Brocade Reports Fourth Quarter and Fiscal Year 2014 Earnings

SAN JOSE, CA--(Marketwired - Nov 24, 2014) -  Brocade^® (NASDAQ: BRCD) today reported financial results for its fourth quarter and full fiscal year 2014 ending November 1, 2014. Brocade reported fourth quarter revenue of $564 million, representing an increase of 1% year-over-year and an increase of 3% quarter-over-quarter. Revenue for fiscal year 2014 was $2,211 million, down 1% year-over-year due to the divestiture and repositioning of certain product lines. The resulting GAAP diluted earnings-per-share (EPS) was $0.19 for Q4 and $0.53 for fiscal year 2014, up 36% and 18% year-over-year, respectively. Non-GAAP diluted EPS was $0.24 for Q4, unchanged year-over-year, and $0.90 for fiscal year 2014, up 12% from fiscal year 2013.

"We delivered another strong quarter, highlighted by above-market growth of 9% in IP Networking product revenue and 2% SAN product revenue growth, on continuing products," said Lloyd Carney, CEO of Brocade. "Our focus is on helping customers migrate to the New IP, accelerating data center innovation, building on our software networking leadership, and delivering a world-class customer experience."

Key Financial Metrics:
		Q4 2014				Q3 2014				Q4 2013				Q4 2014 vs. Q3 2014			Q4 2014 vs. Q4 2013
Revenue		$	564	M		$	545	M		$	559	M		3	%		1	%
GAAP EPS - diluted		$	0.19			$	0.20			$	0.14			(5	%)		36	%
Non-GAAP EPS - diluted		$	0.24			$	0.23			$	0.24			2	%		(1	%)
GAAP gross margin			66.8	%			66.3	%			64.9	%		0.5	pts		1.9	pts
Non-GAAP gross margin			67.7	%			67.2	%			67.2	%		0.5	pts		0.5	pts
GAAP operating margin			22.4	%			21.6	%			15.0	%		0.8	pts		7.4	pts
Non-GAAP operating margin			26.8	%			25.7	%			26.6	%		1.1	pts		0.2	pts
Cash provided by operations		$	158	M		$	106	M		$	170	M		49	%		(7	%)
Share repurchases		$	33	M		$	112	M		$	53	M		(71	%)		(38	%)

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

Highlights:

• Q4 2014 SAN product revenue was $325 million, flat year-over-year and quarter-over-quarter. The SAN year-over-year product revenue performance reflects improvement in director and switch product sales offset by lower server product sales. Fiscal year 2014 SAN product revenue was $1,327 million, up 1% year-over-year. Excluding the divestiture of the HBA business, Q4 and fiscal year 2014 SAN product revenue were both up 2% year-over-year.
  
  
• Q4 2014 IP Networking product revenue was $152 million, up 5% year-over-year and 15% quarter-over-quarter. The year-over-year increase was primarily driven by stronger switch and router sales into the U.S. Federal government and router sales into the service provider market. Fiscal year 2014 IP Networking product revenue was $525 million, down 5% year-over-year. Adjusting for the discontinuation of the wireless and network adapter products, and the repositioning of the Brocade ADX^® product line, Q4 and fiscal year 2014 IP Networking product revenue grew 9% and 1%, respectively.
  
  
• In fiscal year 2014, Brocade's full-year GAAP gross margins and operating margins were 66.3% and 17.5%, respectively. Non-GAAP gross margins and operating margins reached 67.3% and 25.9%, respectively. Full-year operating cash flow was $542 million, a 20% increase over fiscal year 2013. During fiscal year 2014, the Company repurchased $335 million of stock, or 38 million shares, and paid $30 million in dividends. This return of capital to shareholders represents 66% of adjusted free cash flow for the year.
  
  
• During Q4, Brocade acquired the network visibility and analytics technology assets from privately-held Vistapointe in an all cash transaction. The Vistapointe technologies are software-based, carrier-grade network visibility and analytics solutions for mobile operators. This acquisition expands Brocade's capabilities in the strategic area of software networking and enables the Company to address the emerging opportunities and requirements of mobile service provider customers.
  
