Guarantor and Non-Guarantor Subsidiaries

On January 20, 2010, the Company issued in total $600.0 million aggregate principal amount of its senior secured notes. The Company's obligations under the senior secured notes are guaranteed by certain of the Company's domestic subsidiaries (the “Subsidiary Guarantors”). Each of the Subsidiary Guarantors is 100% owned by the Company and all guarantees are joint and several. The senior secured notes are not guaranteed by certain of the Company's domestic subsidiaries and all of the Company’s foreign subsidiaries (the “Non-Guarantor Subsidiaries”).

Pursuant to the terms of the senior secured notes, the guarantees are full and unconditional, but are subject to release under the following circumstances:


•	upon the sale of the subsidiary or all or substantially all of its assets;


•	upon the discharge of the guarantees under the credit facility or other debt provided that the credit facility has been paid in full and the applicable series of senior secured notes have an investment grade rating from both Standard & Poor's and Moody's;


•	upon designation of the subsidiary as an “unrestricted subsidiary” under the applicable Indenture;


•	upon the merger, consolidation or liquidation of the subsidiary into another subsidiary guarantor; and


•	upon legal or covenant defeasance or the discharge of the Company's obligations under the applicable indenture.

Because the guarantees are subject to release under the above described circumstances, they would not be deemed “full and unconditional” for purposes of Rule 3-10 of Regulation S-X. However, as these circumstances are customary, the Company concluded that it may rely on Rule 3-10 of Regulation S-X, as the other requirements of Rule 3-10 have been met.

The following tables present condensed consolidated financial statements for the parent company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries, respectively.

The following is the consolidated balance sheet as of October 27, 2012 (in thousands):



	Brocade Communications Systems, Inc.		Subsidiary Guarantors			Non- Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	284,466	$	680		$	428,080	$	—		$	713,226
Accounts receivable, net	150,367		(1,847		)	84,619		—			233,139
Inventories	55,084		—			13,095		—			68,179
Intercompany receivables	—		478,133			—		(478,133		)	—
Other current assets	124,690		514			15,606		225			141,035
Total current assets	614,607		477,480			541,400		(477,908		)	1,155,579
Property and equipment, net	500,530		213			18,197		—			518,940
Investment in subsidiaries	871,157		—			—		(871,157		)	—
Other non-current assets	1,814,729		90,766			1,247		—			1,906,742
Total assets	$	3,801,023	$	568,459		$	560,844	$	(1,349,065	)	$	3,581,261
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	92,661	$	—		$	24,689	$	—		$	117,350
Current portion of long-term debt	2,226		(249		)	—		—			1,977
Intercompany payables	434,981		—			43,152		(478,133		)	—
Other current liabilities	346,959		7,628			136,329		225			491,141
Total current liabilities	876,827		7,379			204,170		(477,908		)	610,468
Long-term debt, net of current portion	599,203		—			—		—			599,203
Other non-current liabilities	89,173		2,429			44,168		—			135,770
Total liabilities	1,565,203		9,808			248,338		(477,908		)	1,345,441
Total stockholders’ equity	2,235,820		558,651			312,506		(871,157		)	2,235,820
Total liabilities and stockholders’ equity	$	3,801,023	$	568,459		$	560,844	$	(1,349,065	)	$	3,581,261

The following is the consolidated balance sheet as of October 29, 2011 (in thousands):



	Brocade Communications Systems, Inc.		Subsidiary Guarantors			Non- Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	101,367	$	2,301		$	311,308	$	—		$	414,976
Accounts receivable, net	157,839		(2,149		)	93,451		—			249,141
Inventories	50,000		—			24,172		—			74,172
Intercompany receivables	—		446,455			—		(446,455		)	—
Other current assets	87,495		805			15,609		2,003			105,912
Total current assets	396,701		447,412			444,540		(444,452		)	844,201
Property and equipment, net	460,347		55,594			16,443		—			532,384
Investment in subsidiaries	1,285,356		—			—		(1,285,356		)	—
Other non-current assets	1,506,086		590,318			1,319		—			2,097,723
Total assets	$	3,648,490	$	1,093,324		$	462,302	$	(1,729,808	)	$	3,474,308
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	85,700	$	376		$	23,395	$	—		$	109,471
Current portion of long-term debt	40,539		—			—		—			40,539
Intercompany payables	377,228		—			69,227		(446,455		)	—
Other current liabilities	276,982		17,261			119,731		2,003			415,977
Total current liabilities	780,449		17,637			212,353		(444,452		)	565,987
Long-term debt, net of current portion	748,904		—			—		—			748,904
Other non-current liabilities	104,999		580			39,700		—			145,279
Total liabilities	1,634,352		18,217			252,053		(444,452		)	1,460,170
Total stockholders’ equity	2,014,138		1,075,107			210,249		(1,285,356		)	2,014,138
Total liabilities and stockholders’ equity	$	3,648,490	$	1,093,324		$	462,302	$	(1,729,808	)	$	3,474,308

