8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 20, 2009

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation) 000-25601
(Commission File Number) 77-0409517
(I.R.S. Employer
Identification Number)

1745 Technology Drive
San Jose, CA 95110
(Address, including zip code, of principal executive offices)

(408) 333-8000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

     On August 20, 2009, Brocade Communications Systems, Inc. issued a press release announcing its financial results for the third quarter ended August 1, 2009. A copy of the press release is attached as Exhibit 99.1, and the information in Exhibit 99.1 is incorporated herein by reference.

     The information in Item 2.02 and Item 9.01 in this Current Report on Form 8-K and the exhibit attached hereto shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

Item 9.01 Financial Statements and Exhibits.

     (d) Exhibits.

Exhibit
Number	Description of Document
99.1	Press release, dated August 20, 2009, announcing financial results of Brocade Communications Systems, Inc. for the third quarter ended August 1, 2009.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	BROCADE COMMUNICATIONS SYSTEMS, INC.
Dated: August 19, 2009	By:	/s/ Richard Deranleau
		Richard Deranleau
		Chief Financial Officer and Vice President, Finance

EX-99.1

Exhibit 99.1

BROCADE CONTACTS
Public Relations John Noh Tel: 408-333-5108 jnoh@brocade.com	Investor Relations Peter Ausnit Tel: 408-333-4000 pausnit@brocade.com

Brocade Reports Q3 FY 2009 Results

Revenue Up 35 Percent Year-Over-Year

SAN JOSE, Calif., August 20, 2009 — Brocade^® (NASDAQ: BRCD) today reported financial results for its third fiscal quarter, which ended August 1, 2009. Brocade reported Q3 revenues of $493.3 million, reflecting 35 percent year-over-year growth.

Commenting on Brocade’s third quarter financial results, Michael Klayko, Brocade CEO, said:

“We are very pleased with our financial performance which delivered a 35 percent year-over-year revenue growth and a healthy sequential increase in gross margins during a seasonally and economically challenging quarter. The traction Brocade has made in both new and existing partnerships, the opportunities we see in our core markets, combined with our continued product and technology innovation all demonstrate that we are executing on our well-defined strategy and make us optimistic for both the near- and long-term future.”

Recent Business Highlights

Partnership Announcements

• Brocade announced that it has expanded its strategic business alliance with Net One Systems, the largest independent network integrator in Japan, to help enable the two companies to better address high-growth, emerging opportunities in the data center and service provider networking segments in Japan, particularly in the areas of virtualization and cloud computing.

o http://newsroom.brocade.com/article_display.cfm?article_id=1001

• Brocade announced that the Brocade 4 and 8 Gbps Fibre Channel (FC) host bus adapters (HBAs) have been successfully tested on the HP ProLiant server platform, and the HP StorageWorks Modular Storage Array (MSA) and Enterprise Virtual Array (EVA) disk storage platforms. The new Brocade 8000 Fibre Channel over Ethernet (FCoE) switch, which enables the consolidation of storage and IP networking ports at the server edge, will also be offered by HP to its customers.

o http://newsroom.brocade.com/article_display.cfm?article_id=913

• Brocade announced it had completed testing and interoperability qualification of its server connectivity solutions, or HBAs, by all leading storage manufacturers, including HP, EMC, IBM, Hitachi Data Systems, LSI Corporation and Xiotech.

o http://newsroom.brocade.com/article_display.cfm?article_id=924

• Brocade announced a global Alliance Partner Network channel program designed to attract storage and IP networking channel resellers with a more selective, profitable alternative to existing channel programs.

o http://newsroom.brocade.com/article_display.cfm?article_id=904

• Brocade announced two strategic North American distribution partners, Avnet Technology Solutions and Tech Data Corporation, to help expand its existing data center distribution network to enterprise IP networking products via channel reseller partners.

o http://newsroom.brocade.com/article_display.cfm?article_id=906

• Brocade announced a Server Connectivity Certification Program for Assured Compatibility of Brocade HBAs in Multi-Vendor, Heterogeneous Environments.

o http://newsroom.brocade.com/article_display.cfm?article_id=888

Brocade
1745 Technology Dr., San Jose, CA 95110
T. 408.333.8000 F. 408.333.8101
www.brocade.com

