Commitments and Contingencies

Operating Leases

The Company leases certain facilities and certain equipment under various operating agreements expiring through October 2025. In connection with its facilities lease agreements, the Company has signed unconditional, irrevocable letters of credit totaling $0.1 million as security for the leases.

The following table presents the composition of net rent expense included on the Company’s Consolidated Statements of Income (in thousands):



	Fiscal Year Ended
	October 29, 2016			October 31, 2015			November 1, 2014
Rent expense	$	26,423		$	22,929		$	21,928
Sublease income	(7,538		)	(7,673		)	(7,264		)
Net rent expense	$	18,885		$	15,256		$	14,664

Future minimum lease payments under all non-cancellable operating leases as of October 29, 2016, excluding contractual sublease income of $1.9 million, are as follows (in thousands):



Fiscal Year	Operating Leases
2017	$	20,996
2018	14,782
2019	11,286
2020	10,392
2021	9,634
Thereafter	21,549
Total minimum lease payments	$	88,639

Product Warranties

The Company’s accrued liability for estimated future warranty costs is included in “Other accrued liabilities” in the accompanying Consolidated Balance Sheets. The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs during the fiscal years ended October 29, 2016, and October 31, 2015 (in thousands):



	Accrued Warranty
	Fiscal Year Ended
	October 29, 2016			October 31, 2015
Beginning balance	$	7,599		$	7,486
Warranty liability assumed from acquisitions	760			—
Liabilities accrued for warranties issued during the period	3,584			4,076
Warranty claims paid and used during the period	(3,598		)	(4,164		)
Changes in liability for pre-existing warranties during the period	(19		)	201
Ending balance	$	8,326		$	7,599

In addition, the Company has defense and indemnification clauses contained within its various customer contracts. As such, the Company indemnifies the parties to whom it sells its products with respect to the Company’s products, both alone and in certain circumstances when in combination with other products and services, for infringement of any patents, trademarks, copyrights, or trade secrets, as well as against bodily injury or damage to real or tangible personal property caused by a defective Company product. As of October 29, 2016, there have been no known events or circumstances that have resulted in a material customer contract-related indemnification liability to the Company.

Manufacturing and Purchase Commitments

Brocade has manufacturing arrangements with its CMs under which Brocade provides product forecasts and places purchase orders in advance of the scheduled delivery of products to Brocade’s customers. The required lead time for placing orders with the CMs depends on the specific product. Brocade issues purchase orders, and the CMs then generate invoices based on prices and payment terms mutually agreed upon and set forth in those purchase orders. Although the purchase orders Brocade places with its CMs are cancellable, the terms of the agreements require Brocade to purchase all inventory components ordered per Brocade’s forecast which are not returnable, usable by, or sold to other customers of the CMs. In addition, Brocade has an arrangement with one of its CMs regarding factory capacity that can be used by the Company. Under this arrangement, the Company receives a credit for exceeding the planned utilization of factory capacity and, conversely, is required to pay additional fees for underutilizing the planned capacity.

As of October 29, 2016, the Company’s aggregate commitment to its CMs for inventory components used in the manufacture of Brocade products was $206.3 million, which the Company expects to utilize during future normal ongoing operations, net of a purchase commitments reserve of $1.1 million, which is reported within “Other accrued liabilities” on the Company’s Consolidated Balance Sheet as of October 29, 2016. The Company’s purchase commitments reserve reflects the Company’s estimate of purchase commitments it does not expect to utilize in normal ongoing operations.

Income Taxes

The Company is subject to several ongoing income tax audits and has received notices of proposed adjustments or assessments from certain tax authorities. For additional discussion, see Note 14, “Income Taxes,” of the Notes to Consolidated Financial Statements. The Company believes it has adequate reserves for all open tax years.

Legal Proceedings

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including claims of alleged infringement of patents and/or other intellectual property rights and commercial and employment contract disputes. The Company accrues a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company believes it has recorded adequate provisions for any such matters and, as of October 29, 2016, it was not reasonably possible that a material loss had been incurred in excess of the amounts recognized in the Company’s financial statements. However, litigation is inherently uncertain, and the outcome of these matters cannot be predicted with certainty. Accordingly, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these matters.

