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): May 21, 2009

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)

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 May 21, 2009, Brocade Communications Systems, Inc. issued a press release announcing its financial results for the second quarter ended May 2, 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 May 21, 2009, announcing financial results of Brocade Communications Systems, Inc. for the second quarter ended May 2, 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: May 20, 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 John Patun Tel: 408-333-6281 jpatun@brocade.com

Brocade Reports Q2 FY 2009 Results
Revenue Up 43 Percent Year-Over-Year, 17 Percent Sequentially

SAN JOSE, Calif., May. 21, 2009 — Brocade^® (NASDAQ: BRCD) today reported financial results for its second fiscal quarter, which ended May 2, 2009. Brocade reported Q2 revenues of $506.3 million, a 17% quarter on quarter growth and a 43% year on year growth.

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

“Brocade had another outstanding quarter where we achieved record revenues driven by strong customer demand for our end-to-end networking solutions,” said Mike Klayko, CEO of Brocade. “We are executing well to our long-term business-growth strategy with the rapid integration of the Foundry business, securing new routes-to-market for our IP networking portfolio, and leveraging our OEM and channel partner relationships to expand our footprint in the industry.”

Second Fiscal Quarter 2009 Business Highlights

Partnership Announcements

• Brocade announced that IBM will rebrand and sell a set of Brocade enterprise IP networking products through the IBM global sales force and authorized IBM Business Partners, extending the existing relationship between Brocade and IBM for storage area networking products;

• http://newsroom.brocade.com/article_display.cfm?article_id=864

• Brocade became the manufacturing and marketing partner for the new HP Virtual Connect 8 Gbps 24-port Fibre Channel module to provide leading storage area network connectivity within the new HP BladeSystem Matrix virtualization offering;

• http://newsroom.brocade.com/article_display.cfm?article_id=849

• Brocade announced the new Brocade Technology Alliance Partner Program to develop new business opportunities and long-term strategic alliances by delivering comprehensive, proven, and customized joint technology solutions to enterprises and service providers;

• http://newsroom.brocade.com/article_display.cfm?article_id=867

Product Introductions

• Brocade unveiled one of the industry’s only end-to-end Fibre Channel over Ethernet (FCoE)-based solution that brings the Fibre Channel standard and Converged Enhanced Ethernet (CEE) together;

• http://newsroom.brocade.com/article_display.cfm?article_id=838

• Brocade announced Brocade IronView Network Manager (INM) integration with Microsoft Forefront “Stirling” to simplify network management and enhance security;

• http://newsroom.brocade.com/article_display.cfm?article_id=848

Executive and Corporate Leadership

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

• Brocade added to its leadership ranks with the appointment of Barbara Spicek as its new Vice President of Worldwide Channels, further signifying the company’s commitment to bolster its global sales and high-touch customer engagements through a network of go-to-market partners;

• http://newsroom.brocade.com/article_display.cfm?article_id=531

• Brocade was honored by the San Francisco Business Times as a “Best Place to Work” in the San Francisco Bay Area for 2009;

• http://newsroom.brocade.com/article_display.cfm?article_id=865

Customer Wins

• Brocade showcased several data center and enterprise IP networking customer wins, including CreditReport.com and Texas A&M University-Kingsville.

• http://newsroom.brocade.com/article_display.cfm?article_id=527

• http://newsroom.brocade.com/article_display.cfm?article_id=839

Second Fiscal Quarter 2009 Financial Highlights and Additional Financial Information (3)

• In Q2 09, Brocade achieved record revenue of $506.3 million, a 17% quarter on quarter growth and a 43% year on year growth.

• Brocade reported GAAP net loss of $63.1 million or $(0.16) per share diluted, and net income of $47.1 million or $0.11 per share diluted on a non-GAAP basis.

• Brocade’s total installed base of SAN ports was approximately 21.8 million.

• In Q2 09, Average Selling Price (ASP) declines were in the low single digits compared to Q1 09.

• In Q2 09, net stock-based compensation expense was $40.1 million.

