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): November 20, 2008

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-25601	77-0409517
(State or other jurisdiction	(Commission File Number)	(I.R.S. Employer
of incorporation)		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 November 20, 2008, Brocade Communications Systems, Inc. issued a press release announcing its financial results for the fourth quarter and fiscal year ended October 25, 2008. 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 November 20, 2008, announcing financial results of Brocade Communications Systems, Inc. for the fourth quarter and fiscal year ended October 25, 2008.

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: November 20, 2008	By:	/s/ Richard Deranleau
		Richard Deranleau
		Chief Financial Officer and Vice President, Finance

EX-99.1

BROCADE CONTACTS
Public Relations	Investor Relations
John Noh	Alex Lenke
Tel: 408-333-5108	Tel: 408-333-6758
jnoh@brocade.com	alenke@brocade.com

Brocade Reports Q4 and Fiscal Year 2008 Results

Achieves Record Revenues in Q4 with 17 Percent Growth Year-over-Year;

Ends FY 08 on Strong Note and Plans for Additional Growth through Acquisition of Foundry Networks

SAN JOSE, Calif., Nov. 20, 2008 — Brocade^® (NASDAQ: BRCD) today reported financial results for its fourth fiscal quarter and full fiscal year, which ended October 25, 2008. Brocade reported Q4 revenues of $398.5 million, GAAP net income of $38 million or $.10 per share, and net income of $75.8 million or $.20 per share on a non-GAAP basis.

Commenting on the Brocade’s fourth quarter and full fiscal year financial results, Michael Klayko, Brocade CEO, said:

“Q4 was another outstanding quarter for Brocade, where we achieved record revenues and better-than-expected profitability fueled by our product and innovation advantages in our target markets. Our strong performance in Q4 accentuates an overall outstanding fiscal 2008, in which we achieved double-digit growth, expanded our margin and announced exciting plans to expand into additional, larger markets through our planned acquisition of Foundry Networks.”

Fourth Fiscal Quarter 2008 Business Highlights

• Brocade announced the availability of a new family of fabric-based encryption platforms that helps customers by encrypting critical corporate data with high performance and centralized management. This solution offers integration with several management products including NetApp Lifetime Key Management and RSA(R) Key Manager for the Datacenter.

• Brocade unveiled the Data Center Fabric Manager 10.0, a management application that helps customers secure the flow of data within and across multiple fabrics to increase productivity, scalability and operational efficiency. The solution integrates easily with existing third-party storage, server, and data center infrastructure management frameworks.

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

• Brocade announced in September that Brocade 415/425 and 815/825 host bus adapters (HBAs) had been certified for VMware ESX, allowing Brocade to release device drivers independently of VMware’s own product releases.

• Brocade introduced the Brocade 8 Gbit/sec Storage Area Network (SAN) Switch for the HP BladeSystem c-Class portfolio, the industry’s highest-performance embedded switch. The combined solution increases the network bandwidth of the HP BladeSystem c-Class technology and increases flexibility while reducing costs.

• Brocade announced continued collaboration with Oracle to help optimize Oracle applications and databases running Oracle(R) Enterprise Linux and Oracle VM, with advanced capabilities delivered through Brocade’s Data Center Fabric (DCF) architecture and its broad portfolio of data center networking products.

• Brocade furthered its partnership with Microsoft, demonstrating a new server-to-storage area network (SAN) management productivity solution for Microsoft System Center that gives customers end-to-end data center fabric and host bus adapter (HBA) management capabilities, and provides recommendations for optimizing their system performance.

Fourth Fiscal Quarter 2008 Financial Highlights and Additional Financial Information

• Revenue for fiscal year 2008 was $1,466.9 million, a growth of 19% over fiscal year 2007.

• In Q4 08, Brocade achieved record revenue, 9% quarter on quarter growth and 17% year on year growth.

• Brocade’s total installed base of SAN ports was approximately 19.4 million.

• In Q4 08, Average Selling Price (ASP) declines were in the low single digits compared to Q3 08.

• In Q4 08, net stock-based compensation expense was $7.5 million and has been excluded from Brocade’s non-GAAP results.

• As of the end of Q3 08, Brocade suspended its share repurchase program in connection with the Foundry Acquisition. Therefore, in Q4 08, Brocade made no repurchases. As of the end of Q4 08, Brocade had $414.1 million remaining under its $800 million total stock buyback program authorization. Since Q4 07, Brocade reduced the total number of shares outstanding by over 15.5 million net, or by 4%.

