MCDT Mcdata

McDATA Corporation (Nasdaq: MCDTA)(Nasdaq: MCDT) today reported results for the third quarter (Q3 06) ended October 31, 2006. Net revenues for Q3 06 totaled $156.1 million, compared to $150.1 million in the second quarter of fiscal year 2006 (Q2 06) and $168.5 million in the third quarter of fiscal year 2005 (Q3 05). The net loss for Q3 06 on a generally accepted accounting principles (GAAP) basis was ($26.3) million, or ($0.17) per share basic and diluted. This compares to a GAAP net loss of ($20.5) million, or ($0.13) per share basic and diluted in Q2 06, and a GAAP net loss of ($7.5) million, or ($0.05) per share basic and diluted in Q3 05. Non-GAAP net loss for Q3 06 totaled ($4.3) million, or ($0.03) per diluted share. This compares to non-GAAP net income of $1.2 million, or $0.01 per diluted share in Q2 06, and non-GAAP net income of $3.6 million, or $0.02 per diluted share in Q3 05. McDATA�s non-GAAP net income excludes charges related to the amortization of purchased intangible assets, certain restructuring and/or severance costs, amortization of debt discount, and the impact of stock compensation expense following the adoption of SFAS 123R beginning Q1 06. In addition to the exclusions listed above, McDATA�s Q3 06 non-GAAP net income excludes charges related to the proposed acquisition by Brocade. McDATA�s Q2 06 non-GAAP net income also excludes charges related to the impairment write down of a single product line and separate note receivable, both obtained in the CNT acquisition. McDATA�s Q3 05 non-GAAP net income also excludes amortization of deferred compensation. Non-GAAP results are a supplement to GAAP financial statements and exclude certain expenses to provide what McDATA believes is a more complete understanding of our underlying operational trends. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. A reconciliation of GAAP and non-GAAP net income is provided in the financial statements attached to this news release. Q3 06 Business and Customer Highlights Achieved professional services milestone of 300+ data center relocations Introduced i10K Xtreme, the first director with Open VSANs, non-disruptive 4 Gb/s configuration capabilities, SAN LPARs for total SAN isolation, and Open Trunking for optimized performance between directors and switches Released Enterprise Fabric Connectivity Manager (EFCM) 9.0, bundling and building upon three previously separate McDATA management applications to create one very powerful, heterogeneous storage network management platform Announced availability and major bank customer for McDATA�s Virtual Tape Library (VTL), a disk-to-disk-to-tape solution that enables efficient backup leveraging both disk and tape media Launched McDATA Virtualizer, the first in a series of Advanced Fabric Services offerings on the Application Services Module (ASM) platform McDATA, Fujitsu Siemens Computers, and Decru, a NetApp company, integrated Fujitsu Siemens Computers� CentricStor� Virtual Tape Appliance with McDATA�s high performance Edge3000 Storage Routers and Decru DataFort� storage security appliances creating a joint wide-area replication solution designed to simplify the backup process and improve security for tape vaulting Conference Call and Webcast McDATA will host a conference call to discuss Q3 06 financial results today, November 30, 2006, at 3 p.m. MDT. To participate in the conference call, dial 706-679-8352. The conference call will also be webcast live at www.mcdata.com. About McDATA (www.mcdata.com) McDATA (Nasdaq: MCDTA)(Nasdaq: MCDT) is the leading provider of data access solutions, helping customers build, globally connect, optimize and centrally manage data infrastructures across SAN, MAN and WAN environments. With nearly 25 years experience developing SAN products, services and solutions, McDATA is the trusted partner in the world's largest data centers, connecting more than two-thirds of all networked data. Forward-Looking Statements This press release contains statements about expected future events that are forward-looking and subject to risks and uncertainties. Readers are urged to consider statements that include the terms "believes," "belief," "expects," "plans," "objectives," "estimates," "anticipates," "intends," "targets," or the like to be uncertain and forward-looking. Factors that could cause actual results