Commitments and Contingencies

Product Warranties

The Company’s accrued liability for estimated future warranty costs is included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets. The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs during the nine months ended July 29, 2017, and July 30, 2016 (in thousands):



	Accrued Warranty
	Nine Months Ended
	July 29, 2017			July 30, 2016
Beginning balance	$	8,326		$	7,599
Warranty liability assumed from acquisitions	—			760
Liabilities accrued for warranties issued during the period	2,136			2,768
Warranty claims paid and used during the period	(2,361		)	(2,736		)
Changes in liability for pre-existing warranties during the period	838			(60		)
Ending balance	$	8,939		$	8,331

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, subject to the particular contract’s terms. As of July 29, 2017, 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 July 29, 2017, the Company’s aggregate commitment to its CMs for inventory components used in the manufacture of Brocade products was $158.9 million, which the Company expects to utilize during future normal ongoing operations, net of a purchase commitments reserve of $1.8 million, which is reported within “Other accrued liabilities” on the Company’s Condensed Consolidated Balance Sheet as of July 29, 2017. 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 13, “Income Taxes,” of the Notes to Condensed 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, including those identified below, 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 July 29, 2017, 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

A putative class action captioned Hussey v. Ruckus Wireless, Inc., et al. is pending in the United States District Court for the Northern District of California (referred to as the “Hussey action”). The original complaint in the Hussey action, filed on June 3, 2016, alleged that Ruckus, members of the Ruckus board of directors, Ruckus’ chief financial officer, Brocade, and a Brocade subsidiary violated Section 14(e) 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, and violated Section 14(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, named the same defendants as the original complaint and alleged 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. The amended complaint sought an award of damages in an unspecified amount. On December 8, 2016, all defendants filed a motion to dismiss the amended complaint. On February 21, 2017, the court granted the motion and dismissed the amended complaint, with leave to amend as to all claims except the claim for violations of Section 14(d)(7) of the Exchange Act and Rule 14d-10 promulgated thereunder, which claim was dismissed without leave to amend. A second amended complaint was filed on March 27, 2017, adding Ruckus’ financial advisor as an additional defendant and alleging that certain of the defendants violated Sections 14(e) and 20(a) of the Exchange Act, that the members of the Ruckus board of directors and Ruckus’ chief financial officer breached their fiduciary duties to Ruckus stockholders, and that Brocade and the Brocade subsidiary aided and abetted the individual defendants 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; providing allegedly false, misleading, and/or incomplete disclosures regarding conflicts of interest and the opinion of Ruckus’ financial advisors; and ultimately agreeing to unfair transaction consideration for the Ruckus shares. The second amended complaint sought an award of damages in an unspecified amount. On April 27, 2017, all defendants filed a motion to dismiss the second amended complaint. On June 29, 2017, the court granted the motion and dismissed the second amended complaint, without leave to amend as to all claims, and entered judgment accordingly. On July 27, 2017, the plaintiffs filed a motion to alter or amend the judgment.

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 Verition Multi-Strategy Master Fund Ltd. (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, captioned Verition Multi-Strategy Master Fund Ltd. v. Ruckus Wireless, Inc. On June 30, 2017, the parties entered into a settlement agreement pursuant to which Ruckus paid the Dissenter $51.9 million, representing $16.22 for each of the 3.2 million Ruckus shares in exchange for certain releases and a stipulated dismissal of the appraisal proceeding. On July 12, 2017, the court dismissed the appraisal proceeding.

Broadcom Acquisition-Related Litigation

Subsequent to the announcement that Brocade had agreed to be acquired by Broadcom, six purported class action complaints have been filed on behalf of Brocade’s stockholders against Brocade and members of its Board of Directors in the United States District Court for the Northern District of California. Three of the six complaints also name Broadcom Limited, Broadcom Corporation, and/or Bobcat Merger Sub, Inc. as defendants. The six complaints are captioned as follows: Steinberg v. Brocade Communications Systems, Inc., et al. (filed December 12, 2016) (the “Steinberg action”); Gross v. Brocade Communications Systems, Inc., et al. (filed December 15, 2016); Bragan v. Brocade Communications Systems, Inc., et al. (filed December 21, 2016); Jha v. Brocade Communications Systems, Inc., et al. (filed December 21, 2016) (the “Jha action”); Chuakay v. Brocade Communications Systems, Inc., et al. (filed January 5, 2017) (the “Chuakay action”); and Matthew v. Brocade Communications Systems, Inc., et al. (filed January 18, 2017) (collectively, the “Broadcom Acquisition-Related Litigation”). The complaints each allege violations of Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 arising out of the Company’s preliminary proxy statement filed with the SEC on December 6, 2016 (the “preliminary proxy statement”) and/or the Company’s definitive proxy statement filed with the SEC on December 20, 2016 (the “definitive proxy statement”) relating to Broadcom’s proposed acquisition of Brocade. Specifically, the plaintiffs allege that the preliminary proxy statement and/or the definitive proxy statement omits material information regarding the background of the transaction, the Company’s financial projections, the Company’s intrinsic value and prospects, the valuation analyses performed by Evercore Group L.L.C. (“Evercore”), the Company’s financial advisor in connection with the transaction, and alleged conflicts of interest faced by Evercore. The plaintiffs in each action seek to enjoin the defendants from consummating the transaction, or, if the transaction is consummated, the plaintiffs alternatively seek rescission and/or damages. The plaintiffs also seek costs and fees.

On January 11, 2017, the plaintiff in the Jha action filed a motion (the “Injunction Motion”) seeking to preliminarily enjoin the special meeting of Brocade stockholders scheduled for January 26, 2017, at which time Brocade stockholders were to vote on the transaction. The plaintiffs in the Steinberg action and the Chuakay action subsequently joined the Injunction Motion. To mitigate the risk of the Broadcom Acquisition-Related Litigation delaying or adversely affecting the transaction, and to minimize the expense of defending the Broadcom Acquisition-Related Litigation, and without admitting any liability or wrongdoing, on January 18, 2017, the Company made certain disclosures that supplemented and revised those contained in the definitive proxy statement. The plaintiffs in the Jha action, the Steinberg action, and the Chuakay action subsequently withdrew the Injunction Motion.

On April 13, 2017, the court consolidated the six actions and named a lead plaintiff.