SOURCE: Brocade

Brocade

November 23, 2015 17:30 ET

Brocade Reports Fourth Quarter and Fiscal 2015 Earnings

Record Total Revenue, IP Networking Revenue, and Earnings per Share in Fiscal 2015

SAN JOSE, CA--(Marketwired - Nov 23, 2015) - Brocade® (NASDAQ: BRCD) today reported financial results for its fourth quarter and full fiscal year 2015 ended October 31, 2015. Brocade reported fourth quarter revenue of $589 million, an increase of 4% year-over-year and 7% quarter-over-quarter. Revenue for fiscal year 2015 was $2,263 million, up 2% year-over-year. The resulting GAAP diluted earnings per share (EPS) was $0.20 for the fourth quarter and $0.79 for fiscal year 2015, up 6% and up 48% year-over-year, respectively. The fiscal year 2014 GAAP EPS included a non-cash goodwill impairment charge associated with the strategic repositioning of the Brocade ADX® product family. Non-GAAP diluted EPS was $0.26 for the fourth quarter and $1.01 for fiscal year 2015, up 8% and up 12% year-over-year, respectively.

"Fiscal 2015 was a productive year in which we achieved many significant milestones," said Lloyd Carney, CEO of Brocade. "We delivered annual revenue growth in fiscal 2015, with a year-over-year revenue increase in each fiscal quarter. We grew our non-GAAP EPS by 12% for the fiscal year, delivering more than a dollar per share for the first time. We continued to expand our portfolio of software and hardware products through both technology innovation and strategic acquisitions. Looking forward, these investments create new opportunities for us to continue to grow revenue and EPS in 2016 and beyond."

Quarterly Key Financial Metrics: (1)

    Q4 2015     Q3 2015     Q4 2014     Q4 2015 vs. Q3 2015   Q4 2015 vs. Q4 2014
Revenue   $ 589 M   $ 552 M   $ 564 M   7%   4%
GAAP EPS--diluted   $ 0.20     $ 0.21     $ 0.19     (7%)   6%
Non-GAAP EPS--diluted   $ 0.26     $ 0.27     $ 0.24     (4%)   8%
GAAP gross margin     67.0 %     67.4 %     66.8 %   (0.4) pts   0.2 pts
Non-GAAP gross margin     67.9 %     68.6 %     67.7 %   (0.7) pts   0.2 pts
GAAP operating margin     20.2 %     21.7 %     22.4 %   (1.5) pts   (2.2) pts
Non-GAAP operating margin     25.0 %     26.9 %     26.8 %   (1.9) pts   (1.8) pts

(1) Full fiscal year financial metrics are detailed in the financial statements and schedules presented below.

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

Highlights:

  • Q4 2015 SAN product revenue was $325 million, flat year-over-year and up 5% quarter-over-quarter. The Q4 year-over-year product revenue performance reflects a 14% increase in director sales and a 1% increase in embedded switch sales, offset by a 12% decrease in switch sales. For fiscal year 2015, SAN product revenue was $1,301 million, down 2% year-over-year, primarily due to lower switch and embedded switch sales, partially offset by higher director sales.

  • Q4 2015 IP Networking product revenue was $170 million, up 12% year-over-year and 10% quarter-over-quarter. The Q4 year-over-year increase was primarily driven by a 28% increase in Ethernet switch sales and improved software sales, partially offset by a 20% decline in router revenue. For fiscal year 2015, IP Networking product revenue was $601 million, up 14% year-over-year due to stronger switch, router, and software sales.

  • During Q4, Brocade launched the Brocade Analytics Monitoring Platform, a new, innovative, SAN solution designed for both new and existing Fibre Channel storage networking customers. This solution allows customers to better monitor, analyze and control their SAN environments, while also improving the operational performance, stability, and security of data flowing between servers and storage devices.

  • In fiscal year 2015, Brocade's full-year GAAP gross margin and operating margin were 67.5% and 21.8%, respectively. Full-year non-GAAP gross margin and operating margin increased to 68.4% and 26.3%, a full-year improvement of 110 basis points and 30 basis points, respectively. The full-year non-GAAP gross margin improvement was primarily due to lower excess and obsolete inventory charges and lower manufacturing overhead spending, while the operating margin improvement was due to higher gross margins, partially offset by higher sales and marketing and research and development expenses.