The following is the consolidated statement of operations for the fiscal year ended October 27, 2012 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	1,409,705		$	4,685		$	823,380		$	—		$	2,237,770
Intercompany revenues	44,152			—			21,709			(65,861		)	—
Total net revenues	1,453,857			4,685			845,089			(65,861		)	2,237,770
Cost of revenues	559,835			49,935			234,889			10,092			854,751
Intercompany cost of revenues	(35,070		)	—			100,931			(65,861		)	—
Total cost of revenues	524,765			49,935			335,820			(55,769		)	854,751
Gross margin (loss)	929,092			(45,250		)	509,269			(10,092		)	1,383,019
Operating expenses	827,318			56,838			231,226			(10,092		)	1,105,290
Intercompany operating expenses (income)	(138,197		)	(27,319		)	165,516			—			—
Total operating expenses	689,121			29,519			396,742			(10,092		)	1,105,290
Income (loss) from operations	239,971			(74,769		)	112,527			—			277,729
Other income (expense)	(49,470		)	4			(3,862		)	—			(53,328		)
Income (loss) before income tax provision and equity in net earnings (losses) of subsidiaries	190,501			(74,765		)	108,665			—			224,401
Income tax expense	20,432			—			8,788			—			29,220
Equity in net earnings (losses) of subsidiaries	25,112			—			—			(25,112		)	—
Net income (loss)	$	195,181		$	(74,765	)	$	99,877		$	(25,112	)	$	195,181

The following is the consolidated statement of operations for the fiscal year ended October 29, 2011 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	1,285,732		$	27,569		$	834,141		$	—		$	2,147,442
Intercompany revenues	88,063			1,753			35,980			(125,796		)	—
Total net revenues	1,373,795			29,322			870,121			(125,796		)	2,147,442
Cost of revenues	531,162			85,540			233,448			13,758			863,908
Intercompany cost of revenues	(2,263		)	—			128,059			(125,796		)	—
Total cost of revenues	528,899			85,540			361,507			(112,038		)	863,908
Gross margin (loss)	844,896			(56,218		)	508,614			(13,758		)	1,283,534
Operating expenses	821,018			76,645			222,109			(13,758		)	1,106,014
Intercompany operating expenses (income)	(138,789		)	(25,694		)	164,483			—			—
Total operating expenses	682,229			50,951			386,592			(13,758		)	1,106,014
Income (loss) from operations	162,667			(107,169		)	122,022			—			177,520
Other income (expense)	109,902			(7,518		)	(200,476		)	—			(98,092		)
Income (loss) before income tax provision and equity in net earnings (losses) of subsidiaries	272,569			(114,687		)	(78,454		)	—			79,428
Income tax expense	22,115			46			6,657			—			28,818
Equity in net earnings (losses) of subsidiaries	(199,844		)	—			—			199,844			—
Net income (loss)	$	50,610		$	(114,733	)	$	(85,111	)	$	199,844		$	50,610

The following is the consolidated statement of operations for fiscal year ended October 30, 2010 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	1,287,646		$	50,731		$	752,776		$	—		$	2,091,153
Intercompany revenues	102,178			13,954			25,464			(141,596		)	—
Total net revenues	1,389,824			64,685			778,240			(141,596		)	2,091,153
Cost of revenues	529,641			112,477			214,024			3,891			860,033
Intercompany cost of revenues	40,588			—			101,008			(141,596		)	—
Total cost of revenues	570,229			112,477			315,032			(137,705		)	860,033
Gross margin (loss)	819,595			(47,792		)	463,208			(3,891		)	1,231,120
Operating expenses	783,968			63,855			179,357			(3,891		)	1,023,289
Intercompany operating expenses (income)	(167,746		)	(30,349		)	198,095			—			—
Total operating expenses	616,222			33,506			377,452			(3,891		)	1,023,289
Income (loss) from operations	203,373			(81,298		)	85,756			—			207,831
Other expense	(80,276		)	(1,628		)	(18,957		)	—			(100,861		)
Income (loss) before income tax provision and equity in net earnings (losses) of subsidiaries	123,097			(82,926		)	66,799			—			106,970
Income tax expense (benefit)	(20,672		)	1,266			9,853			—			(9,553		)
Equity in net earnings (losses) of subsidiaries	(27,246		)	—			—			27,246			—
Net income (loss)	$	116,523		$	(84,192	)	$	56,946		27,246			$	116,523