Product Introductions

• Brocade introduced a number of new products and features at Interop that span all layers of the network, reinforcing Brocade’s commitment to continuous IP networking innovation. Specifically, Brocade announced the:

o Brocade TurboIron^® 24X 10 Gigabit Ethernet (GbE) top-of-rack switch

o Brocade ServerIron^® ADX Series Application Delivery Controllers (ADCs)

o Brocade FastIron^® CX Series of Power over Ethernet Plus (PoE+)-ready switches

o http://newsroom.brocade.com/article_display.cfm?article_id=876

Executive Leadership

• Brocade appointed Amanda Giddins as its new EMEA Channel Sales Director, further signifying Brocade’s commitment to drive business opportunities across the geography and bolster the channel.

o http://newsroom.brocade.com/article_display.cfm?article_id=942

Customer Wins

• Brocade showcased several data center and enterprise IP networking customer wins, including the San Diego Super Computer Center (SDSC), Mizuno, a number of Independent Operating Companies (IOCs), Insight Investment, Denit Hosting Solutions and Purewire.

o SDSC — http://newsroom.brocade.com/article_display.cfm?article_id=888

o Mizuno — http://newsroom.brocade.com/article_display.cfm?article_id=922

o IOCs — http://newsroom.brocade.com/article_display.cfm?article_id=932

o Insight Investment — http://newsroom.brocade.com/article_display.cfm?article_id=943

o Denit Hosting Solutions — http://newsroom.brocade.com/article_display.cfm?article_id=944

o Purewire — http://newsroom.brocade.com/article_display.cfm?article_id=950

Third Fiscal Quarter 2009 Financial Highlights and Additional Financial Information

• Revenue of $493.3 million, reflecting 35% year-over-year growth and a 3% sequential decline.

• GAAP net loss of $21.0 million or $(0.05) per share diluted, and net income of $55.4 million or $0.12 per share diluted on a non-GAAP basis.

• Total quarterly SAN ports shipped was approximately 0.9 million.

• SAN Average Selling Price (ASP) declines were in the mid single digits.

• Net stock-based compensation expense was $43.3 million.

• Effective GAAP tax rate was (1,977)%; non-GAAP effective tax-rate was 29.2%.

	Q3 2009			Q2 2009			Q3 2008
Revenue	$	493.3	M	$	506.3	M	$	365.7	M
GAAP net income (loss)	$	(21.0	)M	$	(63.1	)M	$	20.3	M
Non-GAAP net income	$	55.4	M	$	47.1	M	$	61.2	M
GAAP EPS — diluted	$	(0.05	)	$	(0.16	)	$	0.05
Non-GAAP EPS — diluted	$	0.12		$	0.11		$	0.16
Non-GAAP gross margin		58.2	%		56.2	%		61.9	%
Non-GAAP operating margin		20.3	%		18.8	%		22.6	%
Cash provided by operations	$	16.6	M	$	107.3	M	$	71.7	M

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 detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein.

Page 2 of 11

As a % of total revenues	Q3 2009			Q2 2009			Q3 2008
OEM revenues		63	%		62	%		86	%
Channel/Direct revenues		37	%		38	%		14	%
10% or greater customer revenues		46	%		43	%		62	%
Domestic revenues (1)		64	%		69	%		65	%
International revenues (1)		36	%		31	%		35	%
Data Storage Revenue		58	%		58	%		82	%
IP Products Revenue		24	%		25	%		1	%
Stackable % of IP Revenues (2)		26	%		26	%		28	%
Chassis % of IP Revenues (2)		74	%		74	%		72	%
Enterprise % of IP Revenues (2)		83	%		78	%		82	%
Service Providers % of IP Revenues (2)		17	%		22	%		18	%
Global Services Revenue		18	%		17	%		17	%

	Q3 2009			Q2 2009			Q3 2008
Cash, cash equivalents and investments	$	249.9	M	$	236.9	M	$	764.2	M
Deferred revenues	$	230.1	M	$	244.4	M	$	148.5	M
Capital expenditures — non-campus related	$	20.0	M	$	15.7	M	$	14.0	M
Capital expenditures — campus related	$	24.8	M	$	21.9	M	$	80.2	M
Total debt, net of discount	$	1,139	M	$	1,169	M	$	169.1	M
Days sales outstanding	56 days			49 days			43 days
Employees at end of period		3,866			3,845			2,842

1)	Based on Brocade estimates of adjustment for OEMs taking delivery of internationally bound shipments in the United States, end-user demand was 52% domestic and 48% international.
2)	On an “As If” combined Brocade basis with respect to Q3 2008.
3)	Q3 2009 is the second full quarter of combined operations post acquisition of Foundry.

