Subsequent Events

On May 27, 2016, the Company completed its acquisition of Ruckus in accordance with the terms and conditions of the Agreement and Plan of Merger (the “Merger Agreement”), dated April 3, 2016, between the Company, Stallion Merger Sub Inc., a wholly owned subsidiary of the Company (“Stallion”), and Ruckus. Pursuant to the Merger Agreement, Stallion merged into Ruckus with Ruckus surviving as a wholly owned subsidiary of the Company. The acquisition is expected to complement the Company’s enterprise networking portfolio, adding Ruckus’ wireless products to the Company’s networking solutions.

Pursuant to the terms of the Merger Agreement, Ruckus stockholders received $6.45 in cash and 0.75 shares of the Company’s common stock in exchange for each share of Ruckus common stock. The preliminary estimated purchase price for the Ruckus acquisition was approximately $1.2 billion, which is comprised of $0.6 billion in cash and $0.6 billion of equity interests in the Company.

Due to the limited amount of time since the completion of the acquisition, the purchase price allocation was based on a preliminary valuation of the assets acquired and liabilities assumed and could change materially as the Company finalizes the fair values of the tangible and intangible assets acquired and liabilities assumed. The following table summarizes the preliminary allocation of the purchase price for the Ruckus acquisition (in thousands):



Assets acquired:
Cash and cash equivalents	$	59,714
Restricted cash	5,000
Short-term investments	166,934
Accounts receivable, net of allowance for doubtful accounts of $800	80,256
Inventories	64,000
Prepaid expenses and other current assets	9,185
Property and equipment, net	27,888
Identifiable intangible assets	422,000
Non-current deferred tax assets	70,944
Other assets	1,767
Total assets acquired	907,688
Liabilities assumed:
Accounts payable	23,074
Accrued employee compensation	17,100
Deferred revenue	13,947
Other accrued liabilities	11,209
Non-current deferred revenue	10,420
Non-current deferred tax liability	172,265
Other non-current liabilities	3,274
Total liabilities assumed	251,289
Net assets acquired, excluding goodwill (a)	656,399
Total preliminary estimated purchase price (b)	1,245,090
Estimated goodwill (b) - (a)	$	588,691

Goodwill represents the excess of the preliminary estimated purchase price over the fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to planned growth in new markets, and synergies expected to be achieved from the combined operations of the Company and Ruckus. The goodwill will be assigned to our IP Networking Products reportable segment. Goodwill recognized in the acquisition is not expected to be deductible for tax purposes.

Intangible Assets

Preliminary identified intangible assets and their respective useful lives are as follows (in thousands, except estimated useful life):



Intangible Asset	Approximate Fair Value		Estimated Useful Life (in years)
Trade name/trademark	$	48,000	12.50
Customer relationships	117,000		6.50
Developed technology	223,000		5.50
IPR&D ⁽¹⁾	34,000		N/A
Total intangible assets	$	422,000


⁽¹⁾	IPR&D will be accounted for as an indefinite-lived intangible asset until the underlying projects are completed or abandoned.

The following unaudited pro forma financial information presents the consolidated results of the Company and Ruckus for the three and six months ended April 30, 2016, and May 2, 2015, giving effect to the acquisition and the related debt financing as if they had occurred on November 2, 2014. The unaudited pro forma financial information combines the historical consolidated statement of income of the Company and Ruckus and includes adjustments to give effect to pro forma events that are directly attributable to the acquisition and the related debt financing. The unaudited pro forma financial information for the three and six months ended April 30, 2016, and May 2, 2015, combines the historical results of Brocade for those same periods and of Ruckus for the three and six months ended March 31, 2016, and March 31, 2015, respectively, which represent Ruckus’ reporting periods prior to the acquisition. The pro forma financial information includes adjustments to amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to share-based compensation expense, the acquisition accounting effect on inventory acquired and deferred revenue, interest expense for the additional indebtedness and acquisition costs. The unaudited financial pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations of future periods. The unaudited pro forma financial information does not give effect to the potential impact of current financial conditions, regulatory matters, or any anticipated synergies, operating efficiencies or cost savings that may be associated with the acquisition. Consequently, actual results will differ from the unaudited pro forma financial information presented below (in thousands):



	Three Months Ended				Six Months Ended
	April 30, 2016		May 2, 2015		April 30, 2016		May 2, 2015
Unaudited pro forma consolidated results:
Pro forma revenues	$	623,143	$	627,917	$	1,296,807	$	1,276,670
Pro forma net income	$	31,203	$	60,324	$	115,421	$	88,107

As the acquisition occurred after April 30, 2016, the Company’s Condensed Consolidated Statements of Income for the three and six months ended April 30, 2016, and May 2, 2015, do not include any of Ruckus’ financial results. The preliminary estimated post-combination stock-based compensation expense for Company stock options and restricted stock units issued to replace canceled Ruckus stock options and restricted stock units is $47.3 million. This expense will be recognized in accordance with the Company’s policy.

Initial Term Loan and Revolving Credit Facility

In connection with the completion of the acquisition of Ruckus, on May 27, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, Deutsche Bank AG New York Branch, SunTrust Bank and certain other lenders. Pursuant to the Credit Agreement, the lenders have provided Brocade with a term loan facility of $800 million, which was fully drawn at the time of, and the proceeds used to fund in part, the acquisition, and a revolving credit facility of $100 million, which is fully available to finance ongoing working capital requirements and other general corporate purposes of the Company. The proceeds of both the term loan facility and the revolving credit facility may also be used to finance the repurchase of the Company’s shares.

The initial term loan has a term of five years and bears interest at floating rates based on LIBOR, plus 1.5% interest margin.

The Company’s obligations under the Credit Agreement are and will be fully and unconditionally guaranteed by certain of the Company’s existing and subsequently acquired or organized direct and indirect subsidiaries. The Company’s obligations under the Credit Agreement are unsecured but will be required to be secured upon the occurrence of certain events, including certain credit rating agency downgrades or the incurrence of certain indebtedness in excess of $600 million, subject to certain exceptions.

The Credit Agreement includes financial covenants, including a maximum total leverage ratio and a minimum interest coverage ratio, certain restrictive covenants and customary events of default. Commitments under the revolving credit facility are subject to an annual undrawn commitment fee starting at 0.30%, and are later subject to adjustment between 0.20% and 0.35% based on the Company’s total leverage ratio.