  • Full-year fiscal 2015 operating cash flow was $447 million, a 17% decrease from fiscal year 2014. The decrease in operating cash flow was primarily due to higher payments with respect to employee incentive compensation earned in fiscal year 2014 and paid in fiscal year 2015, changes in accounts receivable collections, and higher fiscal year 2015 tax payments related to fiscal year 2014 earnings. During fiscal year 2015, the Company repurchased $344 million of stock, or approximately 30 million shares, and paid $67 million in dividends. This return of capital to shareholders represents 96% of adjusted free cash flow for the year.

Board Declares Dividend

  • The Brocade Board of Directors has declared a quarterly cash dividend of $0.045 per share of the Company's common stock. The dividend payment will be made on January 4, 2016, to shareholders of record at the close of market on December 10, 2015.

Brocade management will host a conference call today at 2:30 p.m. PT (5:30 p.m. ET) to discuss Q4 and fiscal year 2015 results, as well as Brocade's Q1 2016 outlook. 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 Q4 2015 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

    Q4 2015     Q3 2015     Q4 2014  
Routes to market as a % of total net revenues:                        
  OEM revenues     62 %     62 %     63 %
  Channel/Direct revenues     38 %     38 %     37 %
  10% or greater customer revenues     29 %     43 %     44 %
Geographic split as a % of total net revenues (1):                        
  Domestic revenues     54 %     57 %     61 %
  International revenues     46 %     43 %     39 %
Segment split as a % of total net revenues:                        
  SAN product revenues     55 %     56 %     58 %
  IP Networking product revenues     29 %     28 %     27 %
  Global Services revenues     16 %     16 %     15 %
  SAN business revenues (2)     65 %     66 %     67 %
  IP Networking business revenues (2)     35 %     34 %     33 %
IP Networking product revenues by use category (3) (4):                        
  Data Center     60 %     52 %     58 %
  Enterprise Campus     35 %     40 %     34 %
  Carrier Network (MAN/WAN)     5 %     8 %     8 %
                         
Additional information:   Q4 2015     Q3 2015     Q4 2014  
  GAAP net income   $ 84 M   $ 92 M   $ 83 M
  Non-GAAP net income   $ 108 M   $ 115 M   $ 104 M
  GAAP operating income   $ 119 M   $ 120 M   $ 127 M
  Non-GAAP operating income   $ 147 M   $ 149 M   $ 151 M
  EBITDA   $ 141 M   $ 142 M   $ 147 M
  GAAP effective tax rate (5)     23.6 %     17.4 %     29.1 %
  Non-GAAP effective tax rate (5)     24.2 %     20.1 %     26.6 %
  Cash and cash equivalents   $ 1,441 M   $ 1,320 M   $ 1,255 M
  Deferred revenues   $ 317 M   $ 301 M   $ 312 M
  Capital expenditures   $ 16 M   $ 19 M   $ 14 M
  Total debt, net of discount (6)   $ 796 M   $ 792 M   $ 597 M
  Cash, net of senior debt, convertible debt and capitalized leases   $ 566 M   $ 444 M   $ 653 M
  Cash provided by operations   $ 180 M   $ 55 M   $ 158 M
  Days sales outstanding     36 days       33 days       36 days  
  Employees at end of period     4,640       4,626       4,161  
  SAN port shipments     1.0 M     0.9 M     1.1 M
  Share repurchases   $ 31.1 M   $ 103.1 M   $ 32.8 M

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

(1) Revenues are attributed to geographic areas based on product delivery location. Since some OEM partners take delivery of Brocade products domestically and then ship internationally to their end users, the percentage of international revenues based on end-user location would likely be higher.

(2) SAN and IP Networking business revenues include hardware and software product, support, and services revenues. 

(3) Product revenue by use category is estimated based on analysis of the information the Company collects in its sales management system. The estimated percentage of revenue by use category may fluctuate quarter to quarter due to seasonality and the timing of large customer orders.

(4) Each use category includes enterprise, service provider, and government revenues.

(5) The lower effective tax rates in Q3 2015 were, in part, due to various tax benefits recognized in the quarter including a domestic manufacturing deduction and releases of previously reserved tax provisions.

