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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Brocade Communications Systems, Inc. | NASDAQ:BRCD | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 12.73 | 12.55 | 12.73 | 0 | 01:00:00 |
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
Delaware
|
|
77-0409517
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
Large accelerated filer
|
ý
|
|
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
|
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
|
o
|
|
|
|
|
Emerging growth company
|
o
|
|
|
Page
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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||
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Item 1A.
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||
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Item 6.
|
||
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Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
|
(In thousands, except per share amounts)
|
||||||||||||||
Net revenues:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
449,549
|
|
|
$
|
490,995
|
|
|
$
|
1,385,273
|
|
|
$
|
1,400,355
|
|
Service
|
99,717
|
|
|
99,726
|
|
|
298,209
|
|
|
287,956
|
|
||||
Total net revenues
|
549,266
|
|
|
590,721
|
|
|
1,683,482
|
|
|
1,688,311
|
|
||||
Cost of revenues:
|
|
|
|
|
|
|
|
||||||||
Product
|
154,760
|
|
|
188,492
|
|
|
486,153
|
|
|
464,797
|
|
||||
Service
|
43,361
|
|
|
45,330
|
|
|
136,301
|
|
|
127,489
|
|
||||
Total cost of revenues
|
198,121
|
|
|
233,822
|
|
|
622,454
|
|
|
592,286
|
|
||||
Gross margin
|
351,145
|
|
|
356,899
|
|
|
1,061,028
|
|
|
1,096,025
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
117,116
|
|
|
114,996
|
|
|
360,164
|
|
|
297,516
|
|
||||
Sales and marketing
|
153,712
|
|
|
167,983
|
|
|
506,228
|
|
|
468,743
|
|
||||
General and administrative
|
27,614
|
|
|
32,960
|
|
|
92,127
|
|
|
78,180
|
|
||||
Settlement with dissenting stockholder of Ruckus Wireless, Inc.
|
8,528
|
|
|
—
|
|
|
8,528
|
|
|
—
|
|
||||
Amortization of intangible assets
|
5,822
|
|
|
5,498
|
|
|
20,998
|
|
|
7,302
|
|
||||
Acquisition, divestiture, and integration costs
|
13,246
|
|
|
14,868
|
|
|
49,519
|
|
|
20,625
|
|
||||
Restructuring charges (benefits)
|
17,801
|
|
|
—
|
|
|
17,801
|
|
|
(566
|
)
|
||||
Impairment of equity investments
|
2,870
|
|
|
—
|
|
|
2,870
|
|
|
—
|
|
||||
Loss on sold and held for sale software product lines
|
24,315
|
|
|
—
|
|
|
24,315
|
|
|
—
|
|
||||
Total operating expenses
|
371,024
|
|
|
336,305
|
|
|
1,082,550
|
|
|
871,800
|
|
||||
Income (loss) from operations
|
(19,879
|
)
|
|
20,594
|
|
|
(21,522
|
)
|
|
224,225
|
|
||||
Interest expense
|
(15,875
|
)
|
|
(13,462
|
)
|
|
(47,317
|
)
|
|
(33,282
|
)
|
||||
Interest and other income, net
|
2,580
|
|
|
1,557
|
|
|
5,136
|
|
|
3,317
|
|
||||
Income (loss) before income tax
|
(33,174
|
)
|
|
8,689
|
|
|
(63,703
|
)
|
|
194,260
|
|
||||
Income tax expense (benefit)
|
(13,622
|
)
|
|
(1,806
|
)
|
|
(27,275
|
)
|
|
47,034
|
|
||||
Net income (loss)
|
(19,552
|
)
|
|
10,495
|
|
|
(36,428
|
)
|
|
147,226
|
|
||||
Less: Net loss attributable to noncontrolling interest
|
(46
|
)
|
|
—
|
|
|
(274
|
)
|
|
—
|
|
||||
Net income (loss) attributable to Brocade Communications Systems, Inc.
|
$
|
(19,506
|
)
|
|
$
|
10,495
|
|
|
$
|
(36,154
|
)
|
|
$
|
147,226
|
|
Net income (loss) per share—basic attributable to Brocade Communications Systems, Inc. stockholders
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.36
|
|
Net income (loss) per share—diluted attributable to Brocade Communications Systems, Inc. stockholders
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.35
|
|
Shares used in per share calculation—basic
|
411,898
|
|
|
426,671
|
|
|
408,494
|
|
|
411,709
|
|
||||
Shares used in per share calculation—diluted
|
411,898
|
|
|
434,416
|
|
|
408,494
|
|
|
419,416
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Cash dividends declared per share
|
$
|
0.055
|
|
|
$
|
0.055
|
|
|
$
|
0.165
|
|
|
$
|
0.145
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
|
(In thousands)
|
||||||||||||||
Net income (loss)
|
$
|
(19,552
|
)
|
|
$
|
10,495
|
|
|
$
|
(36,428
|
)
|
|
$
|
147,226
|
|
Other comprehensive income and loss, net of tax:
|
|
|
|
|
|
|
|
||||||||
Unrealized gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
||||||||
Change in unrealized gains and losses
|
209
|
|
|
(700
|
)
|
|
376
|
|
|
(1,035
|
)
|
||||
Net gains and losses reclassified into earnings
|
363
|
|
|
482
|
|
|
799
|
|
|
1,831
|
|
||||
Net unrealized gains (losses) on cash flow hedges
|
572
|
|
|
(218
|
)
|
|
1,175
|
|
|
796
|
|
||||
Foreign currency translation adjustments
|
1,972
|
|
|
(1,628
|
)
|
|
2,635
|
|
|
(1,760
|
)
|
||||
Total other comprehensive income (loss)
|
2,544
|
|
|
(1,846
|
)
|
|
3,810
|
|
|
(964
|
)
|
||||
Total comprehensive income (loss)
|
(17,008
|
)
|
|
8,649
|
|
|
(32,618
|
)
|
|
146,262
|
|
||||
Less: Net loss attributable to noncontrolling interest
|
(46
|
)
|
|
—
|
|
|
(274
|
)
|
|
—
|
|
||||
Less: Total other comprehensive income (loss) attributable to noncontrolling interest
|
40
|
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
||||
Total comprehensive income (loss) attributable to Brocade Communications Systems, Inc.
|
$
|
(17,002
|
)
|
|
$
|
8,649
|
|
|
$
|
(32,312
|
)
|
|
$
|
146,262
|
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|||||||
|
July 29,
2017 |
|
October 29,
2016 |
||||
|
(In thousands, except par value)
|
||||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,179,369
|
|
|
$
|
1,257,075
|
|
Accounts receivable, net of allowances for doubtful accounts of $1,818, and $1,736 as of July 29, 2017, and October 29, 2016, respectively
|
291,989
|
|
|
284,344
|
|
||
Inventories
|
70,511
|
|
|
69,355
|
|
||
Prepaid expenses and other current assets
|
87,128
|
|
|
62,236
|
|
||
Current assets held for sale
|
26,279
|
|
|
—
|
|
||
Total current assets
|
1,655,276
|
|
|
1,673,010
|
|
||
Property and equipment, net
|
416,181
|
|
|
455,326
|
|
||
Goodwill
|
2,255,326
|
|
|
2,295,184
|
|
||
Core/developed technology intangible assets, net
|
193,959
|
|
|
248,938
|
|
||
Other intangible assets, net
|
159,041
|
|
|
200,840
|
|
||
Non-current deferred tax assets
|
40,057
|
|
|
12,736
|
|
||
Other assets
|
41,591
|
|
|
53,777
|
|
||
Total assets
|
$
|
4,761,431
|
|
|
$
|
4,939,811
|
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS—Continued
(Unaudited)
|
|||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
97,074
|
|
|
$
|
128,685
|
|
Accrued employee compensation
|
144,622
|
|
|
154,165
|
|
||
Deferred revenue
|
198,704
|
|
|
221,940
|
|
||
Current portion of long-term debt
|
76,725
|
|
|
76,692
|
|
||
Other accrued liabilities
|
69,517
|
|
|
113,170
|
|
||
Current liabilities held for sale
|
8,421
|
|
|
—
|
|
||
Total current liabilities
|
595,063
|
|
|
694,652
|
|
||
Long-term debt, net of current portion
|
1,457,602
|
|
|
1,502,063
|
|
||
Non-current deferred revenue
|
85,055
|
|
|
90,051
|
|
||
Non-current income tax liability
|
92,582
|
|
|
102,100
|
|
||
Other non-current liabilities
|
4,330
|
|
|
5,370
|
|
||
Total liabilities
|
2,234,632
|
|
|
2,394,236
|
|
||
Commitments and contingencies (Note 9)
|
|
|
|
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Brocade 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: 413,745 and 401,748 shares as of July 29, 2017, and October 29, 2016, respectively
|
414
|
|
|
402
|
|
||
Additional paid-in capital
|
1,596,008
|
|
|
1,514,730
|
|
||
Accumulated other comprehensive loss
|
(23,603
|
)
|
|
(27,413
|
)
|
||
Retained earnings
|
951,592
|
|
|
1,055,194
|
|
||
Total Brocade stockholders’ equity
|
2,524,411
|
|
|
2,542,913
|
|
||
Noncontrolling interest
|
2,388
|
|
|
2,662
|
|
||
Total stockholders’ equity
|
2,526,799
|
|
|
2,545,575
|
|
||
Total liabilities and stockholders’ equity
|
$
|
4,761,431
|
|
|
$
|
4,939,811
|
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|||||||
|
Nine Months Ended
|
||||||
|
July 29,
2017 |
|
July 30,
2016 |
||||
|
(In thousands)
|
||||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
(36,428
|
)
|
|
$
|
147,226
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
||||
Excess tax benefits from stock-based compensation
|
—
|
|
|
(1,778
|
)
|
||
Depreciation and amortization
|
118,365
|
|
|
80,979
|
|
||
Loss on disposal of property and equipment
|
3,506
|
|
|
458
|
|
||
Loss on sold and held for sale software product lines
|
24,315
|
|
|
—
|
|
||
Net gain on sale of investments
|
—
|
|
|
(122
|
)
|
||
Amortization of debt issuance costs and debt discount
|
15,571
|
|
|
13,493
|
|
||
Provision (recovery) for doubtful accounts receivable and sales allowances
|
8,914
|
|
|
(1,946
|
)
|
||
Non-cash purchase accounting adjustments to inventory
|
5,853
|
|
|
20,775
|
|
||
Non-cash stock-based compensation expense
|
94,471
|
|
|
88,805
|
|
||
Impairment of equity investments
|
2,870
|
|
|
—
|
|
||
Changes in assets and liabilities, net of acquisitions and divestitures:
|
|
|
|
||||
Accounts receivable
|
(16,558
|
)
|
|
988
|
|
||
Inventories
|
(6,044
|
)
|
|
5,601
|
|
||
Prepaid expenses and other assets
|
(16,029
|
)
|
|
(9,725
|
)
|
||
Deferred tax assets
|
63
|
|
|
(109
|
)
|
||
Accounts payable
|
(27,370
|
)
|
|
5,519
|
|
||
Accrued employee compensation
|
(56,803
|
)
|
|
(57,520
|
)
|
||
Deferred revenue
|
(20,900
|
)
|
|
5,359
|
|
||
Other accrued liabilities
|
(48,799
|
)
|
|
(43,874
|
)
|
||
Restructuring liabilities
|
(365
|
)
|
|
(1,223
|
)
|
||
Net cash provided by operating activities
|
44,632
|
|
|
252,906
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of non-marketable equity and debt investments
|
—
|
|
|
(2,000
|
)
|
||
Proceeds from maturities and sale of short-term investments
|
—
|
|
|
150,323
|
|
||
Purchases of property and equipment
|
(28,618
|
)
|
|
(59,810
|
)
|
||
Net cash paid in connection with acquisitions
|
—
|
|
|
(564,888
|
)
|
||
Proceeds from collection of note receivable
|
250
|
|
|
250
|
|
||
Net proceeds from sale of software product line
|
31,769
|
|
|
—
|
|
||
Net cash provided by (used in) investing activities
|
3,401
|
|
|
(476,125
|
)
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued
(Unaudited)
|
|||||||
|
Nine Months Ended
|
||||||
|
July 29,
2017 |
|
July 30,
2016 |
||||
|
(In thousands)
|
||||||
Cash flows from financing activities:
|
|
|
|
||||
Payment of principal related to the term loan
|
(60,000
|
)
|
|
—
|
|
||
Payment of debt issuance costs
|
—
|
|
|
(891
|
)
|
||
Payment of principal related to capital leases
|
—
|
|
|
(282
|
)
|
||
Payment of accrued merger consideration to dissenting stockholder of Ruckus Wireless, Inc.
