Guarantor And Non-Guarantor Subsidiaries

9 Months Ended

Jul. 30, 2011

Guarantor And Non-Guarantor Subsidiaries

Guarantor And Non-Guarantor Subsidiaries

17. 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. As discussed in Note 8, "Borrowings," of the Notes to Condensed Consolidated Financial Statements, the Company's obligations under the Senior Secured Notes are guaranteed by certain of the Company's domestic subsidiaries. The Senior Secured Notes are not guaranteed by the Company's Canadian or other foreign subsidiaries. The following tables present condensed consolidated financial statements for the parent company, the Subsidiary Guarantors and the foreign non-guarantor subsidiaries, respectively.

The following is the condensed consolidated balance sheet as of July 30, 2011 (in thousands):

	Brocade Communications Systems, Inc.		Subsidiary Guarantors		Foreign Non- Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	57,786	$	9,660	$	405,894	$	—		$	473,340
Accounts receivable, net		176,776		3,010		116,244		—			296,030
Inventories		56,255		—		22,175		—			78,430
Intercompany receivables		—		455,596		—		(455,596	)		—
Other current assets		122,894		569		15,291		5,618			144,372
Total current assets		413,711		468,835		559,604		(449,978	)		992,172
Property and equipment, net		463,159		56,182		14,838		—			534,179
Other non-current assets		1,502,805		643,656		8,113		—			2,154,574
Total assets	$	2,379,675	$	1,168,673	$	582,555	$	(449,978	)	$	3,680,925
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	86,272	$	2,458	$	26,746	$	—		$	115,476
Current portion of debt		50,391		—		—		—			50,391
Intercompany payables		443,914		—		11,682		(455,596	)		—
Other current liabilities		228,538		19,857		112,448		5,618			366,461
Total current liabilities		809,115		22,315		150,876		(449,978	)		532,328
Debt, net of current portion		788,938		—		—		—			788,938
Other non-current liabilities		103,368		771		39,040		—			143,179
Total liabilities		1,701,421		23,086		189,916		(449,978	)		1,464,445
Total stockholders' equity		678,254		1,145,587		392,639		—			2,216,480
Total liabilities and stockholders' equity	$	2,379,675	$	1,168,673	$	582,555	$	(449,978	)	$	3,680,925

The following is the condensed consolidated balance sheet as of October 30, 2010 (in thousands):

	Brocade Communications Systems, Inc.		Subsidiary Guarantors		Foreign Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	23,455	$	8,905	$	303,622		$	—		$	335,982
Accounts receivable, net		212,542		1,698		103,456			(333	)		317,363
Inventories		63,713		—		13,095			—			76,808
Intercompany receivables		—		399,868		—			(399,868	)		—
Other current assets		121,370		875		9,999			3,069			135,313
Total current assets		421,080		411,346		430,172			(397,132	)		865,466
Property and equipment, net		466,247		58,040		14,830			—			539,117
Other non-current assets		1,499,774		734,469		6,364			—			2,240,607
Total assets	$	2,387,101	$	1,203,855	$	451,366		$	(397,132	)	$	3,645,190
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	128,182	$	389	$	18,892		$	(333	)	$	147,130
Current portion of debt		30,540		—		—			—			30,540
Intercompany payables		412,555		—		(12,687	)		(399,868	)		—
Other current liabilities		256,710		29,752		101,729			3,069			391,260
Total current liabilities		827,987		30,141		107,934			(397,132	)		568,930
Debt, net of current portion		899,273		—		—			—			899,273
Other non-current liabilities		99,679		3,361		36,278			—			139,318
Total liabilities		1,826,939		33,502		144,212			(397,132	)		1,607,521
Total stockholders' equity		560,162		1,170,353		307,154			—			2,037,669
Total liabilities and stockholders' equity	$	2,387,101	$	1,203,855	$	451,366		$	(397,132	)	$	3,645,190

The following is the condensed consolidated statement of income for the three months ended July 30, 2011 (in thousands):