(6) Q4 2015 and Q3 2015 total debt, net of discount, includes the debt discount recorded for the conversion feature that is required to be separately accounted for as equity for the $575 million convertible debt, thereby reducing the carrying value of the debt. The unamortized debt discount for the conversion feature was $69 million as of October 31, 2015, and $73 million as of August 1, 2015.

Non-GAAP Financial Measures

To supplement financial information presented on a GAAP basis, Brocade provides information presented on a non-GAAP basis. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, financial information presented on a GAAP basis. 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. The most directly comparable GAAP information and a reconciliation between the GAAP and non-GAAP amounts is provided in the tables at the end of this press release.

Management believes that the 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 relative to its competitors. These non-GAAP financial measures also help with the determination of Brocade's baseline performance before gains, losses or charges that are considered by management to be outside of ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations 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 relative to its competitors;

  • the ability to better identify trends in Brocade's underlying business and to perform related trend analyses; and

  • a better understanding of how management plans and measures Brocade's underlying business.

Management excludes certain gains or losses and benefits or costs in determining non-GAAP financial measures that are the result of infrequent events or events that arise outside the ordinary course of Brocade's continuing operations. Management believes that it is appropriate to evaluate Brocade's operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include, but are not limited to: (i) call premium cost and write-off of debt discount and debt issuance costs related to lenders that did not participate in Brocade's debt refinancings; (ii) acquisition and integration costs; (iii) restructuring, goodwill impairment, and other related costs (benefits); (iv) gain on sale of non-marketable equity investment; (v) (gain) loss on sale of business; (vi) legal provision (recovery) associated with certain pre-acquisition litigation; (vii) legal fees (recovery) associated with indemnification obligations and other related costs, net; (viii) gain on litigation settlement, net; and (ix) specific non-cash and non-recurring tax benefits or detriments.

Management also excludes the following non-cash charges in determining non-GAAP financial measures: (i) stock-based compensation expense; (ii) amortization of purchased intangible assets; and (iii) non-cash interest expense related to the convertible debt.

Management believes that the exclusion of stock-based compensation allows for more accurate comparisons of Brocade's operating results to Brocade's peer companies because of the varying use of valuation methodologies and subjective assumptions and the variety of award types. In addition, the exclusion of the expense associated with the amortization of acquisition-related intangible assets is appropriate because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives, and the exclusion of amortization expense allows comparisons of operating results that are consistent over time for Brocade's newly acquired and long-held businesses. In connection with the convertible debt, under the relevant accounting guidance, a non-cash interest expense is recognized for the convertible debt as an imputed interest expense for the conversion feature. Management believes excluding the non-cash interest expense related to the convertible debt from its non-GAAP financial measures is useful for investors because the expense does not represent a cash outflow in the respective reporting periods and is not indicative of ongoing operating performance.

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 because they do not include all items of income and expense that impact the company. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies. Management compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. Management also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure, and management encourages investors to review carefully those reconciliations.

Forward-Looking Statements

This press release contains forward-looking statements including, but not limited to, statements regarding Brocade's financial results, goals, plans, strategy, business outlook and prospects. These statements are based on current expectations as of the date of this presentation and involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly. The risks, uncertainties and assumptions include, but are not limited to: the effect on Brocade of increasing market competition and changes in the industry; Brocade's ability to execute on its sales strategy and plans for future operations; the impact on Brocade of macroeconomic trends and events and changes in IT spending levels; Brocade's ability to introduce and achieve market acceptance of new products and support offerings on a timely basis; risks associated with Brocade's international operations; and integration and other risks associated with acquisitions, divestitures and strategic investments. These and other risks are set forth in more detail in Brocade's Form 10-Q for the fiscal quarter ended August 1, 2015, and in Brocade's Annual Report on Form 10-K for the fiscal year ended November 1, 2014. Brocade expressly assumes no obligation to update any such forward-looking statements whether as the result of new developments or otherwise.

About Brocade

Brocade (NASDAQ: BRCD) networking solutions help the world's leading organizations transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)

ADX, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, Fabric Vision, HyperEdge, ICX, MLX, MyBrocade, OpenScript, The Effortless Network, vADX, VCS, VDX, vPlane, and Vyatta are registered trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned may be trademarks of Brocade or others.

