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): February 14, 2013

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

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

130 Holger Way

San Jose, CA 95134

(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):

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

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

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

¨ 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 February 14, 2013, Brocade Communications Systems, Inc. (the “Company”) issued a press release regarding financial results for the first quarter ended January 26, 2013. The Company also posted on its website (www.BRCD.com) slides with accompanying prepared remarks regarding such financial results and forward-looking statements, including statements relating to the Company’s estimated financial results of the second quarter of fiscal year 2013. Copies of the press release and slides with accompanying prepared remarks by the Company are attached as Exhibits 99.1 and 99.2, respectively, and the information in Exhibits 99.1 and 99.2 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 exhibits 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 February 14, 2013, regarding financial results of Brocade Communications Systems, Inc. for the first quarter ended January 26, 2013.

99.2 Slides with accompanying prepared remarks of Brocade Communications Systems, Inc., dated February 14, 2013, regarding financial results of the first quarter ended January 26, 2013 and forward-looking statements, including statements relating to the Company’s estimated financial results of the second quarter of fiscal year 2013.

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.
Date:	February 14, 2013	By:	/s/ Daniel W. Fairfax
			Daniel W. Fairfax
			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 Robert Eggers Tel: 408-333-8797 reggers@brocade.com

Brocade Reports Fiscal Q1 2013 Results

Achieves Record Revenue and Expanding Margins in First Quarter

SAN JOSE, Calif., February 14, 2013 — Brocade^® (NASDAQ: BRCD) today reported financial results for its first fiscal quarter ended January 26, 2013. Brocade reported record first quarter revenue of $588.7 million, representing an increase of 5% year-over-year and 2% quarter-over-quarter. The company reported a GAAP loss per share of $(0.05), down from a profit of $0.12 per diluted share in Q1 2012. The Q1 2013 net loss was principally due to a non-cash tax charge, which reduced the company's deferred tax assets as a result of a recent change in the California tax code. On a comparative basis, non-GAAP diluted EPS was $0.21, up from $0.20 in Q1 2012.

“Brocade achieved record revenue in Q1 based on strong performances in both our storage and IP networking businesses,” said Lloyd Carney, CEO of Brocade. “As the new CEO, it is my top priority to ensure that the company continues to execute well in our core businesses to drive growth and shareholder value. Looking forward, I see new opportunities emerging in the networking industry due to disruptive IT market trends that are challenging the capabilities of today's networks. It is clear that customers are looking for new technologies and approaches in networking to meet these challenges. I am excited and honored to navigate the company forward, delivering on these customer requirements in a way that drives top-line revenue through both innovation and operational efficiency.”

Summary of Q1 2013 results:

• Storage Area Networking (SAN) business revenue, including products and services, was a record $416.9 million, up 3% year-over-year and up 6% sequentially. SAN product revenue increased 3% year-over-year and increased 7% sequentially, led by higher switch and director product sales, in a seasonally strong quarter for the company. Brocade's industry-leading Gen 5 (16 Gbps) Fibre Channel products represented approximately 42% of director and switch revenue in the quarter.

• IP Networking business revenue, including products and services, was $171.8 million, up 11% year-over-year and down 7% quarter-over-quarter. The year-over-year growth was driven by solid performances across all three IP Networking product groups and led by Ethernet switch revenue, which was up 18% year-over-year. Routing revenue was up 5% year-over-year and other IP Networking revenue was up 25% year-over-year driven by higher sales of the Brocade ADX^® Series of application delivery products. The sequential decline in IP Networking revenue was principally due to lower Ethernet switch sales into the U.S. federal government, which is typical in the company's first fiscal quarter.

• GAAP gross margin was 63.5% and non-GAAP gross margin was 66.0% in Q1 2013, compared to 61.5% and 64.8% in Q1 2012, respectively. The year-over-year improvement in gross margin was due in part to higher overall revenue and a more favorable Ethernet product mix. The sequential improvement in gross margin was due in part to higher overall revenue, with a more favorable revenue mix to SAN products, and lower manufacturing overhead spending.

• GAAP operating margin was 15.8% and non-GAAP operating margin was 23.5% in Q1 2013, compared to 12.4% and 21.5% in Q1 2012, respectively. The year-over-year improvement in operating margin was due to higher revenue, expanded gross margin, and lower operating expenses as a percentage of revenue in Q1 2013. Operating margin improved quarter-over-quarter due to higher revenue and improved gross margin.

Page 1 of 9

• Operating cash flow was $59.5 million in Q1 2013. During the quarter, the company completed its acquisition of Vyatta, Inc. and refinanced $300.0 million of senior secured notes, extending the maturity date of the notes from 2018 to 2023 and reducing the annual cash interest rate from 6.625% to 4.625%.

