  -----------

      Total stockholders' equity                     2,014,138    2,035,405

                                                   -----------  -----------

        Total liabilities and stockholders' equity $ 3,474,308  $ 3,646,012

                                                   ===========  ===========





                    BROCADE COMMUNICATIONS SYSTEMS, INC.

            GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

          For the Three Months Ended Oct 29, 2011 and Oct 30, 2010

                               (in thousands)

                                (unaudited)



                                                      Three Months Ended

                                                   ------------------------

                                                     Oct 29,      Oct 30,

                                                       2011         2010

                                                   -----------  -----------

Cash flows from operating activities:

  Net income (loss)                                $    (4,324) $    22,227

  Adjustments to reconcile net income to net cash

   provided by operating activities:

    Excess tax benefits or detriments from stock-

     based compensation                                   (393)       3,157

    Depreciation and amortization                       50,899       51,531

    Loss on disposal of property and equipment             278          574

    Loss on sale of subsidiary                          12,756           --

    Amortization of debt issuance costs and

     original issue discount                             1,259        4,681

    Net losses (gains) on investments                        8         (299)

    Provision for doubtful accounts receivable and

     sales allowances                                    1,286        3,105

    Non-cash compensation expense                       19,671       25,274

    Non-cash facilities lease loss expense                  --          513

  Changes in assets and liabilities:

    Accounts receivable                                 39,759      (33,294)

    Inventories                                          4,258       10,716

    Prepaid expenses and other assets                    2,381       (2,973)

    Deferred tax assets                                 (2,182)        (835)

    Accounts payable                                    (7,043)       3,701

    Accrued employee compensation                       22,400       (2,856)

    Deferred revenue                                     6,281        2,917

    Other accrued liabilities                           59,755       20,682

    Liabilities associated with facilities lease

     losses                                               (817)      (2,399)

                                                   -----------  -----------

      Net cash provided by operating activities        206,232      106,422

                                                   -----------  -----------



Cash flows from investing activities:

  Purchases of short-term investments                       --          (12)

  Purchases of non-marketable minority equity

   investments                                              --         (200)

  Proceeds from maturities and sale of short-term

   investments                                              --        1,467

  Purchases of property and equipment                  (20,136)     (45,651)

  Proceeds from sale of subsidiary, net                  3,905           --

                                                   -----------  -----------

      Net cash used in investing activities            (16,231)     (44,396)

                                                   -----------  -----------



Cash flows from financing activities:

  Payment of fees related to the term loan                 (77)          --

  Payment of principal related to the term loan        (50,000)     (30,221)

  Common stock repurchases                            (200,654)          --

  Payment of principal related to capital leases          (450)        (679)

  Proceeds from issuance of common stock, net            3,819       11,710

  Excess tax benefits or detriments from stock-

   based compensation                                      393       (3,157)

                                                   -----------  -----------

      Net cash used in financing activities           (246,969)     (22,347)

                                                   -----------  -----------

  Effect of exchange rate fluctuations on cash and

   cash equivalents                                     (1,389)       1,768

                                                   -----------  -----------



  Net increase (decrease) in cash and cash

   equivalents                                         (58,357)      41,447

  Cash and cash equivalents, beginning of period       472,559      292,537

                                                   -----------  -----------

  Cash and cash equivalents, end of period         $   414,202  $   333,984

                                                   ===========  ===========





                    BROCADE COMMUNICATIONS SYSTEMS, INC.

            GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

            For Fiscal Year Ended Oct 29, 2011 and Oct 30, 2010

                               (in thousands)

                                (unaudited)



                                                       Fiscal Year Ended

                                                   ------------------------

                                                     Oct 29,      Oct 30,

                                                       2011         2010

                                                   -----------  -----------

Cash flows from operating activities:

  Net income                                       $    50,610  $   116,523

  Adjustments to reconcile net income to net cash

   provided by operating activities:

    Excess tax benefits or detriments from stock-

     based compensation                                   (312)      (2,161)

    Depreciation and amortization                      206,352      199,637

    Loss on disposal of property and equipment           2,325       10,412

    Loss on sale of subsidiary                          12,756           --

    Write off of debt issuance costs and original

     issue discount                                     25,465           --

    Amortization of debt issuance costs and

     original issue discount                            13,183       21,100

    Net gains on investments                              (340)        (523)

    Provision for doubtful accounts receivable and

     sales allowances                                    9,343       11,811

    Non-cash compensation expense                       83,076      101,625

    Non-cash facilities lease loss expense                  --          513

    Capitalization of interest cost                         --       (7,755)

  Changes in assets and liabilities:

    Restricted Cash                                         --       12,502

    Accounts receivable                                 53,561      (39,248)

    Inventories                                          1,327       (4,657)

    Prepaid expenses and other assets                   (1,688)      13,657

    Deferred tax assets                                 (2,158)      (1,134)

    Accounts payable                                   (38,917)     (26,421)

    Accrued employee compensation                          216     (100,826)

    Deferred revenue                                    19,579       15,420

    Other accrued liabilities                           20,878      (10,731)

    Liabilities associated with facilities lease

     losses                                             (6,024)     (11,231)

                                                   -----------  -----------

      Net cash provided by operating activities        449,232      298,513

                                                   -----------  -----------



Cash flows from investing activities:

  Purchases of short-term investments                      (38)         (53)

  Purchases of non-marketable minority equity

   investments                                              --         (200)

  Proceeds from maturities and sale of short-term

   investments                                           1,604        3,255

  Proceeds from sale of property                            --       30,185

  Purchases of property and equipment                  (96,797)    (201,621)