Non-GAAP Financial Measures

This press release and the related conference call contain non-GAAP financial measures. In evaluating Brocade’s performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.

Management believes that non-GAAP net income and other non-GAAP financial measures used in this press release allow management to gain a better understanding of Brocade’s comparative operating performance from period-to-period and to its competitors’ operating results. Management also believes these non-GAAP financial measures help indicate Brocade’s baseline performance before gains, losses or charges that are considered by management to be outside ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations performance and the allocation of resources. Management believes these non-GAAP financial measures, when read in conjunction with Brocade’s GAAP financials, provide useful information to investors by offering:

• the ability to make more meaningful period-to-period comparisons of Brocade’s ongoing operating results;

• the ability to better identify trends in Brocade’s underlying business and perform related trend analysis;

• a better understanding of how management plans and measures Brocade’s underlying business; and

• an easier way to compare Brocade’s most recent results of operations against investor and analyst financial models.

Management excludes certain gains or losses and benefits or costs in determining non-GAAP net income that are the result of infrequent events or arise outside the ordinary course of our continuing operations. Management believes that it is appropriate to evaluate Brocade’s operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include: (i) legal

Page 3 of 11

fees associated with indemnification obligations to former directors and officers and other related costs, (ii) provision for class action lawsuit, (iii) acquisition and integration costs (in connection with the Foundry acquisition), (iv) in-process research and development charges (in connection with the Foundry acquisition), (v) loss on sale of investments, and (vi) acquisition-related financing charges (in connection with the Foundry acquisition).

Management also excludes the following non-cash charges in determining non-GAAP net income: (i) stock-based compensation expense, (ii) amortization of purchased intangible assets, (iii) costs/benefits associated with restructuring costs and facilities lease losses and (iv) goodwill and acquisition-related intangible assets impairment. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, management believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Management believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for Brocade’s newly acquired and long-held businesses. Management also believes that the expense associated with the goodwill and acquisition-related intangible assets impairment is appropriate to be excluded because we do not believe that this charge is indicative of future operating results and we believe that investors benefit from an understanding of our operating results without giving effect to it.

Finally, management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.

Limitations. These non-GAAP financial measures have limitations, however, because they do not include all items of income and expense that impact the Company. Management compensates for these limitations by also considering Brocade’s GAAP results. The non-GAAP financial measures that Brocade uses are not prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating income, net income (loss) and net income (loss) per share, and should not be considered measures of Brocade’s liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measures reported by other companies.

Third Fiscal Quarter 2009 Conference Call and Webcast Information

Brocade management will host a conference call to discuss third quarter 2009 results on Thursday, August 20, 2009, at 2:00 p.m. Pacific Time. To access the live webcast, please visit Brocade’s website at http://www.brcd.com at least 20 minutes prior to the call to download any necessary audio or plug-in software. A telephone replay will be available approximately two hours after the conference ends and will be available until 5:00 p.m. Pacific Time on August 27, 2009. A replay of the conference call will be available via webcast at http://www.brcd.com for approximately twelve months.

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s market positioning and opportunities, including potential benefits of new or expanded partner relationships, and the integration of the Foundry acquisition. These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, the impact of the economic slowdown across geographies and the effect of changes in IT spending levels, Brocade’s ability to realize the anticipated benefits from new and expanded partnership relationships, and the acquisition of Foundry, Brocade’s ability to successfully introduce new products and services on a timely basis, market competition, and Brocade’s ability to manage its business effectively in a rapidly evolving market. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 2009. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

Page 4 of 11

About Brocade

Brocade® (NASDAQ: BRCD) develops extraordinary networking solutions that enable today’s complex, data-intensive businesses to optimize information connectivity and maximize the business value of their data. For more information, visit www.brocade.com.