• GAAP loss per share was $(0.05) in Q1 2013, and non-GAAP diluted EPS of $0.21 was up 7% year-over-year. The GAAP loss per share included a non-cash tax charge of $78.2 million, or $(0.17) per share, due to the passage of Proposition 39 by the voters of California and the related reduction in the company's deferred tax assets, which was previously disclosed in November 2012. The company also took a one-time charge of $15.3 million, or $(0.02) per share after tax impact, related to the unamortized original issuance costs and call premium on the 2018 notes that were refinanced during the quarter.

• Average diluted shares outstanding for Q1 2013 were 466.3 million shares, down slightly year-over-year. The company repurchased 8.7 million shares ($47.5 million) during Q1 2013.

Brocade management will host a conference call to discuss fiscal first quarter results and fiscal second quarter outlook today at 2:00 p.m. PT (5:00 p.m. ET). To access the Webcast please go to www.brcd.com/events.cfm. A replay of the conference call, prepared comments and slides, as well as a written transcript, will be available at www.brcd.com.

Other Q1 2013 product, customer and partner announcements are available at http://newsroom.brocade.com/.

Brocade (www.brocade.com)

130 Holger Way, San Jose, CA. 95134

T. 408.333.8000 F. 408.333.8101

Financial Highlights and Additional Financial Information

	Q1 2013			Q4 2012			Q1 2012
Revenue	$	589	M	$	578	M	$	561	M
GAAP net income (loss)		($21M)		$	54	M	$	59	M
Non-GAAP net income	$	99	M	$	78	M	$	93	M
GAAP EPS — diluted	$	(0.05	)	$	0.11		$	0.12
Non-GAAP EPS — diluted	$	0.21		$	0.17		$	0.20
GAAP gross margin	63.5		%	62.4		%	61.5		%
Non-GAAP gross margin	66.0		%	64.8		%	64.8		%
GAAP operating income	$	93	M	$	86	M	$	69	M
Non-GAAP operating income	$	138	M	$	130	M	$	120	M
GAAP operating margin	15.8		%	14.9		%	12.4		%
Non-GAAP operating margin	23.5		%	22.5		%	21.5		%
Adjusted EBITDA (1)	$	162	M	$	153	M	$	140	M
Cash provided by operations	$	59	M	$	210	M	$	127	M

•Q1 2013 effective GAAP tax rate was 131.7% and effective non-GAAP effective tax rate was 22.3%.

•Q1 2013 total Storage Area Networking (SAN) port shipments were approximately 1.2 million.

Please see important note of explanation on non-GAAP measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.

1) Adjusted EBITDA is as defined in the Term Debt Credit Agreement.

Page 2 of 9

Financial Highlights and Additional Financial Information (Continued)

	Q1 2013		Q4 2012		Q1 2012
As a % of total revenues
OEM revenues	67	%	65	%	69	%
Channel/Direct revenues	33	%	35	%	31	%
10% or greater customer revenues	46	%	46	%	48	%
Domestic revenues	62	%	63	%	61	%
International revenues	38	%	37	%	39	%
SAN product revenues	61	%	59	%	63	%
IP Networking product revenues	24	%	26	%	22	%
Global Services revenue	15	%	15	%	15	%
SAN business revenues (2)	71	%	68	%	72	%
IP Networking business revenues (2)	29	%	32	%	28	%
Estimates as a % of IP Networking Business Revenues:
Enterprise, excluding Federal	47	%	45	%	45	%
Federal	15	%	24	%	13	%
Service Provider	38	%	31	%	42	%

	Q1 2013			Q4 2012			Q1 2012
Cash, cash equivalents and short-term investments	$	684	M	$	713	M	$	485	M
Restricted cash (3)	$	312	M	$	—		$	—
Deferred revenues	$	296	M	$	293	M	$	278	M
Capital expenditures	$	18	M	$	17	M	$	18	M
Total debt, net of discount (3)	$	900	M	$	601	M	$	720	M
Days sales outstanding	34 days			37 days			36 days
Employees at end of period	4,604			4,536			4,542

2) SAN and IP Networking business revenues include product and global services revenues.

3) Q1 2013 restricted cash will be used to redeem $300M of 2018 notes on February 21, 2013.

Page 3 of 9

Non-GAAP Financial Measures

This press release contains 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 financial measures used in this press release allow management to gain a better understanding of Brocade's comparative operating performance both 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 make more meaningful comparisons of Brocade's operating performance against industry and competitor companies;

• the ability to better identify trends in Brocade's underlying business and to 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 Brocade's 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) provision or benefit from certain pre-acquisition litigation (ii) legal fees associated with certain pre-acquisition litigation, (iii) legal fees associated with indemnification obligations and other related costs, net, (iv) acquisition and integration costs, (v) loss on sale of property, (vi) interest expense related to the adoption of new standards relating to convertible debt instruments, (vii) original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing as well as debt call premium cost, (viii) loss on sale of a subsidiary, and (ix) specific non-cash and non-recurring tax benefits or detriments.

Management also excludes the following non-cash charges in determining non-GAAP net income (i) stock-based compensation expense and (ii) amortization of purchased intangible assets. 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.

