Brocade Communications Systems (BRCD) 8-K/A Unaudited Pro Forma Condensed Combined Financial Statements

Exhibit 99.1

Unaudited Pro Forma Condensed Combined Financial Statements

          On January 29, 2007, Brocade Communications Systems, Inc. (“Brocade”) completed the acquisition of McDATA Corporation (“McDATA”), a provider of storage networking and data infrastructure solutions, in exchange for Brocade common stock and options, for an accounting purchase price of approximately $657.8 million. The following unaudited pro forma combined financial statements as of January 27, 2007, and the unaudited pro forma condensed combined statements of operations for the quarter ended January 27, 2007, and for the year ended October 28, 2006, are based on historical financial statements of Brocade and McDATA after giving effect to Brocade’s acquisition of McDATA using the purchase method of accounting and applying assumptions and adjustments as described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

          Brocade and McDATA have different fiscal year ends. Accordingly, the unaudited pro forma condensed combined balance sheet combines Brocade’s historical unaudited condensed consolidated balance sheet as of January 27, 2007, with McDATA’s historical unaudited condensed consolidated balance sheet as of October 31, 2006, giving effect to the merger as if it had occurred on January 27, 2007. The unaudited pro forma condensed combined statement of operations for the year ended October 28, 2006, combines Brocade’s historical audited consolidated statement of operations for the twelve months then ended with McDATA’s historical unaudited consolidated statement of operations for the twelve months ended October 31, 2006. The unaudited pro forma condensed combined statement of operations for the three months ended January 27, 2007, combines Brocade’s historical unaudited condensed consolidated statement of operations for the three months then ended with McDATA’s historical unaudited condensed consolidated statement of operations for the three months ended October 31, 2006. The unaudited pro forma condensed combined statements of operations give effect to the merger as if it had occurred on October 30, 2005. McDATA's historical unaudited condensed consolidated statement of operations for the three months ended October 31, 2006 are included in the unaudited pro forma condensed combined statement of operations for the three months ended January 27, 2007 as well as in the unaudited pro forma condensed combined statement of operations for the year ended October 28, 2006.

          The acquisition has been accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141(“SFAS 141”),Business Combinations. Under the purchase method of accounting, the total estimated purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets of McDATA acquired in connection with the acquisition based on their estimated fair values. Management has made a preliminary allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities assumed based on various estimates. The allocation of the estimated purchase price is preliminary pending finalization of various estimates and analyses.

          There were no significant intercompany balances and transactions between Brocade and McDATA as of the dates and for the periods of these unaudited pro forma condensed combined financial statements.

          The unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the condensed consolidated financial position or results of operations in future periods or the results that actually would have been realized had Brocade and McDATA been a combined company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. The unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, McDATA’s historical unaudited condensed consolidated financial statements included in its Form 10-Q for its quarter ended October 31, 2006, and Brocade’s historical audited consolidated financial statements included in its Form 10-K for the year ended October 28, 2006, and historical unaudited condensed consolidated financial statements included in its Form 10-Q for the three months ended January 27, 2007, which are incorporated by reference herein.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
OF BROCADE AND MCDATA