  

Board Declares Dividend
The Brocade Board of Directors has declared a quarterly cash dividend of $0.035 per share of the Company's common stock. The dividend payment will be made on January 2, 2015, to shareholders of record at the close of market on December 10, 2014.

Brocade management will host a conference call today at 2:30 p.m. PT (5:30 p.m. ET) to discuss Q4 and fiscal year 2014 results, as well as a Q1 2015 outlook. To access the webcast please go to www.brcd.com/events.cfm. A replay of the conference call and the prepared comments and slides will be available at www.brcd.com.

Other Q4 2014 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
			Q4 2014				Q3 2014				Q4 2013
Routes to market as a % of total net revenues:
	OEM revenues			63	%			67	%			65	%
	Channel/Direct revenues			37	%			33	%			35	%
	10% or greater customer revenues			44	%			48	%			46	%
Geographic split as a % of total net revenues (1):
	Domestic revenues			61	%			56	%			62	%
	International revenues			39	%			44	%			38	%
Segment split as a % of total net revenues:
	SAN product revenues			58	%			60	%			58	%
	IP Networking product revenues			27	%			24	%			26	%
	Global Services revenues			15	%			16	%			16	%
	SAN business revenues (2)			67	%			70	%			68	%
	IP Networking business revenues (2)			33	%			30	%			32	%
IP Networking business revenues by use category (3):
	Data Center (4)			58	%			55	%			53	%
	Enterprise Campus			34	%			39	%			38	%
	Carrier Network (MAN/WAN)			8	%			6	%			9	%

Additional information:			Q4 2014				Q3 2014				Q4 2013
	GAAP net income		$	83	M		$	87	M		$	64	M
	Non-GAAP net income		$	104	M		$	102	M		$	109	M
	GAAP operating income		$	127	M		$	118	M		$	84	M
	Non-GAAP operating income		$	151	M		$	140	M		$	148	M
	Adjusted EBITDA (5)		$	172	M		$	165	M		$	149	M
	Effective GAAP tax provision rate			29.1	%			23.4	%			14.2	%
	Effective Non-GAAP tax provision rate			26.6	%			21.9	%			21.6	%
	Cash and cash equivalents		$	1,255	M		$	1,149	M		$	987	M
	Deferred revenues		$	312	M		$	299	M		$	303	M
	Capital expenditures		$	14	M		$	14	M		$	10	M
	Total debt, net of discount		$	597	M		$	597	M		$	599	M
	Cash, net of senior debt and capitalized leases		$	653	M		$	547	M		$	382	M
	Days sales outstanding			36 days				32 days				41 days
	Employees at end of period			4,161				4,103				4,169
	SAN port shipments			1.1	M			1.1	M			1.1	M

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

(1)	Revenues are attributed to geographic areas based on product delivery location. Since some OEM partners take delivery of Brocade products domestically and then ship internationally to their end users, the percentage of international revenues based on end-user location would likely be higher.
(2)	SAN and IP Networking business revenues include product, support, and services revenues.
(3)	Business revenue by use category is estimated based on analysis of the information the Company collects in its sales management system. The estimated percentage of revenue by use category may fluctuate quarter-to-quarter due to seasonality and the timing of large customer orders.
(4)	Data Center includes enterprise, service provider, and government data center revenues.
(5)	Adjusted EBITDA is as defined in the Company's credit agreement.

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 relative to its competitors' operating results. Management also believes these non-GAAP financial measures help with the determination of 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 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 its 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 events that 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, but are not limited to: (i) legal provision associated with certain pre-acquisition litigation, (ii) call premium cost and write-off of original issue discount and debt issuance costs related to lenders that did not participate in refinancing, (iii) settlement gain associated with certain pre-acquisition-related litigation, (iv) restructuring, goodwill impairment, and other related costs, (v) gain on sale of network adapter business, (vi) gain on sale of non-marketable equity investment, and (vii) 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 use of 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 also believes that the exclusion of expense associated with the amortization of acquisition-related intangible assets is appropriate because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and the exclusion of 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.