	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Foreign Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	299,841		$	7,526		$	195,483		$	—		$	502,850
Intercompany revenues		15,753			367			11,211			(27,331	)		—
Total net revenues		315,594			7,893			206,694			(27,331	)		502,850
Cost of revenues		120,070			19,209			53,669			3,375			196,323
Intercompany cost of revenues		(8,122	)		—			35,452			(27,330	)		—
Total cost of revenues		111,948			19,209			89,121			(23,955	)		196,323
Gross margin (loss)		203,646			(11,316	)		117,573			(3,376	)		306,527
Operating expenses		204,259			14,794			56,628			(3,376	)		272,305
Intercompany operating expenses		(32,891	)		(6,280	)		39,171			—			—
Total operating expenses		171,368			8,514			95,799			(3,376	)		272,305
Income (loss) from operations		32,278			(19,830	)		21,774			—			34,222
Other expense		(41,934	)		(76	)		(575	)		—			(42,585	)
Income (loss) before income tax provision (benefit)		(9,656	)		(19,906	)		21,199			—			(8,363	)
Income tax provision (benefit)		(3,751	)		(7,734	)		1,185			—			(10,300	)
Net income (loss)	$	(5,905	)	$	(12,172	)	$	20,014		$	—		$	1,937

The following is the condensed consolidated statement of income for the three months ended July 31, 2010 (in thousands):

	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Foreign Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	300,676		$	9,424		$	194,152		$	—		$	504,252
Intercompany revenues		26,051			3,995			5,921			(35,967	)		—
Total net revenues		326,727			13,419			200,073			(35,967	)		504,252
Cost of revenues (1)		116,965			30,470			65,777			5,619			218,831
Intercompany cost of revenues		10,024			—			25,943			(35,967	)		—
Total cost of revenues		126,989			30,470			91,720			(30,348	)		218,831
Gross margin (loss)		199,738			(17,051	)		108,353			(5,619	)		285,421
Operating expenses (1)		212,959			14,541			32,452			(5,619	)		254,333
Intercompany operating expenses		(73,973	)		(4,372	)		78,345			—			—
Total operating expenses		138,986			10,169			110,797			(5,619	)		254,333
Income (loss) from operations		60,752			(27,220	)		(2,444	)		—			31,088
Total other income (expense)		(10,027	)		655			(14,112	)		—			(23,484	)
Income (loss) before income tax provision (benefit)		50,725			(26,565	)		(16,556	)		—			7,604
Income tax provision (benefit)		(32,463	)		17,251			286			—			(14,926	)
Net income (loss)	$	83,188		$	(43,816	)	$	(16,842	)	$	—		$	22,530

(1) As adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses. See Note 1, "Basis of Presentation," of the Notes to Condensed Consolidated Financial Statements.

The following is the condensed consolidated statement of income for the nine months ended July 30, 2011 (in thousands):

	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Foreign Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	948,200		$	22,407		$	626,362		$	—		$	1,596,969
Intercompany revenues		76,729			1,571			26,521			(104,821	)		—
Total net revenues		1,024,929			23,978			652,883			(104,821	)		1,596,969
Cost of revenues		397,419			62,416			170,470			10,646			640,951
Intercompany cost of revenues		4,962			—			99,858			(104,820	)		—
Total cost of revenues		402,381			62,416			270,328			(94,174	)		640,951
Gross margin (loss)		622,548			(38,438	)		382,555			(10,647	)		956,018
Operating expenses		636,393			43,614			163,836			(10,647	)		833,196
Intercompany operating expenses		(110,684	)		(19,133	)		129,817			—			—
Total operating expenses		525,709			24,481			293,653			(10,647	)		833,196
Income (loss) from operations		96,839			(62,919	)		88,902			—			122,822
Other expense		(83,231	)		(502	)		(784	)		—			(84,517	)
Income (loss) before income tax provision (benefit)		13,608			(63,421	)		88,118			—			38,305
Income tax provision (benefit)		58,195			(80,135	)		5,311			—			(16,629	)
Net income (loss)	$	(44,587	)	$	16,714		$	82,807		$	—		$	54,934

The following is the condensed consolidated statement of income for the nine months ended July 31, 2010 (in thousands):