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 and net income per share, and should not be considered measurements 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 measurements reported by other companies.

Page 4 of 9

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s strategy, business prospects, and its routes to market. 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, changes in IT spending levels in one or more of our target markets including the government sector, Brocade’s ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business, customer acceptance of Brocade’s Ethernet fabric solutions, Brocade’s ability to continue to successfully innovate new products and services on a timely basis and achieve widespread market acceptance, and the effect of increasing market competition and changes in the industry. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 27, 2012. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

About Brocade

Brocade (NASDAQ: BRCD) networking solutions help the world’s leading organizations transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)

ADX, AnyIO, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, ICX, MLX, MyBrocade, OpenScript, VCS, VDX, and Vyatta are registered trademarks, and HyperEdge, The Effortless Network, and The On-Demand Data Center are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned may be trademarks of their respective owners.

© 2013 Brocade Communications Systems, Inc. All Rights Reserved.

Page 5 of 9

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended
	January 26, 2013			January 28, 2012
	(In thousands, except per share amounts)
Net revenues
Product	$	502,247		$	476,302
Service	86,482			84,340
Total net revenues	588,729			560,642
Cost of revenues
Product	174,375			175,407
Service	40,429			40,466
Total cost of revenues	214,804			215,873
Gross margin	373,925			344,769
Operating expenses:
Research and development	97,690			89,319
Sales and marketing	149,011			152,688
General and administrative	19,077			18,350
Amortization of intangible assets	14,856			14,993
Total operating expenses	280,634			275,350
Income from operations	93,291			69,419
Interest expense	(26,368		)	(13,046		)
Interest and other income (loss), net	66			(996		)
Income before income tax	66,989			55,377
Income tax expense (benefit)	88,244			(3,207		)
Net income (loss)	$	(21,255	)	$	58,584
Net income (loss) per share — basic	$	(0.05	)	$	0.13
Net income (loss) per share — diluted	$	(0.05	)	$	0.12
Shares used in per share calculation — basic	454,843			452,494
Shares used in per share calculation — diluted	454,843			468,738

Page 6 of 9

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	January 26, 2013			October 27, 2012
	(In thousands, except par value)
Assets
Current assets:
Cash and cash equivalents	$	683,616		$	713,226
Restricted cash	311,926			—
Accounts receivable, net of allowances for doubtful accounts of $798 and $827 at January 26, 2013 and October 27, 2012, respectively	216,706			233,139
Inventories	59,891			68,179
Deferred tax assets	64,981			91,539
Prepaid expenses and other current assets	53,839			49,496
Total current assets	1,390,959			1,155,579
Property and equipment, net	510,282			518,940
Goodwill	1,648,722			1,624,089
Intangible assets, net	108,948			109,265
Non-current deferred tax assets	80,420			136,175
Other assets	32,851			37,213
Total assets	$	3,772,182		$	3,581,261
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	101,808		$	117,350
Accrued employee compensation	114,593			182,597
Deferred revenue	218,303			216,283
Current liabilities associated with facilities lease losses	936			976
Current portion of long-term debt	302,198			1,977
Other accrued liabilities	90,328			91,285
Total current liabilities	828,166			610,468
Long-term debt, net of current portion	597,440			599,203
Non-current liabilities associated with facilities lease losses	1,455			1,606
Non-current deferred revenue	77,739			76,907
Non-current income tax liability	57,171			55,387
Other non-current liabilities	1,928			1,870
Total liabilities	1,563,899			1,345,441
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $0.001 par value, 800,000 shares authorized:
Issued and outstanding: 455,874 and 456,913 shares at January 26, 2013 and October 27, 2012, respectively	456			457
Additional paid-in capital	2,003,544			2,009,190
Accumulated other comprehensive loss	(10,499		)	(9,864		)
Retained earnings	214,782			236,037
Total stockholders’ equity	2,208,283			2,235,820
Total liabilities and stockholders’ equity	$	3,772,182		$	3,581,261