# # #

Brocade, the B-wing symbol, BigIron, DCX, Fabric OS, FastIron, IronPoint, IronShield, IronView, IronWare, JetCore, NetIron, SecureIron, ServerIron, StorageX and TurboIron are registered trademarks, and DCFM, Extraordinary Networks and SAN Health are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners.

© 2009 Brocade Communications Systems, Inc. All Rights Reserved.

Page 5 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended						Nine Months Ended
	August 1,			July 26,			August 1,			July 26,
	2009			2008			2009			2008
Net revenues
Product	$	402,483		$	301,804		$	1,183,117		$	895,333
Services		90,797			63,892			248,054			173,107
Total net revenues		493,280			365,696			1,431,171			1,068,440
Cost of revenues
Product		185,347			111,072			535,912			345,476
Services		47,488			41,419			132,606			107,728
Total cost of revenues		232,835			152,491			668,518			453,204
Gross margin		260,445			213,205			762,653			615,236
Operating expenses:
Research and development		94,718			65,368			259,464			184,704
Sales and marketing		103,640			70,039			281,703			203,200
General and administrative		23,070			17,577			62,753			43,260
Legal fees associated with indemnification obligations and other related costs, net		(561	)		7,951			38,553			22,399
Provision for class action lawsuit		—			—			—			160,000
Amortization of intangible assets		17,052			7,846			51,666			23,664
Acquisition and integration costs		1,450			—			4,794			—
Restructuring costs and facilities lease loss (benefits), net		—			—			2,329			(477	)
In-process research and development		—			—			26,900			—
Goodwill and acquisition-related intangible assets impairment		—			—			53,306			—
Total operating expenses		239,369			168,781			781,468			636,750
Income/(loss) from operations		21,076			44,424			(18,815	)		(21,514	)
Interest and other income/(expense), net		809			8,872			(2,912	)		27,663
Interest expense		(22,845	)		(1,103	)		(70,600	)		(4,384	)
(Loss) on investments, net		(52	)		(36	)		(576	)		(6,985	)
Income/(loss) before provision/(benefit) for income taxes		(1,012	)		52,157			(92,903	)		(5,220	)
Income tax provision/(benefit)		20,021			31,891			17,280			(136,709	)
Net income/(loss)	$	(21,033	)	$	20,266		$	(110,183	)	$	131,489
Net income/(loss) per share — Basic	$	(0.05	)	$	0.05		$	(0.28	)	$	0.35
Net income/(loss) per share — Diluted	$	(0.05	)	$	0.05		$	(0.28	)	$	0.34
Shares used in per share calculation — Basic		406,916			371,345			390,087			376,455
Shares used in per share calculation — Diluted		406,916			392,586			390,087			396,445

Page 6 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	August 1,			October 25,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	244,179		$	453,884
Short-term investments		5,731			152,741
Total cash, cash equivalents and short-term investments		249,910			606,625
Accounts receivable, net		301,787			158,935
Inventories		55,674			21,362
Deferred tax assets		86,690			104,705
Prepaid expenses and other current assets		75,723			49,931
Total current assets		769,784			941,558
Long-term marketable equity securities		—			177,380
Long-term investments		—			36,120
Restricted cash		—			1,075,079
Property and equipment, net		409,914			313,379
Goodwill		1,668,102			268,977
Intangible assets, net		505,822			220,567
Non-current deferred tax assets		179,792			227,795
Other assets		29,790			37,793
Total assets	$	3,563,204		$	3,298,648
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	150,616		$	167,660
Accrued employee compensation		112,193			107,994
Deferred revenue		170,695			103,372
Current liabilities associated with facilities lease losses		13,435			13,422
Liability associated with class action lawsuit		—			160,000
Revolving credit facility		14,050			—
Current portion of long-term debt		41,545			43,606
Convertible subordinated debt		171,282			—
Purchase commitments		23,447			17,332
Other accrued liabilities		75,607			88,472
Total current liabilities		772,870			701,858
Long-term debt, net of current portion		912,568			1,011,399
Non-current convertible subordinated debt		—			169,660
Non-current liabilities associated with facilities lease losses		13,319			15,007
Non-current deferred revenue		59,374			37,869
Non-current income tax liability		108,746			67,497
Other non-current liabilities		10,112			13,118
Stockholders’ equity
Common stock		1,828,162			1,393,299
Accumulated other comprehensive loss		(6,585	)		(85,877	)
Accumulated deficit		(135,362	)		(25,182	)
Total stockholders’ equity		1,686,215			1,282,240
Total liabilities and stockholders’ equity	$	3,563,204		$	3,298,648