Cautionary Statement
This press release contains statements that are forward-looking in nature, including statements regarding Brocade's strategy, operational performance and prospects for revenue growth. 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, Brocade's ability to execute on its sale strategy, 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 Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2014, and Brocade's Annual Report on Form 10-K for the fiscal year ended October 26, 2013. 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, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, HyperEdge, ICX, MLX, MyBrocade, OpenScript, VCS, VDX, and Vyatta are registered trademarks, and 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 others.

© 2014 Brocade Communications Systems, Inc. All Rights Reserved.

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
				Three Months Ended								For the Year Ended
				November 1,  2014				October 26,  2013				November 1,  2014				October 26,  2013
				(In thousands, except per share amounts)
Net revenues:
	Product			$	476,905			$	468,581			$	1,852,187			$	1,870,567
	Service				87,453				90,219				359,080				352,297
		Total net revenues			564,358				558,800				2,211,267				2,222,864
Cost of revenues:
	Product				151,025				158,947				592,441				658,362
	Service				36,215				37,213				153,033				155,623
		Total cost of revenues			187,240				196,160				745,474				813,985
Gross margin					377,118				362,640				1,465,793				1,408,879
Operating expenses:
	Research and development				83,687				89,433				345,549				378,521
	Sales and marketing				144,991				134,090				554,515				567,637
	General and administrative				21,546				16,878				84,941				74,518
	Amortization of intangible assets				135				13,125				10,280				54,256
	Restructuring, goodwill impairment, and other related costs				229				25,464				89,280				25,464
	Gain on sale of network adapter business				-				-				(4,884	)			-
		Total operating expenses			250,588				278,990				1,079,681				1,100,396
Income from operations					126,530				83,650				386,112				308,483
Interest expense					(9,151	)			(9,214	)			(36,757	)			(55,261	)
Interest and other income, net					323				458				4,266				77,239
Income before income tax					117,702				74,894				353,621				330,461
Income tax expense					34,283				10,661				115,650				121,838
Net income				$	83,419			$	64,233			$	237,971			$	208,623
Net income per share - basic				$	0.19			$	0.14			$	0.55			$	0.46
Net income per share - diluted				$	0.19			$	0.14			$	0.53			$	0.45
Shares used in per share calculation - basic					431,843				444,642				435,258				450,516
Shares used in per share calculation - diluted					441,649				460,237				446,859				463,705
Cash dividends declared per share				$	0.035			$	-			$	0.07			$	-

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
				Three Months Ended								For the Year Ended
				November 1,  2014				October 26,  2013				November 1,  2014				October 26,  2013
				(In thousands)
Net income				$	83,419			$	64,233			$	237,971			$	208,623
Other comprehensive income and loss, net of tax:
	Unrealized gains (losses) on cash flow hedges:
		Change in unrealized gains and losses			(1,953	)			1,250				(1,939	)			(1,748	)
		Net gains and losses reclassified into earnings			(18	)			(162	)			(235	)			(376	)
	Net unrealized gains (losses) on cash flow hedges				(1,971	)			1,088				(2,174	)			(2,124	)
	Foreign currency translation adjustments				(3,480	)			2,156				(3,196	)			(1,456	)
Total other comprehensive income (loss)					(5,451	)			3,244				(5,370	)			(3,580	)
Total comprehensive income				$	77,968			$	67,477			$	232,601			$	205,043