	Brocade			McDATA						Pro			Pro
	As of January			As of October			Reclass-			Forma			Forma
	27, 2007			31, 2006			ifications			Adjustments			Combined
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	249,807		$	150,609					$	—		$	400,416
Short-term investments		319,331			180,432						—			499,763
Securities lending collateral		—			62,230						—			62,230
Restricted cash and short-term investments		—			3,877						—			3,877
Accounts receivables, net		94,577			101,324						(365	)  (y)		195,536
Inventories		10,219			32,415						(22,498	)  (q)		20,136
Prepaid expenses and other current assets		49,250			13,959						(3,496	)  (s)		42,517
											(17,196	)  (g)
Total current assets		723,184			544,846						(43,555	)		1,224,475
Long-term investments		62,521			25,594						—			88,115
Property and equipment, net		110,154			102,517						(15,047	)  (h)		197,624
Goodwill		49,358			263,473						(263,473	)  (b)		405,985
											356,627	(k)
Intangible assets, net		16,069			91,728						(91,728	)  (a)		301,984
											285,915	(bb)
Restricted cash		—			8,507						—			8,507
Other long-term assets		6,741			54,594						(31,395	)  (u)		29,940
Total assets	$	968,027		$	1,091,259					$	197,344		$	2,256,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	55,819		$	66,066					$	6,983	(f)	$	128,868
Accrued employee compensation		48,085			—			25,066	A		—			73,151
Securities lending collateral payable		—			62,230						—			62,230
Accrued liabilities		87,225			66,127			(25,066	) A		38,845	(t)		167,131
Interest rate swap		—			725						—			725
Deferred revenue		52,641			51,802						(12,907	)  (i)		91,536
Current liabilities associated with lease losses		4,235			—						3,384	(cc)		7,619
Accrued restructuring		—			—						34,836	(r)		34,836
Current portion of obligations under capital leases		—			2,334						2,534	(x)		4,868
Convertible subordinated debt		—			120,631						1,719	(j)		122,350
Total current liabilities		248,005			369,915						75,394			693,314
Non-current liabilities associated with lease losses		10,935			—						26,970	(cc)		37,905
Other long-term liabilities		—			14,490						(14,490	)  (z)		—
Obligations under capital leases, less current portion		—			1,837						—			1,837
Interest rate swap		—			5,746						—			5,746
Deferred revenue, less current portion		16,562			25,710						(11,773	)  (i)		30,499
Convertible subordinated debt		—			166,754						(6,038	)  (j)		160,716
Total liabilities		275,502			584,452						70,063			930,017
Stockholders’ equity
Common Stock		285			1,599						(1,599	)  (c)		404
											119	(d)
Additional paid-in capital		932,511			679,802						(679,802	)  (c)		1,566,480
											615,589	(d)
											18,380	(e)
Accumulated other comprehensive loss		(1,386	)		(1,276	)					1,276	(c)		(1,386	)
Accumulated deficit		(238,885	)		(149,727	)					149,727	(c)		(238,885	)
Treasury stock at cost, net of reissuances		—			(23,591	)					23,591	(c)		—
Total stockholders’ equity		692,525			506,807						127,281			1,326,613
Total liabilities and stockholders’ equity	$	968,027		$	1,091,259					$	197,344		$	2,256,630

The accompanying notes are an integral part of these
unaudited pro forma combined condensed financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
OF BROCADE AND MCDATA

	Historical
				McDATA
	Brocade			Twelve months
	Twelve months			ended
	ended			October 31,			Pro			Pro
	October 28,			2006			Forma			Forma
	2006			Unaudited (1)			Adjustments			Combined
	(in thousands, except per share data)
Revenue	$	750,592		$	656,282			—		$	1,406,874
Cost of revenue		305,184			363,144			32,262	(n)		702,085
								1,495	(aa)
Gross profit		445,408			293,138			(33,757	)		704,789
Operating expenses:
Research and development		164,843			111,018			3,584	(aa)		279,445
Sales and marketing		139,434			145,794			2,481	(aa)		287,709
General and administrative		31,089			37,208			5,206	(aa)		73,503
Acquisition and integration costs		9,646			6,096			—			15,742
Internal review and SEC investigation costs		13,654			—			—			13,654
Provision for SEC settlement		7,000			—			—			7,000
Amortization of purchased intangible assets		2,294			39,981			(39,981	) (l)		40,270
								37,976	(o)
Amortization of deferred stock-based compensation		—			1,059			(1,059	) (m)		—
Facilities lease loss		3,775			—			—			3,775
Restructuring costs		—			7,160			—			7,160
Total operating expenses		371,735			348,316			(8,207	)		728,258
Operating income (loss)		73,673			(55,178	)		(41,964	)		(23,469	)
Interest and other income, net		29,098			22,543			1,331	(v)		52,972
Interest expense		(7,082	)		(18,831	)		(1,983	) (w)		(27,896	)
Gain on investments, net		2,663			—			—			2,663
Income (loss) before income taxes		98,352			(51,466	)		(42,616	)		4,270
Provision (benefit) for income taxes		30,723			(268	)		—	(p)		30,455
Net Income (loss)	$	67,629		$	(51,198	)	$	(42,616	)	$	(26,185	)
Basic net income (loss) per share	$	0.25		$	(0.33	)				$	(0.07	)
Shares used in computing basic income (loss) per share		269,602			153,838						384,981
Diluted net income (loss) per share	$	0.25		$	(0.33	)				$	(0.07	)
Shares used in computing diluted income (loss) per share		274,142			153,838						384,981

Shares used in computing basic and diluted income (loss) per share is the sum of Brocade shares plus McDATA shares (adjusted for the exchange ratio). McDATA’s shares are calculated by multiplying each share of McDATA Class A and Class B common stock by the exchange ratio of 0.75 Brocade shares for each McDATA Class A and Class B common stock. Dilutive potential common shares have been included only if they have a dilutive effect on earnings per share.