© 2015 Brocade Communications Systems, Inc. All Rights Reserved.

   
BROCADE COMMUNICATIONS SYSTEMS, INC.  
CONSOLIDATED STATEMENTS OF INCOME  
(Unaudited)  
   
    Three Months Ended     For the Year Ended  
    October 31,
 2015
    November 1,
 2014
    October 31,
 2015
    November 1,
 2014
 
    (In thousands, except per share amounts)  
Net revenues:                                
  Product   $ 494,720     $ 476,905     $ 1,902,401     $ 1,852,187  
  Service     94,107       87,453       361,059       359,080  
    Total net revenues     588,827       564,358       2,263,460       2,211,267  
Cost of revenues:                                
  Product     155,734       151,025       587,515       592,441  
  Service     38,816       36,215       147,872       153,033  
    Total cost of revenues     194,550       187,240       735,387       745,474  
Gross margin     394,277       377,118       1,528,073       1,465,793  
Operating expenses:                                
  Research and development     94,547       83,687       356,720       345,549  
  Sales and marketing     157,031       144,991       585,230       554,515  
  General and administrative     21,808       21,546       87,623       84,941  
  Amortization of intangible assets     902       135       2,556       10,280  
  Acquisition and integration costs     809       --       3,942       --  
  Restructuring, goodwill impairment, and other related costs (benefits)     (41 )     229       (678 )     89,280  
  Gain on sale of network adapter business     --       --       --       (4,884 )
    Total operating expenses     275,056       250,588       1,035,393       1,079,681  
Income from operations     119,221       126,530       492,680       386,112  
Interest expense     (9,824 )     (9,151 )     (55,578 )     (36,757 )
Interest and other income, net     1,095       323       1,949       4,266  
Income before income tax     110,492       117,702       439,051       353,621  
Income tax expense     26,104       34,283       98,689       115,650  
Net income   $ 84,388     $ 83,419     $ 340,362     $ 237,971  
Net income per share--basic   $ 0.20     $ 0.19     $ 0.81     $ 0.55  
Net income per share--diluted   $ 0.20     $ 0.19     $ 0.79     $ 0.53  
Shares used in per share calculation--basic     414,769       431,843       420,331       435,258  
Shares used in per share calculation--diluted     422,315       441,649       430,556       446,859  
                                 
Cash dividends declared per share   $ 0.045     $ 0.035     $ 0.16     $ 0.07  
                                 
                                 
                                 
BROCADE COMMUNICATIONS SYSTEMS, INC.  
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(Unaudited)  
   
    Three Months Ended     For the Year Ended  
    October 31,
 2015
    November 1,
 2014
    October 31,
 2015
    November 1,
 2014
 
    (In thousands)  
Net income   $ 84,388     $ 83,419     $ 340,362     $ 237,971  
Other comprehensive income and loss, net of tax:                                
  Unrealized gains (losses) on cash flow hedges:                                
    Change in unrealized gains and losses     (1,055 )     (1,953 )     (3,387 )     (1,939 )
    Net gains and losses reclassified into earnings     1,211       (18 )     3,755       (235 )
  Net unrealized gains (losses) on cash flow hedges     156       (1,971 )     368       (2,174 )
  Foreign currency translation adjustments     (775 )     (3,480 )     (6,556 )     (3,196 )
Total other comprehensive loss     (619 )     (5,451 )     (6,188 )     (5,370 )
Total comprehensive income   $ 83,769     $ 77,968     $ 334,174     $ 232,601  
                                 
                                 
                                 
BROCADE COMMUNICATIONS SYSTEMS, INC.  
CONSOLIDATED BALANCE SHEETS  
(Unaudited)  
   