Page 7 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended August 1, 2009 and July 26, 2008
(in thousands)
(unaudited)

	Three Months Ended
	August 1,			July 26,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(21,033	)	$	20,266
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Excess tax benefit from employee stock plans		—			(3,589	)
Depreciation and amortization		50,956			30,121
Loss on disposal of property and equipment		218			133
Amortization of debt issuance costs		5,156			—
Net losses on investments and marketable equity securities		52			41
Provision for doubtful accounts receivable and sales allowances		4,184			1,605
Non-cash compensation expense		43,313			11,874
Capitalization of interest cost		(2,311	)		—
Changes in assets and liabilities:
Accounts receivable		(51,734	)		(7,828	)
Inventories		10,092			(1,951	)
Prepaid expenses and other assets		(14,279	)		2,936
Deferred tax assets		—			(10,073	)
Accounts payable		6,770			17,988
Accrued employee compensation		(15,792	)		(6,123	)
Deferred revenue		(14,370	)		7,683
Other accrued liabilities		17,775			10,940
Liabilities associated with facilities lease losses		(2,366	)		(2,372	)
Net cash provided by operating activities		16,631			71,651
Cash flows from investing activities:
Purchases of property and equipment		(44,826	)		(94,218	)
Purchases of short-term investments		(61	)		(65,388	)
Proceeds from maturities and sale of short-term investments		8,466			42,393
Net cash used in investing activities		(36,421	)		(117,213	)
Cash flows from financing activities:
Payment of principal related to the term loan		(33,141	)		—
Common stock repurchases		—			(38,112	)
Excess tax benefit from employee stock plans		—			3,589
Proceeds from issuance of common stock, net		73,094			27,103
Net cash provided by (used in) financing activities		39,953			(7,420	)
Effect of exchange rate fluctuations on cash and cash equivalents		1,390			(1,152	)
Net increase (decrease) in cash and cash equivalents		21,553			(54,134	)
Cash and cash equivalents, beginning of period		222,626			513,533
Cash and cash equivalents, end of period	$	244,179		$	459,399

Page 8 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended August 1, 2009 and July 26, 2008
(in thousands)
(unaudited)

	Nine Months Ended
	August 1,			July 26,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(110,183	)	$	131,489
Adjustments to reconcile net income (loss) to net cash provided by/(used in) operating activities:
Release of valuation allowance		—			(185,176	)
Excess tax benefit from employee stock plans		986			(2,505	)
Depreciation and amortization		145,087			89,645
Loss on disposal of property and equipment		1,369			1,328
Amortization of debt issuance costs		11,856			—
Net losses on investments and marketable equity securities		570			6,488
Provision for doubtful accounts receivable and sales allowances		9,533			4,914
Non-cash compensation expense		101,505			31,521
Capitalization of interest cost		(6,356	)		—
In-process research and development		26,900			—
Non-cash facilities lease loss benefit		(339	)		(477	)
Asset impairment charge		53,306			—
Changes in assets and liabilities:
Accounts receivable		(75,786	)		3,758
Inventories		43,898			3,648
Prepaid expenses and other assets		6,929			(19,032	)
Deferred tax assets		651			(9,808	)
Accounts payable		(41,867	)		1,196
Accrued employee compensation		(56,110	)		(3,526	)
Deferred revenue		21,078			17,671
Other accrued liabilities		(5,426	)		46,003
Liabilities associated with facilities lease losses		(7,391	)		(7,213	)
Liability associated with class action lawsuit		(160,000	)		160,000
Net cash provided by /(used in) operating activities		(39,790	)		269,924
Cash flows from investing activities:
Purchases of property and equipment		(118,278	)		(125,468	)
Purchases of short-term investments		(116	)		(166,963	)
Proceeds from sale of marketable equity securities and equity investments		—			9,926
Proceeds from maturities and sale of short-term investments		154,931			340,838
Purchases of long-term investments		—			(37,731	)
Proceeds from maturities and sale of long-term investments		30,173			22,483
Decrease in restricted cash		1,075,079			—
Net cash paid in connection with acquisitions		(1,297,482	)		(43,554	)
Net cash used in investing activities		(155,693	)		(469	)
Cash flows from financing activities:
Payment of senior underwriting fees related to the term loan		(30,525	)		—
Payment of principal related to the term loan		(108,141	)		—
Common stock repurchases		—			(168,293	)
Excess tax benefit from employee stock plans		(986	)		2,505
Proceeds from issuance of common stock, net		110,280			41,803
Proceeds from revolving credit facility		14,050			—
Net cash used in financing activities		(15,322	)		(123,985	)
Effect of exchange rate fluctuations on cash and cash equivalents		1,100			(1,826	)
Net increase (decrease) in cash and cash equivalents		(209,705	)		143,644
Cash and cash equivalents, beginning of period		453,884			315,755
Cash and cash equivalents, end of period	$	244,179		$	459,399