|
(41,280
|
)
|
|
—
|
|
||
Common stock repurchases
|
—
|
|
|
(841,562
|
)
|
||
Proceeds from issuance of common stock
|
41,283
|
|
|
49,195
|
|
||
Payment of cash dividends to stockholders
|
(67,448
|
)
|
|
(61,706
|
)
|
||
Proceeds from term loan
|
—
|
|
|
787,255
|
|
||
Proceeds from noncontrolling interest
|
—
|
|
|
2,550
|
|
||
Excess tax benefits from stock-based compensation
|
—
|
|
|
1,778
|
|
||
Net cash used in financing activities
|
(127,445
|
)
|
|
(63,663
|
)
|
||
Effect of exchange rate fluctuations on cash and cash equivalents
|
1,706
|
|
|
(926
|
)
|
||
Net decrease in cash and cash equivalents
|
(77,706
|
)
|
|
(287,808
|
)
|
||
Cash and cash equivalents, beginning of period
|
1,257,075
|
|
|
1,440,882
|
|
||
Cash and cash equivalents, end of period
|
$
|
1,179,369
|
|
|
$
|
1,153,074
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
36,454
|
|
|
$
|
24,264
|
|
Cash paid for income taxes
|
$
|
5,306
|
|
|
$
|
46,163
|
|
Supplemental schedule of non-cash investing activities:
|
|
|
|
||||
Acquisition of a business by the issuance of stock and accrual for an appraisal demand submitted by a dissenting stockholder of that business
|
$
|
—
|
|
|
$
|
623,116
|
|
Assets acquired:
|
|
||
Cash and cash equivalents
|
$
|
95,515
|
|
Short-term investments
|
150,257
|
|
|
Accounts receivable, net of allowances for doubtful accounts of $2,100
|
41,339
|
|
|
Inventories
|
64,000
|
|
|
Prepaid expenses and other current assets
|
5,252
|
|
|
Property and equipment, net
|
27,060
|
|
|
Identifiable intangible assets
|
418,000
|
|
|
Other assets
|
1,697
|
|
|
Total assets acquired
|
803,120
|
|
|
Liabilities assumed:
|
|
||
Accounts payable
|
16,375
|
|
|
Accrued employee compensation
|
17,514
|
|
|
Deferred revenue
|
14,520
|
|
|
Other accrued liabilities
|
33,808
|
|
|
Non-current deferred revenue
|
9,767
|
|
|
Non-current deferred tax liabilities
|
64,853
|
|
|
Other non-current liabilities
|
41,033
|
|
|
Total liabilities assumed
|
197,870
|
|
|
Net assets acquired, excluding goodwill (a)
|
605,250
|
|
|
Total purchase consideration (b)
|
1,275,060
|
|
|
Goodwill (b) - (a)
|
$
|
669,810
|
|
|
Approximate Fair Value
|
|
Estimated Useful Life
(In years)
|
||
Trade name/trademark
|
$
|
42,000
|
|
|
11
|
Customer relationships
|
118,000
|
|
|
1 - 7
|
|
Developed technology
|
230,000
|
|
|
6 - 7
|
|
In-process research and development (“IPR&D”)
(1)
|
28,000
|
|
|
N/A
(1)
|
|
Total intangible assets
|
$
|
418,000
|
|
|
|
(1)
|
IPR&D will be accounted for as an indefinite-lived intangible asset until the underlying projects are completed or abandoned.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
Direct acquisition costs associated with the Ruckus acquisition
|
$
|
1,184
|
|
|
$
|
10,232
|
|
|
$
|
3,454
|
|
|
$
|
15,218
|
|
Divestiture costs
(1)
|
829
|
|
|
—
|
|
|
1,570
|
|
|
—
|
|
||||
Integration costs associated with the Ruckus acquisition
|
(372
|
)
|
|
4,636
|
|
|
3,338
|
|
|
5,407
|
|
||||
Broadcom pending acquisition-related costs
(2)
|
11,605
|
|
|
—
|
|
|
41,157
|
|
|
—
|
|
||||
Total acquisition, divestiture, and integration costs
|
$
|
13,246
|
|
|
$
|
14,868
|
|
|
$
|
49,519
|
|
|
$
|
20,625
|
|
(1)
|
These costs relate to the completed divestiture of the Company’s vRouter product line and the pending divestitures of the vADC and vEPC product lines.
|
(2)
|
These costs are related to retention compensation for certain of the Company’s employees and legal and consulting fees.
|
|
Storage Area Networking (“SAN”)
Products
|
|
IP Networking Products
|
|
Global Services
|
|
Total
|
||||||||
Balance at October 29, 2016
|
|
|
|
|
|
|
|
||||||||
Goodwill
|
$
|
176,320
|
|
|
$
|
1,698,641
|
|
|
$
|
549,437
|
|
|
$
|
2,424,398
|
|
Accumulated impairment losses
|
—
|
|
|
(129,214
|
)
|
|
—
|
|
|
(129,214
|
)
|
||||
|
176,320
|
|
|
1,569,427
|
|
|
549,437
|
|
|
2,295,184
|
|
||||
Purchase accounting adjustments
(1)
|
—
|
|
|
70,182
|
|
|
(74,120
|
)
|
|
(3,938
|
)
|
||||
Divestitures and assets held for sale
(2)
|
—
|
|
|
(35,920
|
)
|
|
—
|
|
|
(35,920
|
)
|
||||
Balance at July 29, 2017
|
|
|
|
|
|
|
|
||||||||
Goodwill
|
176,320
|
|
|
1,732,903
|
|
|
475,317
|
|
|
2,384,540
|
|
||||
Accumulated impairment losses
|
—
|
|
|
(129,214
|
)
|
|
—
|
|
|
(129,214
|
)
|
||||
|
$
|
176,320
|
|
|
$
|
1,603,689
|
|
|
$
|
475,317
|
|
|
$
|
2,255,326
|
|
(1)
|
For the measurement period adjustments recorded in connection with the acquisition of Ruckus, see Note 3, “
Acquisitions, Divestitures, and Assets Held for Sale
,” of the Notes to Condensed Consolidated Financial Statements.
|
(2)
|
The reduction in goodwill relates to the completed divestiture of the Company’s vRouter product line and the pending divestitures of the vADC and vEPC product lines in the third quarter of fiscal year 2017. See Note 3, “
Acquisitions, Divestitures, and Assets Held for Sale
,” of the Notes to Condensed Consolidated Financial Statements for additional information.
|
•
|
The Company’s operating forecasts;
|
•
|
The Company’s forecasted revenue growth rates; and
|
•
|
Risk-commensurate discount rates and costs of capital.
|
|
July 29, 2017
|
||||||||||||
|
Gross
Carrying Value |
|
Accumulated
Amortization |
|
Net
Carrying Value |
|
Weighted-
Average Remaining Useful Life (In years) |
||||||
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
||||||
Trade names
|
$
|
42,130
|
|
|
$
|
4,586
|
|
|
$
|
37,544
|
|
|
9.82
|
Core/developed technology
|
240,250
|
|
|
46,291
|
|
|
193,959
|
|
|
5.09
|
|||
Patent portfolio license
(1)
|
7,750
|
|
|
2,695
|
|
|
5,055
|
|
|
16.02
|
|||
Customer relationships
|
110,000
|
|
|
18,558
|
|
|
91,442
|
|
|
5.83
|
|||
Total finite-lived intangible assets
(2)
|
$
|
400,130
|
|
|
$
|
72,130
|
|
|
$
|
328,000
|
|
|
5.58
|
Indefinite-lived intangible assets, excluding goodwill:
|
|
|
|
|
|
|
|
||||||
IPR&D
(3)
|
25,000
|
|
|
—
|
|
|
25,000
|
|
|
|
|||
Total indefinite-lived intangible assets, excluding goodwill
|
25,000
|
|
|
—
|
|
|
25,000
|
|
|
|
|||
Total intangible assets, excluding goodwill
|
$
|
425,130
|
|
|
$
|
72,130
|
|
|
$
|
353,000
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
October 29, 2016
|
||||||||||||
|
Gross
Carrying Value |
|
Accumulated
Amortization |
|
Net
Carrying Value |
|
Weighted-
Average Remaining Useful Life (In years) |
||||||
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
||||||
Trade names
|
$
|
45,090
|
|
|
$
|
2,359
|
|
|
$
|
42,731
|
|
|
10.51
|
Core/developed technology
|
286,290
|
|
|
37,352
|
|
|
248,938
|
|
|
5.51
|
|||
Patent portfolio license
(1)
|
7,750
|
|
|
1,935
|
|
|
5,815
|
|
|
17.00
|
|||
Customer relationships
|
143,110
|
|
|
15,813
|
|
|
127,297
|
|
|
6.32
|
|||
Non-compete agreements
|
1,050
|
|
|
983
|
|
|
67
|
|
|
0.29
|
|||
Patents with broader applications
|
1,040
|
|
|
110
|
|
|
930
|
|
|
13.38
|
|||
Total finite-lived intangible assets
|
$
|
484,330
|
|
|
$
|
58,552
|
|
|
$
|
425,778
|
|
|
6.08
|
Indefinite-lived intangible assets, excluding goodwill:
|
|
|
|
|
|
|
|
||||||
IPR&D
(3)
|
24,000
|
|
|
—
|
|
|
24,000
|
|
|
|
|||
Total indefinite-lived intangible assets, excluding goodwill
|
24,000
|
|
|
—
|
|
|
24,000
|
|
|
|
|||
Total intangible assets, excluding goodwill
|
$
|
508,330
|
|
|
$
|
58,552
|
|
|
$
|
449,778
|
|
|
|
(1)
|
The patent portfolio license was assigned an estimated useful life that reflects the Company’s consumption of the expected defensive benefits related to this license to certain patents. The method of amortization for the patent portfolio license reflects the Company’s estimate of the pattern in which these expected defensive benefits will be used by the Company and is primarily based on the mix of expiration patterns of the individual patents included in the license.