to differ and vary materially from expectations include, but are not limited to, McDATA�s relationships with EMC, IBM and Hitachi Data Systems and the level of their orders, aggressive price competition by numerous other SAN and IP switch suppliers, OEM qualification of our new products - such as the Intrepid 10000 Director, integration of CNT�s sales and marketing functions, manufacturing constraints, constraints in obtaining third party product for resale and other risk factors that are disclosed in McDATA�s filings with the Securities and Exchange Commission. These cautionary statements by McDATA should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by McDATA. All cautionary statements should be read as being applicable to all forward-looking statements wherever they appear. McDATA does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. McDATA CORPORATION CONDENSED REPORTED CONSOLIDATED STATEMENTS OF OPERATIONS (Note 1) (in thousands, except per share data) (unaudited) � Three Months Ended Nine Months Ended October 31, 2005 October 31, 2006 October 31, 2005 October 31, 2006 Revenue: Product $138,579� $123,213� $369,988� $376,656� Service 29,926� � 32,876� � 62,694� � 97,875� Total revenue 168,505� 156,089� 432,682� 474,531� � Cost of revenue: Product 68,566� 72,695� 175,737� 210,623� Service 20,370� 20,254� 41,632� 61,625� Restructuring charges 134� � -� 826� � -� Total cost of revenue 89,070� � 92,949� 218,195� � 272,248� Gross profit 79,435� 63,140� 214,487� 202,283� � Operating expenses: Research and development 31,595� 30,522� 84,953� 83,086� Selling and marketing 35,969� 36,545� 98,723� 109,980� General and administrative (includes amortization of intangibles) 22,439� 15,651� 54,679� 56,191� Merger related costs -� 6,096� -� 6,096� Restructuring costs and impairment charges 526� � 393� 10,278� � 5,753� Total operating expenses 90,529� 89,207� 248,633� 261,106� � Loss from operations (11,094) (26,067) (34,146) (58,823) Interest and other income, net (326) � 189� 775� � 4,156� Loss before income taxes (11,420) (25,878) (33,371) (54,667) Income tax expense (benefit) (3,936) � 469� 2,488� � 1,789� Net loss $(7,484) � $(26,347) $(35,859) � $(56,456) � Basic net loss per share $ (0.05) � $ (0.17) $ (0.26) � $ (0.37) Shares used in computing basic net loss per share 152,646� � 154,638� 135,750� � 153,906� � Diluted net loss per share $ (0.05) � $ (0.17) $ (0.26) � $ (0.37) Shares used in computing diluted net loss per share 152,646� � 154,638� 135,750� � 153,906� McDATA CORPORATION CONDENSED NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) � Three Months Ended Nine Months Ended October 31, 2005 October 31, 2006 October 31, 2005 October 31, 2006 Revenue: Product $138,579� $123,213� $369,988� $376,656� Service 29,926� � 32,876� � 62,694� � 97,875� Total revenue 168,505� 156,089� 432,682� 474,531� � Cost of revenue: Product 68,136� 72,539� 175,155� 201,767� Service 20,370� � 19,927� 41,632� � 60,828� Total cost of revenue 88,506� � 92,466� 216,787� � 262,595� Gross profit 79,999� 63,623� 215,895� 211,936� � Operating expenses: Research and development 31,192� 29,659� 82,920� 81,439� Selling and marketing 35,695� 35,714� 97,942� 107,896� General and administrative 10,358� 6,745� 24,082� 22,802� Merger related costs �� �� �� �� Restructuring costs and impairment charges �� � �� �� � �� Total operating expenses 77,245� 72,118� 204,944� 212,137� � Income (loss) from operations 2,754� (8,495) 10,951� (201) Interest and other income, net 494� � 935� 2,142� � 3,875� Income before income taxes 3,248� (7,560) 13,093� 3,674� Income tax expense (benefit) (347) � (3,251) 2,514� � (4,525) Net income (loss) $3,595� � $(4,309) $10,579� � $8,199� � Basic net income (loss) per share $ 0.02� � $ ( 0.03) $ 0.08� � $ 0.05� Shares used in computing basic net income per share 152,646� � 154,638� 135,750� � 153,906� � Diluted net income (loss) per share $ 0.02� � $ (0.03) $ 0.08� � $ 0.05� Shares used in computing diluted net income per share 154,417� � 154,638� 136,926� � 155,130� McDATA CORPORATION RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (LOSS) (Note 2) (in thousands, except per share data) (unaudited) � � Three Months Ended Nine Months Ended October 31, 2005 October 31, 2006 October 31, 2005 October 31, 2006 � GAAP net loss $(7,484) $(26,347) $(35,859) $(56,456) � Adjustments: Amortization of deferred compensation and acquisition-related compensation 1,475� �� 6,221� �� Amortization of intangible assets 11,367� 6,939� 26,474� 28,946� Inventory reserve - ROHS �� �� �� 1,873� SFAS 123R stock-based compensation �� 2,341� �� 7,573� Other severance and retention 346� 2,328� 1,298� 2,769� Restructuring costs 660� (90) 11,104� 676� Impairment of Matrix product line �� �� �� 9,649� Impairment of CNT note receivable �� (42) �� 1,040� Amortization of discount on convertible debt 820� 746� 1,367� 2,386� Merger related fees �� 6,096� �� 6,096� Sale of equity investment �� �� �� (2,667) Income tax expense (benefit) (3,589) � 3,720� (26) � 6,314� � Non-GAAP net income (loss) $ 3,595� $ (4,309) $ 10,579� $ 8,199� � GAAP net loss per share � basic and diluted $ (0.05) $ (0.17) $ (0.26) $ (0.37) Non-GAAP net income (loss) per share � diluted $ 0.02� $ (0.03) $ 0.08� $ 0.05� Shares used in non-GAAP per share calculation - diluted 154,417� 154,638� 136,926� 155,130� Note (1) � Certain prior period amounts have been reclassified to conform to the fiscal 2006 presentation. Note (2) � The condensed non-GAAP consolidated income statements for all periods presented are for illustrative purposes only and are not prepared in accordance with generally accepted accounting principles. The following is provided as a supplement to the non-GAAP reconciliation above: Three Months Ended Nine Months Ended Non-GAAP Adjustments October 31, 2005 October 31, 2006 October 31, 2005 October 31, 2006 � Cost of revenue: Deferred compensation and acquisition-related compensation $ 84� $ -� $ 236� $ -� SFAS 123R stock-based compensation -� 281� -� 906� Amortization associated with FAS 123R software capitalization -� 56� -� 150� Impairment of Matrix product line -� -� -� 6,563� Inventory reserve - ROHS -� -� -� 1,873� Other severance 346� 146� 346� 146� Restructuring costs 134� � -� 826� � 15� Total cost of revenue subtotal 564� � 483� 1,408� � 9,653� � Operating expenses: Research and development: Acquisition-related compensation 272� -� 828� -� SFAS 123R stock-based compensation -� 554� -� 1,338� Amortization of deferred compensation 131� -� 1,170� -� Other severance -� 309� 35� 309� Selling and marketing Acquisition-related compensation 92� -� 149� -� SFAS 123R stock-based compensation -� 468� -� 1,721� Amortization of deferred compensation 182� -� 632� -� Other severance -� 363� -� 363� General and administrative Acquisition-related compensation 138� -� 159� -� SFAS 123R stock-based compensation -� 982� -� 3,458� Amortization of intangible assets 11,367� 6,939� 26,474� 28,946� Amortization of deferred compensation 576� -� 3,047� -� Other severance -� 985� -� 985� Merger related fees -� 6,096� -� 6,096� Restructuring costs and impairment charges Restructuring costs 526� (90) 10,278� 661� Other severance -� 525� 917� 966� Impairment of Matrix product line -� -� -� 3,086� CNT note receivable -� � (42) -� � 1,040� Operating expenses subtotal 13,284� 17,089� 43,689� 48,969� Amortization of discount on convertible debt 820� 746� 1,367� 2,386� Sale of equity investment -� � -� -� � (2,667) Total non-GAAP Adjustments 14,668� 18,318� 46,464� 58,341� Income tax expense (benefit) (3,589) � 3,720� (26) � 6,314� After-tax impact of non-GAAP adjustments $11,079� � $22,038� $46,438� � $64,655� CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) � January 31, October 31, 2006� 2006� Assets Cash, cash equivalents and short term investments $310,193� $331,041� Securities lending collateral 62,555� 62,230� Accounts receivable, net 126,106� 101,324� Inventories 33,100� 32,415� Restricted cash -� 3,877� Other current assets 13,423� � 13,959� Total current assets 545,377� 544,846� Property and equipment, net 109,118� 102,517� Long-term investments 31,884� 25,594� Goodwill 266,141� 263,473� Restricted cash 10,697� 8,507� Intangible assets, net 123,694� 91,728� Other assets, net 59,798� � 54,594� Total $1,146,709� � $1,091,259� � Liabilities and Stockholders' Equity Accounts payable and accrued liabilities $ 137,514� $ 132,193� Securities lending collateral 62,555� 62,230� Current portion of deferred revenue 61,242� 51,802� Current portion of convertible debt and interest swap -� 121,356� Current portion of notes payable and capital leases 2,977� � 2,334� Total current liabilities 264,288� 369,915� Notes payable