The following is the consolidated statement of cash flows for the fiscal year ended October 27, 2012 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided by (used in) operating activities	$	464,097		$	(1,799	)	$	128,572		$	—	$	590,870
Cash flows from investing activities:
Proceeds from sale of subsidiary	35			—			—			—		35
Proceeds from maturities and sale of short-term investments	—			952			—			—		952
Purchases of property and equipment	(62,791		)	—			(10,006		)	—		(72,797		)
Net cash provided by (used in) investing activities	(62,756		)	952			(10,006		)	—		(71,810		)
Cash flows from financing activities:
Payment of principal related to the term loan	(190,000		)	—			—			—		(190,000		)
Payment of principal related to capital leases	(1,866		)	—			—			—		(1,866		)
Common stock repurchases	(130,209		)	—			—			—		(130,209		)
Proceeds from issuance of common stock	98,791			—			—			—		98,791
Excess tax benefits from stock-based compensation	5,042			—			99			—		5,141
Net cash provided by (used in) financing activities	(218,242		)	—			99			—		(218,143		)
Effect of exchange rate fluctuations on cash and cash equivalents	—			—			(1,893		)	—		(1,893		)
Net increase (decrease) in cash and cash equivalents	183,099			(847		)	116,772			—		299,024
Cash and cash equivalents, beginning of period	101,367			1,527			311,308			—		414,202
Cash and cash equivalents, end of period	$	284,466		$	680		$	428,080		$	—	$	713,226

The following is the consolidated statement of cash flows for the fiscal year ended October 29, 2011 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided (used) by operating activities	$	436,714		$	(5,852	)	$	18,370		$	—	$	449,232
Cash flows from investing activities:
Purchases of short-term investments	—			(38		)	—			—		(38		)
Proceeds from maturities and sale of short-term investments	—			1,604			—			—		1,604
Purchases of property and equipment	(86,447		)	(33		)	(10,317		)	—		(96,797		)
Proceeds from sale of subsidiary	4,966			(1,061		)	—			—		3,905
Net cash provided by (used in) investing activities	(81,481		)	472			(10,317		)	—		(91,326		)
Cash flows from financing activities:
Payment of principal related to the term loan	(359,898		)	—			—			—		(359,898		)
Payment of fees related to the term loan	(1,167		)	—			—			—		(1,167		)
Proceeds from term loan	198,950			—			—			—		198,950
Payment of principal related to capital leases	(1,761		)	—			—			—		(1,761		)
Common stock repurchases	(210,698		)	—			—			—		(210,698		)
Proceeds from issuance of common stock	97,152			—			—			—		97,152
Excess tax benefits from stock-based compensation	101			—			211			—		312
Net cash provided by (used in) financing activities	(277,321		)	—			211			—		(277,110		)
Effect of exchange rate fluctuations on cash and cash equivalents	—			—			(578		)	—		(578		)
Net increase (decrease) in cash and cash equivalents	77,912			(5,380		)	7,686			—		80,218
Cash and cash equivalents, beginning of period	23,455			6,907			303,622			—		333,984
Cash and cash equivalents, end of period	$	101,367		$	1,527		$	311,308		$	—	$	414,202

The following is the consolidated statement of cash flows for the fiscal year ended October 30, 2010 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided by operating activities	$	71,094		$	169,986		$	57,433		$	—	$	298,513
Cash flows from investing activities:
Purchases of short-term investments	—			(53		)	—			—		(53		)
Purchases of non-marketable minority equity investments	(200		)	—			—			—		(200		)
Proceeds from maturities and sale of short-term investments	—			3,255			—			—		3,255
Proceeds from sale of property	30,185			—			—			—		30,185
Purchases of property and equipment	(196,193		)	471			(5,899		)	—		(201,621		)
Net cash provided by (used in) investing activities	(166,208		)	3,673			(5,899		)	—		(168,434		)
Cash flows from financing activities:
Payment of debt issuance costs related to the senior secured notes	(3,666		)	—			—			—		(3,666		)
Payment of principal related to the revolving credit facility	(14,050		)	—			—			—		(14,050		)
Payment of principal related to the convertible subordinated debt	—			(172,500		)	—			—		(172,500		)
Payment of principal related to the term loan	(583,029		)	—			—			—		(583,029		)
Payment of principal related to capital leases	(1,173		)	—			—			—		(1,173		)
Common stock repurchases	(25,004		)	—			—			—		(25,004		)
Proceeds from senior secured notes	587,968			—			—			—		587,968
Proceeds from issuance of common stock	81,593			—			—			—		81,593
Excess tax benefits from stock-based compensation	1,420			—			741			—		2,161
Net cash provided by (used in) financing activities	44,059			(172,500		)	741			—		(127,700		)
Effect of exchange rate fluctuations on cash and cash equivalents	—			—			(2,588		)	—		(2,588		)
Net increase (decrease) in cash and cash equivalents	(51,055		)	1,159			49,687			—		(209		)
Cash and cash equivalents, beginning of period	74,510			5,748			253,935			—		334,193
Cash and cash equivalents, end of period	$	23,455		$	6,907		$	303,622		$	—	$	333,984