August 16, 2012

Brocade Reports Fiscal Q3 2012 Results

Revenue Growth of 10% and Improved Margins Drove Higher EPS Yr./Yr.

SAN JOSE, CA -- (Marketwire) -- 08/16/12 -- Brocade® (NASDAQ: BRCD) today reported financial results for its third fiscal quarter ended July 28, 2012. Brocade reported third quarter revenue of $555.3 million, representing an increase of 10% year-over-year and 2% quarter-over-quarter. The resulting GAAP diluted earnings per share of $0.09, was up from break-even EPS in Q3 2011, and non-GAAP diluted EPS of $0.14, was up 59% year-over-year.

"Fiscal Q3 was a great quarter for Brocade. With continued differentiation in our products and focused execution across our organization, we were able to overcome many issues in the current challenging macroeconomic environment. As a result, our financial performance in the quarter exceeded our expectations for revenue, operating margin and earnings per share," said Michael Klayko, CEO of Brocade.

Summary of Q3 2012 results:

  • Storage business revenue, including products and services, was $377.6 million, up 13% year-over-year and down 6% sequentially. Storage product revenue increased 17% year-over-year and decreased 6% sequentially, in a seasonally soft quarter for the company. Brocade's industry-leading 16 Gbps Fibre Channel products represented nearly 30% of director and switch revenue in the quarter.
  • Ethernet business revenue, including products and services, was $177.8 million, up 5% year-over-year and up 24% quarter-over-quarter. Revenue growth for the Ethernet business was driven by an increase in Federal sales, which were up 40% year-over-year and 108% quarter-over-quarter. Enterprise business revenue was up 2% year-over-year and up 21% quarter-over-quarter as the Brocade ICX products continue to ramp. Service provider business revenue was up slightly quarter-over-quarter and down 5% year-over-year.
  • GAAP gross margin was 61.3% and non-GAAP gross margin was 63.7% in Q3 2012, compared to 61.0% and 61.8% in Q3 2011, respectively. The year-over-year improvement in gross margin was due to higher revenue, favorable product mix and lower fixed costs. Gross margin declined sequentially, as expected, driven by a greater mix of lower margin Ethernet revenue in Q3 2012.
  • GAAP operating margin was 12.6% and non-GAAP operating margin was 19.5% in Q3 2012, compared to 6.8% and 14.0% in Q3 2011, respectively. The year-over-year improvement in operating margin was due to higher revenue and expanded gross margin in Q3 2012. Operating margin improved quarter-over-quarter on higher revenue and lower operating expenses.
  • Operating cash flow was $113.1 million in Q3 2012. During the quarter, the Company reduced its term loan by $40.0 million. The remaining term loan balance was $30.0 million exiting the quarter.
  • GAAP EPS was $0.09 in Q3 2012, and non-GAAP EPS of $0.14 was up 59% year-over-year, which marks the fourth consecutive quarter of non-GAAP EPS year-over-year growth of nearly 20% or more.
  • Average diluted shares outstanding for Q3 2012 were lower by 40.0 million shares from Q3 2011, principally from share repurchases during the past year including 8.7 million shares ($45 million) repurchased during Q3 2012.

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). To access the webcast please go to www.brcd.com/events.cfm. A replay of the conference call, prepared comments and slides as well as a written transcript, will be available at www.brcd.com.

Other Q3 2012 product, customer and partner announcements are available at http://newsroom.brocade.com/.