and capital leases, less current portion 11,085� 1,837� Deferred revenue, less current portion 31,380� 25,710� Convertible subordinate debt and interest swap 285,889� 172,500� Other long-term liabilities 1,844� � 14,490� Total liabilities 594,486� 584,452� Stockholders' equity 552,223� � 506,807� Total liabilities and stockholders' equity $1,146,709� � $1,091,259� CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited) � Nine Months Ended October 31, 2005 October 31, 2006 � Net cash provided by operating activities $ 15,196� � $ 30,964� � Cash flows from investing activities: Net purchases of property and equipment $ (10,959) $ (14,174) Net purchases and sales of investments 63,001� (1,782) Cash received on cash surrender value of life insurance policy 1,339� Cash recognized on merger with CNT, net 40,395� -� Decrease in restricted cash related to interest rate swap (1,735) � (1,687) Net cash provided (used) by investing activities $ 92,041� � $ (17,643) � Cash flows from financing activities: Payments on notes payable and capital leases $ (1,839) $ (2,339) Cash paid for treasury stock (4,552) -� Retirement of convertible debt -� (1,965) Proceeds from the issuance of common stock 792� � 3,191� Net cash (used) by financing activities $ (5,599) � $ (1,113) � Effects of exchange rate changes $ 97� � $ (681) � Net increase in cash and cash equivalents $ 101,735� � $ 11,527� McDATA Corporation (Nasdaq: MCDTA)(Nasdaq: MCDT) today reported results for the third quarter (Q3 06) ended October 31, 2006. Net revenues for Q3 06 totaled $156.1 million, compared to $150.1 million in the second quarter of fiscal year 2006 (Q2 06) and $168.5 million in the third quarter of fiscal year 2005 (Q3 05). The net loss for Q3 06 on a generally accepted accounting principles (GAAP) basis was ($26.3) million, or ($0.17) per share basic and diluted. This compares to a GAAP net loss of ($20.5) million, or ($0.13) per share basic and diluted in Q2 06, and a GAAP net loss of ($7.5) million, or ($0.05) per share basic and diluted in Q3 05. Non-GAAP net loss for Q3 06 totaled ($4.3) million, or ($0.03) per diluted share. This compares to non-GAAP net income of $1.2 million, or $0.01 per diluted share in Q2 06, and non-GAAP net income of $3.6 million, or $0.02 per diluted share in Q3 05. McDATA's non-GAAP net income excludes charges related to the amortization of purchased intangible assets, certain restructuring and/or severance costs, amortization of debt discount, and the impact of stock compensation expense following the adoption of SFAS 123R beginning Q1 06. In addition to the exclusions listed above, McDATA's Q3 06 non-GAAP net income excludes charges related to the proposed acquisition by Brocade. McDATA's Q2 06 non-GAAP net income also excludes charges related to the impairment write down of a single product line and separate note receivable, both obtained in the CNT acquisition. McDATA's Q3 05 non-GAAP net income also excludes amortization of deferred compensation. Non-GAAP results are a supplement to GAAP financial statements and exclude certain expenses to provide what McDATA believes is a more complete understanding of our underlying operational trends. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. A reconciliation of GAAP and non-GAAP net income is provided in the financial statements attached to this news release. Q3 06 Business and Customer Highlights -- Achieved professional services milestone of 300+ data center relocations -- Introduced i10K Xtreme, the first director with Open VSANs, non-disruptive 4 Gb/s configuration capabilities, SAN LPARs for total SAN isolation, and Open Trunking for optimized performance between directors and switches -- Released Enterprise Fabric Connectivity Manager (EFCM) 9.0, bundling and building upon three previously separate McDATA management applications to create one very powerful, heterogeneous storage network management platform -- Announced availability and major bank customer for McDATA's Virtual Tape Library (VTL), a disk-to-disk-to-tape solution that enables efficient backup leveraging both disk and tape media -- Launched McDATA Virtualizer, the first in a series of Advanced Fabric Services offerings on the Application Services Module (ASM) platform -- McDATA, Fujitsu Siemens Computers, and Decru, a NetApp company, integrated Fujitsu Siemens