Brocade Communications Systems (BRCD) 8-K Brocade Reports Fiscal Q3 Results

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 Q3 Results

Strong Performance in Storage Area Networking Led the Way to Year-over-Year Growth in Revenue

SAN JOSE, Calif., August 18, 2010 — Brocade^® (NASDAQ: BRCD) today reported financial results for its third fiscal quarter ended July 31, 2010. Brocade recorded quarterly revenues of $504 million for an increase of two percent year-over-year, resulting in a diluted earnings per share (EPS) of $0.05 on a GAAP basis and $0.13 on a non-GAAP basis.

“Q3 was another solid quarter for Brocade in which we achieved better-than-expected results from our storage area networking business and continued to make progress in our Ethernet go-to-market initiatives,” said Michael Klayko, CEO of Brocade.

Klayko continued: “As we look to Q4, we expect a strong finish to our fiscal 2010. Despite operating in a challenging global economy with variable IT spending patterns, we are confident that our sales and marketing strategies as well as our product portfolio are aligned well with customer imperatives.”

In addition to this press release, Brocade management has posted prepared comments and slides on its Fiscal Q3 results and outlook atwww.BRCD.com. Brocade will host a live webcast conference call to answer questions from investors and analysts today at 2:30 p.m. Pacific time. Questions may also be submitted in advance toir@brocade.com.

Other Q3 product, customer and partner announcements are available athttp://newsroom.brocade.com/.

Financial Highlights and Additional Financial Information

• Q3 revenue was $504 million, increasing approximately 1% sequentially and 2% year-over-year.

• Q3 GAAP EPS (diluted) was $0.05, sequentially level, and increasing from a loss in Q3 2009.

• Q3 non-GAAP EPS (diluted) was $0.13, sequentially level, and increasing 8% year-over-year.

• Q3 non-GAAP operating margin was 17.3% versus 20.5% in Q2 2010 and 20.3% in Q3 2009.

• Q3 effective GAAP tax rate was (220)%; non-GAAP effective tax rate was 0.2%.

• Q3 Adj. EBITDA was $102 million, down from $116 million in Q2 2010 and $119 million in Q3 2009.

• Q3 total Storage Area Networking (SAN) port shipments were approximately 1.0 million.

	Q3 2010			Q2 2010			Q3 2009
Revenue	$	504M		$	501M		$	493M
GAAP net income (loss) (1)	$	22M		$	22M		$	(23)M
Non-GAAP net income	$	64M		$	63M		$	55M
GAAP EPS – diluted (1)	$	0.05		$	0.05		$	(0.06	)
Non-GAAP EPS – diluted	$	0.13		$	0.13		$	0.12
Non-GAAP gross margin		54.1	%		56.7	%		58.2	%
Non-GAAP operating margin		17.3	%		20.5	%		20.3	%
Adjusted EBITDA (2)	$	102M		$	116M		$	119M
Cash provided by operations	$	55M		$	68M		$	17M

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.

Brocade

130 Holger Way, San Jose, CA. 95134

T. 408.333.8000   F. 408.333.8101

www.brocade.com

	Q3 2010			Q2 2010			Q3 2009
As a % of total revenues
OEM revenues		64	%		63	%		63	%
Channel/Direct revenues		36	%		37	%		37	%
10% or greater customer revenues		44	%		44	%		46	%
Domestic revenues		64	%		65	%		64	%
International revenues		36	%		35	%		36	%
Data Storage Revenues		58	%		56	%		58	%
Ethernet Products Revenues		24	%		26	%		24	%
Federal % of Ethernet Revenues (3)		25	%		28	%		21	%
Stackable % of Ethernet Revenues (3)		35	%		36	%		26	%
Chassis % of Ethernet Revenues (3)		65	%		64	%		74	%
Enterprise % of Ethernet Revenues (3)		84	%		78	%		83	%
Service Providers % of Ethernet Revenues (3)		16	%		22	%		17	%
Global Services Revenue		18	%		18	%		18	%
	Q3 2010			Q2 2010			Q3 2009
Cash, cash equivalents and investments	$	295.7M		$	290.4M		$	249.9M
Deferred revenues	$	247.9M		$	246.7M		$	230.1M
Capital expenditures – non-campus related	$	23.1M		$	19.7M		$	20.0M
Capital expenditures – campus related	$	23.5M		$	42.4M		$	24.8M
Total debt, net of discount (1)	$	957M		$	981M		$	1,134M
Days sales outstanding		54 days			54 days			56 days
Employees at end of period		4,520			4,245			3,866

1) Retrospectively adjusted as a result of applying new standard that changed the accounting for convertible debt instruments.

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

3) Ethernet revenues include product and support revenues.