|
(2)
|
During
the nine months ended July 29, 2017
,
$9.5 million
of finite-lived intangible assets became fully amortized and, therefore, were removed from the balance sheet.
|
(3)
|
Acquired IPR&D is an intangible asset accounted for as an indefinite-lived asset until the completion or abandonment of the associated research and development effort. If the research and development effort associated with the IPR&D is successfully completed, then the IPR&D intangible asset will be amortized over its estimated useful life to be determined at the date the effort is completed.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
July 29, 2017
|
|
July 30, 2016
|
||||||||
Cost of revenues
|
$
|
10,612
|
|
|
$
|
8,922
|
|
|
$
|
36,352
|
|
|
$
|
15,269
|
|
General and administrative
(1)
|
248
|
|
|
271
|
|
|
760
|
|
|
821
|
|
||||
Amortization of intangible assets
|
5,822
|
|
|
5,498
|
|
|
20,998
|
|
|
7,302
|
|
||||
Total
|
$
|
16,682
|
|
|
$
|
14,691
|
|
|
$
|
58,110
|
|
|
$
|
23,392
|
|
(1)
|
The amortization is related to the
$7.8 million
perpetual, nonexclusive license to certain patents purchased in fiscal year 2015.
|
Fiscal Year
|
|
Estimated
Future
Amortization
|
||
2017 (remaining three months)
|
|
$
|
14,761
|
|
2018
|
|
58,961
|
|
|
2019
|
|
58,760
|
|
|
2020
|
|
58,294
|
|
|
2021
|
|
58,225
|
|
|
Thereafter
|
|
78,999
|
|
|
Total
|
|
$
|
328,000
|
|
|
July 29,
2017 |
|
October 29,
2016 |
||||
Inventories:
|
|
|
|
||||
Raw materials
|
$
|
29,032
|
|
|
$
|
17,793
|
|
Finished goods
|
41,479
|
|
|
51,562
|
|
||
Inventories
|
$
|
70,511
|
|
|
$
|
69,355
|
|
|
July 29,
2017 |
|
October 29,
2016 |
||||
Property and equipment, net:
|
|
|
|
||||
Gross property and equipment
|
|
|
|
||||
Computer equipment
|
$
|
18,356
|
|
|
$
|
19,710
|
|
Software
|
90,040
|
|
|
89,132
|
|
||
Engineering and other equipment
|
388,787
|
|
|
445,115
|
|
||
Furniture and fixtures
|
32,990
|
|
|
33,788
|
|
||
Leasehold improvements
|
36,801
|
|
|
37,973
|
|
||
Land and building
|
386,163
|
|
|
386,163
|
|
||
Total gross property and equipment
|
953,137
|
|
|
1,011,881
|
|
||
Accumulated depreciation and amortization
(1)
|
(536,956
|
)
|
|
(556,555
|
)
|
||
Property and equipment, net
|
$
|
416,181
|
|
|
$
|
455,326
|
|
(1)
|
The following table presents the depreciation of property and equipment included on the Company’s Condensed Consolidated
Statements of Operations
(in thousands):
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
Depreciation expense
|
$
|
19,040
|
|
|
$
|
20,393
|
|
|
$
|
60,255
|
|
|
$
|
57,531
|
|
|
|
|
Fair Value Measurements Using
|
||||||||||||
|
Balance as of
July 29, 2017 |
|
Quoted Prices in
Active Markets for Identical Instruments (Level 1) |
|
Significant Other
Observable Inputs (Level 2) |
|
Significant
Unobservable Inputs (Level 3) |
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Money market funds
(1)
|
$
|
824,925
|
|
|
$
|
824,925
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative assets
|
737
|
|
|
—
|
|
|
737
|
|
|
—
|
|
||||
Total assets measured at fair value
|
$
|
825,662
|
|
|
$
|
824,925
|
|
|
$
|
737
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Derivative liabilities
|
$
|
141
|
|
|
$
|
—
|
|
|
$
|
141
|
|
|
$
|
—
|
|
Total liabilities measured at fair value
|
$
|
141
|
|
|
$
|
—
|
|
|
$
|
141
|
|
|
$
|
—
|
|
(1)
|
Money market funds are reported within “Cash and cash equivalents” on the Company’s Condensed Consolidated Balance Sheets.
|
|
|
|
Fair Value Measurements Using
|
||||||||||||
|
Balance as of
October 29, 2016 |
|
Quoted Prices in
Active Markets for Identical Instruments (Level 1) |
|
Significant Other
Observable Inputs (Level 2) |
|
Significant
Unobservable Inputs (Level 3) |
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Money market funds
(1)
|
$
|
914,724
|
|
|
$
|
914,724
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative assets
|
514
|
|
|
—
|
|
|
514
|
|
|
—
|
|
||||
Total assets measured at fair value
|
$
|
915,238
|
|
|
$
|
914,724
|
|
|
$
|
514
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Derivative liabilities
|
$
|
354
|
|
|
$
|
—
|
|
|
$
|
354
|
|
|
$
|
—
|
|
Total liabilities measured at fair value
|
$
|
354
|
|
|
$
|
—
|
|
|
$
|
354
|
|
|
$
|
—
|
|
(1)
|
Money market funds are reported within “Cash and cash equivalents” on the Company’s Condensed Consolidated Balance Sheets.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
Severance and other employee termination costs related to employee voluntary separation plan
|
$
|
17,801
|
|
|
$
|
—
|
|
|
$
|
17,801
|
|
|
$
|
—
|
|
Lease loss reserve and related benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
(566
|
)
|
||||
Total restructuring charges (benefits)
|
$
|
17,801
|
|
|
$
|
—
|
|
|
$
|
17,801
|
|
|
$
|
(566
|
)
|
|
|
|
|
|
|
July 29, 2017
|
|
October 29, 2016
|
||||||||
|
|
Maturity
|
|
Stated Annual Interest Rate
|
|
Amount
|
Effective Interest Rate
|
|
Amount
|
Effective Interest Rate
|
||||||
Senior Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
||||||
Term Loan Facility
|
|
2021
|
|
variable
|
|
$
|
720,000
|
|
3.54
|
%
|
|
$
|
780,000
|
|
2.53
|
%
|
Convertible Senior Unsecured Notes:
|
|
|
|
|
|
|
|
|
|
|
||||||
2020 Convertible Notes
|
|
2020
|
|
1.375%
|
|
575,000
|
|
4.98
|
%
|
|
575,000
|
|
4.98
|
%
|
||
Senior Unsecured Notes:
|
|
|
|
|
|
|
|
|
|
|
||||||
2023 Notes
|
|
2023
|
|
4.625%
|
|
300,000
|
|
4.83
|
%
|
|
300,000
|
|
4.83
|
%
|
||
Total gross long-term debt
|
|
|
|
|
|
1,595,000
|
|
|
|
1,655,000
|
|
|
||||
Unamortized discount
|
|
|
|
|
|
(58,405
|
)
|
|
|
(73,540
|
)
|
|
||||
Unamortized debt issuance costs
|
|
|
|
|
|
(2,268
|
)
|
|
|
(2,705
|
)
|
|
||||
Current portion of long-term debt
|
|
|
|
|
|
(76,725
|
)
|
|
|
(76,692
|
)
|
|
||||
Long-term debt, net of current portion
|
|
|
|
|
|
$
|
1,457,602
|
|
|
|
$
|
1,502,063
|
|
|
•
|
Incur additional indebtedness or issue certain preferred equity, pay dividends, or make other distributions or other restricted payments (including stock repurchases);
|
•
|
Sell assets other than on terms specified by the Credit Agreement;
|
•
|
Amend the terms of certain other indebtedness and organizational documents;
|
•
|
Create liens on certain assets to secure debt, consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets; and
|
•
|
Enter into certain transactions with affiliates, or change their lines of business, fiscal years, and accounting practices, in each case, subject to customary exceptions.
|
|
July 29,
2017 |
|
October 29,
2016 |
||||
Principal
|
$
|
575,000
|
|
|
$
|
575,000
|
|
Unamortized discount of the liability component
|
(46,153
|
)
|
|
(59,399
|
)
|
||
Net carrying amount of liability component
|
$
|
528,847
|
|
|
$
|
515,601
|
|
Carrying amount of equity component
|
$
|
43,320
|
|
|
$
|
55,374
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
Amortization of discount
|
$
|
4,470
|
|
|
$
|
4,254
|
|
|
$
|
13,245
|
|
|
$
|
12,606
|
|
Contractual interest coupon
|
$
|
1,977
|
|
|
$
|
1,977
|
|
|
$
|
5,930
|
|
|
$
|
5,930
|
|
•
|
During any fiscal quarter commencing after the fiscal quarter ending on May 2, 2015 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to
130%
of the conversion price of the notes on each applicable trading day;
|
•
|
During the
five
-business-day period after any
10
consecutive trading-day period in which the trading price per $1,000 principal amount of the notes for each trading day of that 10 consecutive trading-day period was less than
98%
of the product of the last reported sale price of the Company’s common stock and the conversion rate of the notes on each such trading day; or
|
•
|
Upon the occurrence of certain corporate events as specified in the terms of the indenture governing the 2020 Convertible Notes.