Brocade (www.brocade.com)
130 Holger Way, San Jose, CA. 95134
T. 408.333.8000 F. 408.333.8101

Financial Highlights and Additional Financial Information




                                                Q3 2012   Q2 2012   Q3 2011

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

Revenue                                        $   555M  $   543M  $   503M

GAAP net income                                $    43M  $    39M  $     2M

Non-GAAP net income                            $    67M  $    72M  $    46M

GAAP EPS -- diluted                            $   0.09  $   0.08  $   0.00

Non-GAAP EPS -- diluted                        $   0.14  $   0.15  $   0.09

GAAP gross margin                                  61.3%     62.0%     61.0%

Non-GAAP gross margin                              63.7%     64.8%     61.8%

GAAP operating income                          $    70M  $    52M  $    34M

Non-GAAP operating income                      $   108M  $   101M  $    70M

GAAP operating margin                              12.6%      9.5%      6.8%

Non-GAAP operating margin                          19.5%     18.6%     14.0%

Adjusted EBITDA (1)                            $   131M  $   123M  $    91M

Cash provided by operations                    $   113M  $   140M  $    11M



  • Q3 2012 effective GAAP tax rate was 25.7% and effective non-GAAP effective tax rate was 30.1%.
  • Q3 2012 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.




                                                Q3 2012   Q2 2012   Q3 2011

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

As a % of total revenues

OEM revenues                                         67%       70%       61%

Channel/Direct revenues                              33%       30%       39%

10% or greater customer revenues                     55%       58%       43%

Domestic revenues                                    64%       65%       61%

International revenues                               36%       35%       39%

Data Storage Products Revenues                       58%       63%       55%

Ethernet Products Revenues                           26%       21%       28%

Global Services Revenue                              16%       16%       18%

Ethernet Business Revenues (2)                       32%       26%       34%

As a % of Ethernet Business Revenues:

Enterprise, excluding Federal                        52%       54%       54%

Federal                                              19%       11%       15%

Service Provider                                     29%       35%       32%





                                                Q3 2012   Q2 2012   Q3 2011

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

Cash, cash equivalents and short-term

 investments                                   $    581M $    545M $    473M

Deferred revenues                              $    280M $    278M $    264M

Capital expenditures                           $     18M $     21M $     26M

Total debt, net of discount                    $    630M $    670M $    839M

Days sales outstanding                           38 days   36 days   54 days

Employees at end of period                         4,597     4,600     4,772



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

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





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 Brocade's strategy and its routes to market. 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 our Form 10-Q for the fiscal quarter ended April 28, 2012 and in "Item 1A. Risk Factors" in Brocade's Annual Report on Form 10-K for the fiscal year ended October 29, 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.

©2012 Brocade Communications Systems, Inc. All Rights Reserved.




                    BROCADE COMMUNICATIONS SYSTEMS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                (Unaudited)



                               Three Months Ended       Nine Months Ended

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

                              July 28,    July 30,    July 28,    July 30,

                                2012        2011        2012        2011

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

                                (In thousands, except per share amounts)

Net revenues

  Product                    $  467,281  $  414,298  $1,399,687  $1,328,822

  Service                        88,051      88,552     259,726     268,148

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

    Total net revenues          555,332     502,850   1,659,413   1,596,970

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

Cost of revenues

  Product                       173,637     149,321     513,221     498,012

  Service                        41,217      47,002     123,863     142,939

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

    Total cost of revenues      214,854     196,323     637,084     640,951

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

Gross margin                    340,478     306,527   1,022,329     956,019

Operating expenses:

  Research and development       90,530      87,320     272,780     270,669

  Sales and marketing           146,378     153,345     457,921     462,991

  General and administrative     18,612      16,617      55,752      53,176

  Legal fees associated with

   indemnification

   obligations and other

   related costs, net                --          --          --         124

  Amortization of intangible

   assets                        14,737      15,023      44,467      46,236

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

    Total operating expenses    270,257     272,305     830,920     833,196

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

Income from operations           70,221      34,222     191,409     122,823

Interest expense                (12,029)    (42,066)    (37,804)    (84,357)

Interest and other income

 (loss), net                        103        (519)     (1,345)       (160)

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

Income (loss) before income

 tax                             58,295      (8,363)    152,260      38,306

Income tax expense (benefit)     14,995     (10,300)     11,080     (16,628)

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

Net income                   $   43,300  $    1,937  $  141,180  $   54,934

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

Net income per share --

 basic                       $     0.09  $     0.00  $     0.31  $     0.12

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

Net income per share --

 diluted                     $     0.09  $     0.00  $     0.30  $     0.11

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

Shares used in per share

 calculation -- basic           457,147     483,744     455,727     474,020

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

Shares used in per share

 calculation -- diluted         469,571     509,548     471,719     500,741

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







                    BROCADE COMMUNICATIONS SYSTEMS, INC.