Page 7 of 9

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	January 26, 2013			January 28, 2012
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(21,255	)	$	58,584
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax benefits from stock-based compensation	(2,192		)	(1,147		)
Non-cash tax charges	78,206			—
Depreciation and amortization	49,394			50,105
Loss on disposal of property and equipment	1,989			256
Amortization of debt issuance costs and original issue discount	397			1,234
Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing	15,299			—
Net gains on investments	—			(12		)
Provision for doubtful accounts receivable and sales allowances	2,354			2,700
Non-cash compensation expense	19,150			21,819
Changes in assets and liabilities:
Restricted cash	(11,926		)	—
Accounts receivable	14,250			27,078
Inventories	9,625			(6,826		)
Prepaid expenses and other assets	(1,702		)	1,611
Deferred tax assets	165			22
Accounts payable	(14,960		)	(9,556		)
Accrued employee compensation	(72,570		)	(13,013		)
Deferred revenue	1,519			8,010
Other accrued liabilities	(8,062		)	(13,059		)
Liabilities associated with facilities lease losses	(191		)	(755		)
Net cash provided by operating activities	59,490			127,051
Cash flows from investing activities:
Proceeds from sale of subsidiary	—			(215		)
Purchases of property and equipment	(18,486		)	(17,556		)
Net cash paid in connection with acquisitions	(44,629		)	—
Net cash used in investing activities	(63,115		)	(17,771		)
Cash flows from financing activities:
Proceeds from senior unsecured notes	296,250			—
Payment of principal related to the term loan	—			(70,000		)
Payment of principal related to capital leases	(484		)	(456		)
Common stock repurchases	(47,530		)	—
Proceeds from issuance of common stock	23,812			31,941
Excess tax benefits from stock-based compensation	2,192			1,147
Increase in restricted cash	(300,000		)	—
Net cash used in financing activities	(25,760		)	(37,368		)
Effect of exchange rate fluctuations on cash and cash equivalents	(225		)	(1,875		)
Net increase (decrease) in cash and cash equivalents	(29,610		)	70,037
Cash and cash equivalents, beginning of period	713,226			414,202
Cash and cash equivalents, end of period	$	683,616		$	484,239

Page 8 of 9

BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(Unaudited)

	Three Months Ended
	January 26, 2013			January 28, 2012
	(In thousands, except per share amounts)
Net income (loss) on a GAAP basis	$	(21,255	)	$	58,584
Adjustments:
Stock-based compensation expense included in cost of revenues	3,946			4,375
Amortization of intangible assets expense included in cost of revenues	10,780			14,090
Legal fees recovery associated with certain pre-acquisition litigation	—			(51		)
Total gross margin adjustments	14,726			18,414
Stock-based compensation expense included in research and development	4,685			5,028
Stock-based compensation expense included in sales and marketing	8,145			9,776
Stock-based compensation expense included in general and administrative	2,374			2,640
Amortization of intangible assets expense included in operating expenses	14,856			14,993
Total operating expense adjustments	30,060			32,437
Total operating income adjustments	44,786			50,851
Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing	15,299			—
Tax provision impact from passage of California Proposition 39 - Single Sales Factor apportionment	78,206			—
Income tax effect of non-tax adjustments	(18,287		)	(16,623		)
Non-GAAP net income	$	98,749		$	92,812
Non-GAAP net income per share — basic	$	0.22		$	0.21
Non-GAAP net income per share — diluted	$	0.21		$	0.20
Shares used in non-GAAP per share calculation — basic	454,843			452,494
Shares used in non-GAAP per share calculation — diluted	466,321			468,738

Page 9 of 9

EX-99.2

BROCADE

Q1 FY 2013

Earnings

Prepared Comments and Slides

February 14, 2013

Rob Eggers

Vice President, Investor Relations

Phone: 408-333-8797

reggers@brocade.com

John Noh

Senior Director, Public Relations

Phone: 408-333-5108

jnoh@brocade.com

NASDAQ: BRCD

Brocade Q1 FY 2013 Earnings    2/14/2013

Prepared comments provided by Rob Eggers, Investor Relations

Thank you for your interest in Brocade's Q1 Fiscal 2013 earnings presentation, which includes prepared remarks, safe harbor, slides, and a press release detailing fiscal first quarter 2013 results. The press release was issued shortly after 1:00 p.m. PT on February 14, 2013 via Marketwire. The press release, along with these prepared comments and slides, has been furnished to the SEC on Form 8-K and will be made available on the Brocade Investor Relations website atwww.brcd.com.

© 2013 Brocade Communications Systems, Inc.     Page 2 of 25

Brocade Q1 FY 2013 Earnings    2/14/2013

© 2013 Brocade Communications Systems, Inc.     Page 3 of 25

Brocade Q1 FY 2013 Earnings    2/14/2013

Today’s prepared comments include remarks by Lloyd Carney, Brocade CEO, regarding the company’s quarterly results, its strategy, and a review of operations, as well as industry trends and market/technology drivers related to its business; and by Dan Fairfax, Brocade CFO, who will provide a financial review.

A management discussion and live question and answer conference call will be webcast at 2:00 p.m. PT on February 14 at www.brcd.comand will be archived on the Brocade Investor Relations website.

© 2013 Brocade Communications Systems, Inc.     Page 4 of 25

Brocade Q1 FY 2013 Earnings    2/14/2013

Prepared comments provided by Lloyd Carney, CEO

© 2013 Brocade Communications Systems, Inc.     Page 5 of 25

Brocade Q1 FY 2013 Earnings    2/14/2013

Before the normal review of our quarterly performance, I would like to say that it is a great privilege to have been appointed CEO of Brocade. I have met with many customers, partners, and employees in my first 30 days here and I have been impressed with what I have seen and heard. I see great potential to grow revenues and shareholder value. I am excited and honored to navigate the company forward to take advantage of new opportunities that are emerging in the networking industry due to disruptive IT market trends. I'll cover some of these trends later in this presentation.