Ruckus Acquisition-Related Litigation

Subsequent to the announcement that Brocade had entered into an agreement to acquire Ruckus on April 3, 2016, three putative stockholder class action complaints relating to the acquisition were filed on behalf of purported Ruckus stockholders in the Superior Court of California, County of Santa Clara, a fourth putative stockholder class action complaint was filed in the United States District Court for the District of Delaware, and a fifth putative class action complaint was filed in the United States District Court for the Northern District of California. The complaints in the three California state court actions are captioned: Maguire v. Ruckus Wireless, Inc., et al. (filed April 12, 2016, and amended on May 10, 2016; referred to as the “Maguire action”); Jaljouli v. Ruckus Wireless, Inc., et al., (filed April 19, 2016; referred to as the “Jaljouli action”); and Small v. Ruckus Wireless, Inc., et al. (filed May 12, 2016; referred to as the “Small action”). The complaint in the Delaware federal court action is captioned Borrego v. Ruckus Wireless, Inc., et al. (filed May 11, 2016; referred to as the “Borrego action”). The complaint in the California federal court action is captioned Hussey v. Ruckus Wireless, Inc., et al. (filed June 3, 2016; referred to as the “Hussey action”).

The complaints in the Maguire, Jaljouli and Small actions contained similar allegations and named Ruckus and members of the Ruckus board of directors as defendants; the Maguire and Jaljouli actions also named Brocade and a Brocade subsidiary as defendants. In general, the complaints alleged that the members of the Ruckus board of directors breached their fiduciary duties to Ruckus stockholders in agreeing to the transaction and making related disclosures. The complaints in the Maguire and Jaljouli actions also alleged that one or more of Ruckus, Brocade, and the Brocade subsidiary aided and abetted the members of the Ruckus board of directors in breaching their fiduciary duties to Ruckus stockholders. The Maguire and Jaljouli actions were each voluntarily dismissed by the plaintiffs on September 19, 2016, and the Small action was voluntarily dismissed by the plaintiff on August 29, 2016.

The complaint in the Borrego action alleged that Ruckus and members of the Ruckus board of directors violated Sections 14(e), 14(d)(4) and 20(a) of the Exchange Act based on allegedly false and/or misleading statements and/or alleged omissions in the Solicitation/Recommendation Statement on Schedule 14D-9 filed by Ruckus with the SEC on April 29, 2016. The Borrego action was voluntarily dismissed by the plaintiff on September 15, 2016.

The original complaint in the Hussey action, which named Ruckus, members of the Ruckus board of directors, Ruckus’ chief financial officer, Brocade, and a Brocade subsidiary as defendants, contained a Section 14(e) claim similar to that alleged in the Borrego action and also alleged that the defendants violated Section14(d)(7) of the Exchange Act and Rule 14d-10 promulgated thereunder based on the allegedly differential consideration received by members of the Ruckus board of directors and Ruckus’ chief financial officer in connection with the acquisition. An amended complaint filed on October 24, 2016, names the same defendants as the original complaint, and alleges that the defendants violated Sections 14(e), 14(d)(7) and 20(a) of the Exchange Act and Rule 14d-10 promulgated thereunder, that the members of the Ruckus board of directors breached their fiduciary duties to Ruckus stockholders, and that Ruckus’ chief financial officer, Brocade and the Brocade subsidiary aided and abetted the members of the Ruckus board of directors in breaching their fiduciary duties to Ruckus stockholders by purportedly doing one or more of the following: agreeing to terms preferential to the defendants and other Ruckus insiders, accepting overly restrictive deal protection measures in the merger agreement, failing to negotiate for a collar on Brocade’s stock price, engaging a financial advisor with conflicts of interest, providing allegedly false, misleading and/or incomplete disclosures regarding conflicts of interest and the opinion of Ruckus’s financial advisors, and ultimately agreeing to unfair transaction consideration for the Ruckus shares. The amended complaint seeks an award of damages in an unspecified amount. The defendants filed a motion to dismiss the amended complaint on December 8, 2016.

Ruckus Acquisition-Related Appraisal Demand

On May 25, 2016, Ruckus received an appraisal demand letter seeking an appraisal under Section 262 of the Delaware General Corporation Law (“Section 262”) of the fair value of 3.2 million Ruckus shares purported to be beneficially owned by a shareholder (the “Dissenter”) that purportedly dissented from the merger of Ruckus with and into a wholly owned subsidiary of the Company. Under Section 262, the Dissenter is entitled to have those shares appraised by the Delaware Court of Chancery and receive payment of the “fair value” of such shares together with statutory interest as determined by the Delaware Court of Chancery, provided that Dissenter complies with the requirements of Section 262. The Dissenter filed a petition for appraisal in the Delaware Court of Chancery on September 22, 2016. If the Dissenter does not timely and properly prosecute to judgment its appraisal action, the Dissenter may be entitled to receive $6.45 in cash and 0.75 shares of Brocade common stock with respect to each of the 3.2 million shares subject to its appraisal demand. Otherwise, the dollar amount that the Company may be required to pay to the Dissenter will be determined by the Delaware Court of Chancery and may be more than, less than, or equal to that amount.