                   CONDENSED CONSOLIDATED BALANCE SHEETS

                                (Unaudited)



                                                    July 28,    October 29,

                                                       2012         2011

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

                                                     (In thousands, except

                                                          par value)

Assets

Current assets:

  Cash and cash equivalents                        $   580,626  $   414,202

  Short-term investments                                   808          774

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

      Total cash, cash equivalents and short-term

       investments                                     581,434      414,976

  Accounts receivable, net of allowances for

   doubtful accounts of $2,184 and $1,388 at July

   28, 2012 and October 29, 2011, respectively         231,155      249,141

  Inventories                                           74,200       74,172

  Deferred tax assets                                   55,400       53,604

  Prepaid expenses and other current assets             49,176       52,308

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

      Total current assets                             991,365      844,201

Property and equipment, net                            523,405      532,384

Goodwill                                             1,626,754    1,630,967

Intangible assets, net                                 134,715      214,697

Non-current deferred tax assets                        182,381      210,028

Other assets                                            38,904       42,031

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

      Total assets                                 $ 3,497,524  $ 3,474,308

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

Liabilities and Stockholders' Equity

Current liabilities:

  Accounts payable                                 $   116,469  $   109,471

  Accrued employee compensation                        137,942      118,298

  Deferred revenue                                     208,263      201,421

  Current liabilities associated with facilities

   lease losses                                            868        1,456

  Current portion of long-term debt                      8,515       40,539

  Other accrued liabilities                             83,311       94,802

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

      Total current liabilities                        555,368      565,987

Long-term debt, net of current portion                 621,206      748,904

Non-current liabilities associated with facilities

 lease losses                                            1,942        2,496

Non-current deferred revenue                            71,560       69,024

Non-current income tax liability                        46,366       63,593

Other non-current liabilities                            9,481       10,166

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

      Total liabilities                              1,305,923    1,460,170

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

Commitments and contingencies

Stockholders' equity:

  Preferred stock, $0.001 par value, 5,000 shares

   authorized, no shares issued and outstanding             --           --

  Common stock, $0.001 par value, 800,000 shares

   authorized:

    Issued and outstanding: 460,903 and 448,022

     shares at July 28, 2012 and October 29, 2011,

     respectively                                          461          448

Additional paid-in capital                           2,028,305    1,984,830

Accumulated other comprehensive loss                   (19,204)     (11,996)

Retained earnings                                      182,039       40,856

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

      Total stockholders' equity                     2,191,601    2,014,138

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

      Total liabilities and stockholders' equity   $ 3,497,524  $ 3,474,308

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







                    BROCADE COMMUNICATIONS SYSTEMS, INC.

              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (Unaudited)



                                                      Three Months Ended

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

                                                    July 28,     July 30,

                                                       2012         2011

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

                                                        (In thousands)

Cash flows from operating activities:

  Net income                                       $    43,300  $     1,937

  Adjustments to reconcile net income to net cash

   provided by operating activities:

    Excess tax benefits from stock-based

     compensation                                           (6)        (796)

    Depreciation and amortization                       47,159       51,220

    Loss on disposal of property and equipment             108          136

    Amortization of debt issuance costs and

     original issue discount                             1,141        2,729

    Write-off of debt issuance costs and original

     issue discount on debt extinguishment                  --       25,465

    Net gains on investments                               (11)        (338)

    Provision for doubtful accounts receivable and

     sales allowances                                    3,669        2,986

    Non-cash compensation expense                       13,069       20,969

  Changes in assets and liabilities:

    Accounts receivable                                (16,986)     (10,229)

    Inventories                                          5,280       14,733

    Prepaid expenses and other assets                    2,375        2,838

    Deferred tax assets                                    (11)          53

    Accounts payable                                    15,165      (21,621)

    Accrued employee compensation                       (3,089)     (41,899)

    Deferred revenue                                     1,720       (7,870)

    Other accrued liabilities                              363      (26,901)

    Liabilities associated with facilities lease

     losses                                               (187)      (2,354)

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

      Net cash provided by operating activities        113,059       11,058

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

Cash flows from investing activities:

  Proceeds from maturities and sale of short-term

   investments                                              --        1,584

  Purchases of property and equipment                  (17,736)     (26,086)

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

      Net cash used in investing activities            (17,736)     (24,502)

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

Cash flows from financing activities:

  Payment of principal related to the term loan        (40,000)    (211,257)

  Payment of fees related to the term loan                  --       (1,090)

  Proceeds from term loan                                   --      198,949

  Payment of principal related to capital leases          (469)        (443)

  Common stock repurchases                             (45,087)     (10,044)

  Proceeds from issuance of common stock                29,211       45,945

  Excess tax benefits from stock-based

   compensation                                              6          796

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

      Net cash provided (used) in financing

       activities                                      (56,339)      22,856

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

Effect of exchange rate fluctuations on cash and

 cash equivalents                                       (2,697)        (415)

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

Net increase in cash and cash equivalents               36,287        8,997

Cash and cash equivalents, beginning of period         544,339      463,562

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

Cash and cash equivalents, end of period           $   580,626  $   472,559

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







                    BROCADE COMMUNICATIONS SYSTEMS, INC.

              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (Unaudited)



                                                       Nine Months Ended

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

                                                    July 28,     July 30,

                                                       2012         2011

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

                                                        (In thousands)

Cash flows from operating activities:

  Net income                                       $   141,180  $    54,934

  Adjustments to reconcile net income to net cash

   provided by operating activities:

    Excess tax (benefits) detriments from stock-

     based compensation                                 (1,338)          81

    Depreciation and amortization                      144,683      155,453

    Loss on disposal of property and equipment             404        2,046

    Amortization of debt issuance costs and

     original issue discount                             3,767       11,924

    Write-off of debt issuance costs and original

     issue discount on debt extinguishment                  --       25,465

    Net gains on investments                               (35)        (348)

    Provision for doubtful accounts receivable and

     sales allowances                                    9,533        8,057

    Non-cash compensation expense                       58,746       63,405

  Changes in assets and liabilities:

    Accounts receivable                                  8,454       13,802

    Inventories                                         (2,099)      (2,931)

    Prepaid expenses and other assets                    2,675       (4,069)

    Deferred tax assets                                    181           23

    Accounts payable                                     8,476      (31,874)

    Accrued employee compensation                        5,554      (22,184)

    Deferred revenue                                     9,377       13,299

    Other accrued liabilities                           (8,038)     (38,877)

    Liabilities associated with facilities lease

     losses                                             (1,142)      (5,207)

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

      Net cash provided by operating activities        380,378      242,999

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

Cash flows from investing activities:

  Purchases of short-term investments                       --          (38)

  Proceeds from maturities and sale of short-term

   investments                                              --        1,604

  Proceeds from sale of subsidiary                          35           --

  Purchases of property and equipment                  (56,005)     (76,661)

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

      Net cash used in investing activities            (55,970)     (75,095)

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

Cash flows from financing activities:

  Payment of principal related to the term loan       (160,000)    (309,897)

  Payment of fees related to the term loan                  --       (1,090)

  Proceeds from term loan                                   --      198,949

  Payment of principal related to capital leases        (1,389)      (1,311)

  Common stock repurchases                             (70,153)     (10,044)

  Proceeds from issuance of common stock                76,472       93,333

  Excess tax benefits (detriments) from stock-

   based compensation                                    1,338          (81)

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

      Net cash used in financing activities           (153,732)     (30,141)

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

Effect of exchange rate fluctuations on cash and

 cash equivalents                                       (4,252)         812

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

Net increase in cash and cash equivalents              166,424      138,575

Cash and cash equivalents, beginning of period         414,202      333,984

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

Cash and cash equivalents, end of period           $   580,626  $   472,559

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







                    BROCADE COMMUNICATIONS SYSTEMS, INC.

            RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

                                (Unaudited)



                                                      Three Months Ended

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

                                                    July 28,     July 30,

                                                       2012         2011

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

                                                     (In thousands, except

                                                      per share amounts)

Net income on a GAAP basis                         $    43,300  $     1,937

Adjustments:

  Stock-based compensation expense included in

   cost of revenues                                      3,074        4,235

  Amortization of intangible assets expense

   included in cost of revenues                         10,713       14,466

  Benefit from certain pre-acquisition litigation           --      (14,334)

  Legal fees expense (recovery) associated with

   certain pre-acquisition litigation                     (414)          92

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

    Total gross margin adjustments                      13,373        4,459

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

  Stock-based compensation expense included in

   research and development                              3,110        5,581

  Stock-based compensation expense included in

   sales and marketing                                   4,483        8,670

  Stock-based compensation expense included in

   general and administrative                            2,402        2,483

  Amortization of intangible assets expense

   included in operating expenses                       14,737       15,023

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

    Total operating expense adjustments                 24,732       31,757

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

      Total operating income adjustments                38,105       36,216

  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                     (14,012)     (17,657)

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

Non-GAAP net income                                $    67,393  $    45,961

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

Non-GAAP net income per share -- basic             $      0.15  $      0.10

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

Non-GAAP net income per share -- diluted           $      0.14  $      0.09

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

Shares used in non-GAAP per share calculation --

 basic                                                 457,147      483,744

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

Shares used in non-GAAP per share calculation --

 diluted                                               469,571      509,548

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







                    BROCADE COMMUNICATIONS SYSTEMS, INC.

            RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

                                (Unaudited)



                                                       Nine Months Ended

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

                                                    July 28,     July 30,

                                                       2012         2011

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

                                                     (In thousands, except

                                                      per share amounts)

Net income on a GAAP basis                         $   141,180  $    54,934

Adjustments:

  Stock-based compensation expense included in

   cost of revenues                                     12,045       11,262

  Amortization of intangible assets expense

   included in cost of revenues                         35,516       43,399

  Benefit from certain pre-acquisition litigation           --      (14,334)

  Legal fees expense (recovery) associated with

   certain pre-acquisition litigation                     (465)         385

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

    Total gross margin adjustments                      47,096       40,712

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

  Legal fees associated with indemnification

   obligations and other related costs, net                 --          124

  Stock-based compensation expense included in

   research and development                             13,741       14,975

  Stock-based compensation expense included in

   sales and marketing                                  24,946       27,081

  Stock-based compensation expense included in

   general and administrative                            8,014       10,087

  Amortization of intangible assets expense

   included in operating expenses                       44,467       46,236

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

    Total operating expense adjustments                 91,168       98,503

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

      Total operating income adjustments               138,264      139,215

  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                     (47,015)     (51,906)

                                                                -----------

Non-GAAP net income                                $   232,429  $   167,708

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

Non-GAAP net income per share -- basic             $      0.51  $      0.35

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

Non-GAAP net income per share -- diluted           $      0.49  $      0.33

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

Shares used in non-GAAP per share calculation --

 basic                                                 455,727      474,020

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

Shares used in non-GAAP per share calculation --

 diluted                                               471,719      500,741

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





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BROCADE CONTACTS



Public Relations

John Noh

Tel: 408-333-5108

jnoh@brocade.com



Investor Relations

Robert Eggers

Tel: 408-333-8797

reggers@brocade.com



Source: Brocade

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