    October 31, 2015     November 1, 2014  
    (In thousands, except par value)  
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 1,440,882     $ 1,255,017  
  Accounts receivable, net of allowances for doubtful accounts of $1,838 and $80 as of October 31, 2015, and November 1, 2014, respectively     235,883       224,913  
  Inventories     40,524       38,718  
  Deferred tax assets     78,675       92,692  
  Prepaid expenses and other current assets     56,235       46,665  
    Total current assets     1,852,199       1,658,005  
Property and equipment, net     439,224       445,433  
Goodwill     1,617,161       1,567,723  
Intangible assets, net     75,623       26,658  
Other assets     53,971       35,856  
    Total assets   $ 4,038,178     $ 3,733,675  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 98,143     $ 93,705  
  Accrued employee compensation     142,075       169,018  
  Deferred revenue     244,622       239,993  
  Other accrued liabilities     77,524       84,592  
    Total current liabilities     562,364       587,308  
Long-term debt, net of current portion     795,804       595,450  
Non-current deferred revenue     72,065       71,746  
Non-current income tax liability     47,010       39,647  
Non-current deferred tax liabilities     24,024       27,153  
Other non-current liabilities     3,376       4,310  
    Total liabilities     1,504,643       1,325,614  
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: 413,923 and 431,470 shares as of October 31, 2015, and November 1, 2014, respectively     414       431  
  Additional paid-in capital     1,632,984       1,774,197  
  Accumulated other comprehensive loss     (25,002 )     (18,814 )
  Retained earnings     925,139       652,247  
    Total stockholders' equity     2,533,535       2,408,061  
    Total liabilities and stockholders' equity   $ 4,038,178     $ 3,733,675  
                     
                     
                     
BROCADE COMMUNICATIONS SYSTEMS, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
   
    Three Months Ended  
    October 31,
 2015
    November 1,
 2014
 
    (In thousands)  
Cash flows from operating activities:                
  Net income   $ 84,388     $ 83,419  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Excess tax benefits from stock-based compensation     (6,962 )     (26,865 )
    Depreciation and amortization     22,238       20,277  
    Loss on disposal of property and equipment     1,543       1,788  
    Amortization of debt issuance costs and debt discount     4,272       295  
    Net gain on sale of investment     --       (50 )
    Provision for doubtful accounts receivable and sales allowances     1,278       2,043  
    Non-cash stock-based compensation expense     23,934       23,700  
  Changes in assets and liabilities, net of acquisitions:                
    Accounts receivable     (37,242 )     (35,140 )
    Inventories     (27 )     1,869  
    Prepaid expenses and other assets     5,010       (6,188 )
    Deferred tax assets     (297 )     (934 )
    Accounts payable     (2,159 )     6,748  
    Accrued employee compensation     35,149       26,754  
    Deferred revenue     15,565       12,672  
    Other accrued liabilities     33,888       48,198  
    Restructuring liabilities     (311 )     (733 )
      Net cash provided by operating activities     180,267       157,853  
Cash flows from investing activities:                
  Proceeds from sale of non-marketable equity investment     --       50  
  Purchases of property and equipment     (15,601 )     (13,559 )
  Net cash paid in connection with acquisition     --       (16,900 )
      Net cash used in investing activities     (15,601 )     (30,409 )
Cash flows from financing activities:                
  Payment of principal related to capital leases     (141 )     (103 )
  Common stock repurchases     (31,085 )     (32,820 )
  Proceeds from issuance of common stock     31       2,701  
  Payment of cash dividends to stockholders     (18,651 )     (15,114 )
  Excess tax benefits from stock-based compensation     6,962       26,865  
      Net cash used in financing activities     (42,884 )     (18,471 )
Effect of exchange rate fluctuations on cash and cash equivalents     (571 )     (3,343 )
Net increase in cash and cash equivalents     121,211       105,630  
Cash and cash equivalents, beginning of period     1,319,671       1,149,387  
Cash and cash equivalents, end of period   $ 1,440,882     $ 1,255,017  
                 
                 
                 
BROCADE COMMUNICATIONS SYSTEMS, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
   
