Brocade Communications Systems Inc. New has a market cap of $2.5 billion; its shares were traded at around $5.09 with a P/E ratio of 16.4 and P/S ratio of 1.2. Brocade Communications Systems Inc. New had an annual average earning growth of 23.8% over the past 10 years. GuruFocus rated Brocade Communications Systems Inc. New the business predictability rank of 2-star.
Highlight of Business Operations:Our results of operations for the years ended October 29, 2011, October 30, 2010 and October 31, 2009 are reported in this discussion and analysis as a percentage of total net revenues, except for gross margin with respect to each segment, which is indicated as a percentage of the respective segment net revenues.
A significant portion of our revenue is concentrated among a relatively small number of OEM customers. For the years ended October 29, 2011, October 30, 2010 and October 31, 2009, the same three customers each represented 10% or more of our total net revenues for a combined total of 43% (EMC with 15%, HP with 13% and IBM with 15%), 47% (EMC with 16%, HP with 14% and IBM with 17%) and 48% (EMC with 18%, HP with 13% and IBM with 17%), respectively, of our total net revenues. We expect that a significant portion of our future revenues will continue to come from sales of products to a relatively small number of OEM partners and to the U.S. government or individual agencies within the U.S. government through our distributors. Therefore, the loss of, or a decrease in the level of sales to, or a change in the ordering pattern of any one of these customers could seriously harm our financial condition and results of operations.
A majority of our accounts receivable balance is derived from sales to our OEM partners. As of October 29, 2011, two customers accounted for 16% and 14%, respectively, of total accounts receivable. As of October 30, 2010, three customers accounted for 17%, 14% and 10%, respectively, of total accounts receivable. We perform ongoing credit evaluations of our customers and generally do not require collateral or security interests on accounts receivable balances. We have established reserves for credit losses, sales allowances, and other allowances. While we have not experienced material credit losses in any of the periods presented, there can be no assurance that we will not experience material credit losses in the future.
Gross margin. Gross margin as stated below is indicated as a percentage of the respective segment net revenues, except for total gross margin, which is stated as a percentage of total net revenues. Gross margins are summarized as follows (in thousands, except percentages):
Accounting for income taxes. The determination of our tax provision is subject to estimates and judgments due to operations in multiple tax jurisdictions inside and outside the United States. Sales to our international customers are principally taxed at rates that are lower than the United States statutory rates. The ability to maintain our current effective tax rate is contingent upon existing tax laws in both the United States and in the respective countries in which our international subsidiaries are located. Future changes in domestic or international tax laws could affect the continued realization of the tax benefits we are currently receiving and expect to receive from international sales. In addition, an increase in the percentage of our total revenue from international customers or in the mix of international revenue among particular tax jurisdictions could change our overall effective tax rate. In the fourth fiscal quarter of 2011, we repatriated $200.0 million from our offshore operations, with which we repurchased approximately 46.5 million shares of our stock. The Company recorded tax expense of $49.7 million related to this one-time cash repatriation to fund the stock repurchase program. We intend to reinvest current and remaining accumulated earnings of our foreign subsidiaries for expansion of our business operations outside the United States for an indefinite period of time. These earnings could become subject to United States federal and state income taxes and foreign withholding taxes, as applicable, should they be either deemed or actually remitted from our international subsidiaries to the United States. In addition, we evaluate the expected realization of our deferred tax assets and assess the need for a valuation allowance on a quarterly basis. As of October 29, 2011, our net deferred tax asset balance was $263.6 million. We believe that sufficient positive evidence exists from historical operations and projections of U.S. taxable income in future years to conclude that it is more likely than not that we would realize our deferred tax assets. Historical operations showed that we have cumulative profits for the prior 12 quarters ended October 29, 2011.
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