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Brocade 3Q Earnings Beat the Street

Brocade Communications Systems Inc. beat Wall Street's estimates for the fiscal third-quarter, crediting strong demand in China for its networking equipment and despite legal fees for a federal stock options probe.

For the three months ended July 29, Brocade earned $24.5 million, or 9 cents a share, compared with a loss of $7.24 million, or 3 cents per share, in the same quarter last year.

Brocade, which designs data storage networking products and services, reported record revenue in the fiscal third quarter of $188.95 million, up nearly 55 percent from $122.27 million in the same period last year.

Excluding one-time items, the San Jose, Calif.-based company earned $30.98 million, or 11 cents per share, up 17 percent from the same quarter last year. On that basis, which doesn't conform to generally accepted accounting principles, analysts expected the company to earn $22.89 million, or 8 cents per share, on sales of $183.60 million.

The company said it spent almost $14 million on one-time expenses, including $2.9 million in legal fees related to an Securities and Exchange Commission investigation over stock options backdating and related shareholder litigation, and $7.4 million for stock-based compensation.

In July, federal prosecutors charged former Brocade CEO Gregory Reyes and Stephanie Jensen, Brocade's former vice president of human resources, with backdating stock options.

The charges were the nation's first in a widening crackdown on backdating, the retroactive issuing of stock options to coincide with low points in a company's share price. Stock options allow employees to buy shares of their company's stock in the future at a set price -- and potentially reap a big windfall if share prices later rise.

Dozens of U.S. companies have disclosed that their stock options practices are being investigated by the Department of Justice or the SEC.

On Thursday, before the company announced earnings, the stock closed at $5.41, down nearly 2 percent. In after-hours trading, it gained 9 cents.

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