15. 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. The Company's obligations under the senior secured notes are guaranteed by certain of the Company's domestic subsidiaries (the "Subsidiary Guarantors"). Each of the Subsidiary Guarantors is fully 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, the Company's Canadian and other foreign subsidiaries (the "Non-Guarantor Subsidiaries").

Pursuant to the terms of 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 or other debt 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 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 condensed consolidated financial statements for the parent company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries, respectively.

The following is the condensed consolidated balance sheet as of January 28, 2012 (in thousands):


	Brocade Communications Systems, Inc.		Subsidiary Guarantors			Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	165,481	$	2,200		$	317,343	$	—		$	485,024
Accounts receivable, net		116,624		(1,932	)		104,671		—			219,363
Inventories		53,159		—			27,840		—			80,999
Intercompany receivables		—		449,755			—		(449,755	)		—
Other current assets		94,761		740			10,954		3,227			109,682

Total current assets		430,025		450,763			460,808		(446,528	)		895,068
Property and equipment, net		455,867		55,128			17,107		—			528,102
Investment in subsidiaries		1,277,575		—			—		(1,277,575	)		—
Other non-current assets		1,493,148		561,087			1,335		—			2,055,570

Total assets	$	3,656,615	$	1,066,978		$	479,250	$	(1,724,103	)	$	3,478,740

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	76,420	$	357		$	22,407	$	—		$	99,184
Current portion of long-term debt		27,341		—			—		—			27,341
Intercompany payables		387,867		—			61,888		(449,755	)		—
Other current liabilities		260,660		16,060			126,035		3,227			405,982

Total current liabilities		752,288		16,417			210,330		(446,528	)		532,507
Long-term debt, net of current portion		692,191		—			—		—			692,191
Other non-current liabilities		90,768		401			41,505		—			132,674

Total liabilities		1,535,247		16,818			251,835		(446,528	)		1,357,372
Total stockholders' equity		2,121,368		1,050,160			227,415		(1,277,575	)		2,121,368

Total liabilities and stockholders' equity	$	3,656,615	$	1,066,978		$	479,250	$	(1,724,103	)	$	3,478,740

The following is the condensed consolidated balance sheet as of October 29, 2011 (in thousands):


	Brocade Communications Systems, Inc.		Subsidiary Guarantors			Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	101,367	$	2,301		$	311,308	$	—		$	414,976
Accounts receivable, net		157,839		(2,149	)		93,451		—			249,141
Inventories		50,000		—			24,172		—			74,172
Intercompany receivables		—		446,455			—		(446,455	)		—
Other current assets		87,495		805			15,609		2,003			105,912

Total current assets		396,701		447,412			444,540		(444,452	)		844,201
Property and equipment, net		460,347		55,594			16,443		—			532,384
Investment in subsidiaries		1,285,356		—			—		(1,285,356	)		—
Other non-current assets		1,506,086		590,318			1,319		—			2,097,723

Total assets	$	3,648,490	$	1,093,324		$	462,302	$	(1,729,808	)	$	3,474,308

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	85,700	$	376		$	23,395	$	—		$	109,471
Current portion of long-term debt		40,539		—			—		—			40,539
Intercompany payables		377,228		—			69,227		(446,455	)		—
Other current liabilities		276,982		17,261			119,731		2,003			415,977

Total current liabilities		780,449		17,637			212,353		(444,452	)		565,987
Long-term debt, net of current portion		748,904		—			—		—			748,904
Other non-current liabilities		104,999		580			39,700		—			145,279

Total liabilities		1,634,352		18,217			252,053		(444,452	)		1,460,170
Total stockholders' equity		2,014,138		1,075,107			210,249		(1,285,356	)		2,014,138

Total liabilities and stockholders' equity	$	3,648,490	$	1,093,324		$	462,302	$	(1,729,808	)	$	3,474,308

The following is the condensed consolidated statement of income for the three months ended January 28, 2012 (in thousands):


	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	340,144		$	1,489		$	219,009		$	—		$	560,642
Intercompany revenues		10,660			—			6,720			(17,380	)		—

Total net revenues		350,804			1,489			225,729			(17,380	)		560,642

Cost of revenues		131,136			17,136			65,378			2,223			215,873
Intercompany cost of revenues		(8,374	)		—			25,754			(17,380	)		—

Total cost of revenues		122,762			17,136			91,132			(15,157	)		215,873

Gross margin (loss)		228,042			(15,647	)		134,597			(2,223	)		344,769
Operating expenses		198,255			15,327			63,991			(2,223	)		275,350
Intercompany operating expenses		(36,756	)		(6,022	)		42,778			—			—

Total operating expenses		161,499			9,305			106,769			(2,223	)		275,350

Income (loss) from operations		66,543			(24,952	)		27,828			—			69,419
Other income (expense)		(10,282	)		5			(3,765	)		—			(14,042	)