	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Foreign Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	911,777		$	42,481		$	588,265		$	—		$	1,542,523
Intercompany revenues		74,283			10,467			17,156			(101,906	)		—
Total net revenues		986,060			52,948			605,421			(101,906	)		1,542,523
Cost of revenues (1)		338,628			86,480			194,648			14,922			634,678
Intercompany cost of revenues		25,648			—			76,258			(101,906	)		—
Total cost of revenues		364,276			86,480			270,906			(86,984	)		634,678
Gross margin (loss)		621,784			(33,532	)		334,515			(14,922	)		907,845
Operating expenses (1)		622,601			49,152			97,217			(14,922	)		754,048
Intercompany operating expenses		(139,913	)		(17,762	)		157,675			—			—
Total operating expenses		482,688			31,390			254,892			(14,922	)		754,048
Income (loss) from operations		139,096			(64,922	)		79,623			—			153,797
Total other income (expense)		(61,998	)		2,421			(14,909	)		—			(74,486	)
Income (loss) before income tax provision (benefit)		77,098			(62,501	)		64,714			—			79,311
Income tax provision (benefit)		54,737			(74,810	)		5,088			—			(14,985	)
Net income	$	22,361		$	12,309		$	59,626		$	—		$	94,296

(1) As adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses. See Note 1, "Basis of Presentation," of the Notes to Condensed Consolidated Financial Statements.

The following is the condensed consolidated statement of cash flows for the nine months ended July 30, 2011 (in thousands):

	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Foreign Non- Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided by operating activities	$	135,029		$	431		$	107,539		$	—	$	242,999
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		(70,389	)		(24	)		(6,248	)		—		(76,661	)
Net cash provided by (used in) investing activities		(70,389	)		1,542			(6,248	)		—		(75,095	)
Cash flows from financing activities:
Payment of principal related to the term loan		(309,897	)		—			—			—		(309,897	)
Payment of fees related to the term loan		(1,090	)		—			—			—		(1,090	)
Proceeds from term loan		198,949			—			—			—		198,949
Common stock repurchases		(10,044	)		—			—			—		(10,044	)
Payment of principal related to capital leases		(1,311	)		—			—			—		(1,311	)
Proceeds from issuance of common stock, net		93,333			—			—			—		93,333
Excess tax benefits or detriments from stock-based compensation		(249	)		—			168			—		(81	)
Net cash provided by (used in) financing activities		(30,309	)		—			168			—		(30,141	)
Effect of exchange rate fluctuations on cash and cash equivalents		—			—			812			—		812
Net increase in cash and cash equivalents		34,331			1,973			102,271			—		138,575
Cash and cash equivalents, beginning of period		23,455			6,907			303,622			—		333,984
Cash and cash equivalents, end of period	$	57,786		$	8,880		$	405,893		$	—	$	472,559

The following is the condensed consolidated statement of cash flows for the nine months ended July 31, 2010 (in thousands):

	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Foreign Non- Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided by (used in) operating activities	$	(15,055	)	$	168,697		$	38,448		$	—	$	192,090
Cash flows from investing activities:
Purchases of short-term investments		—			(41	)		—			—		(41	)
Proceeds from maturities and sale of short-term investments		—			1,788			—			—		1,788
Proceeds from sale of property		30,185			—			—			—		30,185
Purchases of property and equipment		(151,662	)		372			(4,680	)		—		(155,970	)
Net cash provided by (used in) investing activities		(121,477	)		2,119			(4,680	)		—		(124,038	)
Cash flows from financing activities:
Payment of debt issuance costs related to the Senior Secured Notes		(3,665	)		—			—			—		(3,665	)
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		(552,808	)		—			—			—		(552,808	)
Payment of principal related to capital leases		(494	)		—			—			—		(494	)
Common stock repurchases		(25,004	)		—			—			—		(25,004	)
Proceeds from Senior Secured Notes		587,968			—			—			—		587,968
Proceeds from issuance of common stock, net		69,883			—			—			—		69,883
Excess tax benefits or detriments from stock-based compensation		5,318			—			—			—		5,318
Net cash provided by (used in) financing activities		67,148			(172,500	)		—			—		(105,352	)
Effect of exchange rate fluctuations on cash and cash equivalents		—			—			(4,356	)		—		(4,356	)
Net increase (decrease) in cash and cash equivalents		(69,384	)		(1,684	)		29,412			—		(41,656	)
Cash and cash equivalents, beginning of period		74,509			5,748			253,936			—		334,193
Cash and cash equivalents, end of period	$	5,125		$	4,064		$	283,348		$	—	$	292,537