• Brocade’s GAAP tax rate was 2.9%, and its non-GAAP effective tax-rate was 26.4% in Q4 08.

	Q4 2008			Q3 2008			Q4 2007
Revenue	$	398.5 M		$	365.7 M		$	340.0 M
GAAP net income	$	38.0 M		$	20.3 M		$	32.0 M
GAAP EPS – diluted	$	0.10		$	0.05		$	0.08
Non-GAAP net income	$	75.8 M		$	61.2 M		$	66.5 M
Non-GAAP EPS – diluted	$	0.20		$	0.16		$	0.16
Non-GAAP gross margin		64.1	%		61.9	%		58.5	%
Non-GAAP operating margin		26.2	%		22.6	%		23.3	%
Cash flow from operations	$	168.6M		$	71.7 M		$	54.5 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 12

As a % of total revenues	Q4 2008			Q3 2008			Q4 2007
OEM revenues		88	%		86	%		85	%
Channel/Direct revenues		12	%		14	%		15	%
10% or greater customer revenues		65	%		62	%		67	%
Domestic revenues		64	%		65	%		60	%
International revenues1		36	%		35	%		40	%
Service revenues		16	%		17	%		16	%

	Q4 2008		Q3 2008		Q4 2007
Cash, cash equivalents, and investments, net of convertible debt	$	650.5 M	$	595.1 M	$	625.8 M
Deferred revenues	$	141.2 M	$	148.5 M	$	130.9 M
Capital expenditures2	$	18.6 M	$	94.2 M	$	15.0 M
Stock repurchases (in dollars)	None		$	38.1 M	$	50.0 M
Stock repurchases (in shares)	None			4.7 M		6.6 M
Days sales outstanding	36 days		43 days		47 days
Employees at end of period		2,834		2,842		2,368

1.	Based on Brocade estimates Brocade product demand was 41% domestic and 59% international.
2.	In Q4 08, capital expenditures included approximately $4.7 million related to the construction of the Company’s new campus. In Q3 08, capital expenditures included approximately $80.2 million related to the construction of the Company’s new campus.

Non-GAAP Financial Measures

This press release and the related conference call contain non-GAAP financial measures. In evaluating the Company’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 the Company’s comparative operating performance from period-to-period and to its competitors’ operating results. Management also believes these non-GAAP financial measures help indicate the Company’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 the Company’s GAAP financials, provide useful information to investors by offering:

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

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

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

• an easier way to compare the Company’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 the Company’s operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include: (i) legal fees associated with indemnification obligations to former employees and other related costs, net, (ii)

Page 3 of 12

acquisition and integration costs (in connection with the Foundry and McDATA acquisition), (iii) legal fees associated with certain pre-acquisition litigation (in connection with the McDATA acquisition), (iv) provision for class action lawsuit, (v) gain on termination of interest rate swap, (vi) gain/loss on sale of investments, (vii) loss on impairment of portfolio investments and (viii) acquisition-related financing charges.

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, and (iii) costs/benefits associated with restructuring costs and facilities lease losses. 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 the Company’s newly acquired and long-held businesses.

Finally, management believes that it is appropriate to exclude the tax effects of the items noted above as well as the release of the valuation allowance 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 the Company’s GAAP results. The non-GAAP financial measures the Company 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 and net income per share, and should not be considered measures of the Company’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.

Fourth Quarter Fiscal 2008 Conference Call and Webcast Information

Brocade management will host a conference call to discuss fourth quarter and full fiscal year 2008 results on Thursday, November 20, 2008, at 2:00 p.m. Pacific Standard 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 Standard Time on November 27, 2008. 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 market dynamics, customer demand for the Company’s product and service offerings and the proposed acquisition of Foundry Networks, Inc. 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 degree of market adoption of the Company’s product and service offerings, market competition, the effect of changes in IT spending levels, the Company’s ability to anticipate future OEM and end-user product needs and to accurately forecast end-user demand, dependence on strategic partners, the risk that the proposed acquisition of Foundry may not close; our ability to realize anticipated benefits from the proposed acquisition of Foundry Networks, Inc., and the Company’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 July 26, 2008. 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 12

About Brocade

     Brocade is the leading provider of data center networking solutions that help enterprises connect and manage their information. Organizations that use Brocade products and services are better able to optimize their IT infrastructures and ensure compliant data management. For more information, visit Brocade’s website at http://www.brocade.com or contact the Company at info@brocade.com.