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
					November 1, 2014				October 26, 2013
					(In thousands, except par value)
ASSETS
Current assets:
	Cash and cash equivalents				$	1,255,017			$	986,997
	Accounts receivable, net of allowances for doubtful accounts of $80 and $575 at November 1, 2014, and October 26, 2013, respectively					224,913				249,598
	Inventories					38,718				45,344
	Deferred tax assets					92,692				98,018
	Prepaid expenses and other current assets					46,665				42,846
			Total current assets			1,658,005				1,422,803
Property and equipment, net						445,433				472,940
Goodwill						1,567,723				1,645,437
Intangible assets, net						26,658				40,258
Non-current deferred tax assets						605				1,585
Other assets						35,251				38,368
			Total assets		$	3,733,675			$	3,621,391
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable				$	93,705			$	88,218
	Accrued employee compensation					169,018				145,996
	Deferred revenue					239,993				226,696
	Other accrued liabilities					84,592				99,753
			Total current liabilities			587,308				560,663
Long-term debt, net of current portion						595,450				596,208
Non-current deferred revenue						71,746				76,426
Non-current income tax liability						39,647				38,680
Non-current deferred tax liabilities						27,153				-
Other non-current liabilities						4,310				2,601
			Total liabilities			1,325,614				1,274,578
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: 431,470 and 445,285 shares at November 1, 2014, and October 26, 2013, respectively				431				445
	Additional paid-in capital					1,774,197				1,915,152
	Accumulated other comprehensive loss					(18,814	)			(13,444	)
	Retained earnings					652,247				444,660
			Total stockholders' equity			2,408,061				2,346,813
			Total liabilities and stockholders' equity		$	3,733,675			$	3,621,391

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					Three Months Ended
					November 1,  2014				October 26,  2013
					(In thousands)
Cash flows from operating activities:
	Net income				$	83,419			$	64,233
	Adjustments to reconcile net income to net cash provided by operating activities:
		Excess tax (benefits) detriments from stock-based compensation				(26,865	)			3,720
		Depreciation and amortization				20,277				45,109
		Loss on disposal of property and equipment				1,788				2,679
		Amortization of debt issuance costs and original issue discount				295				277
		Net gain on sale of investment				(50	)			-
		Provision for doubtful accounts receivable and sales allowances				2,043				2,324
		Non-cash stock-based compensation expense				23,700				16,527
	Changes in assets and liabilities:
		Accounts receivable				(35,140	)			(33,459	)
		Inventories				1,869				5,258
		Prepaid expenses and other assets				(6,188	)			3,016
		Deferred tax assets				(934	)			4,481
		Accounts payable				6,748				(7,118	)
		Accrued employee compensation				26,754				24,598
		Deferred revenue				12,672				2,649
		Other accrued liabilities				48,198				20,026
		Restructuring liabilities				(733	)			15,449
			Net cash provided by operating activities			157,853				169,769
Cash flows from investing activities:
	Proceeds from sale of non-marketable equity investment					50				-
	Purchases of property and equipment					(13,559	)			(10,422	)
	Proceeds from collection of note receivable					-				70,000
	Net cash paid in connection with acquisition					(16,900	)			-
			Net cash provided by (used in) investing activities			(30,409	)			59,578
Cash flows from financing activities:
	Payment of principal related to capital leases					(103	)			(91	)
	Common stock repurchases					(32,820	)			(52,640	)
	Proceeds from issuance of common stock					2,701				21,913
	Payment of cash dividends to stockholders					(15,114	)			-
	Excess tax benefits (detriments) from stock-based compensation					26,865				(3,720	)
			Net cash used in financing activities			(18,471	)			(34,538	)
Effect of exchange rate fluctuations on cash and cash equivalents						(3,343	)			2,095
Net increase in cash and cash equivalents						105,630				196,904
Cash and cash equivalents, beginning of period						1,149,387				790,093
Cash and cash equivalents, end of period					$	1,255,017			$	986,997