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

Page 2 of 9

include: (i) provision for certain pre-acquisition litigation, (ii) legal fees associated with certain pre-acquisition litigation, (iii) legal fees associated with indemnification obligations to former directors and officers and other related costs, net, (iv) acquisition and integration costs (in connection with the Foundry acquisition), (v) restructuring costs and facilities leases losses (vi) in-process research and development charges (in connection with the Foundry acquisition), (vii) goodwill and acquisition related intangibles impairment, (viii) loss on sale of property, (ix) acquisition-related financing charges, and (x) interest expense related to adoption of new standard relating to convertible debt instruments.

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 (loss) and net income (loss) 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.

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s expected financial performance, including sales and marketing strategies and product positioning. 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 effect of changes in IT spending levels in one or more of our target markets, market competition and changes in the industry, Brocade’s ability to successfully introduce new products and services on a timely basis, capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities, and Brocade’s ability to manage its business effectively in a rapidly evolving market. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2010. 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 GS: 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, visitwww.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.

^© 2010 Brocade Communications Systems, Inc. All Rights Reserved.

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	July 31, 2010			Aug 1, 2009 (1)			July 31, 2010			Aug 1, 2009 (1)
Net revenues
Product	$	414,702		$	402,483		$	1,273,672		$	1,183,117
Service		88,811			90,797			270,316			248,054
Total net revenues		503,513			493,280			1,543,988			1,431,171
Cost of revenues
Product		204,844			185,347			585,804			535,912
Service		47,668			47,488			146,456			132,606
Total cost of revenues		252,512			232,835			732,260			668,518
Gross margin		251,001			260,445			811,728			762,653
Operating expenses:
Research and development		85,884			94,718			265,317			259,464
Sales and marketing		101,112			103,640			291,289			281,703
General and administrative		17,540			23,070			49,719			62,753
Legal fees associated with indemnification obligations and other related costs		(74	)		(561	)		504			38,553
Amortization of intangible assets		16,190			17,052			49,433			51,666
Acquisition and integration costs		—			1,450			204			4,794
Restructuring costs and facilities lease loss benefit, net		—			—			—			2,329
In-process research and development		—			—			—			26,900
Goodwill and acquisition related intangible assets impairment		—			—			—			53,306
Total operating expenses		220,652			239,369			656,466			781,468
Income (loss) from operations		30,349			21,076			155,262			(18,815	)
Interest income and other loss, net		(1,399	)		809			(2,231	)		(2,912	)
Interest expense		(22,061	)		(24,875	)		(63,656	)		(76,528	)
Loss on sale of investments and property, net		(24	)		(52	)		(8,599	)		(576	)
Income (loss) before provision for (benefit from) income taxes		6,865			(3,042	)		80,776			(98,831	)
Income tax provision (benefit)		(15,096	)		20,452			(14,660	)		14,655
Net income (loss)	$	21,961		$	(23,494	)	$	95,436		$	(113,486	)
Net income (loss) per share – basic	$	0.05		$	(0.06	)	$	0.22		$	(0.29	)
Net income (loss) per share – diluted	$	0.05		$	(0.06	)	$	0.20		$	(0.29	)
Shares used in per share calculation – basic		449,489			406,916			443,795			390,087
Shares used in per share calculation – diluted		481,863			406,916			481,764			390,087

(1) As adjusted due to changes to the accounting for convertible debt instruments.

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	July 31, 2010			October 31, 2009 (1)
Assets
Current assets:
Cash and cash equivalents	$	292,537		$	334,193
Short-term investments		3,155			4,678
Restricted cash		—			12,502
Total cash, cash equivalents and short-term investments and restricted cash		295,692			351,373
Accounts receivable, net		296,530			297,819
Inventories		87,524			72,152
Deferred tax assets		77,904			84,629
Prepaid expenses and other current assets		57,615			79,302
Total current assets		815,265			885,275
Property and equipment, net		516,650			442,408
Goodwill		1,653,445			1,659,934
Intangible assets, net		374,657			470,872
Non-current deferred tax assets		191,781			184,713
Other assets		48,850			28,218
Total assets	$	3,600,648		$	3,671,420
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	146,001		$	181,249
Accrued employee compensation		79,380			160,832
Deferred revenue		185,536			174,870
Current liabilities associated with facilities lease losses		7,366			10,769
Current portion of capital lease obligations		1,683			—
Revolving credit facility		—			14,050
Current portion of term loan		26,312			38,822
Convertible subordinated debt		—			169,332
Other accrued liabilities		96,170			105,263
Total current liabilities		542,448			855,187
Non-current capital lease obligations, net of current portion		6,950			—
Term loan, net of current portion		327,239			860,114
Senior Secured Notes		595,270			—
Non-current liabilities associated with facilities lease losses		4,495			10,150
Non-current deferred revenue		62,412			60,575
Non-current income tax liability		59,812			92,276
Other non-current liabilities		8,154			15,114
Total liabilities		1,606,780			1,893,416
Stockholders’ equity
Common stock		452			434
Additional paid-in capital		2,028,908			1,901,238
Accumulated other comprehensive loss		(13,180	)		(5,920	)
Accumulated deficit		(22,312	)		(117,748	)
Total stockholders’ equity		1,993,868			1,778,004
Total liabilities and stockholders’ equity	$	3,600,648		$	3,671,420

(1) As adjusted due to changes to the accounting for convertible debt instruments.