Income (loss) before income tax provision (benefit)		56,261			(24,947	)		24,063			—			55,377
Income tax provision (benefit)		(5,557	)		—			2,350			—			(3,207	)

Net income (loss) before equity in net earnings (losses) of subsidiaries		61,818			(24,947	)		21,713			—			58,584
Equity in net earnings (losses) of subsidiaries		(3,234	)		—			—			3,234			—

Net income (loss)	$	58,584		$	(24,947	)	$	21,713		$	3,234		$	58,584

The following is the condensed consolidated statement of income for the three months ended January 29, 2011 (in thousands):


	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Revenues	$	326,920		$	7,464		$	211,372	$	—		$	545,756
Intercompany revenues		31,018			777			7,712		(39,507	)		—

Total net revenues		357,938			8,241			219,084		(39,507	)		545,756

Cost of revenues		139,737			20,655			60,884		3,597			224,873
Intercompany cost of revenues		6,175			—			33,332		(39,507	)		—

Total cost of revenues		145,912			20,655			94,216		(35,910	)		224,873

Gross margin (loss)		212,026			(12,414	)		124,868		(3,597	)		320,883
Operating expenses		212,882			16,229			52,965		(3,597	)		278,479
Intercompany operating expenses		(42,186	)		(6,381	)		48,567		—			—

Total operating expenses		170,696			9,848			101,532		(3,597	)		278,479

Income (loss) from operations		41,330			(22,262	)		23,336		—			42,404
Other income (expense)		(21,185	)		(738	)		720		—			(21,203	)

Income (loss) before income tax provision (benefit)		20,145			(23,000	)		24,056		—			21,201
Income tax provision (benefit)		(7,760	)					2,043		—			(5,717	)

Net income (loss) before equity in net earnings (losses) of subsidiaries		27,905			(23,000	)		22,013		—			26,918
Equity in net earnings (losses) of subsidiaries		(987	)		—			—		987			—

Net income (loss)	$	26,918		$	(23,000	)	$	22,013	$	987		$	26,918

The following is the condensed consolidated statement of cash flows for the three months ended January 28, 2012 (in thousands):


	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided (used in) by operating activities	$	116,939		$	(113	)	$	10,225		$	—	$	127,051

Cash flows from investing activities:
Proceeds from sale of subsidiary		(215	)		—			—			—		(215	)
Purchases of property and equipment		(15,241	)		—			(2,315	)		—		(17,556	)

Net cash used in investing activities		(15,456	)		—			(2,315	)		—		(17,771	)

Cash flows from financing activities:
Payment of principal related to the term loan		(70,000	)		—			—			—		(70,000	)
Payment of principal related to capital leases		(456	)		—			—			—		(456	)
Proceeds from issuance of common stock		31,941			—			—			—		31,941
Excess tax benefits from stock-based compensation		1,147			—			—			—		1,147

Net cash used in financing activities		(37,368	)		—			—			—		(37,368	)

Effect of exchange rate fluctuations on cash and cash equivalents		—			—			(1,875	)		—		(1,875	)

Net increase (decrease) in cash and cash equivalents		64,115			(113	)		6,035			—		70,037
Cash and cash equivalents, beginning of period		101,366			1,528			311,308			—		414,202

Cash and cash equivalents, end of period	$	165,481		$	1,415		$	317,343		$	—	$	484,239

The following is the condensed consolidated statement of cash flows for the three months ended January 29, 2011 (in thousands):


	Brocade Communications Systems, Inc.			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments		Total
Net cash provided by operating activities	$	52,648		$	840		$	64,748		$	—	$	118,236

Cash flows from investing activities:
Purchases of short-term investments		—			(25	)		—			—		(25	)
Proceeds from maturities and sale of short-term investments		—			19			—			—		19
Purchases of property and equipment		(20,564	)		(8	)		(2,823	)		—		(23,395	)

Net cash used in investing activities		(20,564	)		(14	)		(2,823	)		—		(23,401	)

Cash flows from financing activities:
Payment of principal related to the term loan		(39,748	)		—			—			—		(39,748	)
Payment of principal related to capital leases		(431	)		—			—			—		(431	)
Proceeds from issuance of common stock		25,477			—			—			—		25,477

Net cash used in financing activities		(14,702	)		—			—			—		(14,702	)

Effect of exchange rate fluctuations on cash and cash equivalents		—			—			66			—		66

Net increase in cash and cash equivalents		17,382			826			61,991			—		80,199
Cash and cash equivalents, beginning of period		23,455			6,907			303,622			—		333,984

Cash and cash equivalents, end of period	$	40,837		$	7,733		$	365,613		$	—	$	414,183