• Brocade’s GAAP effective tax rate was 28.2%, and its non-GAAP effective tax-rate was 32.1% in Q2 09.

	Q2 2009			Q1 2009			Q2 2008
Revenue	$	506.3 M		$	431.6 M		$	354.9 M
GAAP net income (loss)	$	(63.1) M		$	(26.0) M		$	91.4 M
GAAP EPS — diluted		($0.16) M			($0.07	)	$	0.23
Non-GAAP net income	$	47.1 M		$	63.6 M		$	59.7 M
Non-GAAP EPS — diluted	$	0.11		$	0.15		$	0.15
Non-GAAP gross margin		56.20	%		59.70	%		61.10	%
Non-GAAP operating margin		18.80	%		26.10	%		22.90	%
Cash provided by (used in) operations	$	107.3 M		$	(163.8) M		$	198.3 M
Normalized cash provided by operations	$	107.3 M		$	46.0 M		$	198.3 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.

As a % of total revenues	Q2 2009			Q1 2009			Q2 2008
OEM revenues		62	%		76	%		86	%
Channel/Direct revenues		38	%		24	%		14	%
10% or greater customer revenues		43	%		56	%		65	%
Domestic revenues (1)		69	%		64	%		62	%
International revenues (1)		31	%		36	%		38	%
Service revenues		17	%		16	%		17	%
Data Storage Revenue		58	%		72	%		83	%
IP Products Revenue		24	%		12	%		1	%
Stackable % of IP Revenues (2)		26	%		27	%		28	%
Chassis % of IP Revenues (2)		74	%		73	%		72	%
Enterprise% of IP Revenues (2)		78	%		74	%		74	%
Service Providers % of IP Revenues (2)		22	%		26	%		26	%
Global Services Revenue		17	%		16	%		17	%

Page 2 of 10

	Q2 2009		Q1 2009		Q2 2008
Cash, cash equivalents and investments	$	236.9 M	$	215.9 M	$	796.5 M
Deferred revenues	$	244.4 M	$	226.7 M	$	103.0 M
Capital expenditures — non-campus related	$	15.7 M	$	12.6 M	$	14.1 M
Capital expenditures — campus related	$	21.9M	$	23.2 M		0
Total debt, net of discount	$	1,169M	$	1,240 M	$	169 M
Days sales outstanding	49 days		52 days		43 days
Employees at end of period		3,800		3,950		2,759

1.	Based on Brocade estimates of adjustment for OEMs taking delivery of internationally bound shipments in the United States, end-user demand was 51% domestic and 49% international.
2.	On a As If combined company basis.
3.	Q2’09 is the first 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 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 directors and officers and other related costs, (ii) legal fees associated with certain pre-acquisition litigation, (iii) acquisition and integration costs (in connection with the Foundry acquisition), (iv) in-process research and development charge (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 and (ii) amortization of purchased intangible assets, (iii) goodwill and acquisition related intangible 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 the Company’s newly acquired and long-held businesses.

Page 3 of 10

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 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 (loss) and net income (loss) 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.

Second Fiscal Quarter 2009 Conference Call and Webcast Information

Brocade management will host a conference call to discuss second quarter 2009 results on Thursday, May 21, 2009, at 5:00 a.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 May 28, 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 the Company’s market positioning and opportunities, 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 and the effect of changes in IT spending levels, the Company’s ability to realize the anticipated benefits from the acquisition of Foundry, the Company’s ability to successfully introduce new products and services on a timely basis, market competition, 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 January 24, 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.