Page 9 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended
	August 1,			July 26,
	2009			2008
Net income (loss) on a GAAP basis	$	(21,033	)	$	20,266
Adjustments:
Stock-based compensation expense included in cost of revenues		8,459			2,638
Amortization of intangible assets expense included in cost of revenues		17,950			8,780
Legal fees associated with certain pre-acquisition litigation		—			1,860
Total gross margin adjustments		26,409			13,278
Legal fees associated with indemnification obligations and other related costs, net		(561	)		7,951
Stock-based compensation expense included in research and development		12,444			2,788
Stock-based compensation expense included in sales and marketing		15,013			3,195
Stock-based compensation expense included in general and administrative		7,397			3,253
Amortization of intangible assets expense included in operating expenses		17,052			7,846
Acquisition and integration costs		1,450			—
Total operating expense adjustments		52,795			25,033
Total operating income adjustments		79,204			38,311
Income tax effect of adjustments		(2,795	)		2,643
Non-GAAP net income	$	55,376		$	61,220
Non-GAAP net income per share — basic	$	0.14		$	0.16
Non-GAAP net income per share — diluted	$	0.12		$	0.16
Shares used in non-GAAP per share calculation — basic		406,916			371,345
Shares used in non-GAAP per share calculation — diluted		476,888			392,586

See explanation of non-GAAP information included herein.

Page 10 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)

	Nine Months Ended
	August 1,			July 26,
	2009			2008
Net income (loss) on a GAAP basis	$	(110,183	)	$	131,489
Adjustments:
Stock-based compensation expense included in cost of revenues		18,593			7,501
Amortization of intangible assets expense included in cost of revenues		47,905			28,620
Legal fees associated with certain pre-acquisition litigation		—			2,319
Total gross margin adjustments		66,498			38,440
Legal fees associated with indemnification obligations and other related costs, net		38,553			22,399
Provision for class action lawsuit		—			160,000
Stock-based compensation expense included in research and development		30,115			7,939
Stock-based compensation expense included in sales and marketing		35,886			8,327
Stock-based compensation expense included in general and administrative		16,911			7,755
Amortization of intangible assets expense included in operating expenses		51,666			23,664
Acquisition and integration costs		4,794			—
Restructuring costs and facilities lease losses (benefits), net		2,329			(477	)
In-process research and development		26,900			—
Goodwill and acquisition-related intangible assets impairment		53,306			—
Total operating expense adjustments		260,460			229,607
Total operating income adjustments		326,958			268,047
Loss on sale of investments, net		—			6,004
Acquisition-related financing charges		4,366			—
Income tax effect of adjustments		(55,084	)		(220,399	)
Non-GAAP net income	$	166,057		$	185,141
Non-GAAP net income per share — basic	$	0.43		$	0.49
Non-GAAP net income per share — diluted	$	0.38		$	0.47
Shares used in non-GAAP per share calculation — basic		390,087			376,455
Shares used in non-GAAP per share calculation — diluted		441,666			396,445

See explanation of non-GAAP information included herein.

Page 11 of 11