  Proceeds from sale of subsidiary, net                  3,905           --

                                                   -----------  -----------

      Net cash used in investing activities            (91,326)    (168,434)

                                                   -----------  -----------



Cash flows from financing activities:

  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 debt issuance costs related to the

   Senior Secured Notes                                     --       (3,666)

  Payment of fees related to the term loan              (1,167)          --

  Payment of principal related to the term loan       (359,898)    (583,029)

  Common stock repurchases                            (210,698)     (25,004)

  Payment of principal related to capital leases        (1,761)      (1,173)

  Proceeds from issuance of common stock, net           97,152       81,593

  Proceeds from term loan                              198,950           --

  Excess tax benefits or detriments from stock-

   based compensation                                      312        2,161

                                                   -----------  -----------

      Net cash used in financing activities           (277,110)    (127,700)

                                                   -----------  -----------

  Effect of exchange rate fluctuations on cash and

   cash equivalents                                       (578)      (2,588)

                                                   -----------  -----------



  Net increase (decrease) in cash and cash

   equivalents                                          80,218         (209)

  Cash and cash equivalents, beginning of year         333,984      334,193

                                                   -----------  -----------

  Cash and cash equivalents, end of year           $   414,202  $   333,984

                                                   ===========  ===========





                    BROCADE COMMUNICATIONS SYSTEMS, INC.

            RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

                  (in thousands, except per share amounts)

                                (unaudited)

                                                      Three Months Ended

                                                   ------------------------

                                                     Oct 29,      Oct 30,

                                                       2011         2010

                                                   -----------  -----------



Net income (loss) on a GAAP basis                  $    (4,324) $    22,227

Adjustments:

  Stock-based compensation expense included in

   cost of revenues                                      4,345        3,179

  Amortization of intangible assets expense

   included in cost of revenues                         14,090       14,466

  Legal fees associated with certain pre-

   acquisition litigation                                   59          243

                                                   -----------  -----------

      Total gross margin adjustments                    18,494       17,888

                                                   -----------  -----------

  Legal fees associated with indemnification

   obligations and other related costs, net                 --         (666)

  Stock-based compensation expense included in

   research and development                              3,984        6,287

  Stock-based compensation expense included in

   sales and marketing                                   8,987       11,420

  Stock-based compensation expense included in

   general and administrative                            2,355        4,389

  Amortization of intangible assets expense

   included in operating expenses                       14,476       16,190

  Loss on sale of subsidiary                            12,756           --

  Restructuring costs and facilities lease losses,

   net                                                      --        1,059

                                                   -----------  -----------

    Total operating expense adjustments                 42,558       38,679

                                                   -----------  -----------

      Total operating income adjustments                61,052       56,567

  Income tax effect of adjustments                      22,018      (14,049)

                                                   -----------  -----------

Non-GAAP net income                                $    78,746  $    64,745

                                                   ===========  ===========



Non-GAAP net income per share - basic              $      0.17  $      0.14

                                                   ===========  ===========

Non-GAAP net income per share - diluted            $      0.16  $      0.13

                                                   ===========  ===========

Shares used in non-GAAP per share calculation -

 basic                                                 474,975      456,597

                                                   ===========  ===========

Shares used in non-GAAP per share calculation -

 diluted                                               485,895      485,672

                                                   ===========  ===========





See explanation of non-GAAP information included herein.





                    BROCADE COMMUNICATIONS SYSTEMS, INC.

            RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

                  (in thousands, except per share amounts)

                                (unaudited)

                                                       Fiscal Year Ended

                                                   ------------------------

                                                     Oct 29,      Oct 30,

                                                       2011         2010

                                                   -----------  -----------



Net income on a GAAP basis                         $    50,610  $   116,523

Adjustments:

  Stock-based compensation expense included in

   cost of revenues                                     15,606       13,552

  Amortization of intangible assets expense

   included in cost of revenues                         57,489       61,249

  Provision for (benefit from) certain pre-

   acquisition litigation                              (14,335)       1,604

  Legal fees associated with certain pre-

   acquisition litigation                                  443          573

                                                   -----------  -----------

      Total gross margin adjustments                    59,203       76,978

                                                   -----------  -----------

  Legal fees associated with indemnification

   obligations and other related costs, net                125         (163)

  Stock-based compensation expense included in

   research and development                             18,959       27,795

  Stock-based compensation expense included in

   sales and marketing                                  36,068       45,233

  Stock-based compensation expense included in

   general and administrative                           12,442       15,046

  Amortization of intangible assets expense

   included in operating expenses                       60,713       65,623

  Acquisition and integration costs                         --          204

  Loss on sale of subsidiary                            12,756           --

  Restructuring costs and facilities lease losses           --        1,059

                                                   -----------  -----------

    Total operating expense adjustments                141,063      154,797

                                                   -----------  -----------

      Total operating income adjustments               200,266      231,775

  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                     (29,886)     (75,418)

                                                   -----------  -----------

Non-GAAP net income                                $   246,455  $   284,107

                                                   ===========  ===========



                                                   ===========  ===========

Non-GAAP net income per share - basic              $      0.52  $      0.64

                                                   ===========  ===========

Non-GAAP net income per share - diluted            $      0.50  $      0.58

                                                   ===========  ===========

Shares used in non-GAAP per share calculation -

 basic                                                 474,259      446,996

                                                   ===========  ===========

Shares used in non-GAAP per share calculation -

 diluted                                               497,030      486,293

                                                   ===========  ===========



See explanation of non-GAAP information included herein.



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