    For the Year Ended  
    October 31,
 2015
    November 1,
 2014
 
    (In thousands)  
Cash flows from operating activities:                
  Net income   $ 340,362     $ 237,971  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Excess tax benefits from stock-based compensation     (48,943 )     (64,563 )
    Depreciation and amortization     84,807       100,647  
    Loss on disposal of property and equipment     3,163       5,118  
    Gain on sale of network adapter business     --       (4,884 )
    Amortization of debt issuance costs and debt discount     13,715       1,151  
    Write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing     4,808       --  
    Net gain on sale of investments     --       (5,292 )
    Provision for doubtful accounts receivable and sales allowances     5,173       7,563  
    Non-cash stock-based compensation expense     88,528       84,914  
    Goodwill impairment charge     --       83,382  
  Changes in assets and liabilities, net of acquisitions:                
    Accounts receivable     (15,989 )     17,121  
    Inventories     (1,805 )     6,626  
    Prepaid expenses and other assets     (15,844 )     (10,984 )
    Deferred tax assets     234       (887 )
    Accounts payable     107       2,339  
    Accrued employee compensation     (59,703 )     (11,382 )
    Deferred revenue     1,345       8,652  
    Other accrued liabilities     50,366       96,376  
    Restructuring liabilities     (2,825 )     (12,271 )
      Net cash provided by operating activities     447,499       541,597  
Cash flows from investing activities:                
  Purchases of non-marketable equity and debt investments     (2,150 )     (223 )
  Proceeds from sale of non-marketable equity investments     1,489       10,798  
  Purchases of property and equipment     (68,743 )     (54,734 )
  Purchase of intangible assets     (7,750 )     --  
  Net cash paid in connection with acquisitions     (95,452 )     (16,900 )
  Proceeds from collection of note receivable     250       250  
  Proceeds from sale of network adapter business     --       9,995  
      Net cash used in investing activities     (172,356 )     (50,814 )
Cash flows from financing activities:                
  Payment of principal related to senior secured notes     (300,000 )     --  
  Payment of debt issuance costs     (1,718 )     --  
  Payment of principal related to capital leases     (1,818 )     (2,485 )
  Common stock repurchases     (343,686 )     (335,380 )
  Proceeds from issuance of common stock     51,376       83,994  
  Payment of cash dividends to stockholders     (67,470 )     (30,384 )
  Proceeds from convertible notes     565,656       --  
  Purchase of convertible note hedge     (86,135 )     --  
  Proceeds from issuance of warrants     51,175       --  
  Excess tax benefits from stock-based compensation     48,943       64,563  
      Net cash used in financing activities     (83,677 )     (219,692 )
Effect of exchange rate fluctuations on cash and cash equivalents     (5,601 )     (3,071 )
Net increase in cash and cash equivalents     185,865       268,020  
Cash and cash equivalents, beginning of year     1,255,017       986,997  
Cash and cash equivalents, end of year   $ 1,440,882     $ 1,255,017  
                 
                 
                 
BROCADE COMMUNICATIONS SYSTEMS, INC.  
RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES  
(Unaudited)  
   
    Three Months Ended  
    October 31,
 2015
    August 1,
 2015
    November 1,
 2014
 
    (In thousands, except per share amounts)  
Non-GAAP adjustments                        
  Stock-based compensation expense included in cost of revenues   $ 3,189     $ 3,955     $ 4,225  
  Amortization of intangible assets expense included in cost of revenues     2,598       2,549       600  
    Total gross margin impact from non-GAAP adjustments     5,787       6,504       4,825  
                           
  Stock-based compensation expense included in research and development     5,475       5,226       5,527  
  Stock-based compensation expense included in sales and marketing     10,689       10,601       8,832  
  Stock-based compensation expense included in general and administrative     4,581       4,655       5,116  
  Amortization of intangible assets expense included in operating expenses     902       889       135  
  Acquisition and integration costs     809       789       --  
  Restructuring and other related costs (benefits)     (41 )     --       229  
    Total operating income impact from non-GAAP adjustments     28,202       28,664       24,664  
                           
  Convertible debt interest     3,730       3,684       --  
  Income tax effect of non-GAAP adjustments     (8,363 )     (9,494 )     (3,587 )
    Total net income impact from non-GAAP adjustments   $ 23,569     $ 22,854     $ 21,077  
                         
Gross margin reconciliation                        
  GAAP gross margin   $ 394,277     $ 371,904     $ 377,118  
  Total gross margin impact from non-GAAP adjustments     5,787       6,504       4,825  
    Non-GAAP gross margin   $ 400,064     $ 378,408     $ 381,943  
  GAAP gross margin, as a percent of total net revenues     67.0 %     67.4 %     66.8 %
  Non-GAAP gross margin, as a percent of total net revenues     67.9 %     68.6 %     67.7 %
                         
