Guarantor and Non-Guarantor Subsidiaries

On January 20, 2010, the Company issued $600.0 million aggregate principal amount of the 2018 Notes and 2020 Notes. In addition, on January 22, 2013, the Company issued $300.0 million aggregate principal amount of the 2023 Notes. The Company’s obligations under the 2023 Notes and the 2020 Notes are, and prior to January 22, 2013, the Company’s obligations under the 2018 Notes were, 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 Indentures governing 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 and any other debt guaranteed by the applicable subsidiary 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 the Company or another subsidiary guarantor; and


•	Upon legal or covenant defeasance or the discharge of the Company’s obligations under the applicable indenture.

The guarantees of the 2018 Notes were released on January 22, 2013, upon the discharge of the 2018 Indenture.

Pursuant to the terms of the Indenture governing the 2023 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 Senior Secured Credit Facility, the 2020 Notes and any other debt guaranteed by the applicable subsidiary;


•	Upon the merger, consolidation or liquidation of the subsidiary into the Company or 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 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 26, 2013 (in thousands):



	Brocade Communications Systems, Inc.		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Current assets:
Cash and cash equivalents	$	396,710	$	9,301	$	580,986	$	—		$	986,997
Accounts receivable, net	159,436		328		89,834		—			249,598
Inventories	40,072		—		5,272		—			45,344
Intercompany receivables	—		464,443		—		(464,443		)	—
Other current assets	127,709		7		11,395		1,753			140,864
Total current assets	723,927		474,079		687,487		(462,690		)	1,422,803
Property and equipment, net	457,054		567		15,319		—			472,940
Investment in subsidiaries	1,026,247		—		—		(1,026,247		)	—
Other non-current assets	1,626,031		95,624		3,993		—			1,725,648
Total assets	$	3,833,259	$	570,270	$	706,799	$	(1,488,937	)	$	3,621,391
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	68,190	$	28	$	20,000	$	—		$	88,218
Current portion of long-term debt	2,996		—		—		—			2,996
Intercompany payables	409,590		—		54,853		(464,443		)	—
Other current liabilities	335,261		7,075		125,360		1,753			469,449
Total current liabilities	816,037		7,103		200,213		(462,690		)	560,663
Long-term debt, net of current portion	596,208		—		—		—			596,208
Other non-current liabilities	74,201		—		43,506		—			117,707
Total liabilities	1,486,446		7,103		243,719		(462,690		)	1,274,578
Total stockholders’ equity	2,346,813		563,167		463,080		(1,026,247		)	2,346,813
Total liabilities and stockholders’ equity	$	3,833,259	$	570,270	$	706,799	$	(1,488,937	)	$	3,621,391

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 and cash equivalents	$	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 statement of operations for the fiscal year ended October 26, 2013 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	1,347,055		$	4,257		$	871,552		$	—		$	2,222,864
Intercompany revenues	25,507			—			22,123			(47,630		)	—
Total net revenues	1,372,562			4,257			893,675			(47,630		)	2,222,864
Cost of revenues	534,699			38,991			232,807			7,488			813,985
Intercompany cost of revenues	(58,050		)	—			105,680			(47,630		)	—
Total cost of revenues	476,649			38,991			338,487			(40,142		)	813,985
Gross margin (loss)	895,913			(34,734		)	555,188			(7,488		)	1,408,879
Operating expenses	826,239			34,175			247,470			(7,488		)	1,100,396
Intercompany operating expenses (income)	(127,997		)	(22,443		)	150,440			—			—
Total operating expenses	698,242			11,732			397,910			(7,488		)	1,100,396
Income (loss) from operations	197,671			(46,466		)	157,278			—			308,483
Other income (expense)	25,481			258			(3,370		)	(391		)	21,978
Income (loss) before income tax provision and equity in net earnings (losses) of subsidiaries	223,152			(46,208		)	153,908			(391		)	330,461
Income tax expense	117,654			1,190			2,994			—			121,838
Equity in net earnings (losses) of subsidiaries	103,516			—			—			(103,516		)	—
Net income (loss)	$	209,014		$	(47,398	)	$	150,914		$	(103,907	)	$	208,623