Now onto the discussion about our fiscal first quarter. Q1 was another positive quarter for Brocade in which we achieved record revenue of $589 million, a 5% increase year-over year. Non-GAAP gross margin increased year-over-year to 66.0% and non-GAAP operating margin increased to 23.5%, resulting in non-GAAP earnings per share of $0.21, up 7% year-over-year. These results exceeded Brocade's guidance for revenue, operating margin, and profitability for the quarter.

Contributing to the company's solid performance in the quarter were record storage revenues, driven by the continued ramp of our Gen 5 (16 Gbps) Fibre Channel products, growth of server virtualization and cloud computing, and overall growth of the storage market. Brocade continues to be the SAN leader in technology, time-to-market, and market share.

IP Networking was up 14% year-over-year with increased revenue across all three categories: switching, routing, and application delivery. The strength of our product portfolio for the data center, campus, and service provider markets is helping us to acquire new customers and to expand our presence in existing accounts. Disruption in IP Networking is also creating business opportunities which Brocade is well positioned to address.

Turning to the balance sheet, Brocade continues to make great strides in strengthening its financial position. During the first quarter, the company closed a $300 million bond refinance offering that significantly reduces our interest rate and extends the maturity of our long-term debt. This represents a significant achievement for Brocade and clear recognition by the market of the company's financial strength.

Finally, Brocade acquired Vyatta during the quarter and I am pleased to report that the integration is progressing well. The Vyatta team is focused on executing to an innovative product roadmap.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Against a backdrop of ongoing growth in the storage market, we continue to perform well in storage area networking with SAN product revenue reaching a record $362 million in the first quarter, a 3% increase year-over-year and a 7% increase sequentially. A key driver of this growth is the unmatched reliability, simplicity, and performance of our industry-leading Gen 5 (16 Gbps) Fibre Channel SAN portfolio. We have seen good customer adoption of this technology, with 16 Gbps products now making up 42% of our director and switch sales.

We believe that the SAN market continues to represent an exciting opportunity for Brocade. With the rapid migration to high-density server virtualization and cloud computing, end users still choose Fibre Channel as the preferred storage networking technology due to its inherent performance and reliability. Further, with new storage technologies such as flash-based storage systems and 16 Gbps Fibre Channel arrays, demand for storage capacity is expected to grow 37% per year over the next five years.

Finally, the ongoing refresh of our large installed base to our Gen 5 SAN portfolio represents a sizeable opportunity. We are already executing well on this upgrade cycle, as indicated by the pace of adoption of our 16 Gbps technology.

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Brocade Q1 FY 2013 Earnings    2/14/2013

IP Networking product revenue was $140.5 million in fiscal Q1, up 14% year-over-year with growth in each of our three product categories: switching, routing and application delivery. Ethernet switch product revenue grew 18% year-over-year and we continue to see a healthy ramp of our Brocade ICX product line, which was a major refresh of our campus portfolio last year. Routing revenue increased 5% year-over-year due to in part to higher revenue from 10 GbE blades including our new 24-port 10 GbE blades launched in September 2012. IP Networking product revenue also benefited from solid performance year-over-year for our Brocade ADX products for applications such as cloud hosting and large-scale virtualization.

In Ethernet fabrics, we now have more than 950 customers, with healthy year-over-year revenue growth for our Brocade VDX product family and continued positive customer and industry feedback. We are pleased to report that Brocade Ethernet fabric technology recently won TechTarget's “Networking Innovation Award.” TechTarget recognized not only the innovative nature of Brocade VCS Fabric technology, but also the capability to introduce fabric technology in stages, integrating with existing data center architecture, and to scale easily with network requirements.

Gartner also recognized the strength of the Brocade Ethernet fabric vision and portfolio in its inaugural “Data Center Network Infrastructure” Magic Quadrant, where Brocade was placed in the “Visionaries” quadrant ahead of nearly all other competitors. Brocade rated favorably for our VCS innovation as well as the efficient scale-out architecture of our Ethernet fabrics, which is a key differentiator in the industry today. A key takeway was Gartner's recommendation that Brocade be put on the “short list” of every data center networking and cloud provider sales consideration. 

While our overall Q1 performance in IP Networking is a highlight and we are making positive strides, we believe that we can further improve. We see a significant opportunity to leverage the advancements made in our product portfolio in 2012 and to strengthen our go-to-market efforts, which we believe will result in more consistent performance and higher growth rates for IP Networking.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Executing well in our core businesses of storage and IP networking will be the top priority for me as CEO. To help achieve my ultimate goal of increasing shareholder value, I will be looking at ways to better position Brocade for success as new opportunities arise in the networking industry. I believe we are just starting to see many of those opportunities develop as emerging IT requirements are challenging the capabilities of current networks. This is especially the case in the large data center LAN market where architectures have not fundamentally changed in more than 20 years.