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended July 31, 2010 and Aug 1, 2009

(in thousands)

(unaudited)

	Three Months Ended
	July 31, 2010			Aug 1, 2009 (1)
Cash flows from operating activities:
Net income (loss)	$	21,961		$	(23,494	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Change in excess tax benefits or detriments from share-based compensation		(5,255	)		—
Depreciation and amortization		50,493			50,956
Loss on disposal of property and equipment		379			218
Amortization of debt issuance costs and original issue discount		4,635			7,186
Net (gains) losses on investments and marketable equity securities		(7	)		52
Provision for doubtful accounts receivable and sales allowances		2,840			4,184
Non-cash compensation expense		24,682			43,313
Capitalization of interest cost		(720	)		(2,311	)
Changes in assets and liabilities:
Accounts receivable		(1,831	)		(51,734	)
Inventories		(10,705	)		10,092
Prepaid expenses and other assets		6,071			(13,848	)
Accounts payable		38,522			6,770
Accrued employee compensation		(49,490	)		(15,792	)
Deferred revenue		1,229			(14,370	)
Other accrued liabilities		(24,188	)		17,775
Liabilities associated with facilities lease losses		(3,356	)		(2,366	)
Net cash provided by operating activities		55,260			16,631
Cash flows from investing activities:
Purchases of property and equipment		(46,582	)		(44,826	)
Purchases of short-term investments		(17	)		(61	)
Proceeds from maturities and sale of short-term investments		—			8,466
Net cash used in investing activities		(46,599	)		(36,421	)
Cash flows from financing activities:
Payment of fees related to Senior Secured Notes		(664	)		—
Payment of principal related to the term loan		(30,564	)		(33,141	)
Payment of capital lease related to principal		(494	)		—
Change in excess tax benefits or detriments from share-based compensation		5,255			—
Proceeds from issuance of common stock, net		30,064			73,094
Common stock repurchases		(5,000	)		—
Net cash provided by (used in) financing activities		(1,403	)		39,953
Effect of exchange rate fluctuations on cash and cash equivalents		(1,954	)		1,390
Net increase in cash and cash equivalents		5,304			21,553
Cash and cash equivalents, beginning of period		287,233			222,626
Cash and cash equivalents, end of period	$	292,537		$	244,179

(1) As adjusted due to changes to the accounting for convertible debt instruments.

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended July 31, 2010 and Aug 1, 2009

(in thousands)

(unaudited)

	Nine Months Ended
	July 31,			Aug 1,
	2010			2009 (1)
Cash flows from operating activities:
Net income (loss)	$	95,436		$	(113,486	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Change in excess tax benefits or detriments from share-based compensation		(5,318	)		986
Depreciation and amortization		148,106			145,087
Loss on disposal of property and equipment		9,838			1,369
Amortization of debt issuance costs and original issue discount		16,419			17,784
Net (gains) losses on investments and marketable equity securities		(224	)		570
Provision for doubtful accounts receivable and sales allowances		8,706			9,533
Non-cash compensation expense		76,351			101,505
Capitalization of interest cost		(7,755	)		(6,356	)
Asset impairment charge		—			53,306
In-process research and development		—			26,900
Non-cash facilities lease loss benefit		—			(339	)
Changes in assets and liabilities, net of acquired assets and assumed liabilities:
Restricted cash		12,502			—
Accounts receivable		(7,419	)		(75,786	)
Inventories		(15,373	)		43,898
Prepaid expenses and other assets		16,629			4,304
Deferred tax assets		—			651
Accounts payable		(30,122	)		(41,867	)
Accrued employee compensation		(97,970	)		(56,110	)
Deferred revenue		12,503			21,078
Other accrued liabilities		(31,387	)		(5,426	)
Liabilities associated with facilities lease losses		(8,832	)		(7,391	)
Liability associated with class action lawsuit		—			(160,000	)
Net cash provided by (used in) operating activities		192,090			(39,790	)
Cash flows from investing activities:
Purchases of property and equipment		(155,970	)		(118,278	)
Purchases of short-term investments		(41	)		(116	)
Proceeds from maturities and sale of short-term investments		1,788			154,931
Proceeds from maturities and sale of long-term investments		—			30,173
Proceeds from sale of property		30,185			—
Decrease in restricted cash		—			1,075,079
Net cash paid in connection with acquisitions		—			(1,297,482	)
Net cash used in investing activities		(124,038	)		(155,693	)
Cash flows from financing activities:
Payment of convertible subordinated debt		(172,500	)		—
Payment of senior underwriting fees related to term loan		—			(30,525	)
Payment of fees related to Senior Secured Notes		(3,665	)		—
Payment related to the term loan		(552,808	)		(108,141	)
Change in excess tax benefits or detriments from share-based compensation		5,318			(986	)
Payment of revolving credit facility		(14,050	)		—
Payment of capital lease related to principal		(494	)		—
Proceeds from issuance of common stock, net		69,883			110,280
Common stock repurchases		(25,004	)		—
Proceeds from issuance of bonds		587,968			—
Proceeds from revolving credit facility		—			14,050
Net cash used in financing activities		(105,352	)		(15,322	)
Effect of exchange rate fluctuations on cash and cash equivalents		(4,356	)		1,100
Net decrease in cash and cash equivalents		(41,656	)		(209,705	)
Cash and cash equivalents, beginning of period		334,193			453,884
Cash and cash equivalents, end of period	$	292,537		$	244,179
Supplemental Schedule of non-cash investing activities:
Fair value of stock options and unvested awards assumed in exchange for acquired Foundry assets	$	—		$	254,312