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					For the Year Ended
					November 1,  2014				October 26,  2013
					(In thousands)
Cash flows from operating activities:
	Net income				$	237,971			$	208,623
	Adjustments to reconcile net income to net cash provided by operating activities:
		Excess tax benefits from stock-based compensation				(64,563	)			(3,189	)
		Write-off of original issue discount and debt issuance costs related to lenders that did not participate in refinancing				-				5,360
		Depreciation and amortization				100,647				184,114
		Loss on disposal of property and equipment				5,118				6,709
		Gain on sale of network adapter business				(4,884	)			-
		Amortization of debt issuance costs and original issue discount				1,151				1,214
		Net gain on sale of investments				(5,292	)			-
		Provision for doubtful accounts receivable and sales allowances				7,563				9,221
		Non-cash stock-based compensation expense				84,914				73,618
		Non-cash tax charges				-				78,206
		Goodwill impairment charge				83,382				-
	Changes in assets and liabilities:
		Accounts receivable				17,121				(25,509	)
		Inventories				6,626				24,173
		Prepaid expenses and other assets				(10,984	)			(66,001	)
		Deferred tax assets				(887	)			4,825
		Accounts payable				2,339				(28,862	)
		Accrued employee compensation				(11,382	)			(57,859	)
		Deferred revenue				8,652				8,599
		Other accrued liabilities				96,376				12,944
		Restructuring liabilities				(12,271	)			14,843
			Net cash provided by operating activities			541,597				451,029
Cash flows from investing activities:
	Purchases of non-marketable equity investments					(223	)			-
	Proceeds from sale of non-marketable equity investments					10,798				-
	Purchases of property and equipment					(54,734	)			(52,371	)
	Proceeds from collection of note receivable					250				70,000
	Proceeds from sale of network adapter business					9,995				-
	Net cash paid in connection with acquisitions					(16,900	)			(44,629	)
			Net cash used in investing activities			(50,814	)			(27,000	)
Cash flows from financing activities:
	Payment of debt issuance costs related to senior unsecured notes					-				(992	)
	Payment of principal related to senior secured notes					-				(300,000	)
	Payment of principal related to capital leases					(2,485	)			(1,627	)
	Common stock repurchases					(335,380	)			(240,000	)
	Proceeds from issuance of common stock					83,994				93,771
	Payment of cash dividends to stockholders					(30,384	)			-
	Proceeds from senior unsecured notes					-				296,250
	Excess tax benefits from stock-based compensation					64,563				3,189
			Net cash used in financing activities			(219,692	)			(149,409	)
Effect of exchange rate fluctuations on cash and cash equivalents						(3,071	)			(849	)
Net increase in cash and cash equivalents						268,020				273,771
Cash and cash equivalents, beginning of year						986,997				713,226
Cash and cash equivalents, end of year					$	1,255,017			$	986,997

BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
				Three Months Ended
				November 1,  2014				August 2,  2014				October 26,  2013
				(In thousands, except per share amounts)
Non-GAAP adjustments
	Stock-based compensation expense included in cost of revenues			$	4,225			$	4,121			$	3,174
	Amortization of intangible assets expense included in cost of revenues				600				552				9,650
		Total gross margin impact from non-GAAP adjustments			4,825				4,673				12,824
	Stock-based compensation expense included in research and development				5,527				4,350				4,304
	Stock-based compensation expense included in sales and marketing				8,832				7,592				6,104
	Stock-based compensation expense included in general and administrative				5,116				5,511				2,945
	Amortization of intangible assets expense included in operating expenses				135				131				13,125
	Restructuring and other related costs				229				131				25,464
		Total operating income impact from non-GAAP adjustments			24,664				22,388				64,766
	Gain on sale of non-marketable equity investment				-				(5,242	)			-
	Income tax effect of non-tax adjustments				(3,587	)			(2,005	)			(19,506	)
		Total net income impact from non-GAAP adjustments		$	21,077			$	15,141			$	45,260
Gross margin reconciliation
	GAAP gross margin			$	377,118			$	361,713			$	362,640
	Total gross margin impact from non-GAAP adjustments				4,825				4,673				12,824
		Non-GAAP gross margin		$	381,943			$	366,386			$	375,464
	GAAP gross margin, as a percent of total net revenues				66.8	%			66.3	%			64.9	%
	Non-GAAP gross margin, as a percent of total net revenues				67.7	%			67.2	%			67.2	%
Operating income reconciliation
	GAAP operating income			$	126,530			$	117,897			$	83,650
	Total operating income impact from non-GAAP adjustments				24,664				22,388				64,766
		Non-GAAP operating income		$	151,194			$	140,285			$	148,416
	GAAP operating income, as a percent of total net revenues				22.4	%			21.6	%			15.0	%
	Non-GAAP operating income, as a percent of total net revenues				26.8	%			25.7	%			26.6	%
Net income and net income per share reconciliation
	Net income on a GAAP basis			$	83,419			$	87,352			$	64,233
	Total net income impact from non-GAAP adjustments				21,077				15,141				45,260
		Non-GAAP net income		$	104,496			$	102,493			$	109,493
	Non-GAAP net income per share - basic			$	0.24			$	0.24			$	0.25
	Non-GAAP net income per share - diluted			$	0.24			$	0.23			$	0.24
	Shares used in non-GAAP per share calculation - basic				431,843				432,448				444,642
	Shares used in non-GAAP per share calculation - diluted				441,649				441,789				460,237

BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
				For the Year Ended
				November 1,  2014				October 26,  2013
				(In thousands, except per share amounts)
Non-GAAP adjustments
	Stock-based compensation expense included in cost of revenues			$	14,962			$	14,519
	Amortization of intangible assets expense included in cost of revenues				8,010				39,731
	Legal provision associated with certain pre-acquisition litigation				-				3,460
		Total gross margin impact from non-GAAP adjustments			22,972				57,710
	Stock-based compensation expense included in research and development				18,635				17,509
	Stock-based compensation expense included in sales and marketing				31,651				29,425
	Stock-based compensation expense included in general and administrative				19,666				12,165
	Amortization of intangible assets expense included in operating expenses				10,280				54,256
	Restructuring, goodwill impairment, and other related costs				89,280				25,464
	Gain on sale of network adapter business				(4,884	)			-
		Total operating income impact from non-GAAP adjustments			187,600				196,529
	Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing				-				15,299
	Gain on A10 litigation settlement, net				-				(76,816	)
	Gain on sale of non-marketable equity investment				(5,242	)			-
	Tax provision impact from passage of California Proposition 39 - Single Sales Factor apportionment				-				78,206
	Income tax effect of non-tax adjustments				(17,643	)			(48,891	)
		Total net income impact from non-GAAP adjustments		$	164,715			$	164,327
Gross margin reconciliation
	GAAP gross margin			$	1,465,793			$	1,408,879
	Total gross margin impact from non-GAAP adjustments				22,972				57,710
		Non-GAAP gross margin		$	1,488,765			$	1,466,589
	GAAP gross margin, as a percent of total net revenues				66.3	%			63.4	%
	Non-GAAP gross margin, as a percent of total net revenues				67.3	%			66.0	%
Operating income reconciliation
	GAAP operating income			$	386,112			$	308,483
	Total operating income impact from non-GAAP adjustments				187,600				196,529
		Non-GAAP operating income		$	573,712			$	505,012
	GAAP operating income, as a percent of total net revenues				17.5	%			13.9	%
	Non-GAAP operating income, as a percent of total net revenues				25.9	%			22.7	%
Net income and net income per share reconciliation
	Net income on a GAAP basis			$	237,971			$	208,623
	Total net income impact from non-GAAP adjustments				164,715				164,327
		Non-GAAP net income		$	402,686			$	372,950
	Non-GAAP net income per share - basic			$	0.93			$	0.83
	Non-GAAP net income per share - diluted			$	0.90			$	0.80
	Shares used in non-GAAP per share calculation - basic				435,258				450,516
	Shares used in non-GAAP per share calculation - diluted				446,859				463,705

BROCADE CONTACTS
Public Relations
Katie Bromley
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[e-mail]

Investor Relations
Michael Iburg
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