(1) The historical financial statements of McDATA for the twelve-months ended October 31, 2006 were derived by adding the three months ended January 31, 2006 to the nine months ended October 31, 2006.

The accompanying notes are an integral part of these
unaudited pro forma combined condensed financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
OF BROCADE AND MCDATA

	Historical
	Brocade			McDATA
	Three months			Three months
	ended			ended			Pro					Pro
	January 27,			October 31,			Forma					Forma
	2007			2006 (2)			Adjustments					Combined
	(in thousands, except per share data)
Revenue	$	224,156		$	156,089			—				$	380,245
Cost of revenue		82,790			92,949			8,065		(n	)		184,178
								374		(aa	)
Gross profit		141,366			63,140			(8,439	)				196,067
Operating expenses:
Research and development		42,391			30,522			896		(aa	)		73,809
Sales and marketing		38,587			36,541			620		(aa	)		75,748
General and administrative		7,404			8,716			1,302		(aa	)		17,422
Acquisition and integration costs		7,433			6,096			—					13,529
Internal review costs		5,228			—			—					5,228
Amortization of purchased intangible assets		910			6,939			(6,939	)	(l	)		10,405
								9,495		(o	)
Restructuring costs		—			393			—					393
Total operating expenses		101,953			89,207			5,374					196,534
Operating income (loss)		39,413			(26,067	)		(13,813	)				(467	)
Interest and other income, net		7,456			5,152			333		(v	)		12,941
Interest expense		(4	)		(4,963	)		(496	)	(w	)		(5,463	)
Income (loss) before income taxes		46,865			(25,878	)		(13,976	)				7,011
Provision for income taxes		13,547			469			—		(p	)		14,016
Net Income (loss)	$	33,318		$	(26,347	)	$	(13,976	)			$	(7,005	)
Basic net income (loss) per share	$	0.12		$	(0.17	)						$	(0.02	)
Shares used in computing basic income (loss) per share		272,855			154,637								388,833
Diluted net income (loss) per share	$	0.12		$	(0.17	)						$	(0.02	)
Shares used in computing diluted income (loss) per share		285,137			154,637								388,833

Shares used in computing basic and diluted income (loss) per share is the sum of Brocade shares plus McDATA shares (adjusted for the exchange ratio). McDATA’s shares are calculated by multiplying each share of McDATA Class A and Class B common stock by the exchange ratio of 0.75 Brocade shares for each McDATA Class A and Class B common stock. Dilutive potential common shares have been included only if they have a dilutive effect on earnings per share.

(2) The three-month pro forma results statement of operations consist of the three months ended January 27, 2007 for Brocade and the three months ended October 31, 2006 for McDATA. The three months ended October 31, 2006 for McDATA are also included in the twelve-month pro forma statement of operations above.

The accompanying notes are an integral part of these
unaudited pro forma combined condensed financial statements.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1. Basis of Presentation

     On January 29, 2007, Brocade completed the acquisition of McDATA whereby McDATA became a wholly owned subsidiary of Brocade in a transaction accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141 (“SFAS 141”),Business Combinations. The total estimated purchase price of approximately $657.6 million includes Brocade common stock valued at $615.7 million, stock options, restricted stock and restricted stock units assumed and those that accelerated with a fair value of $18.4 million and estimated direct transaction costs of $23.5 million.

     The unaudited pro forma condensed consolidated financial statements give effect to the issuance of approximately 119.4 million shares of Brocade common stock based on an exchange ratio of 0.75 of a share of Brocade common stock for each outstanding share of McDATA Class A and Class B common stock as of August 7, 2006, the deal announcement date of the transaction. The average market price per share of Brocade common stock of $5.16 is based on an average of the closing prices for a range of trading days (August 4, 2006 through August 10, 2006) around the announcement date of the proposed merger in accordance with Emerging Issues Task Force 99-12 (“EITF 99-12”),Determination of the Measurement Date for Market Price of the Acquirer Securities Issued in a Purchase Business Combination.