     Brocade, the B-wing symbol, DCX, Fabric OS, File Lifecycle Manager, MyView and StorageX are registered trademarks, and DCFM 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.

# # #

Page 5 of 12

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

	Three Months Ended						Twelve Months Ended
	October 25,			October 27,			October 25,			October 27,
	2008			2007			2008			2007
Net revenues
Product	$	335,403		$	286,020		$	1,230,737		$	1,076,529
Services		63,095			53,964			236,200			160,334
Total net revenues		398,498			339,984			1,466,937			1,236,863
Cost of revenues
Product		114,374			125,824			459,850			470,977
Services		38,987			30,750			146,715			104,474
Total cost of revenues		153,361			156,574			606,565			575,451
Gross margin		245,137			183,410			860,372			661,412
Operating expenses:
Research and development		70,867			58,530			255,571			213,311
Sales and marketing		71,112			56,018			274,311			211,168
General and administrative		14,912			13,470			58,172			46,980
Legal fees associated with indemnification obligations and other related costs, net		22,274			7,811			44,673			46,257
Provision for class action lawsuit		—			—			160,000			—
Acquisition and integration costs		682			302			682			19,354
Amortization of intangible assets		7,820			7,909			31,484			24,719
Restructuring costs and facilities lease losses (benefits), net		3,208			—			2,731			—
Total operating expenses		190,875			144,040			827,624			561,789
Income from operations		54,262			39,370			32,748			99,623
Interest and other income, net		(796	)		9,937			26,867			38,501
Interest expense		(5,684	)		(1,673	)		(10,068	)		(6,414	)
Gain (loss) on investments, net		111			11,373			(6,874	)		13,205
Loss on impairment of portfolio investments		(8,751	)		—			(8,751	)		—
Income before provision for income taxes		39,142			59,007			33,922			144,915
Income tax provision (benefit)		1,149			26,987			(135,560	)		68,043
Net income	$	37,993		$	32,020		$	169,482		$	76,872
Net income per share – basic	$	0.10		$	0.08		$	0.45		$	0.21
Net income per share – diluted	$	0.10		$	0.08		$	0.44		$	0.21
Shares used in per share calculation – basic		371,845			387,400			375,303			362,070
Shares used in per share calculation – diluted		389,477			408,844			394,703			377,558

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

	October 25,			October 27,
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	453,884		$	315,755
Short-term investments		152,741			325,846
Total cash, cash equivalents and short-term investments		606,625			641,601
Marketable equity securities		177,380			14,205
Accounts receivable, net		158,935			175,755
Inventories		21,362			18,017
Deferred tax assets		132,246			22,781
Prepaid expenses and other current assets		49,931			39,841
Total current assets		1,146,479			912,200
Long-term investments		36,120			137,524
Restricted cash		1,075,079			—
Property and equipment, net		313,379			204,052
Goodwill		268,977			384,376
Intangible assets, net		220,567			272,652
Non-current deferred tax assets		198,665			167
Other assets		37,794			19,129
Total assets	$	3,297,060		$	1,930,100
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	167,660		$	108,810
Accrued employee compensation		107,994			76,017
Deferred revenue		103,372			94,533
Current liabilities associated with facilities lease losses		13,422			12,807
Liability associated with class action lawsuit		160,000			—
Current portion of long-term debt		43,606			—
Purchase commitments		17,332			23,176
Other accrued liabilities		88,472			94,358
Total current liabilities		701,858			409,701
Long-term debt, net of current portion		1,011,399			—
Convertible subordinated debt		169,660			167,498
Non-current liabilities associated with facilities lease losses		15,007			25,742
Non-current liabilities — deferred taxes		—			22,781
Non-current deferred revenue		37,869			36,344
Non-current income tax liability		67,497			—
Other non-current liabilities		9,118			1,376
Stockholders’ equity
Common stock		1,393,299			1,463,169
Accumulated other comprehensive loss		(85,877	)		(1,180	)
Accumulated deficit		(22,770	)		(195,331	)
Total stockholders’ equity		1,284,652			1,266,658
Total liabilities and stockholders’ equity	$	3,297,060		$	1,930,100

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BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended October 25, 2008 and October 27, 2007
(in thousands)
(unaudited)