|
•
|
Incur certain liens and enter into certain sale-leaseback transactions;
|
•
|
Create, assume, incur, or guarantee additional indebtedness of the Company’s subsidiaries without such subsidiaries guaranteeing the 2023 Notes on a pari passu basis; and
|
•
|
Enter into certain consolidation or merger transactions, or convey, transfer, or lease all or substantially all of the Company’s or its subsidiaries’ assets.
|
Fiscal Year
|
|
Principal
Balances
|
||
2017 (remaining three months)
|
|
$
|
20,000
|
|
2018
|
|
80,000
|
|
|
2019
|
|
80,000
|
|
|
2020
|
|
655,000
|
|
|
2021
|
|
460,000
|
|
|
Thereafter
|
|
300,000
|
|
|
Total
|
|
$
|
1,595,000
|
|
|
Accrued Warranty
|
||||||
|
Nine Months Ended
|
||||||
|
July 29,
2017 |
|
July 30,
2016 |
||||
Beginning balance
|
$
|
8,326
|
|
|
$
|
7,599
|
|
Warranty liability assumed from acquisitions
|
—
|
|
|
760
|
|
||
Liabilities accrued for warranties issued during the period
|
2,136
|
|
|
2,768
|
|
||
Warranty claims paid and used during the period
|
(2,361
|
)
|
|
(2,736
|
)
|
||
Changes in liability for pre-existing warranties during the period
|
838
|
|
|
(60
|
)
|
||
Ending balance
|
$
|
8,939
|
|
|
$
|
8,331
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
July 29, 2017
|
|
July 30, 2016
|
||||||||
Cost of revenues
|
$
|
(80
|
)
|
|
$
|
(35
|
)
|
|
$
|
(155
|
)
|
|
$
|
(195
|
)
|
Research and development
|
(24
|
)
|
|
(342
|
)
|
|
(92
|
)
|
|
(968
|
)
|
||||
Sales and marketing
|
(269
|
)
|
|
(120
|
)
|
|
(583
|
)
|
|
(764
|
)
|
||||
General and administrative
|
(32
|
)
|
|
(10
|
)
|
|
(62
|
)
|
|
(54
|
)
|
||||
Total
|
$
|
(405
|
)
|
|
$
|
(507
|
)
|
|
$
|
(892
|
)
|
|
$
|
(1,981
|
)
|
|
|
Derivatives Designated
as Hedging Instruments |
||||||
In U.S. dollars
|
|
July 29, 2017
|
|
October 29, 2016
|
||||
British pound
|
|
$
|
10,537
|
|
|
$
|
42,783
|
|
Indian rupee
|
|
7,588
|
|
|
32,275
|
|
||
Euro
|
|
7,247
|
|
|
34,070
|
|
||
Chinese yuan
|
|
4,637
|
|
|
19,805
|
|
||
Swiss franc
|
|
3,287
|
|
|
14,426
|
|
||
Singapore dollar
|
|
3,253
|
|
|
15,057
|
|
||
Japanese yen
|
|
2,078
|
|
|
9,944
|
|
||
Australian dollar
|
|
1,980
|
|
|
7,876
|
|
||
Total
|
|
$
|
40,607
|
|
|
$
|
176,236
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
July 29, 2017
|
|
July 30, 2016
|
||||||||
Cost of revenues
|
$
|
3,233
|
|
|
$
|
5,965
|
|
|
$
|
12,117
|
|
|
$
|
12,400
|
|
Research and development
|
6,340
|
|
|
9,206
|
|
|
25,045
|
|
|
19,805
|
|
||||
Sales and marketing
|
8,503
|
|
|
17,756
|
|
|
35,097
|
|
|
39,886
|
|
||||
General and administrative
|
5,709
|
|
|
11,716
|
|
|
23,329
|
|
|
21,384
|
|
||||
Total stock-based compensation expense
|
$
|
23,785
|
|
|
$
|
44,643
|
|
|
$
|
95,588
|
|
|
$
|
93,475
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
July 29, 2017
|
|
July 30, 2016
|
||||||||
Stock options
|
$
|
369
|
|
|
$
|
3,291
|
|
|
$
|
1,665
|
|
|
$
|
4,727
|
|
RSUs, including restricted stock units with market conditions
|
23,416
|
|
|
35,604
|
|
|
76,401
|
|
|
75,986
|
|
||||
Employee stock purchase plan (“ESPP”)
(1)
|
—
|
|
|
5,748
|
|
|
17,522
|
|
|
12,762
|
|
||||
Total stock-based compensation expense
|
$
|
23,785
|
|
|
$
|
44,643
|
|
|
$
|
95,588
|
|
|
$
|
93,475
|
|
(1)
|
The ESPP stock-based compensation expense recognized in the
nine months ended
July 29, 2017
, includes the acceleration of all of the unamortized expense in the first quarter of fiscal year 2017 due to the suspension of the Company’s ESPP without concurrent replacement as required under the terms of the merger agreement with Broadcom.
|
|
Unrecognized
Compensation
Expense
|
|
Weighted-
Average Period
(In years)
|
||
Stock options
|
$
|
410
|
|
|
0.66
|
RSUs, including restricted stock units with market conditions
|
$
|
104,843
|
|
|
1.76
|
|
Nine Months Ended
|
||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
||||||||||
|
Granted
(Shares in thousands) |
|
Weighted-Average
Grant Date Fair Value |
|
Granted
(Shares in thousands) |
|
Weighted-Average
Grant Date Fair Value |
||||||
Stock options
|
—
|
|
|
$
|
—
|
|
|
1,390
|
|
|
$
|
1.36
|
|
RSUs, including stock units with market conditions
|
4,102
|
|
|
$
|
9.35
|
|
|
17,879
|
|
|
$
|
7.90
|
|
Declaration Date
|
|
Dividend per Share
|
|
Record Date
|
|
Total Amount Paid
|
|
Payment Date
|
||||
November 20, 2016
|
|
$
|
0.055
|
|
|
December 12, 2016
|
|
$
|
22,346
|
|
|
January 4, 2017
|
February 22, 2017
|
|
$
|
0.055
|
|
|
March 10, 2017
|
|
$
|
22,434
|
|
|
April 4, 2017
|
May 24, 2017
|
|
$
|
0.055
|
|
|
June 12, 2017
|
|
$
|
22,669
|
|
|
July 5, 2017
|
|
Three Months Ended
|
||||||||||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
||||||||||||||||||||
|
Before-Tax Amount
|
|
Tax (Expense) Benefit
|
|
Net-of-Tax Amount
|
|
Before-Tax Amount
|
|
Tax (Expense) Benefit
|
|
Net-of-Tax Amount
|
||||||||||||
Unrealized gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Change in unrealized gains and losses, foreign exchange contracts
|
$
|
206
|
|
|
$
|
3
|
|
|
$
|
209
|
|
|
$
|
(715
|
)
|
|
$
|
15
|
|
|
$
|
(700
|
)
|
Net gains and losses reclassified into earnings, foreign exchange contracts
(1)
|
405
|
|
|
(42
|
)
|
|
363
|
|
|
507
|
|
|
(25
|
)
|
|
482
|
|
||||||
Net unrealized gains (losses) on cash flow hedges
|
611
|
|
|
(39
|
)
|
|
572
|
|
|
(208
|
)
|
|
(10
|
)
|
|
(218
|
)
|
||||||
Foreign currency translation adjustments
|
1,972
|
|
|
—
|
|
|
1,972
|
|
|
(1,628
|
)
|
|
—
|
|
|
(1,628
|
)
|
||||||
Total other comprehensive income (loss)
|
$
|
2,583
|
|
|
$
|
(39
|
)
|
|
$
|
2,544
|
|
|
$
|
(1,836
|
)
|
|
$
|
(10
|
)
|
|
$
|
(1,846
|
)
|
|
Nine Months Ended
|
||||||||||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
||||||||||||||||||||
|
Before-Tax Amount
|
|
Tax
Expense
|
|
Net-of-Tax Amount
|
|
Before-Tax Amount
|
|
Tax (Expense) Benefit
|
|
Net-of-Tax Amount
|
||||||||||||
Unrealized gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Change in unrealized gains and losses, foreign exchange contracts
|
$
|
408
|
|
|
$
|
(32
|
)
|
|
$
|
376
|
|
|
$
|
(1,056
|
)
|
|
$
|
21
|
|
|
$
|
(1,035
|
)
|
Net gains and losses reclassified into earnings, foreign exchange contracts
(1)
|
892
|
|
|
(93
|
)
|
|
799
|
|
|
1,981
|
|
|
(150
|
)
|
|
1,831
|
|
||||||
Net unrealized gains (losses) on cash flow hedges
|
1,300
|
|
|
(125
|
)
|
|
1,175
|
|
|
925
|
|
|
(129
|
)
|
|
796
|
|
||||||
Foreign currency translation adjustments
|
2,635
|
|
|
—
|
|
|
2,635
|
|
|
(1,760
|
)
|
|
—
|
|
|
(1,760
|
)
|
||||||
Total other comprehensive income (loss)
|
$
|
3,935
|
|
|
$
|
(125
|
)
|
|
$
|
3,810
|
|
|
$
|
(835
|
)
|
|
$
|
(129
|
)
|
|
$
|
(964
|
)
|
(1)
|
For classification of amounts reclassified from accumulated other comprehensive loss into earnings as reported on the Company’s Condensed Consolidated
Statements of Operations
, see Note
10
, “
Derivative Instruments and Hedging Activities
,” of the Notes to Condensed Consolidated Financial Statements.