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 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 comprehensive income (loss) for the fiscal year ended October 26, 2013 (in thousands):



	Brocade Communications Systems, Inc.		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net income (loss)	$	209,014	$	(47,398	)	$	150,914		$	(103,907	)	$	208,623
Other comprehensive income (loss), net of tax:
Unrealized losses on cash flow hedges:
Change in unrealized gains and losses	—		—			(1,748		)	—			(1,748		)
Net gains reclassified into earnings	—		—			(376		)	—			(376		)
Net unrealized losses on cash flow hedges	—		—			(2,124		)	—			(2,124		)
Foreign currency translation adjustments	1,021		(628		)	(1,849		)	—			(1,456		)
Total other comprehensive income (loss)	1,021		(628		)	(3,973		)	—			(3,580		)
Total comprehensive income (loss)	$	210,035	$	(48,026	)	$	146,941		$	(103,907	)	$	205,043

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



	Brocade Communications Systems, Inc.		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net income (loss)	$	195,181	$	(74,765	)	$	99,877		$	(25,112	)	$	195,181
Other comprehensive income (loss), net of tax:
Unrealized losses on cash flow hedges:
Change in unrealized gains and losses	—		—			(3,468		)	—			(3,468		)
Net gains reclassified into earnings	—		—			7,433			—			7,433
Net unrealized gains on cash flow hedges	—		—			3,965			—			3,965
Foreign currency translation adjustments	128		11			(1,972		)	—			(1,833		)
Total other comprehensive income (loss)	128		11			1,993			—			2,132
Total comprehensive income (loss)	$	195,309	$	(74,754	)	$	101,870		$	(25,112	)	$	197,313

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



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments		Total
Net income (loss)	$	50,610		$	(114,733	)	$	(85,111	)	$	199,844	$	50,610
Other comprehensive income (loss), net of tax:
Unrealized losses on cash flow hedges:
Change in unrealized gains and losses	(6,701		)	—			4,870			—		(1,831		)
Net gains reclassified into earnings	—			—			(6,444		)	—		(6,444		)
Net unrealized losses on cash flow hedges	(6,701		)	—			(1,574		)	—		(8,275		)
Foreign currency translation adjustments	(89		)	458			(1,263		)	—		(894		)
Total other comprehensive income (loss)	(6,790		)	458			(2,837		)	—		(9,169		)
Total comprehensive income (loss)	$	43,820		$	(114,275	)	$	(87,948	)	$	199,844	$	41,441

The following is the consolidated statement of cash flows for the fiscal year ended October 26, 2013 (in thousands):



	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided by operating activities	$	281,478		$	8,503		$	161,048		$	—	$	451,029
Cash flows from investing activities:
Purchases of property and equipment	(44,786		)	(22		)	(7,563		)	—		(52,371		)
Net cash paid in connection with acquisition	(44,769		)	140			—			—		(44,629		)
Proceeds from collection of convertible note receivable	70,000			—			—			—		70,000
Net cash provided by (used in) investing activities	(19,555		)	118			(7,563		)	—		(27,000		)
Cash flows from financing activities:
Proceeds from senior unsecured notes	296,250			—			—			—		296,250
Payment of principal related to senior secured notes	(300,000		)	—			—			—		(300,000		)
Payment of debt issuance costs related to senior unsecured notes	(992		)	—			—			—		(992		)
Payment of principal related to capital leases	(1,627		)	—			—			—		(1,627		)
Common stock repurchases	(240,000		)	—			—			—		(240,000		)
Proceeds from issuance of common stock	93,771			—			—			—		93,771
Excess tax benefits from stock-based compensation	2,919			—			270			—		3,189
Net cash provided by (used in) financing activities	(149,679		)	—			270			—		(149,409		)
Effect of exchange rate fluctuations on cash and cash equivalents	—			—			(849		)	—		(849		)
Net increase in cash and cash equivalents	112,244			8,621			152,906			—		273,771
Cash and cash equivalents, beginning of period	284,466			680			428,080			—		713,226
Cash and cash equivalents, end of period	$	396,710		$	9,301		$	580,986		$	—	$	986,997

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 by (used in) 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