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 4 of 10

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

	Three Months Ended						Six Months Ended
	May 2,			April 26,			May 2,			April 26,
	2009			2008			2009			2008
Net revenues
Product	$	418,034		$	295,584		$	780,634		$	593,529
Services		88,266			59,311			157,257			109,214
Total net revenues		506,300			354,895			937,891			702,743
Cost of revenues
Product		199,374			116,628			350,565			234,404
Services		47,133			32,814			85,118			66,309
Total cost of revenues		246,507			149,422			435,683			300,713
Gross margin		259,793			205,453			502,208			402,030
Operating expenses:
Research and development		96,295			61,131			164,746			119,336
Sales and marketing		104,898			69,985			178,064			133,160
General and administrative		21,295			13,316			39,683			25,683
Legal fees associated with indemnification obligations, SEC investigation and other related costs		19,814			4,789			39,113			14,448
Provision for class action lawsuit		—			160,000			—			160,000
Amortization of intangible assets		21,385			7,909			34,614			15,818
Acquisition and integration costs		2,391			—			3,344			—
Restructuring costs and facilities lease loss (benefits), net		2,329			(477	)		2,329			(477	)
In-process research and development		—			—			26,900			—
Goodwill and Acquisition related intangibles impairment		53,306			—			53,306			—
Total operating expenses		321,713			316,653			542,099			467,968
(Loss) from operations		(61,920	)		(111,200	)		(39,891	)		(65,938	)
Interest and other income/(expense), net		90			7,306			(3,721	)		18,791
Interest expense		(26,398	)		(1,760	)		(47,755	)		(3,281	)
Gain /(Loss) on investments, net		341			(4,725	)		(523	)		(6,949	)
Income (Loss) before provision for income taxes		(87,887	)		(110,379	)		(91,890	)		(57,377	)
Income tax provision/(benefit)		(24,769	)		(201,757	)		(2,741	)		(168,600	)
Net income	$	(63,118	)	$	91,378		$	(89,149	)	$	111,223
Net income/(loss) per share — Basic	$	(0.16	)	$	0.24		$	(0.23	)	$	0.29
Net income/(loss) per share — Diluted	$	(0.16	)	$	0.23		$	(0.23	)	$	0.28
Shares used in per share calculation — Basic		387,143			374,827			381,673			379,010
Shares used in per share calculation — Diluted		387,143			393,471			381,673			398,375

Page 5 of 10

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

	May 2,			October 25,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	222,626		$	453,884
Short-term investments		14,239			152,741
Total cash, cash equivalents and short-term investments		236,865			606,625
Accounts receivable, net		254,237			158,935
Inventories		65,765			21,362
Deferred tax asset		115,134			104,705
Prepaid expenses and other current assets		61,733			49,931
Total current assets		733,734			941,558
Long-term marketable equity securities		—			177,380
Long-term investments		—			36,120
Restricted cash		—			1,075,079
Property and equipment, net		373,562			313,379
Goodwill		1,693,103			268,977
Intangible assets, net		540,825			220,567
Non-current deferred tax asset		127,002			227,795
Other assets		31,370			37,793
Total assets	$	3,499,596		$	3,298,648
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	140,498		$	167,660
Accrued employee compensation		122,263			107,994
Deferred revenue		185,689			103,372
Current liabilities associated with facilities lease losses		14,017			13,422
Liability associated with class action lawsuit		—			160,000
Revolving credit facility		14,050			—
Current portion of long-term debt		43,601			43,606
Convertible subordinated debt		170,741			—
Purchase commitments		28,212			17,332
Other accrued liabilities		64,048			88,472
Total current liabilities		783,119			701,858
Long-term debt, net of current portion		940,365			1,011,399
Convertible subordinated debt		—			169,660
Non-current liabilities associated with lease losses		15,102			15,007
Non-current deferred revenue		58,750			37,869
Non-current income tax liability		92,237			67,497
Other non-current liabilities		10,866			13,118
Stockholders’ equity
Common stock		1,723,641			1,393,299
Accumulated other comprehensive loss		(10,155	)		(85,877	)
Accumulated deficit		(114,329	)		(25,182	)
Total stockholders’ equity		1,599,157			1,282,240
Total liabilities and stockholders’ equity	$	3,499,596		$	3,298,648

Page 6 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended May 2, 2009 and April 26, 2008
(in thousands)
(unaudited)