I believe Brocade is well-positioned to take advantage of these opportunities and lead in this new era of networking. Our R&D investments have afforded us early leadership in several key areas such as data center fabrics, software-defined networking, and next-generation products for SAN and campus networks.

In general, I believe networks have to evolve from the rigid, monolithic, and proprietary entities they are today to be more open, dynamic, and agile. This is one of the most profound transformations that I've seen in my nearly 30 years in the networking business. I've had plenty of experience helping navigate companies through industry transformation, including my previous five years at Xsigo in building the server fabric market for applications in cloud computing, SDN, and data center virtualization. I greatly look forward to leading Brocade through these new opportunities and taking the company to new levels of growth and value.

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Brocade Q1 FY 2013 Earnings    2/14/2013

In summary, Q1 was a record quarter for Brocade with the company's performance exceeding guidance for revenue, operating margin, and profitability. I am excited to be here at Brocade to lead the company into our next phase as we expand our software capabilities and expertise to complement tremendous networking know-how and a deep heritage of providing our customers reliable, scalable, and high-performance networks. I see in Brocade a strong company with great potential and the opportunity to take advantage of some major disruptions that are impacting the networking industry. Brocade has gained tremendous ground in terms of its technology, product portfolio, and financial position in the last several years and I extend my sincere compliments to this very talented team. As a result, I couldn't be more pleased to open Brocade's next chapter of growth and success as we build shareholder value and help enable a new era of networking.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Prepared comments provided by Dan Fairfax, CFO

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Brocade Q1 FY 2013 Earnings    2/14/2013

In Q1 13 Brocade generated record revenue of $589M, an increase of 5% Yr./Yr. and up 2% Qtr./Qtr. As we look at our business by reporting segment, Q1 SAN product revenue was $362M, an increase of 3% Yr./Yr. driven by higher switch and director revenue. SAN product revenue was also up 7% sequentially in a seasonally strong quarter and represented approximately 61% of total revenue, up from 59% in Q4 12 and lower than the 63% reported in Q1 12.

Revenue from our IP Networking products was $141M, up 14% Yr./Yr. and down 8% Qtr./Qtr. in a seasonally soft quarter for Ethernet switch sales, principally due to our federal customers' procurement cycle. The year-over-year increase was driven by higher revenues for Ethernet switching, routing, and Brocade ADX products. IP Networking product revenue represented 24% of total revenue in Q1, down from 26% in Q4 and up from 22% in Q1 12.

Q1 Global Services revenue was $86M, up 3% Yr./Yr. and down slightly sequentially. Our Global Services revenue represented approximately 15% of total Q1 revenue, unchanged from Q4 12.

Non-GAAP gross margin was 66.0% in Q1, up 120 basis points from both Q1 12 and Q4 12. The year-over-year improvement in gross margins was due in part to higher revenue and a more favorable mix within our Ethernet products. The sequential improvement in gross margins was due in part to higher revenues, with a higher contribution from SAN products, and lower manufacturing overhead spending. Non-GAAP operating margin was 23.5% in Q1, up 200 basis points from Q1 12 and up 100 basis points Qtr./Qtr., and reached the highest level for the company since Q1 10.

Q1 GAAP loss was $(0.05) per share while non-GAAP diluted EPS was a record $0.21 in the quarter. The GAAP loss per share included a non-cash tax charge of $78M, or $(0.17) per share following the passage of Proposition 39 by the voters of California and the related reduction in the company's deferred tax assets. We also saw a benefit in our Q1 tax rate from the passage of the federal R&D tax credit for 2013 as well as the catch-up for the impact to 2012 taxes. The resulting effective GAAP tax rate was 131.7% and the effective non-GAAP tax rate was 22.3% in Q1. The company also had a one-time charge of $15M, or approximately $(0.02) per share, related to the unamortized original issuance costs and call premium on the 2018 notes that were refinanced during the quarter.

Finally, in Q1 we generated $59M in operating cash flow in a seasonally lower cash generation quarter for the company. Weighted average diluted shares outstanding in Q1 were 466M, down 2% compared with the 474M shares in Q4 12, and reflect 8.7M shares repurchased ($47.5M) during the quarter.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Turning to our total SAN business, including hardware and SAN-based support and services, Q1 revenue was a record $416.9M, up 3% from Q1 12 and up 6% sequentially.

A number of factors, including server virtualization, deployment of cloud computing, and storage product transitions at our OEMs contributed to the increased demand for Fibre Channel SAN products. Further, revenue growth of our SAN products continues to benefit from the expansion of our Gen 5 (16 Gbps) Fibre Channel product portfolio as more of our customers look to upgrade their networking infrastructure. In Q1 our Gen 5 (16 Gbps) products represented 42% of director and switch revenue compared with 17% in Q1 12 and nearly 35% in Q4 12.

SAN product revenue was $361.7M in the quarter, up 3% Yr./Yr and up 7% sequentially, led by switch revenue, which was up 8% Yr./Yr. and 14% Qtr./Qtr. Q1 director revenue was up 2% Yr./Yr. and 2% sequentially with more than 60% of the director revenue coming from our Gen 5 products.