|
|
Nine Months Ended
|
||||||||||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
||||||||||||||||||||
|
Gains (Losses) on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustments
|
|
Total Accumulated Other Comprehensive Loss
|
|
Losses
on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustments
|
|
Total Accumulated Other Comprehensive Loss
|
||||||||||||
Beginning balance
|
$
|
(871
|
)
|
|
$
|
(26,542
|
)
|
|
$
|
(27,413
|
)
|
|
$
|
(1,539
|
)
|
|
$
|
(23,463
|
)
|
|
$
|
(25,002
|
)
|
Change in unrealized gains and losses
|
376
|
|
|
2,635
|
|
|
3,011
|
|
|
(1,035
|
)
|
|
(1,760
|
)
|
|
(2,795
|
)
|
||||||
Net gains and losses reclassified into earnings
|
799
|
|
|
—
|
|
|
799
|
|
|
1,831
|
|
|
—
|
|
|
1,831
|
|
||||||
Net current-period other comprehensive income (loss)
|
1,175
|
|
|
2,635
|
|
|
3,810
|
|
|
796
|
|
|
(1,760
|
)
|
|
(964
|
)
|
||||||
Ending balance
|
$
|
304
|
|
|
$
|
(23,907
|
)
|
|
$
|
(23,603
|
)
|
|
$
|
(743
|
)
|
|
$
|
(25,223
|
)
|
|
$
|
(25,966
|
)
|
|
SAN Products
|
|
IP Networking Products
|
|
Global Services
|
|
Total
|
||||||||
Three months ended July 29, 2017
|
|
|
|
|
|
|
|
||||||||
Net revenues
|
$
|
275,872
|
|
|
$
|
173,677
|
|
|
$
|
99,717
|
|
|
$
|
549,266
|
|
Cost of revenues
|
65,498
|
|
|
89,262
|
|
|
43,361
|
|
|
198,121
|
|
||||
Gross margin
|
$
|
210,374
|
|
|
$
|
84,415
|
|
|
$
|
56,356
|
|
|
$
|
351,145
|
|
Three months ended July 30, 2016
|
|
|
|
|
|
|
|
||||||||
Net revenues
|
$
|
282,114
|
|
|
$
|
208,881
|
|
|
$
|
99,726
|
|
|
$
|
590,721
|
|
Cost of revenues
|
70,630
|
|
|
117,862
|
|
|
45,330
|
|
|
233,822
|
|
||||
Gross margin
|
$
|
211,484
|
|
|
$
|
91,019
|
|
|
$
|
54,396
|
|
|
$
|
356,899
|
|
Nine months ended July 29, 2017
|
|
|
|
|
|
|
|
||||||||
Net revenues
|
$
|
864,401
|
|
|
$
|
520,872
|
|
|
$
|
298,209
|
|
|
$
|
1,683,482
|
|
Cost of revenues
|
210,445
|
|
|
275,708
|
|
|
136,301
|
|
|
622,454
|
|
||||
Gross margin
|
$
|
653,956
|
|
|
$
|
245,164
|
|
|
$
|
161,908
|
|
|
$
|
1,061,028
|
|
Nine months ended July 30, 2016
|
|
|
|
|
|
|
|
||||||||
Net revenues
|
$
|
925,799
|
|
|
$
|
474,556
|
|
|
$
|
287,956
|
|
|
$
|
1,688,311
|
|
Cost of revenues
|
223,806
|
|
|
240,991
|
|
|
127,489
|
|
|
592,286
|
|
||||
Gross margin
|
$
|
701,993
|
|
|
$
|
233,565
|
|
|
$
|
160,467
|
|
|
$
|
1,096,025
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
Basic net income (loss) per share
|
|
|
|
|
|
|
|
||||||||
Net income (loss) attributable to Brocade
|
$
|
(19,506
|
)
|
|
$
|
10,495
|
|
|
$
|
(36,154
|
)
|
|
$
|
147,226
|
|
Weighted-average shares used in computing basic net income (loss) per share
|
411,898
|
|
|
426,671
|
|
|
408,494
|
|
|
411,709
|
|
||||
Basic net income (loss) per share—attributable to Brocade stockholders
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.36
|
|
Diluted net income (loss) per share
|
|
|
|
|
|
|
|
||||||||
Net income (loss) attributable to Brocade
|
$
|
(19,506
|
)
|
|
$
|
10,495
|
|
|
$
|
(36,154
|
)
|
|
$
|
147,226
|
|
Weighted-average shares used in computing basic net income (loss) per share
|
411,898
|
|
|
426,671
|
|
|
408,494
|
|
|
411,709
|
|
||||
Dilutive potential common shares in the form of stock options
|
—
|
|
|
1,227
|
|
|
—
|
|
|
1,329
|
|
||||
Dilutive potential common shares in the form of other share-based awards
|
—
|
|
|
6,518
|
|
|
—
|
|
|
6,378
|
|
||||
Weighted-average shares used in computing diluted net income (loss) per share
|
411,898
|
|
|
434,416
|
|
|
408,494
|
|
|
419,416
|
|
||||
Diluted net income (loss) per share—attributable to Brocade stockholders
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.35
|
|
Antidilutive potential common shares in the form of:
(1)
|
|
|
|
|
|
|
|
||||||||
Warrants issued in conjunction with the 2020 Convertible Notes
(2)
|
36,573
|
|
|
36,316
|
|
|
36,515
|
|
|
36,251
|
|
||||
Stock options
|
1,334
|
|
|
2,838
|
|
|
1,605
|
|
|
2,029
|
|
||||
Other share-based awards
|
8,183
|
|
|
2,120
|
|
|
8,888
|
|
|
1,140
|
|
(1)
|
These amounts are excluded from the computation of diluted net income (loss) per share.
|
(2)
|
In connection with the issuance of the 2020 Convertible Notes, the Company entered into convertible note hedge and warrant transactions as described in Note
8
, “
Borrowings
.” The 2020 Convertible Notes have no impact on diluted earnings per share until the average quarterly price of the Company’s common stock exceeds the adjusted conversion price of
$15.72
per share. If the common stock price exceeds this adjusted conversion price, then immediately, prior to conversion, the Company will calculate the effect of the additional shares that may be issued using the treasury stock method. If the average price of the Company’s common stock exceeds
$20.38
per share for a quarterly period, the Company’s weighted-average shares used in computing diluted net income per share will be impacted by the effect of the additional potential shares that may be issued related to the warrants using the treasury stock method. The convertible note hedge is not considered for purposes of the diluted earnings per share calculation, as its effect would be antidilutive.
|
•
|
The divestiture of four of our software product lines in the third and fourth quarters of fiscal year 2017 as discussed above;
|
•
|
The implementation of a voluntary separation plan for certain eligible employees in the United States and India in the third quarter of fiscal year 2017 that has resulted in approximately 230 employees exiting Brocade;
|
•
|
The implementation of an involuntary workforce reduction plan pursuant to which approximately 230 additional employees in the United States are expected to exit Brocade during our fourth quarter of fiscal year 2017; and
|
•
|
The amendment of our Senior Credit Facility, effective for our third quarter of fiscal year 2017, to postpone the effective date of a previously scheduled third quarter reduction in the maximum permitted consolidated total leverage ratio and to temporarily suspend the applicability of an existing 15% limit on the amount of certain expenses, including acquisition, integration, and restructuring expenses, that may be added back when calculating consolidated EBITDA for purposes of financial covenant compliance.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
Total net revenues
|
$
|
549,266
|
|
|
$
|
590,721
|
|
|
$
|
1,683,482
|
|
|
$
|
1,688,311
|
|
Gross margin
|
$
|
351,145
|
|
|
$
|
356,899
|
|
|
$
|
1,061,028
|
|
|
$
|
1,096,025
|
|
Gross margin, as a percentage of total net revenues
|
63.9
|
%
|
|
60.4
|
%
|
|
63.0
|
%
|
|
64.9
|
%
|
||||
Income (loss) from operations
|
$
|
(19,879
|
)
|
|
$
|
20,594
|
|
|
$
|
(21,522
|
)
|
|
$
|
224,225
|
|
Operating income (loss), as a percentage of total net revenues
|
(3.6
|
)%
|
|
3.5
|
%
|
|
(1.3
|
)%
|
|
13.3
|
%
|
||||
Net income (loss) attributable to Brocade Communications Systems, Inc.
|
$
|
(19,506
|
)
|
|
$
|
10,495
|
|
|
$
|
(36,154
|
)
|
|
$
|
147,226
|
|
|
Three Months Ended
|
|
|
|
|
|||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
|
Net Revenues
|
|
% of Net
Revenues |
|
Net Revenues
|
|
% of Net
Revenues |
|
Decrease
|
|
%
Change |
|||||||||
SAN Products
|
$
|
275,872
|
|
|
50.2
|
%
|
|
$
|
282,114
|
|
|
47.7
|
%
|
|
$
|
(6,242
|
)
|
|
(2.2
|
)%
|
IP Networking Products
|
173,677
|
|
|
31.6
|
%
|
|
208,881
|
|
|
35.4
|
%
|
|
(35,204
|
)
|
|
(16.9
|
)%
|
|||
Global Services
|
99,717
|
|
|
18.2
|
%
|
|
99,726
|
|
|
16.9
|
%
|
|
(9
|
)
|
|
—
|
%
|
|||
Total net revenues
|
$
|
549,266
|
|
|
100.0
|
%
|
|
$
|
590,721
|
|
|
100.0
|
%
|
|
$
|
(41,455
|
)
|
|
(7.0
|
)%
|
|
Nine Months Ended
|
|
|
|
|
|||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
|
Net Revenues
|
|
% of Net
Revenues
|
|
Net Revenues
|
|
% of Net
Revenues
|
|
Increase/(Decrease)
|
|
%
Change
|
|||||||||
SAN Products
|
$
|
864,401
|
|
|
51.4
|
%
|
|
$
|
925,799
|
|
|
54.8
|
%
|
|
$
|
(61,398
|
)
|
|
(6.6
|
)%
|
IP Networking Products
|
520,872
|
|
|
30.9
|
%
|
|
474,556
|
|
|
28.1
|
%
|
|
46,316
|
|
|
9.8
|
%
|
|||
Global Services
|
298,209
|
|
|
17.7
|
%
|
|
287,956
|
|
|
17.1
|
%
|
|
10,253
|
|
|
3.6
|
%
|
|||
Total net revenues
|
$
|
1,683,482
|
|
|
100.0
|
%
|
|
$
|
1,688,311
|
|
|
100.0
|
%
|
|
$
|
(4,829
|
)
|
|
(0.3
|
)%
|
•
|
The decrease in SAN product revenues was caused by lower revenues across our SAN product portfolio, primarily due to competition from alternative storage networking technologies and architectures, and customer uncertainty surrounding the pending acquisition by Broadcom. Consequently, the number of ports shipped decreased by 5.0% during
the three months ended July 29, 2017
, the effect of which was partially offset by a 2.9% increase in the average selling price per port during the same period related to a favorable product mix;
|
•
|
The decrease in IP Networking product revenues primarily reflects lower wired switch and router revenue due to reduced customer orders following the announcement of Broadcom’s planned divestiture of our IP Networking product lines, partially offset by higher wireless revenue for
the three months ended July 29, 2017
, associated with the May 27, 2016 acquisition of Ruckus. The increase in wireless revenue was primarily due to including only approximately two months of wireless revenue in the prior-year period; and
|
•
|
The change in Global Services revenues was flat on a percentage basis and the decrease in absolute dollars is immaterial.