	Three Months Ended
	May 2,			April 26,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(63,118	)	$	91,378
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		651			5,009
Depreciation and amortization		54,377			28,635
(Gain) Loss on disposal of property and equipment		593			567
Amortization of debt issuance costs		5,077			—
Net (gains) losses on investments and marketable equity securities		(342	)		4,780
Provision for doubtful accounts receivable and sales allowances		3,079			1,620
Non-cash compensation expense		40,111			11,176
Capitalization of interest cost		(2,000	)		—
In-process research and development		—			—
Non-cash facilities lease loss benefit		(339	)		(477	)
Goodwill and Acquisition related intangibles impairment		53,306			—
Changes in assets and liabilities:
Accounts receivable		(12,009	)		(10,116	)
Inventories		19,409			2,937
Prepaid expenses and other assets		19,381			(24,973	)
Deferred tax assets		651			(41	)
Accounts payable		15,443			13,791
Accrued employee compensation		6,739			18,713
Deferred revenue		17,767			4,282
Other accrued liabilities		(49,721	)		(367	)
Liabilities associated with facilities lease losses		(1,704	)		(2,365	)
Liability associated with class action lawsuit		—			160,000
Net cash provided by (used in) operating activities		107,349			119,073
Cash flows from investing activities:
Purchases of property and equipment		(37,634	)		(14,072	)
Purchases of short-term investments		(55	)		(26,656	)
Proceeds from sale of marketable equity securities and equity investments		—			4,123
Proceeds from maturities and sale of short-term investments		10,168			121,145
Purchases of long-term investments		—			(8,275	)
Proceeds from maturities and sale of long-term investments		115			22,331
Decrease in restricted cash		—			—
Net cash paid in connection with acquisitions		—			(43,554	)
Net cash provided by (used in) investing activities		(27,406	)		55,042
Cash flows from financing activities:
Payment related to the term loan		(75,000	)		—
Common stock repurchases		—			(50,170	)
Excess tax benefit from employee stock plans		(651	)		(5,009	)
Proceeds from issuance of common stock, net		28,638			6,876
Proceeds from revolving credit facility					—
Net cash used in financing activities		(47,013	)		(48,303	)
Effect of exchange rate fluctuations on cash and cash equivalents		(341	)		1,131
Net increase (decrease) in cash and cash equivalents		32,589			126,943
Cash and cash equivalents, beginning of period		190,038			386,590
Cash and cash equivalents, end of period	$	222,627		$	513,533

Page 7 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended May 2, 2009 and April 26, 2008
(in thousands)
(unaudited)

	Six Months Ended
	May 2,			April 26,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(89,149	)	$	111,223
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			1,084
Depreciation and amortization		94,131			59,524
Loss on disposal of property and equipment		1,150			1,196
Amortization of debt issuance costs		6,699			—
Net losses on investments and marketable equity securities		518			6,447
Provision for doubtful accounts receivable and sales allowances		5,350			3,309
Non-cash compensation expense		58,192			19,647
Capitalization of interest cost		(4,044	)		—
Goodwill and Acquisition related intangibles impairment		53,306			—
In-process research and development		26,900			—
Non-cash facilities lease loss benefit		(339	)		(477	)
Changes in assets and liabilities:
Accounts receivable		(24,053	)		11,586
Inventories		33,806			5,599
Prepaid expenses and other assets		21,208			(21,703	)
Deferred tax assets		651			—
Accounts payable		(48,637	)		(16,792	)
Accrued employee compensation		(40,319	)		2,597
Deferred revenue		35,448			9,988
Other accrued liabilities		(23,200	)		35,063
Liabilities associated with facilities lease losses		(5,025	)		(4,841	)
Liability associated with class action lawsuit		(160,000	)		160,000
Net cash provided by (used in) operating activities		(56,421	)		198,274
Cash flows from investing activities:
Purchases of property and equipment		(73,452	)		(31,251	)
Purchases of short-term investments		(55	)		(101,575	)
Proceeds from sale of marketable equity securities and equity investments		—			9,926
Proceeds from maturities and sale of short-term investments		146,465			298,446
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 provided by (used in) investing activities		(119,272	)		116,744
Cash flows from financing activities:
Payment of senior underwriting fees related to the term loan		(30,525	)		—
Payment related to the term loan		(75,000	)		—
Common stock repurchases		—			(130,181	)
Excess tax benefit from employee stock plans		(986	)		(1,084	)
Proceeds from issuance of common stock, net		37,186			14,699
Proceeds from revolving credit facility		14,050			—
Net cash used in financing activities		(55,275	)		(116,566	)
Effect of exchange rate fluctuations on cash and cash equivalents		(290	)		(674	)
Net increase (decrease) in cash and cash equivalents		(231,260	)		197,778
Cash and cash equivalents, beginning of period		453,884			315,755
Cash and cash equivalents, end of period	$	222,627		$	513,533