	Three Months Ended
	October 25,			October 27,
	2008			2007
Cash flows from operating activities:
Net income	$	37,993		$	32,020
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax benefit from employee stock plans		(13,641	)		9,197
Depreciation and amortization		30,533			31,856
Loss on disposal of property and equipment		1,853			400
Amortization of debt issuance costs		319			—
Net (gains) losses on investments and marketable equity securities		8,839			(11,694	)
Provision for doubtful accounts receivable and sales allowances		1,700			2,287
Non-cash compensation expense		7,515			12,499
Non-cash facilities lease loss benefit		(105	)		—
Capitalization of interest cost		(970	)		—
Changes in assets and liabilities:
Accounts receivable		13,386			(13,940	)
Inventories		(6,993	)		3,430
Prepaid expenses and other assets		44,232			28,409
Deferred tax assets		(46,708	)		(22,809	)
Accounts payable		39,353			(22,440	)
Accrued employee compensation		33,768			228
Deferred revenue		(7,486	)		2,061
Other accrued liabilities		27,308			5,555
Liabilities associated with facilities lease losses		(2,325	)		(2,520	)
Net cash provided by operating activities		168,571			54,539
Cash flows from investing activities:
Purchases of property and equipment		(18,603	)		(15,013	)
Purchases of short-term investments		(2,053	)		(173,494	)
Purchases of marketable equity securities		(248,431	)		(15,930	)
Proceeds from sale of marketable equity securities and equity investments		—			11,694
Proceeds from maturities and sale of short-term investments		107,547			176,780
Purchases of long-term investments		—			(47,637	)
Proceeds from maturities and sale of long-term investments		—			1,752
Purchases of non-marketable minority equity investments		(1,436	)		—
Increase in restricted cash		(1,075,079	)		—
Cash paid in connection with pending acquisition of Foundry		(1,000	)		—
Net cash used in investing activities		(1,239,055	)		(61,848	)
Cash flows from financing activities:
Payments on capital lease obligations		—			(23	)
Common stock repurchases		—			(50,410	)
Excess tax benefit from employee stock plans		13,641			(9,197	)
Proceeds from issuance of common stock, net		615			9,968
Proceeds from term loan		1,054,425			—
Net cash provided by (used in) financing activities		1,068,681			(49,662	)
Effect of exchange rate fluctuations on cash and cash equivalents		(3,712	)		(1,682	)
Net decrease in cash and cash equivalents		(5,515	)		(58,653	)
Cash and cash equivalents, beginning of period		459,399			374,408
Cash and cash equivalents, end of period	$	453,884		$	315,755

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BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twelve Months Ended October 25, 2008 and October 27, 2007
(in thousands)
(unaudited)

	Twelve Months Ended
	October 25,			October 27,
	2008			2007
Cash flows from operating activities:
Net income	$	169,482		$	76,872
Adjustments to reconcile net income to net cash provided by operating activities:
Release of valuation allowance		(185,176	)		—
Excess tax benefit from employee stock plans		(16,146	)		77
Depreciation and amortization		120,178			101,416
Loss on disposal of property and equipment		3,181			1,213
Amortization of debt issuance costs		319			—
Net (gains) losses on investments and marketable equity securities		15,327			(11,694	)
Provision for doubtful accounts receivable and sales allowances		6,614			5,401
Non-cash compensation expense		39,036			36,942
Non-cash facilities lease loss benefit		(582	)		—
Capitalization of interest cost		(970	)		—
Changes in assets and liabilities:
Accounts receivable		17,143			27,414
Inventories		(3,345	)		3,481
Prepaid expenses and other assets		25,200			26,429
Deferred tax assets		(56,516	)		(22,906	)
Accounts payable		40,550			10,075
Accrued employee compensation		30,242			(37,473	)
Deferred revenue		10,185			17,162
Other accrued liabilities		73,311			(55,967	)
Liabilities associated with facilities lease losses		(9,538	)		(8,039	)
Liability associated with class action lawsuit		160,000			—
Net cash provided by operating activities		438,495			170,403
Cash flows from investing activities:
Purchases of property and equipment		(144,071	)		(56,538	)
Purchases of short-term investments		(169,016	)		(571,357	)
Purchases of marketable equity securities		(248,431	)		(15,930	)
Proceeds from sale of property and equipment		—			1,336
Proceeds from sale of marketable equity securities and equity investments		9,926			11,694
Proceeds from maturities and sale of short-term investments		448,385			764,939
Purchases of long-term investments		(37,731	)		(200,239	)
Proceeds from maturities and sale of long-term investments		22,483			12,614
Purchases of non-marketable minority equity investments		(1,436	)		(5,000	)
(Increase) decrease in restricted cash		(1,075,079	)		12,422
Cash paid in connection with pending acquisition of Foundry		(1,000	)		—
Net cash acquired (paid) in connection with acquisitions		(43,554	)		139,703
Net cash provided by (used in) investing activities		(1,239,524	)		93,644
Cash flows from financing activities:
Payments on capital lease obligations		—			(735	)
Common stock repurchases		(168,293	)		(191,293	)
Termination of interest rate swap		—			(4,989	)
Redemption of outstanding convertible debt		—			(124,185	)
Excess tax benefit from employee stock plans		16,146			(77	)
Proceeds from issuance of common stock, net		42,418			100,638
Proceeds from term loan		1,054,425			—