Operating income reconciliation                        
  GAAP operating income   $ 119,221     $ 119,849     $ 126,530  
  Total operating income impact from non-GAAP adjustments     28,202       28,664       24,664  
    Non-GAAP operating income   $ 147,423     $ 148,513     $ 151,194  
  GAAP operating income, as a percent of total net revenues     20.2 %     21.7 %     22.4 %
  Non-GAAP operating income, as a percent of total net revenues     25.0 %     26.9 %     26.8 %
                         
Net income and net income per share reconciliation                        
  Net income on a GAAP basis   $ 84,388     $ 91,667     $ 83,419  
  Total net income impact from non-GAAP adjustments     23,569       22,854       21,077  
    Non-GAAP net income   $ 107,957     $ 114,521     $ 104,496  
  Non-GAAP net income per share--basic   $ 0.26     $ 0.27     $ 0.24  
  Non-GAAP net income per share--diluted   $ 0.26     $ 0.27     $ 0.24  
  Shares used in non-GAAP per share calculation--basic     414,769       417,299       431,843  
  Shares used in non-GAAP per share calculation--diluted     422,315       427,518       441,649  
                         
Effective tax rate reconciliation                        
  GAAP effective tax rate     23.6 %     17.4 %     29.1 %
  Total tax impact from non-GAAP adjustments     0.6 %     2.7 %     (2.5 )%
    Non-GAAP effective tax rate     24.2 %     20.1 %     26.6 %
                             
                             
                             
BROCADE COMMUNICATIONS SYSTEMS, INC.  
RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES  
(Unaudited)  
   
    For the Year Ended  
    October 31,
 2015
    November 1,
 2014
 
    (In thousands, except per share amounts)  
Non-GAAP adjustments                
  Stock-based compensation expense included in cost of revenues   $ 12,946     $ 14,962  
  Amortization of intangible assets expense included in cost of revenues     7,641       8,010  
    Total gross margin impact from non-GAAP adjustments     20,587       22,972  
                   
  Stock-based compensation expense included in research and development     18,714       18,635  
  Stock-based compensation expense included in sales and marketing     38,340       31,651  
  Stock-based compensation expense included in general and administrative     18,528       19,666  
  Amortization of intangible assets expense included in operating expenses     2,556       10,280  
  Acquisition and integration costs     3,942       --  
  Restructuring, goodwill impairment, and other related costs (benefits)     (678 )     89,280  
  Gain on sale of network adapter business     --       (4,884 )
    Total operating income impact from non-GAAP adjustments     101,989       187,600  
                   
  Call premium cost and write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing     15,122       --  
  Gain on sale of non-marketable equity investment     --       (5,242 )
  Convertible debt interest     11,731       --  
  Income tax effect of non-GAAP adjustments     (33,179 )     (17,643 )
    Total net income impact from non-GAAP adjustments   $ 95,663     $ 164,715  
                 
Gross margin reconciliation                
  GAAP gross margin   $ 1,528,073     $ 1,465,793  
  Total gross margin impact from non-GAAP adjustments     20,587       22,972  
    Non-GAAP gross margin   $ 1,548,660     $ 1,488,765  
  GAAP gross margin, as a percent of total net revenues     67.5 %     66.3 %
  Non-GAAP gross margin, as a percent of total net revenues     68.4 %     67.3 %
                 
Operating income reconciliation                
  GAAP operating income   $ 492,680     $ 386,112  
  Total operating income impact from non-GAAP adjustments     101,989       187,600  
    Non-GAAP operating income   $ 594,669     $ 573,712  
  GAAP operating income, as a percent of total net revenues     21.8 %     17.5 %
  Non-GAAP operating income, as a percent of total net revenues     26.3 %     25.9 %
                 
Net income and net income per share reconciliation                
  Net income on a GAAP basis   $ 340,362     $ 237,971  
  Total net income impact from non-GAAP adjustments     95,663       164,715  
    Non-GAAP net income   $ 436,025     $ 402,686  
  Non-GAAP net income per share--basic   $ 1.04     $ 0.93  
  Non-GAAP net income per share--diluted   $ 1.01     $ 0.90  
  Shares used in non-GAAP per share calculation--basic     420,331       435,258  
  Shares used in non-GAAP per share calculation--diluted     430,556       446,859  
                   

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