Our Server product group, including embedded switches and server adapter products, posted revenue of $45.6M, down 14% Yr./Yr. and flat compared with Q4 12. This product group is more correlated to bladed server chassis sold through our OEM partners. In addition, our Gen 5 Fibre Channel embedded switches are just beginning to enter the market with these partners' new server platforms.

SAN-based support and services revenue was $55.2M in the quarter, up 3% Yr./Yr. and slightly down compared with Q4 12.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Moving on to our total IP Networking business, including hardware and support, Q1 revenue was $171.8M, up 11% Yr./Yr. and down 7% sequentially.

Q1 IP Networking product revenue was $140.5M, up 14% Yr./Yr. and down 8% Qtr./Qtr. As we look at the product splits for IP Networking in the quarter, we saw good year-over-year performance across all three product groups. Ethernet switch products, which includes products for the data center and campus environments, generated $69.3M in revenue, up 18% Yr./Yr. We saw continued revenue growth with our Brocade ICX campus product portfolio, which was launched in fiscal 2012, as well as good year-over-year performance with our Ethernet fabric switches. Ethernet switch revenue was down 21% Qtr./Qtr., principally due to lower revenues from our federal customers in a seasonally soft quarter for this vertical.

Routing revenue of $52.5M was up 5% Yr./Yr. and slightly down sequentially. The year-over-year increase in routing revenue was driven in part by an increase in revenue of 10 GbE blades including our 24-port 10 GbE blades that were launched in Q4 12. Other IP Networking revenue of $18.8M was up 25% Yr./Yr. and up 64% Qtr./Qtr. on increased Brocade ADX sales, largely due to the conversion of Brocade Network Subscription business to product sales in the quarter.

IP Networking-based support and services revenue was $31.3M in the quarter, up 2% Yr./Yr. and slightly down sequentially.

As we mentioned last quarter, with more of our IP Networking products sold through our two-tier distribution channel, it has become more difficult to identify the customer split of the end users. To estimate the customer split, we leverage the information reported to us from our channel partners as well as our internal sales funnel. From an estimated customer segment standpoint, our Federal business revenue of $26.5M was up nearly 30% Yr./Yr. and down sequentially as Q1 is a seasonally soft procurement quarter for our federal customers. Q1 Service Provider business revenue of $64.5M was flat year-over-year and up sequentially, while our Enterprise business revenue of $80.9M was up 17% Yr./Yr. and down slightly quarter-over-quarter.

From a geographic viewpoint, the Americas, EMEA, and Japan each had double-digit growth for IP Networking year-over-year, while APAC was lower.

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Brocade Q1 FY 2013 Earnings    2/14/2013

In Q1, three of our customers (EMC, HP, and IBM) each contributed at least 10% of the total company revenue. Our 10% customers collectively contributed 46% of revenue in Q1, unchanged from Q4 12 and down from 48% in Q1 12. All other OEMs represented 21% of revenue in Q1, up from 19% in Q4 12 and unchanged from Q1 12. Channel and direct routes to market contributed 33% of revenue in Q1, a decrease from 35% in Q4 12 and up from 31% in Q1 12.

The mix of business based on ship-to location was 62% domestic and 38% international in the quarter, a slightly higher domestic split compared with 61% in Q1 12. Total revenue in the Americas, EMEA, and Japan each increased at least 7% Yr./Yr., while APAC revenue was lower compared with Q1 12. Since some of our OEMs take delivery of our products domestically and then ship internationally to their end-users, the percentage of international revenue based on end-user location would be higher.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Q1 non-GAAP company gross margin of 66.0% exceeded our guidance range for the quarter due in part to a more favorable product mix and higher revenues.

Q1 non-GAAP product gross margin was 67.8%, above our 65% to 67% target model, and up from 66.6% in Q4 12 primarily due to a favorable product mix and higher volumes. Q1 non-GAAP SAN product gross margin was in the mid-70's, down slightly compared with Q4 12 and Q1 12. Q1 non-GAAP IP Networking product gross margin was over 50%, higher compared with Q1 12 due to higher volumes, a favorable product mix, and lower COGS spending. Non-GAAP IP Networking product gross margin has improved over 800 basis points over the last three quarters from a combination of higher volumes, ramp-up of new products, and lower COGS spending resulting in the highest IP Networking gross margin since Q1 10.

Non-GAAP Global Services gross margin was 55.5% in Q1, up 60 basis points quarter-over-quarter and up 100 basis points year-over-year based on lower spending.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Q1 non-GAAP gross margin was 66%, above our two-year target model range of 63% to 64%, driven by a favorable product mix as well as higher SAN revenue that is typical in our fiscal first quarter.