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	Twelve Months Ended
	October 25,			October 27,
	2008			2007
Net cash provided by (used in) financing activities		944,696			(220,641	)
Effect of exchange rate fluctuations on cash and cash equivalents		(5,538	)		(2,019	)
Net increase in cash and cash equivalents		138,129			41,387
Cash and cash equivalents, beginning of period		315,755			274,368
Cash and cash equivalents, end of period	$	453,884		$	315,755

Page 10 of 12

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

	Three Months Ended
	October 25,			July 26,		October 27,
	2008			2008		2007
Net income on a GAAP basis	$	37,993		$	20,266	$	32,020
Adjustments:
Stock-based compensation expense included in cost of revenues		1,616			2,638		4,065
Amortization of intangible assets expense included in cost of revenues		8,780			8,780		11,328
Legal fees associated with certain pre-acquisition litigation		20			1,860		—
Total gross margin adjustments		10,416			13,278		15,393
Legal fees associated with indemnification obligations and other related costs, net		22,274			7,951		7,811
Stock-based compensation expense included in research and development		2,385			2,788		3,649
Stock-based compensation expense included in sales and marketing		2,325			3,195		3,163
Stock-based compensation expense included in general and administrative		1,189			3,253		1,622
Amortization of intangible assets expense included in operating expenses		7,820			7,846		7,909
Acquisition and integration costs		682			—		302
Restructuring costs and facilities lease losses (benefits), net		3,208			—		—
Total operating expense adjustments		39,883			25,033		24,456
Total operating income adjustments		50,299			38,311		39,849
Loss (gain) on investments, net		—			—		(10,869	)
Loss on impairment of portfolio investments		8,751			—		—
Acquisition-related financing charges		4,736			—		—
Income tax effect of adjustments		(26,014	)		2,643		5,518
Non-GAAP net income	$	75,765		$	61,220	$	66,518
Non-GAAP net income per share – basic	$	0.20		$	0.16	$	0.17
Non-GAAP net income per share – diluted	$	0.20		$	0.16	$	0.16
Shares used in non-GAAP per share calculation – basic		371,845			371,345		387,400
Shares used in non-GAAP per share calculation – diluted		389,477			392,586		408,844

     See explanation of non-GAAP information included herein.

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

	Twelve Months Ended
	October 25,			October 27,
	2008			2007
Net income on a GAAP basis	$	169,482		$	76,872
Adjustments:
Stock-based compensation expense included in cost of revenues		9,117			10,870
Amortization of intangible assets expense included in cost of revenues		37,400			33,985
Legal fees associated with certain pre-acquisition litigation		2,339			—
Total gross margin adjustments		48,856			44,855
Legal fees associated with indemnification obligations and other related costs, net		44,673			46,257
Provision for class action lawsuit		160,000			—
Stock-based compensation expense included in research and development		10,324			10,696
Stock-based compensation expense included in sales and marketing		10,652			8,685
Stock-based compensation expense included in general and administrative		8,944			4,358
Amortization of intangible assets expense included in operating expenses		31,484			24,719
Acquisition and integration costs		682			19,354
Restructuring costs and facilities lease losses (benefits), net		2,731			—
Total operating expense adjustments		269,490			114,069
Total operating income adjustments		318,346			158,924
Gain on termination of interest rate swap		—			(367	)
Loss (gain) on investments, net		6,004			(11,619	)
Loss on impairment of portfolio investments		8,751			—
Acquisition-related financing charges		4,736			—
Income tax effect of adjustments		(246,413	)		(11,645	)
Non-GAAP net income	$	260,906		$	212,165
Non-GAAP net income per share – basic	$	0.70		$	0.59
Non-GAAP net income per share – diluted	$	0.67		$	0.56
Shares used in non-GAAP per share calculation – basic		375,303			362,070
Shares used in non-GAAP per share calculation – diluted		394,703			377,558

     See explanation of non-GAAP information included herein.

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