|
•
|
The decrease in SAN product revenues was caused by lower revenues across our SAN product portfolio, primarily due to competition from alternative storage networking technologies and architectures, and customer uncertainty surrounding the pending acquisition by Broadcom. Consequently, the number of ports shipped decreased by 8.0% during
the nine months ended July 29, 2017
, the effect of which was partially offset by a 1.5% increase in the average selling price per port during the same period related to a favorable product mix;
|
•
|
The increase in IP Networking product revenues primarily reflects $227.7 million in additional revenue from our wireless products associated with the May 27, 2016 acquisition of Ruckus, partially offset by lower wired switch and router revenue due to reduced customer orders following the announcement of Broadcom’s planned divestiture of our IP Networking product lines; and
|
•
|
The increase in Global Services revenues was primarily due to growth in support revenue from our wireless products associated with our acquisition of Ruckus.
|
|
Three Months Ended
|
|
|
|
|
|||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
|
Net Revenues
|
|
% of Net
Revenues |
|
Net Revenues
|
|
% of Net
Revenues |
|
Increase/(Decrease)
|
|
%
Change |
|||||||||
U.S.
|
$
|
283,443
|
|
|
51.6
|
%
|
|
$
|
339,460
|
|
|
57.4
|
%
|
|
$
|
(56,017
|
)
|
|
(16.5
|
)%
|
Europe, the Middle East and Africa
(1)
|
167,524
|
|
|
30.5
|
%
|
|
122,371
|
|
|
20.7
|
%
|
|
45,153
|
|
|
36.9
|
%
|
|||
Asia Pacific
|
69,300
|
|
|
12.6
|
%
|
|
91,967
|
|
|
15.6
|
%
|
|
(22,667
|
)
|
|
(24.6
|
)%
|
|||
Japan
|
18,983
|
|
|
3.5
|
%
|
|
25,315
|
|
|
4.3
|
%
|
|
(6,332
|
)
|
|
(25.0
|
)%
|
|||
Canada, Central and South America
|
10,016
|
|
|
1.8
|
%
|
|
11,608
|
|
|
2.0
|
%
|
|
(1,592
|
)
|
|
(13.7
|
)%
|
|||
Total net revenues
|
$
|
549,266
|
|
|
100.0
|
%
|
|
$
|
590,721
|
|
|
100.0
|
%
|
|
$
|
(41,455
|
)
|
|
(7.0
|
)%
|
(1)
|
Includes net revenues of
$75.9 million
and
$59.3 million
for
the three months ended July 29, 2017
, and
the three months ended July 30, 2016
, respectively, relating to the Netherlands.
|
|
Nine Months Ended
|
|
|
|
|
|||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
|
Net Revenues
|
|
% of Net
Revenues
|
|
Net Revenues
|
|
% of Net
Revenues
|
|
Increase/(Decrease)
|
|
%
Change
|
|||||||||
U.S.
|
$
|
830,409
|
|
|
49.3
|
%
|
|
$
|
920,137
|
|
|
54.5
|
%
|
|
$
|
(89,728
|
)
|
|
(9.8
|
)%
|
Europe, the Middle East and Africa
(1)
|
534,540
|
|
|
31.8
|
%
|
|
436,409
|
|
|
25.8
|
%
|
|
98,131
|
|
|
22.5
|
%
|
|||
Asia Pacific
|
229,388
|
|
|
13.6
|
%
|
|
222,978
|
|
|
13.2
|
%
|
|
6,410
|
|
|
2.9
|
%
|
|||
Japan
|
58,685
|
|
|
3.5
|
%
|
|
75,546
|
|
|
4.5
|
%
|
|
(16,861
|
)
|
|
(22.3
|
)%
|
|||
Canada, Central and South America
|
30,460
|
|
|
1.8
|
%
|
|
33,241
|
|
|
2.0
|
%
|
|
(2,781
|
)
|
|
(8.4
|
)%
|
|||
Total net revenues
|
$
|
1,683,482
|
|
|
100.0
|
%
|
|
$
|
1,688,311
|
|
|
100.0
|
%
|
|
$
|
(4,829
|
)
|
|
(0.3
|
)%
|
(1)
|
Includes net revenues of
$253.1 million
and
$260.8 million
for
the nine months ended July 29, 2017
, and
the nine months ended July 30, 2016
, respectively, relating to the Netherlands.
|
|
Three Months Ended
|
|
|
|
|
|||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
|
Gross Margin
|
|
% of Net
Revenues
|
|
Gross Margin
|
|
% of Net
Revenues
|
|
Increase/(Decrease)
|
|
% Points
Change
|
|||||||||
SAN Products
|
$
|
210,374
|
|
|
76.3
|
%
|
|
$
|
211,484
|
|
|
75.0
|
%
|
|
$
|
(1,110
|
)
|
|
1.3
|
%
|
IP Networking Products
|
84,415
|
|
|
48.6
|
%
|
|
91,019
|
|
|
43.6
|
%
|
|
(6,604
|
)
|
|
5.0
|
%
|
|||
Global Services
|
56,356
|
|
|
56.5
|
%
|
|
54,396
|
|
|
54.5
|
%
|
|
1,960
|
|
|
2.0
|
%
|
|||
Total gross margin
|
$
|
351,145
|
|
|
63.9
|
%
|
|
$
|
356,899
|
|
|
60.4
|
%
|
|
$
|
(5,754
|
)
|
|
3.5
|
%
|
|
Nine Months Ended
|
|
|
|
|
|||||||||||||||
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
|
Gross Margin
|
|
% of Net
Revenues
|
|
Gross Margin
|
|
% of Net
Revenues
|
|
Increase/(Decrease)
|
|
% Points
Change
|
|||||||||
SAN Products
|
$
|
653,956
|
|
|
75.7
|
%
|
|
$
|
701,993
|
|
|
75.8
|
%
|
|
$
|
(48,037
|
)
|
|
(0.1
|
)%
|
IP Networking Products
|
245,164
|
|
|
47.1
|
%
|
|
233,565
|
|
|
49.2
|
%
|
|
11,599
|
|
|
(2.1
|
)%
|
|||
Global Services
|
161,908
|
|
|
54.3
|
%
|
|
160,467
|
|
|
55.7
|
%
|
|
1,441
|
|
|
(1.4
|
)%
|
|||
Total gross margin
|
$
|
1,061,028
|
|
|
63.0
|
%
|
|
$
|
1,096,025
|
|
|
64.9
|
%
|
|
$
|
(34,997
|
)
|
|
(1.9
|
)%
|
•
|
SAN gross margins relative to net revenues increased primarily due to lower component and order fulfillment costs and a decrease in overhead costs from lower personnel-related expenses;
|
•
|
IP Networking gross margins relative to net revenues increased primarily due to a decrease in the purchase accounting adjustment recognized in connection with the fair valuation of inventory acquired from Ruckus and lower excess and obsolete charges for the data center and campus switching business product lines. This was partially offset by higher amortization of IP Networking-related intangible assets, increased manufacturing costs combined with decreased cost absorption on lower revenue, and unfavorable pricing; and
|
•
|
Global Services gross margins relative to net revenues increased primarily due to lower personnel-related expenses and a decrease in stock-based compensation expense primarily due to a decrease in restricted stock units (“RSUs”) granted in the current fiscal year, as well as the suspension of our employee stock purchase plan (“ESPP”) in the first quarter of fiscal year 2017 without concurrent replacement as required under the terms of the Broadcom Merger Agreement.
|
•
|
SAN gross margins relative to net revenues were flat on a percentage basis and decreased in absolute dollars primarily due to decreased cost absorption based on lower revenue;
|
•
|
IP Networking gross margins relative to net revenues decreased primarily due to higher amortization of IP Networking-related intangible assets and increased overhead costs primarily due to growth in personnel-related expenses as a result of the Ruckus acquisition. This was partially offset by increased cost absorption based on higher revenue, a decrease in recognition of the purchase accounting adjustment in connection with the fair valuation of inventory acquired from Ruckus, higher product margins attributable to the acquired wireless products, and lower direct product costs; and
|
•
|
Global Services gross margins relative to net revenues decreased primarily due to lower support revenue on our SAN products and higher amortization of Global Services-related intangible assets.
