Brocade Communications Systems (BRCD) 8-K Brocade Reports Fiscal Q2 2016 Results

Exhibit 99.3

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
	April 30, 2016			May 2, 2015			April 30, 2016			May 2, 2015
	(In thousands, except per share amounts)
Net revenues:
Product	$	428,193		$	458,243		$	909,360		$	944,481
Service	95,113			88,332			188,230			178,333
Total net revenues	523,306			546,575			1,097,590			1,122,814
Cost of revenues:
Product	132,208			137,612			276,305			287,538
Service	40,787			36,754			82,159			73,384
Total cost of revenues	172,995			174,366			358,464			360,922
Gross margin	350,311			372,209			739,126			761,892
Operating expenses:
Research and development	89,263			91,870			182,520			177,101
Sales and marketing	148,933			143,078			300,760			283,316
General and administrative	22,791			20,722			45,220			45,393
Amortization of intangible assets	902			627			1,804			765
Acquisition and integration costs	5,757			2,344			5,757			2,344
Restructuring and other related benefits	—			(637		)	(566		)	(637		)
Total operating expenses	267,646			258,004			535,495			508,282
Income from operations	82,665			114,205			203,631			253,610
Interest expense	(9,955		)	(10,552		)	(19,820		)	(35,976		)
Interest and other income (loss), net	1,091			466			1,760			(93		)
Income before income tax	73,801			104,119			185,571			217,541
Income tax expense	30,716			27,079			48,840			53,234
Net income	$	43,085		$	77,040		$	136,731		$	164,307
Net income per share—basic	$	0.11		$	0.18		$	0.34		$	0.39
Net income per share—diluted	$	0.11		$	0.18		$	0.33		$	0.38
Shares used in per share calculation—basic	400,554			420,718			404,228			424,627
Shares used in per share calculation—diluted	408,748			433,234			411,917			436,195
Cash dividends declared per share	$	0.045		$	0.035		$	0.09		$	0.07

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BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended					Six Months Ended
	April 30, 2016		May 2, 2015			April 30, 2016			May 2, 2015
	(In thousands)
Net income	$	43,085	$	77,040		$	136,731		$	164,307
Other comprehensive income and loss, net of tax:
Unrealized gains (losses) on cash flow hedges:
Change in unrealized gains and losses	1,964		(143		)	(336		)	(1,918		)
Net gains and losses reclassified into earnings	724		1,109			1,350			1,713
Net unrealized gains (losses) on cash flow hedges	2,688		966			1,014			(205		)
Foreign currency translation adjustments	2,070		(1,068		)	(133		)	(5,289		)
Total other comprehensive income (loss)	4,758		(102		)	881			(5,494		)
Total comprehensive income	$	47,843	$	76,938		$	137,612		$	158,813

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BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	April 30, 2016			October 31, 2015
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	1,427,643		$	1,440,882
Accounts receivable, net of allowances for doubtful accounts of $1,739 and $1,838 as of April 30, 2016, and October 31, 2015, respectively	204,915			235,883
Inventories	39,521			40,524
Deferred tax assets	—			78,675
Prepaid expenses and other current assets	67,598			56,235
Total current assets	1,739,677			1,852,199
Property and equipment, net	441,717			439,224
Goodwill	1,621,691			1,617,161
Intangible assets, net	69,611			75,623
Non-current deferred tax assets	69,309			813
Other assets	50,968			51,133
Total assets	$	3,992,973		$	4,036,153
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	97,498		$	98,143
Accrued employee compensation	133,511			142,075
Deferred revenue	230,540			244,622
Other accrued liabilities	68,757			77,524
Total current liabilities	530,306			562,364
Long-term debt, net of current portion	802,482			793,779
Non-current deferred revenue	74,434			72,065
Non-current income tax liability	62,110			47,010
Non-current deferred tax liabilities	—			24,024
Other non-current liabilities	2,499			3,376
Total liabilities	1,471,831			1,502,618
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: 399,383 and 413,923 shares as of April 30, 2016, and October 31, 2015, respectively	399			414
Additional paid-in capital	1,519,439			1,632,984
Accumulated other comprehensive loss	(24,121		)	(25,002		)
Retained earnings	1,025,425			925,139
Total stockholders’ equity	2,521,142			2,533,535
Total liabilities and stockholders’ equity	$	3,992,973		$	4,036,153

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BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six Months Ended
	April 30, 2016			May 2, 2015
	(In thousands)
Cash flows from operating activities:
Net income	$	136,731		$	164,307
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax benefits from stock-based compensation	(10,987		)	(29,570		)
Depreciation and amortization	45,839			40,247
Loss on disposal of property and equipment	437			1,241
Amortization of debt issuance costs and debt discount	8,704			5,224
Write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing	—			4,808
Provision (recovery) for doubtful accounts receivable and sales allowances	(1,083		)	4,694
Non-cash stock-based compensation expense	48,833			40,157
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	32,051			35,237
Inventories	(424		)	3,008
Prepaid expenses and other assets	(1,882		)	(25,702		)
Deferred tax assets	(74		)	503
Accounts payable	(5,127		)	(6,160		)
Accrued employee compensation	(21,136		)	(39,997		)
Deferred revenue	(11,715		)	(9,149		)
Other accrued liabilities	5,500			25,285
Restructuring liabilities	(1,035		)	(1,866		)
Net cash provided by operating activities	224,632			212,267
Cash flows from investing activities:
Purchases of non-marketable equity and debt investments	(2,000		)	(150		)
Purchases of property and equipment	(42,425		)	(34,091		)
Purchase of intangible assets	—			(7,750		)
Net cash paid in connection with acquisitions	(8,061		)	(95,278		)
Proceeds from collection of note receivable	250			250
Net cash used in investing activities	(52,236		)	(137,019		)

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BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued (Unaudited)
	Six Months Ended
	April 30, 2016			May 2, 2015
	(In thousands)
Cash flows from financing activities:
Payment of principal related to senior secured notes	—			(300,000		)
Payment of debt issuance costs	—			(1,661		)
Payment of principal related to capital leases	(197		)	(1,267		)
Common stock repurchases	(180,848		)	(208,244		)
Proceeds from issuance of common stock	20,512			21,975
Payment of cash dividends to stockholders	(36,445		)	(29,854		)
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	10,987			29,570
Net cash provided by (used in) financing activities	(185,991		)	41,215
Effect of exchange rate fluctuations on cash and cash equivalents	356			(4,668		)
Net increase (decrease) in cash and cash equivalents	(13,239		)	111,795
Cash and cash equivalents, beginning of period	1,440,882			1,255,017
Cash and cash equivalents, end of period	$	1,427,643		$	1,366,812

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