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

	Three Months Ended
	May 2,			April 26,
	2009			2008
Net income on a GAAP basis	$	(63,118	)	$	91,378
Adjustments:
Stock-based compensation expense included in cost of revenues		6,825			2,371
Amortization of intangible assets expense included in cost of revenues		17,987			8,512
Legal fees associated with certain pre-acquisition litigation		—			458
Total gross margin adjustments		24,812			11,341
Legal fees associated with indemnification obligations, SEC investigation and other related costs		19,814			4,789
Stock-based compensation expense included in research and development		12,329			2,528
Stock-based compensation expense included in sales and marketing		14,684			3,146
Stock-based compensation expense included in general and administrative		6,273			3,131
Amortization of intangible assets expense included in operating expenses		21,385			7,909
Acquisition and integration costs		2,391			—
In-process research and development		—			(477	)
Restructuring costs and facilities lease losses (benefits), net		2,329			—
Goodwill and acquisition related intangibles impairment		53,306			—
Total operating expense adjustments		132,511			21,026
Total operating income adjustments		157,323			32,367
Loss on sale of investments, net		—			4,189
Acquisition-related financing charges		—			—
Provision for class action lawsuit		—			160,000
Income tax effect of adjustments		(47,079	)		(228,248	)
Non-GAAP net income	$	47,126		$	59,686
Non-GAAP net income per share — Basic	$	0.12		$	0.16
Non-GAAP net income per share — Diluted	$	0.11		$	0.15
Shares used in non-GAAP per share calculation — Basic		387,143			374,827
Shares used in non-GAAP per share calculation — Diluted		432,331			393,471

See explanation of non-GAAP information included herein.

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

	Six Months Ended
	May 2,			April 26,
	2009			2008
Net income (loss) on a GAAP basis	$	(89,149	)	$	111,223
Adjustments:
Stock-based compensation expense included in cost of revenues		10,133			4,863
Amortization of intangible assets expense included in cost of revenues		29,955			19,841
Legal fees associated with certain pre-acquisition litigation		—			458
Total gross margin adjustments		40,088			25,162
Legal fees associated with indemnification obligations and other related costs		39,113			14,448
Stock-based compensation expense included in research and development		17,670			5,152
Stock-based compensation expense included in sales and marketing		20,873			5,132
Stock-based compensation expense included in general and administrative		9,515			4,502
Amortization of intangible assets expense included in operating expenses		34,614			15,818
Acquisition and integration costs		3,344			—
Restructuring costs and facilities lease losses (benefits), net		2,329			(477	)
In-process research and development		26,900			—
Goodwill and acquisition related intangibles impairment		53,306			—
Total operating expense adjustments		207,664			44,575
Total operating income adjustments		247,752			69,737
Loss on sale of investments, net		—			6,004
Acquisition-related financing charges		4,366			—
Provision for class action lawsuit		—			160,000
Income tax effect of adjustments		(52,288	)		(223,042	)
Non-GAAP net income	$	110,681		$	123,922
Non-GAAP net income per share — basic	$	0.29		$	0.33
Non-GAAP net income per share — diluted	$	0.26		$	0.32
Shares used in non-GAAP per share calculation — basic		381,673			379,010
Shares used in non-GAAP per share calculation — diluted		424,056			398,375

See explanation of non-GAAP information included herein.

Page 10 of 10