Brocade Q4 Revenue Slips

SAN JOSE, Calif. -- Brocade Communications Systems, Inc. (Nasdaq: BRCD) (Brocade(R)) reported today financial results for its fourth quarter (Q4 03) and fiscal year 2003 (FY 03) which ended October 25, 2003. Net revenue for Q4 03 was $137.8 million, an increase of three percent from $133.5 million reported in the third quarter of fiscal year 2003 (Q3 03). Net revenue reported in the fourth quarter of fiscal year 2002 (Q4 02) was $153.1 million. Net revenue for FY 03 was $525.3 million, as compared to net revenue of $562.4 million reported in fiscal year 2002 (FY 02).

Non-GAAP net income for Q4 03 was $4.6 million, or $0.02 per share, as compared to a non-GAAP net income of $2.0 million, or $0.01 per share, in Q3 03. Non-GAAP net income for Q4 03 excludes gains related to repurchases of convertible subordinated debt, a gain on the disposition of private strategic investments, a reduction of previously recorded restructuring costs, and deferred stock compensation expense related to the acquisition of Rhapsody Networks, Inc. For FY 03, non-GAAP net income was $5.6 million, or $0.02 per share. Non-GAAP net income for FY 03 excludes gains related to repurchases of convertible subordinated debt, net gains on the disposition of private strategic investments, restructuring costs, and deferred stock compensation and in-process research and development expenses related to the Rhapsody acquisition. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

Q4 03 Financial Highlights

Reporting on a Generally Accepted Accounting Principles (GAAP) basis, net income for Q4 03 was $14.8 million, or $0.06 per share. This compares to GAAP net income for Q3 03 of $1.9 million, or $0.01 per share, and GAAP net income for Q4 02 of $15.7 million, or $0.07 per share. For FY 03, GAAP net loss was $136.2 million, or $(0.54) per share, as compared to GAAP net income of $59.7 million, or $0.25 per share, reported in FY 02. There was no difference between GAAP and non-GAAP net income in Q4 02 or FY 02.

During Q4 03, Brocade purchased on the open market $107.1 million face value of its two percent convertible subordinated notes. Brocade paid an average of $0.88 cents on each dollar of face value for an aggregate cash purchase price of $94.4 million, which resulted in a pre-tax gain of $11.1 million. These repurchases will reduce future quarterly interest expense and related amortization by approximately $0.7 million. As of October 25, 2003, the remaining convertible debt outstanding was $442.9 million.

"2003 has been a transformational year for Brocade and I'm pleased to report another solid quarter with continued improvement in revenue, gross margin, operating income and EPS," said Greg Reyes, Brocade Chairman and CEO. "The actions we have taken over the last several quarters have significantly improved our business model and organizational structure, strengthened our management team, and refined our product strategy, positioning us well for 2004."

Brocade also announced today that it has purchased a building located at its San Jose, California, headquarters for $106.8 million in cash. The 194,000 square foot facility, which houses a portion of the Company's engineering organization and development, test and interoperability laboratories, was previously leased. In the first quarter of fiscal year 2004, Brocade will record a non-recurring charge of approximately $75 to $85 million primarily related to lease termination, facilities consolidation and other associated costs. As a result of this transaction, Brocade expects to reduce its annual operating expenses by approximately $4 to $6 million.

Brocade Communications Systems Inc.