|
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
R&D expenses:
|
Expense
|
|
% of Net
Revenues
|
|
Expense
|
|
% of Net
Revenues
|
|
Increase
|
|
%
Change
|
|||||||||
Three months ended
|
$
|
117,116
|
|
|
21.3
|
%
|
|
$
|
114,996
|
|
|
19.5
|
%
|
|
$
|
2,120
|
|
|
1.8
|
%
|
Nine months ended
|
$
|
360,164
|
|
|
21.4
|
%
|
|
$
|
297,516
|
|
|
17.6
|
%
|
|
$
|
62,648
|
|
|
21.1
|
%
|
|
Increase/(Decrease)
|
||
Equipment expense
|
$
|
2,697
|
|
Outside services expense
|
1,665
|
|
|
Various individually insignificant items
|
624
|
|
|
Stock-based compensation expense
|
(2,866
|
)
|
|
Total change
|
$
|
2,120
|
|
|
Increase
|
||
Salaries and other compensation expense
|
$
|
42,007
|
|
Expenses related to legal, IT, facilities, and other shared functions
|
7,305
|
|
|
Outside services expense
|
6,874
|
|
|
Stock-based compensation expense
|
5,240
|
|
|
Various individually insignificant items
|
1,222
|
|
|
Total change
|
$
|
62,648
|
|
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
S&M expenses:
|
Expense
|
|
% of Net
Revenues
|
|
Expense
|
|
% of Net
Revenues
|
|
Increase/(Decrease)
|
|
%
Change
|
|||||||||
Three months ended
|
$
|
153,712
|
|
|
28.0
|
%
|
|
$
|
167,983
|
|
|
28.4
|
%
|
|
$
|
(14,271
|
)
|
|
(8.5
|
)%
|
Nine months ended
|
$
|
506,228
|
|
|
30.1
|
%
|
|
$
|
468,743
|
|
|
27.8
|
%
|
|
$
|
37,485
|
|
|
8.0
|
%
|
|
Increase/(Decrease)
|
||
Stock-based compensation expense
|
$
|
(9,253
|
)
|
Outside services and other marketing expense
|
(6,171
|
)
|
|
Salaries and other compensation expense
|
2,278
|
|
|
Various individually insignificant items
|
(1,125
|
)
|
|
Total change
|
$
|
(14,271
|
)
|
|
Increase/(Decrease)
|
||
Salaries and other compensation expense
|
$
|
53,393
|
|
Expenses related to legal, IT, facilities, and other shared functions
|
3,503
|
|
|
Outside services and other marketing expense
|
(14,497
|
)
|
|
Stock-based compensation expense
|
(4,790
|
)
|
|
Various individually insignificant items
|
(124
|
)
|
|
Total change
|
$
|
37,485
|
|
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
G&A expenses:
|
Expense
|
|
% of Net
Revenues
|
|
Expense
|
|
% of Net
Revenues
|
|
Increase/(Decrease)
|
|
%
Change
|
|||||||||
Three months ended
|
$
|
27,614
|
|
|
5.0
|
%
|
|
$
|
32,960
|
|
|
5.6
|
%
|
|
$
|
(5,346
|
)
|
|
(16.2
|
)%
|
Nine months ended
|
$
|
92,127
|
|
|
5.5
|
%
|
|
$
|
78,180
|
|
|
4.6
|
%
|
|
$
|
13,947
|
|
|
17.8
|
%
|
|
Increase/(Decrease)
|
||
Stock-based compensation expense
|
$
|
(6,008
|
)
|
Outside services expense
|
(971
|
)
|
|
Salaries and other compensation expense
|
600
|
|
|
Various individually insignificant items
|
1,033
|
|
|
Total change
|
$
|
(5,346
|
)
|
|
Increase
|
||
Salaries and other compensation expense
|
$
|
8,439
|
|
Outside services expense
|
2,097
|
|
|
Stock-based compensation expense
|
1,945
|
|
|
Various individually insignificant items
|
1,466
|
|
|
Total change
|
$
|
13,947
|
|
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
Amortization of intangible assets:
|
Expense
|
|
% of Net
Revenues
|
|
Expense
|
|
% of Net
Revenues
|
|
Increase
|
|
%
Change
|
|||||||||
Three months ended
|
$
|
5,822
|
|
|
1.1
|
%
|
|
$
|
5,498
|
|
|
0.9
|
%
|
|
$
|
324
|
|
|
5.9
|
%
|
Nine months ended
|
$
|
20,998
|
|
|
1.2
|
%
|
|
$
|
7,302
|
|
|
0.4
|
%
|
|
$
|
13,696
|
|
|
187.6
|
%
|
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
Acquisition, divestiture, and integration costs:
|
Expense
|
|
% of Net
Revenues
|
|
Expense
|
|
% of Net
Revenues
|
|
Increase/(Decrease)
|
|
%
Change
|
|||||||||
Three months ended
|
$
|
13,246
|
|
|
2.4
|
%
|
|
$
|
14,868
|
|
|
2.5
|
%
|
|
$
|
(1,622
|
)
|
|
(10.9
|
)%
|
Nine months ended
|
$
|
49,519
|
|
|
2.9
|
%
|
|
$
|
20,625
|
|
|
1.2
|
%
|
|
$
|
28,894
|
|
|
140.1
|
%
|
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
Interest expense:
|
Expense
|
|
% of Net
Revenues
|
|
Expense
|
|
% of Net
Revenues
|
|
Increase
|
|
%
Change
|
|||||||||
Three months ended
|
$
|
(15,875
|
)
|
|
(2.9
|
)%
|
|
$
|
(13,462
|
)
|
|
(2.3
|
)%
|
|
$
|
(2,413
|
)
|
|
(17.9
|
)%
|
Nine months ended
|
$
|
(47,317
|
)
|
|
(2.8
|
)%
|
|
$
|
(33,282
|
)
|
|
(2.0
|
)%
|
|
$
|
(14,035
|
)
|
|
(42.2
|
)%
|
|
July 29, 2017
|
|
July 30, 2016
|
|
|
|
|
|||||||||||||
Interest and other income, net:
|
Income
|
|
% of Net
Revenues
|
|
Income
|
|
% of Net
Revenues
|
|
Increase
|
|
%
Change
|
|||||||||
Three months ended
|
$
|
2,580
|
|
|
0.5
|
%
|
|
$
|
1,557
|
|
|
0.3
|
%
|
|
$
|
1,023
|
|
|
65.7
|
%
|
Nine months ended
|
$
|
5,136
|
|
|
0.3
|
%
|
|
$
|
3,317
|
|
|
0.2
|
%
|
|
$
|
1,819
|
|
|
54.8
|
%
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
July 29,
2017 |
|
July 30,
2016 |
|
July 29,
2017 |
|
July 30,
2016 |
||||||||
Income tax expense (benefit)
|
$
|
(13,622
|
)
|
|
$
|
(1,806
|
)
|
|
$
|
(27,275
|
)
|
|
$
|
47,034
|
|
Effective tax rate
|
41.1
|
%
|
|
(20.8
|
)%
|
|
42.8
|
%
|
|
24.2
|
%
|
|
July 29,
2017 |
|
October 29,
2016 |
|
Decrease
|
||||||
|
(In thousands)
|
||||||||||
Cash and cash equivalents
|
$
|
1,179,369
|
|
|
$
|
1,257,075
|
|
|
$
|
(77,706
|
)
|
Percentage of total assets
|
25
|
%
|
|
25
|
%
|
|
|
|
Nine Months Ended
|
||||||
|
July 29,
2017 |
|
July 30,
2016 |
||||
|
(In thousands)
|
||||||
Net cash provided by operating activities
|
$
|
44,632
|
|
|
$
|
252,906
|
|
Net cash provided by (used in) investing activities
|
3,401
|
|
|
(476,125
|
)
|
||
Net cash used in financing activities
|
(127,445
|
)
|
|
(63,663
|
)
|
||
Effect of exchange rate fluctuations on cash and cash equivalents
|
1,706
|
|
|
(926
|
)
|
||
Net decrease in cash and cash equivalents
|
$
|
(77,706
|
)
|
|
$
|
(287,808
|
)
|
•
|
Incur certain liens and enter into certain sale-leaseback transactions;
|
•
|
Create, assume, incur, or guarantee additional indebtedness of our subsidiaries without such subsidiaries guaranteeing the 2023 Notes on a pari passu basis; and
|
•
|
Enter into certain consolidation or merger transactions, or convey, transfer, or lease all, or substantially all of our or our subsidiaries’ assets.
|
•
|
Incur additional indebtedness or issue certain preferred equity, pay dividends or make other distributions or other restricted payments (including stock repurchases);
|
•
|
Sell assets other than on terms specified by the Credit Agreement;
|
•
|
Amend the terms of certain other indebtedness and organizational documents;
|
•
|
Create liens on certain assets to secure debt, consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets; and
|
•
|
Enter into certain transactions with affiliates, or change their lines of business, fiscal years, and accounting practices, in each case, subject to customary exceptions.
|
|
Total
|
|
Less Than
1 Year
|
|
1–3 Years
|
|
3–5 Years
|
|
More Than
5 Years
|
||||||||||
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
||||||||||
Term Loan Facility
(1)
|
$
|
786,699
|
|
|
$
|
100,763
|
|
|
$
|
194,652
|
|
|
$
|
491,284
|
|
|
$
|
—
|
|
Convertible senior unsecured notes due 2020
(1)
|
594,092
|
|
|
7,906
|
|
|
11,186
|
|
|
575,000
|
|
|
—
|
|
|||||
Senior unsecured notes due 2023
(1)
|
375,893
|
|
|
13,875
|
|
|
27,750
|
|
|
27,750
|
|
|
306,518
|
|
|||||
Non-cancellable operating leases
(2)
|
86,270
|
|
|
21,826
|
|
|
26,827
|
|
|
22,420
|
|
|
15,197
|
|
|||||
Purchase obligations
(1)
|
13,381
|
|
|
2,227
|
|
|
4,056
|
|
|
4,056
|
|
|
3,042
|
|
|||||
Purchase commitments, gross
(3)
|
160,702
|
|
|
160,702
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total contractual obligations
|
$
|
2,017,037
|
|
|
$
|
307,299
|
|
|
$
|
264,471
|
|
|
$
|
1,120,510
|
|
|
$
|
324,757
|
|
Other Commitments:
|
|
|
|
|
|
|
|
|
|
||||||||||
Standby letters of credit
|
$
|
138
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
||||
Unrecognized tax benefits and related accrued interest
(4)
|
$
|
193,305
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
(1)
|
Amount reflects total anticipated cash payments, including anticipated interest payments.
|
(2)
|
Amount excludes contractual sublease income of
$0.4 million
, which consists of
$0.2 million
to be received in less than one year and
$0.2 million
to be received in one to three years.
|
(3)
|
Amount reflects total gross purchase commitments under our manufacturing arrangements with third-party contract manufacturers. Of this amount, we have accrued reserves of
$1.8 million
for estimated purchase commitments that we do not expect to utilize in normal operations within the next 12 months, in accordance with our policy.
|
(4)
|
As of
July 29, 2017
, we had a gross liability for unrecognized tax benefits of
$189.8 million
and an accrual for the payment of related interest and penalties of
$3.5 million
.
|
•
|
difficulties maintaining existing and/or establishing business relationships, including relationships with significant customers, contract manufacturers, component suppliers, channel partners, and other business partners;
|
•
|
disruption to Brocade’s business, including increased costs and diversion of management time and resources that could otherwise have been devoted to other opportunities that may have been beneficial to Brocade;
|
•
|
the restrictions imposed on Brocade’s business and operations pursuant to certain covenants set forth in the merger agreement, which may prevent Brocade from pursuing certain opportunities, responding to competitive pressures and industry developments, or taking certain actions without Broadcom’s approval;
|
•
|
continued erosion of EBITDA that may lead to long-term noncompliance with debt financial covenants and erosion of domestic cash;
|
•
|
adverse effects on Brocade’s ability to attract, recruit, retain and motivate current and prospective employees who may be uncertain about their future roles following completion of the proposed transactions, and the possibility that Brocade’s employees could lose productivity as a result of uncertainty regarding their employment following the proposed transactions;
|
•
|
the pendency and outcome of the legal proceedings that have been or may be instituted against Brocade, its directors, executive officers and others relating to the proposed transactions;
|
•
|
announcements related to the proposed transactions could result in adjustments to the terms of the warrant transactions (the “Warrant Transactions”) Brocade entered into in connection with the issuance of the 1.375% convertible senior unsecured notes due 2020 (the “2020 Convertible Notes”); and
|
•
|
the diversion of Brocade’s employees’ attention due to activities related to the proposed transactions.