On a non-GAAP basis, total operating expenses were $250.6M, or 42.6% of revenues in Q1, within our two-year target model of 42.0% to 43.5% and relatively unchanged compared with Q4 12. Operating expenses on a dollar basis increased approximately 2% from Q4 12 levels and include operating expenses from Vyatta as we closed that acquisition on November 9, 2012. As principally a technology acquisition, Vyatta did not contribute meaningful revenue to Brocade in Q1. Ending headcount was 4,604 in Q1, slightly higher than the prior quarter and up primarily from the Vyatta acquisition.

Non-GAAP operating margin was 23.5% in Q1, an increase of 100 basis points compared with Q4 and 200 basis points higher than Q1 12. The Q1 non-GAAP operating margin was 150 basis points above the two-year target model range of 19.5% to 22.0%, as a result of higher gross margins than our model and continued operating expense management.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Operating cash flow was $59M in Q1, down 53% Yr./Yr. and 72% sequentially. We typically see lower cash from operations in our fiscal first quarter due to the payment of sales commissions and employee bonuses earned in FY12 as well as the semi-annual payment of the interest on our outstanding notes. We continued to see favorable shipment linearity in the quarter, which resulted in DSOs of 33.5 days. Total capital expenditures in the quarter were $18M.

Excluding restricted cash, our cash, equivalents, and short-term investments were $684M, down $29M from Q4 12 and up nearly $200M from Q1 12. During the quarter, we refinanced our 2018 notes resulting in a 200-basis point reduction of the interest rate to 4.625% and extension of the maturity of the notes to 2023. The new 2023 notes are senior unsecured obligations with investment grade covenants. As part of the refinancing, we called the 2018 notes on January 22, 2013 and will pay the $300M principal, associated call premium, and interest earned on February 21, 2013. For comparison purposes, we are excluding the restricted cash that will be used to retire the 2018 notes as well as the corresponding short-term notes payable in this presentation. This will make the comparisons for cash and debt more meaningful as we were in the process of paying off the 2018 notes with the proceeds from the 2023 notes as of the end of Q1.

As I mentioned earlier, we repurchased $47.5M of common stock during Q1 and had $501M remaining in the Board authorized share repurchase program exiting the quarter.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Looking forward to Q2 13, we considered a number of factors, including the following, in setting our outlook:

• The current macro environment and economy continue to show uncertainty, especially in Europe as well as spending by the U.S. federal government.

• For Q2, we expect SAN revenue to be down 5% to 8% sequentially, which is in line with our typical seasonality for our fiscal second quarter. For the fiscal year, we continue to see encouraging demand trends for the SAN market and expect year-over-year growth of 2% to 5%.

• We expect our Q2 IP Networking revenue to be down 2% to up 2% quarter-over-quarter.

• We expect non-GAAP operating expenses to be higher quarter-over-quarter, typical in our fiscal second quarter.

• At the end of Q1, OEM inventory was a little less than one and one-half weeks of supply based on SAN business revenue, slightly lower than inventory levels in Q4 12. We expect OEMs to continue to hold between one week and two weeks of inventory. OEM inventory levels may fluctuate due to both seasonality and large end-user order patterns at the OEMs.

• From a tax rate perspective, we assume a structural non-GAAP tax rate of 27% to 29% for FY13 which includes the benefit from the federal R&D tax credit this year. Discrete events can impact our tax rate from time to time.

• Our guidance reflects the share repurchases already completed in Q2.

• Cash from operations will be higher sequentially. As a reminder, our cash from operations in Q1 was impacted by the payment of sales commissions and employee bonuses earned in FY12 as well as the semi-annual payment of the interest on our notes.

• Based on the company's performance in Q1 and the outlook for Q2, we expect FY13 gross margins to be slightly above the two-year target model range of 63% to 64% and FY13 operating margins to be at or slightly above the middle of the range of the two-year target model of 19.5% to 22.0%.

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Brocade Q1 FY 2013 Earnings    2/14/2013

Prepared comments provided by Rob Eggers, Investor Relations

That concludes Brocade’s prepared comments. At 2:00 p.m. Pacific Time on February 14, Brocade will host a webcast conference call at www.brcd.com.

Thank you for your interest in Brocade.

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Brocade Q1 FY 2013 Earnings    2/14/2013

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Brocade Q1 FY 2013 Earnings    2/14/2013

Additional Financial Information:

	Q1 12		Q4 12		Q1 13
GAAP gross margin	61.5	%	62.4	%	63.5	%
Non-GAAP gross margin	64.8	%	64.8	%	66.0	%
GAAP product gross margin	63.2	%	64.0	%	65.3	%
Non-GAAP product gross margin	66.6	%	66.6	%	67.8	%
GAAP services gross margin	52.0	%	52.9	%	53.3	%
Non-GAAP services gross margin	54.5	%	54.9	%	55.5	%
GAAP operating margin	12.4	%	14.9	%	15.8	%
Non-GAAP operating margin	21.5	%	22.5	%	23.5	%

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Brocade Q1 FY 2013 Earnings    2/14/2013

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Brocade Q1 FY 2013 Earnings    2/14/2013

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