     Under the terms of the merger agreement, at the effective time of the merger, each McDATA stock option that was outstanding and unexercised immediately prior to the effective time was converted into an option to purchase Brocade common stock and Brocade assumed that stock option, adjusted for the exchange ratio. Based on McDATA stock options outstanding at January 29, 2007, Brocade converted options to purchase approximately 17.2 million shares of McDATA Class A and Class B common stock into options to purchase approximately 12.9 million shares of Brocade common stock. The fair value of the outstanding options was determined using a Black-Scholes valuation model with the following weighted-average assumptions: volatility of 48.43%, risk-free interest rate of 5.2%, average expected life of 1.7 years and dividend yield of zero. The fair value of restricted stock was calculated using the intrinsic value method. In addition, Brocade exchanged shares of Brocade’s restricted common stock for all of McDATA’s outstanding restricted shares of restricted Class A and Class B common stock, after applying the exchange ratio. Certain outstanding restricted stock and certain restricted stock units issued under McDATA’s equity plans, whether or not vested, at the effective time of the merger became fully vested and were converted into, and deemed to constitute a right to receive shares of Brocade common stock, as adjusted by the exchange ratio discussed above. Based on the total number of shares of McDATA restricted Class A and Class B common stock outstanding at January 29, 2007, Brocade exchanged approximately 2.6 million shares of common stock for the outstanding McDATA restricted Class A and Class B common stock.

     The preliminary estimated total purchase price is as follows (in thousands):

Value of Brocade common stock issued	$	615,708
Estimated fair value of options assumed and accelerated and restricted Class A and Class B common stock exchanged		18,380
Estimated Direct transaction costs		23,496
Total preliminary estimated purchase price	$	657,584

     Under the purchase method of accounting, the total estimated purchase price as shown in the table above is allocated to McDATA’s net tangible and intangible assets based on their estimated fair values as of the date of the closing of the merger. The preliminary estimated purchase price has been allocated based on preliminary estimates that are described in the introduction to these unaudited pro forma condensed combined financial statements.

     The allocation of the preliminary purchase price and the estimated useful lives and first year amortization associated with certain assets is as follows (in thousands):

			First Year		Estimated
	Amount		Amortization		Useful Life
Net tangible assets	$	15,042	$	—		N/A
Identifiable intangible assets:
Acquired product rights		136,591		32,262	3-6 years
Customer contracts and relationships		141,577		35,394	4-7 years
Trademarks		7,747		2,582	3 years
Goodwill		356,627		—		N/A
Total preliminary estimated purchase price	$	657,584	$	70,238

     A preliminary estimate of $15.0 million has been allocated to net tangible assets acquired and approximately $285.9 million has been allocated to amortizable intangible assets acquired. The amortization related to the amortizable intangible assets is reflected as pro forma adjustments to the unaudited pro forma condensed combined statements of operations.

     Identifiable intangible assets.Acquired product rights include developed and core technology and patents. Developed technology relates to McDATA’s products across all of their product lines that have reached technological feasibility. Core technology and patents represent a combination of McDATA’s processes, patents and trade secrets developed through years of experience in design and development of their products. Brocade expects to amortize the fair value of the acquired product rights based on the pattern in which the economic benefits of the intangible assets will be consumed.

     Customer contracts and relationships represent existing contracts that relate primarily to underlying customer relationships. Brocade expects to amortize the fair value of these assets based on the pattern in which the economic benefits of the intangible asset will be consumed.

     Trademarks relates to the McDATA trade name and other product names, which Brocade expects to amortize based on the pattern in which the economic benefits of the intangible asset will be consumed.

     Goodwill.Approximately $356.6 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. In accordance with Statement of Financial Standards No. 142 (“SFAS 142”),Goodwill and Other Intangible Assets, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management of the combined company determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.

2. Restructuring

     Restructuring costs related to McDATA operations include employee severance costs, planned closure of certain McDATA facilities and other costs associated with exiting activities of McDATA in accordance with Statement of Financial Standards No. 143 (“SFAS 143”),Accounting for Asset Retirement Obligations and Emerging Issues Task Force 95-3 (“EITF 95-3”),Recognition of Liabilities in Connection with a Purchase Business Combination. We currently estimate total restructuring costs associated with exit activities of McDATA to approximate $65.2 million. These costs are included in the assumed liabilities of McDATA as of January 29, 2007.