|
•
|
any disruptions to Brocade’s business resulting from the announcement and pendency of the proposed transactions, including adverse changes in its relationships with customers, suppliers, channel partners, other business partners and employees, may continue or intensify in the event the acquisition is not consummated or is significantly delayed;
|
•
|
Brocade would have incurred significant costs, including professional services fees and other transaction costs, in connection with the proposed transactions that it would be unable to recover;
|
•
|
Brocade may experience continued erosion of EBITDA that may lead to long-term noncompliance with debt financial covenants and erosion of domestic cash;
|
•
|
Brocade may be subject to negative publicity or be negatively perceived by the investment or business communities;
|
•
|
Brocade may be subject to legal proceedings related to the transactions contemplated by the merger agreement;
|
•
|
Brocade may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures; and
|
•
|
Brocade may experience a departure of employees.
|
•
|
Holders of the 2020 Convertible Notes have the right to require Brocade to repurchase their convertible notes upon the occurrence of a “Fundamental Change” (as defined in the indenture governing the 2020 Convertible Notes) at a repurchase price of 100% of the principal amount plus accrued and unpaid interest, if any.
|
•
|
The 2020 Convertible Notes would become convertible for a specified period of time following the consummation of the proposed Broadcom acquisition, which would require Brocade to make cash payments up to the full conversion value of any notes being converted; Brocade could not elect to settle the conversion of the notes with shares of its common stock.
|
•
|
Holders of the 2023 Notes have the right to require Brocade to repurchase their notes upon the occurrence of a “Change of Control Triggering Event” (as defined in the indenture governing the 2023 Notes), at a repurchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any. The proposed Broadcom acquisition would result in a Change of Control Triggering Event if the acquisition were accompanied or followed within a specific period by certain downgrades of the ratings of the 2023 Notes.
|
•
|
A “Change of Control” under the Credit Agreement would constitute an event of default and permit the Lenders to cause the acceleration of the repayment of all of the outstanding amounts owed thereunder.
|
•
|
Upon termination of the Warrant Transactions in connection with the proposed Broadcom acquisition, Brocade would be required to settle such transactions in cash. Further, announcements relating to the proposed acquisition may result in adjustments to the terms of the Warrant Transactions to take into account the economic effect of the proposed acquisition, which could result in greater amounts becoming due upon termination or otherwise have a dilutive effect.
|
•
|
The target market for the acquired products may not develop within the expected time frame or may evolve in a different technical direction;
|
•
|
Difficulties in successfully integrating the acquired businesses and realizing any expected synergies, including failure to integrate successfully the sales organizations;
|
•
|
Failure to communicate to customers the capabilities of the combined company;
|
•
|
Unanticipated costs, litigation, and other contingent liabilities, including liabilities associated with acquired intellectual property;
|
•
|
Diversion of management’s attention from Brocade’s daily operations and business;
|
•
|
Adverse effects on existing business relationships with suppliers and customers, including delays or cancellations of customer purchases, as well as revenue attrition in excess of anticipated levels if existing customers alter or reduce their historical buying patterns;
|
•
|
Risks associated with entering into markets in which Brocade has limited or no prior experience, including the potential for a lower level of understanding of specific market dynamics;
|
•
|
Inability to attract and retain key employees;
|
•
|
Inability to successfully develop new products and services on a timely basis to address the market opportunities of the combined company;
|
•
|
Inability to compete effectively against companies already serving the broader market opportunities expected to be available to the combined company;
|
•
|
Inability to qualify the combined company’s products with OEM partners on a timely basis, or at all;
|
•
|
Inability to successfully integrate financial reporting and IT systems;
|
•
|
Inability to develop software-oriented back-office systems and processes necessary to sell and support a variety of software-based offerings;
|
•
|
Failure to successfully manage additional business locations, including the infrastructure and resources necessary to support and integrate such locations;
|
•
|
Assumption or incurrence of debt and contingent liabilities and related obligations to service such liabilities and potential limitations on Brocade’s operations in order to satisfy financial and other negative operating covenants;
|
•
|
Additional costs, such as increased costs of manufacturing and service; costs associated with excess or obsolete inventory; costs of employee redeployment, relocation, and retention, including salary increases or bonuses; accelerated amortization of deferred equity compensation, severance payments, reorganization, or closure of facilities; taxes; advisor and professional fees; and termination of contracts that provide redundant or conflicting services; and
|
•
|
The impact of acquisition- and integration-related costs, goodwill or in-process research and development impairment charges, amortization costs for acquired intangible assets, and acquisition accounting treatment, including the loss of deferred revenue and increases in the fair values of inventory and other acquired assets, on Brocade’s operating results and financial condition.
|
•
|
Properly predict the market for new products, services, and support offerings, including features, cost-effectiveness, scalability, and pricing—all of which can be particularly challenging for initial product offerings in new markets;
|
•
|
Differentiate Brocade’s new products, services, and support offerings from its competitors’ offerings;
|
•
|
Address the interoperability complexities of Brocade’s products with its OEM partners’ server and storage products and Brocade’s competitors’ products;
|
•
|
Determine which route(s) to market will be most effective; and
|
•
|
Manage product transitions, including forecasting demand, managing excess and obsolete inventories, addressing product cost structures, and managing different sales and support requirements.
|
•
|
Compliance by Brocade and its channel partners and other agents with numerous and often complex U.S. and other applicable government regulations prohibiting certain end-uses and restricting trade with embargoed or sanctioned countries, such as Iran and Russia, and with denied parties;
|
•
|
Difficulty in conducting due diligence with respect to business partners in certain international markets;
|
•
|
Exposure to economic instability or fluctuations in international markets, such as China, that could cause reductions in IT spending;
|
•
|
Exposure to inflationary risks and/or wage inflation in certain countries, such as India;
|
•
|
Increased exposure to foreign currency exchange rate fluctuations, including currencies such as the British pound, the Chinese yuan, the euro, the Indian rupee, the Japanese yen, the Singapore dollar, and the Swiss franc;
|
•
|
Exposure to sovereign debt risk and political and economic instability in certain regions of Europe, including Russia and Turkey, and certain countries with newly advanced economies, including China and Brazil;
|
•
|
Multiple potentially conflicting and changing governmental laws, regulations, technical standards, certification requirements, and practices, including differing environmental, data privacy, export, import, trade, manufacturing, product compliance, tax, labor, and employment laws;
|
•
|
Compliance by Brocade and its channel partners and other agents with the numerous and often complex U.S. and other applicable government regulations relating to exports and imports, and associated licensing requirements, particularly in the area of encryption technology;
|
•
|
Reduced or limited protection of intellectual property rights, particularly in jurisdictions that have less-developed intellectual property regimes, such as China and India;
|
•
|
Commercial laws and business practices that favor local competition;
|
•
|
In certain international regions, particularly those with rapidly developing economies, it may be common to engage in business practices that are prohibited by anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act;
|
•
|
Increased complexity, time, and costs of managing international operations;
|
•
|
Managing research and development and sales teams in geographically diverse locations, including teams divided between the United States, the United Kingdom, and India;
|
•
|
Effective communications across multiple geographies, cultures, and languages;
|
•
|
Recruiting sales and technical support personnel with the skills to design, manufacture, sell, and support Brocade’s products in international markets;
|
•
|
Longer sales cycles and manufacturing lead times;
|
•
|
Increased complexity and cost of providing customer support and maintenance for international customers;
|
•
|
Difficulties in collecting accounts receivable;
|
•
|
Increased complexity of logistics and distribution arrangements; and
|
•
|
Increased complexity of accounting rules and financial reporting requirements.
|
•
|
The failure of the pending acquisition of Brocade by Broadcom to be completed on a timely basis or at all;
|
•
|
Speculation, coverage, or sentiment in the media or investment community regarding the likelihood of completion of the pending acquisition of Brocade by Broadcom;
|
•
|
Public announcements regarding the status of the pending acquisition of Brocade by Broadcom and/or the status of Broadcom’s planned divestiture of certain portions of Brocade’s IP Networking business;
|
•
|
Actual or anticipated changes in Brocade’s operating results;
|
•
|
Whether Brocade’s operating results or forecasts meet the expectations of securities analysts or investors;
|
•
|
Actual or anticipated changes in the expectations of securities analysts or investors;
|
•
|
Recommendations by securities analysts or changes in their earnings estimates;
|
•
|
The announcement or timing of announcement of Brocade’s quarterly or annual operating results;
|
•
|
Announcements of actual or anticipated operating results by Brocade’s competitors, Brocade’s OEM partners, and other companies in the IT industry;
|
•
|
Speculation, coverage or sentiment in the media or the investment community about, or actual changes in, Brocade’s business, strategic position, competitive position, market share, operations, prospects, future stock price performance, or Brocade’s industry in general;
|
•
|
The announcement of new, planned, or contemplated products; services; commercial relationships; technological innovations; acquisitions; divestitures; or other significant transactions by Brocade or its competitors;
|
•
|
Brocade’s level of success, or perceived level of success, in integrating acquisitions, including the Ruckus acquisition;
|
•
|
Adverse changes to Brocade’s relationships with any of its OEM partners;
|
•
|
Changes in the business strategy or execution of any of Brocade’s OEM partners;
|
•
|
Departures of key employees;
|
•
|
Litigation or disputes involving Brocade, Brocade’s industry, or both;
|
•
|
General economic conditions and trends;
|
•
|
Sales of Brocade’s stock by Brocade’s officers, directors, or significant stockholders; and
|
•
|
The timing and amount of dividends and stock repurchases.
|
•
|
Authorizing the issuance of preferred stock without stockholder approval;
|
•
|
Prohibiting cumulative voting in the election of directors;
|
•
|
Limiting who may call special meetings of stockholders and when special meetings of stockholders may be called; and
|
•
|
Prohibiting stockholder actions by written consent.
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
2.1
|
|
|
|
|
|
10.1††
|
|
|
|
|
|
10.2
|
|
|
|
|
|
10.3
|
|
|
|
|
|
31.1
|
|
|
|
|
|
31.2
|
|
|
|
|
|
32.1
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
††
|
|
Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.
|
|
|
Brocade Communications Systems, Inc.
|
|
|
|
|
|
Date:
|
September 1, 2017
|
By:
|
/s/ Daniel W. Fairfax
|
|
|
|
Daniel W. Fairfax
Senior Vice President and Chief Financial Officer
|
1 Year Brocade Communications Systems, Inc. Chart |
1 Month Brocade Communications Systems, Inc. Chart |
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