(1) As adjusted due to changes to the accounting for convertible debt instruments.

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BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	July 31, 2010			Aug 1, 2009 (1)
Net income (loss) on a GAAP basis	$	21,961		$	(23,494	)
Adjustments:
Stock-based compensation expense included in cost of revenues		5,518			8,459
Amortization of intangible assets expense included in cost of revenues		14,466			17,950
Provision for certain pre-acquisition litigation		1,604			—
Legal fees associated with certain pre-acquisition litigation		13			—
Total gross margin adjustments		21,601			26,409
Legal fees associated with indemnification obligations and other related costs		(74	)		(561	)
Stock-based compensation expense included in research and development		6,392			12,444
Stock-based compensation expense included in sales and marketing		8,776			15,013
Stock-based compensation expense included in general and administrative		3,996			7,397
Amortization of intangible assets expense included in operating expenses		16,191			17,052
Acquisition and integration costs		—			1,450
Total operating expense adjustments		35,281			52,795
Total operating income adjustments		56,882			79,204
Interest expense related to adoption of new standards relating to convertible debt instruments		—			2,030
Income tax effect of adjustments		(15,217	)		(2,364	)
Non-GAAP net income	$	63,626		$	55,376
Non-GAAP net income per share – basic	$	0.14		$	0.14
Non-GAAP net income per share – diluted	$	0.13		$	0.12
Shares used in non-GAAP per share calculation – basic		449,489			406,916
Shares used in non-GAAP per share calculation – diluted		481,863			476,888

(1) As adjusted due to changes to the accounting for convertible debt instruments.

See explanation of non-GAAP information included herein.

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BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

	Nine Months Ended
	July 31, 2010			Aug 1, 2009 (1)
Net income (loss) on a GAAP basis	$	95,436		$	(113,486	)
Adjustments:
Stock-based compensation expense included in cost of revenues		16,377			18,593
Amortization of intangible assets expense included in cost of revenues		46,783			47,905
Provision for certain pre-acquisition litigation		1,604			—
Legal fees associated with certain pre-acquisition litigation		330			—
Total gross margin adjustments		65,094			66,498
Legal fees associated with indemnification obligations and other related costs		504			38,553
Stock-based compensation expense included in research and development		21,508			30,115
Stock-based compensation expense included in sales and marketing		27,809			35,886
Stock-based compensation expense included in general and administrative		10,657			16,911
Amortization of intangible assets expense included in operating expenses		49,433			51,666
Acquisition and integration costs		203			4,794
Restructuring costs and facilities lease losses		—			2,329
In-process research and development		—			26,900
Goodwill and acquisition related intangibles impairment		—			53,306
Total operating expense adjustments		110,114			260,460
Total operating income adjustments		175,208			326,958
Loss on sale of property		8,737			—
Acquisition-related financing charges		—			4,366
Interest expense related to adoption of new standards relating to convertible debt instruments		2,490			5,928
Income tax effect of adjustments		(61,501	)		(57,709	)
Non-GAAP net income	$	220,370		$	166,057
Non-GAAP net income per share – basic	$	0.50		$	0.43
Non-GAAP net income per share – diluted	$	0.45		$	0.38
Shares used in non-GAAP per share calculation – basic		443,795			390,087
Shares used in non-GAAP per share calculation – diluted		486,500			441,666

(1) As adjusted due to changes to the accounting for convertible debt instruments.

See explanation of non-GAAP information included herein.

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