Computers' CentricStor(TM) Virtual Tape Appliance with McDATA's high performance Edge3000 Storage Routers and Decru DataFort(TM) storage security appliances creating a joint wide-area replication solution designed to simplify the backup process and improve security for tape vaulting Conference Call and Webcast McDATA will host a conference call to discuss Q3 06 financial results today, November 30, 2006, at 3 p.m. MDT. To participate in the conference call, dial 706-679-8352. The conference call will also be webcast live at www.mcdata.com. About McDATA (www.mcdata.com) McDATA (Nasdaq: MCDTA)(Nasdaq: MCDT) is the leading provider of data access solutions, helping customers build, globally connect, optimize and centrally manage data infrastructures across SAN, MAN and WAN environments. With nearly 25 years experience developing SAN products, services and solutions, McDATA is the trusted partner in the world's largest data centers, connecting more than two-thirds of all networked data. Forward-Looking Statements This press release contains statements about expected future events that are forward-looking and subject to risks and uncertainties. Readers are urged to consider statements that include the terms "believes," "belief," "expects," "plans," "objectives," "estimates," "anticipates," "intends," "targets," or the like to be uncertain and forward-looking. Factors that could cause actual results to differ and vary materially from expectations include, but are not limited to, McDATA's relationships with EMC, IBM and Hitachi Data Systems and the level of their orders, aggressive price competition by numerous other SAN and IP switch suppliers, OEM qualification of our new products - such as the Intrepid 10000 Director, integration of CNT's sales and marketing functions, manufacturing constraints, constraints in obtaining third party product for resale and other risk factors that are disclosed in McDATA's filings with the Securities and Exchange Commission. These cautionary statements by McDATA should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by McDATA. All cautionary statements should be read as being applicable to all forward-looking statements wherever they appear. McDATA does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. -0- *T McDATA CORPORATION CONDENSED REPORTED CONSOLIDATED STATEMENTS OF OPERATIONS (Note 1) (in thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended ----------------------- ----------------------- October 31, October 31, October 31, October 31, 2005 2006 2005 2006 ----------- ----------- ----------- ----------- Revenue: Product $138,579 $123,213 $369,988 $376,656 Service 29,926 32,876 62,694 97,875 ----------------------------------------------- Total revenue 168,505 156,089 432,682 474,531 Cost of revenue: Product 68,566 72,695 175,737 210,623 Service 20,370 20,254 41,632 61,625 Restructuring charges 134 - 826 - ----------------------- ----------------------- Total cost of revenue 89,070 92,949 218,195 272,248 ----------------------- ----------------------- Gross profit 79,435 63,140 214,487 202,283 Operating expenses: Research and development 31,595 30,522 84,953 83,086 Selling and marketing 35,969 36,545 98,723 109,980 General and administrative (includes amortization of intangibles) 22,439 15,651 54,679 56,191 Merger related costs - 6,096 - 6,096 Restructuring costs and impairment charges 526 393 10,278 5,753 ----------------------- ----------------------- Total operating expenses 90,529 89,207 248,633 261,106 Loss from operations (11,094) (26,067) (34,146) (58,823) Interest and other income, net (326) 189 775 4,156 ----------------------- ----------------------- Loss before income taxes (11,420) (25,878) (33,371) (54,667) Income tax expense (benefit) (3,936) 469 2,488 1,789 ----------------------- ----------------------- Net loss $(7,484) $(26,347) $(35,859) $(56,456) ======================= ======================= Basic net loss per share $(0.05) $(0.17) $(0.26) $(0.37) ======================= ======================= Shares used in computing basic net loss per share 152,646 154,638 135,750 153,906 ======================= ======================= Diluted net loss per share $(0.05) $(0.17) $(0.26) $(0.37) ======================= ======================= Shares used in computing diluted net loss per share 152,646 154,638 135,750 153,906 ======================= ======================= *T -0- *T McDATA CORPORATION CONDENSED NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended ----------------------- ----------------------- October 31, October 31, October 31, October 31, 2005 2006 2005 2006 ----------- ----------- ----------- ----------- Revenue: Product $138,579 $123,213 $369,988 $376,656 Service 29,926 32,876 62,694 97,875 ----------------------------------------------- Total revenue 168,505 156,089 432,682 474,531 Cost of revenue: Product 68,136 72,539 175,155 201,767 Service 20,370 19,927 41,632 60,828 ----------------------- ----------------------- Total cost of revenue 88,506 92,466 216,787 262,595 ----------------------- ----------------------- Gross profit 79,999 63,623 215,895 211,936 Operating expenses: Research and development 31,192 29,659 82,920 81,439 Selling and marketing 35,695 35,714 97,942 107,896 General and administrative 10,358 6,745 24,082 22,802 Merger related costs - - - - Restructuring costs and impairment charges - - - - ----------------------- ----------------------- Total operating expenses 77,245 72,118 204,944 212,137 Income (loss) from operations 2,754 (8,495) 10,951 (201) Interest and other income, net 494 935 2,142 3,875 ----------------------- ----------------------- Income before income taxes 3,248 (7,560) 13,093 3,674 Income tax expense (benefit) (347) (3,251) 2,514 (4,525) ----------------------- ----------------------- Net income (loss) $3,595 $(4,309) $10,579 $8,199 ======================= ======================= Basic net income (loss) per share $0.02 $( 0.03) $0.08 $0.05 ======================= ======================= Shares used in computing basic net income per share 152,646 154,638 135,750 153,906 ======================= ======================= Diluted net income (loss) per share $0.02 $(0.03) $0.08 $0.05 ======================= ======================= Shares used in computing diluted net income per share 154,417 154,638 136,926 155,130 ======================= ======================= *T -0- *T McDATA CORPORATION RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (LOSS) (Note 2) (in thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended ----------------------- ----------------------- October 31, October 31, October 31, October 31, 2005 2006 2005 2006 ----------- ----------- ----------- ----------- GAAP net loss $(7,484) $(26,347) $(35,859) $(56,456) Adjustments: Amortization of deferred compensation and acquisition-related compensation 1,475 - 6,221 - Amortization of intangible assets 11,367 6,939 26,474 28,946 Inventory reserve - ROHS - - - 1,873 SFAS 123R stock- based compensation - 2,341 - 7,573 Other severance and retention 346 2,328 1,298 2,769 Restructuring costs 660 (90) 11,104 676 Impairment of Matrix product line - - - 9,649 Impairment of CNT note receivable - (42) - 1,040 Amortization of discount on convertible debt 820 746 1,367 2,386 Merger related fees - 6,096 - 6,096 Sale of equity investment - - - (2,667) Income tax expense (benefit) (3,589) 3,720 (26) 6,314 ----------------------- ----------------------- Non-GAAP net income (loss) $3,595 $(4,309) $10,579 $8,199 GAAP net loss per share - basic and diluted $(0.05) $(0.17) $(0.26) $(0.37) Non-GAAP net income (loss) per share - diluted $0.02 $(0.03) $0.08 $0.05 Shares used in non-GAAP per share calculation - diluted 154,417 154,638 136,926 155,130 *T Note (1) - Certain prior period amounts have been reclassified to conform to the fiscal 2006 presentation. Note (2) - The condensed non-GAAP consolidated income statements for all periods presented are for illustrative purposes only and are not prepared in accordance with generally accepted accounting principles. The following is provided as a supplement to the non-GAAP reconciliation above: -0- *T Three Months Ended Nine Months Ended ----------------------- ----------------------- October 31, October 31, October 31, October 31, Non-GAAP Adjustments 2005 2006 2005 2006 ---------------------- ----------- ----------- ----------- ----------- Cost of revenue: Deferred compensation and acquisition- related compensation $84 $- $236 $- SFAS 123R stock- based compensation - 281 - 906 Amortization associated with FAS 123R software capitalization - 56 - 150 Impairment of Matrix product line - - - 6,563 Inventory reserve - ROHS - - - 1,873 Other severance 346 146 346 146 