3. Reclassifications

     A reclassification has been made to conform McDATA’s historical reported balances to the pro forma condensed combined financial statements. The reclassification is as follows:

     (A) To reclassify McDATA’s accrued employee compensation to a separate line item to conform to Brocade’s presentation.

4. Pro Forma Adjustments

     Pro forma adjustments are necessary to reflect the estimated purchase price, to reflect amounts related to McDATA’s net tangible and intangible assets at an amount equal to the preliminary estimate of their fair values, to reflect the amortization expense related to the estimated amortizable intangible assets and stock-based compensation, to reflect changes in depreciation and amortization expense resulting from the estimated fair value adjustments to net tangible assets and to reflect the income tax effect related to the pro forma adjustments.

     There were no significant intercompany balances and transactions between Brocade and McDATA as of the dates and for the periods of these pro forma condensed combined financial statements.

     The pro forma combined provision for income taxes does not necessarily reflect the amounts that would have resulted had Brocade and McDATA filed consolidated income tax returns during the periods presented.

     Brocade has not identified any pre-merger contingencies where the related asset, liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated. Prior to the end of the purchase price allocation period, if information becomes available which would indicate it is probable that such events have occurred and the amounts can be reasonably estimated, such items will be included in the purchase price allocation.

     The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:

(a)	To eliminate McDATA’s historical intangible assets;
(b)	To eliminate McDATA’s historical goodwill;
(c)	To eliminate McDATA’s equity;
(d)	To record the fair value of Brocade shares exchanged in the merger;
(e)	To record the fair value of McDATA’s Class A and Class B common stock options assumed and of restricted Class A and Class B common stock and restricted stock units exchanged;
(f)	To accrue for direct costs of the merger transaction;
(g)	To capitalize prepaid direct costs of the merger upon consummation of the transaction;
(h)	To adjust McDATA’s property, plant and equipment to fair value;
(i)	To reduce deferred revenue to the fair value of the legal performance obligations under McDATA existing contracts;
(j)	To adjust McDATA’s convertible debt to fair value;
(k)	To record goodwill associated with the McData acquisition;
(l)	To eliminate McDATA’s historical amortization of intangible assets;
(m)	To eliminate McDATA’s historical amortization of deferred stock-based compensation;
(n)	To amortize acquired product rights based upon the pattern in which the economic benefits of the intangible assets will be consumed;
(o)	To amortize other intangible assets based upon the pattern in which the economic benefits of the intangible asset will be consumed;

(p)	Brocade and McDATA have significant net operating loss carryforwards and tax credits therefore any deferred tax liabilities associated with identifiable intangible assets would be offset by existing deferred tax assets and as a result, the pro forma tax impact is zero; however, Brocade is currently evaluating the need to maintain a valuation allowance against its deferred tax assets;
(q)	To adjust McDATA inventory to fair value due to expected declines in product demand;
(r)	To record certain restructuring costs associated with exiting McDATA activities;
(s)	To adjust prepaid expenses and other current assets based on their future economic benefit;
(t)	To record accrued liabilities related to expected declines in product demand;
(u)	To eliminate McDATA’s historical net balance of capitalized internally developed software;
(v)	To amortize the premium on McDATA’s convertible short term subordinated debt as a result of the adjustment to fair value;
(w)	To amortize the discount on McDATA’s convertible long term subordinated debt as a result of the adjustment to fair value;
(x)	To record capital lease obligations at fair value based on their future economic benefit;
(y)	To adjust accounts receivable, net to fair value;
(z)	To adjust other long term liabilities related to lease obligations based on their future economic benefit;
(aa)	To amortize deferred stock based compensation related to the acquisition;
(bb)	To record the fair value of McDATA’s identifiable intangible assets, and
(cc)	To record a lease loss reserve related to exiting certain McDATA facilities

5. Pro Forma Net Income Per Share

     The pro forma basic and diluted net income per share are based on the number of Brocade shares of common stock used in computing basic and diluted net income per share plus the number of McDATA shares of Class A and Class B common stock used in computing basic and diluted net income per share multiplied by the exchange ratio.