Restructuring costs 134 - 826 15 ----------------------- ----------------------- Total cost of revenue subtotal 564 483 1,408 9,653 ----------------------- ----------------------- Operating expenses: Research and development: Acquisition- related compensation 272 - 828 - SFAS 123R stock- based compensation - 554 - 1,338 Amortization of deferred compensation 131 - 1,170 - Other severance - 309 35 309 Selling and marketing Acquisition- related compensation 92 - 149 - SFAS 123R stock- based compensation - 468 - 1,721 Amortization of deferred compensation 182 - 632 - Other severance - 363 - 363 General and administrative Acquisition- related compensation 138 - 159 - SFAS 123R stock- based compensation - 982 - 3,458 Amortization of intangible assets 11,367 6,939 26,474 28,946 Amortization of deferred compensation 576 - 3,047 - Other severance - 985 - 985 Merger related fees - 6,096 - 6,096 Restructuring costs and impairment charges Restructuring costs 526 (90) 10,278 661 Other severance - 525 917 966 Impairment of Matrix product line - - - 3,086 CNT note receivable - (42) - 1,040 ----------------------- ----------------------- Operating expenses subtotal 13,284 17,089 43,689 48,969 Amortization of discount on convertible debt 820 746 1,367 2,386 Sale of equity investment - - - (2,667) ----------------------- ----------------------- Total non-GAAP Adjustments 14,668 18,318 46,464 58,341 Income tax expense (benefit) (3,589) 3,720 (26) 6,314 ----------------------- ----------------------- After-tax impact of non-GAAP adjustments $11,079 $22,038 $46,438 $64,655 ======================= ======================= *T -0- *T CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) January 31, October 31, ----------- ----------- 2006 2006 ----------- ----------- Assets Cash, cash equivalents and short term investments $310,193 $331,041 Securities lending collateral 62,555 62,230 Accounts receivable, net 126,106 101,324 Inventories 33,100 32,415 Restricted cash - 3,877 Other current assets 13,423 13,959 ----------------------- Total current assets 545,377 544,846 Property and equipment, net 109,118 102,517 Long-term investments 31,884 25,594 Goodwill 266,141 263,473 Restricted cash 10,697 8,507 Intangible assets, net 123,694 91,728 Other assets, net 59,798 54,594 ----------------------- Total $1,146,709 $1,091,259 ======================= Liabilities and Stockholders' Equity Accounts payable and accrued liabilities $137,514 $132,193 Securities lending collateral 62,555 62,230 Current portion of deferred revenue 61,242 51,802 Current portion of convertible debt and interest swap - 121,356 Current portion of notes payable and capital leases 2,977 2,334 ----------------------- Total current liabilities 264,288 369,915 Notes payable and capital leases, less current portion 11,085 1,837 Deferred revenue, less current portion 31,380 25,710 Convertible subordinate debt and interest swap 285,889 172,500 Other long-term liabilities 1,844 14,490 ----------------------- Total liabilities 594,486 584,452 Stockholders' equity 552,223 506,807 ----------------------- Total liabilities and stockholders' equity $1,146,709 $1,091,259 ======================= *T -0- *T CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended ----------------------- October 31, October 31, 2005 2006 ----------- ----------- Net cash provided by operating activities $15,196 $30,964 ======================= Cash flows from investing activities: Net purchases of property and equipment $(10,959) $(14,174) Net purchases and sales of investments 63,001 (1,782) Cash received on cash surrender value of life insurance policy 1,339 Cash recognized on merger with CNT, net 40,395 - Decrease in restricted cash related to interest rate swap (1,735) (1,687) ----------------------- Net cash provided (used) by investing activities $92,041 $(17,643) ======================= Cash flows from financing activities: Payments on notes payable and capital leases $(1,839) $(2,339) Cash paid for treasury stock (4,552) - Retirement of convertible debt - (1,965) Proceeds from the issuance of common stock 792 3,191 ----------------------- Net cash (used) by financing activities $(5,599) $(1,113) ======================= Effects of exchange rate changes $97 $(681) ======================= Net increase in cash and cash equivalents $101,735 $11,527 ======================= *T