BROCADE COMMUNICATIONS SYSTEMS INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the related Notes included in Part II, Item 8 of this Form 10-K.

Overview We are a leading supplier of networking equipment for businesses and organizations of many types and sizes, including global enterprises, and service providers such as telecommunication firms, cable operators and mobile carriers.

Our business model is focused on two key markets, namely our Storage Area Networking ("SAN") business, where we offer Fibre Channel ("FC") SAN backbones, directors, fabrics, embedded switches, host bus adapters ("HBAs"), and server virtualization solutions, and our IP Networking business, where we offer modular and stackable solutions, Ethernet routers, Ethernet switches, Ethernet fabrics, converged adapters, as well as application delivery, security and wireless solutions.

Growth opportunities in the SAN market are expected to be driven by key customer IT initiatives such as server virtualization, enterprise mobility, data center consolidation, migration to higher performance technologies and cloud computing initiatives. Our IP Networking business strategies are intended to increase new customer accounts and expand our market share. We plan to continue to support our SAN and IP Networking growth plans by leveraging the strategic investments we have made in our core businesses and emerging technologies, continuous innovation, new product introductions, and enhancing our existing partnerships and forming new ones through our two-tier distribution channel.

We continue to face multiple challenges, including aggressive price discounting from competitors, rapid adoption of new technologies by customers, the uncertainty in the worldwide macroeconomic climate and its impact on IT spending patterns globally, as well as uncertain federal government spending in the United States. We are also cautious about the stability and health of certain international markets, including China and Europe, and current global and country specific dynamics, including inflationary risks in China and the continuing sovereign debt risk and economic uncertainty in Europe. These factors may impact our business and that of our partners. While the diversification of our business model helps mitigate the effect of some of these challenges and we expect IT spending levels to generally rise in the long-term, it is difficult to offset short-term reductions of IT spending, which may adversely affect our financial results and stock price.

We expect the number of SAN and IP Networking products we ship to fluctuate depending on the demand for our existing and recently introduced products, sales support for our products from our distribution and resale partners, as well as the timing of product transitions by our OEM partners. The average selling prices per port for our SAN and IP Networking products have typically declined over time and will likely continue to decline in the future.

Our plans for our operating cash flows are to provide liquidity for operations, to manage our secured debt and to use our operating cash flows to repurchase our stock to reduce the dilutive effects of our equity award programs and, from time-to-time, we may also opportunistically repurchase our stock under our previously announced stock repurchase programs. In addition, we may opportunistically use our operating cash flows to strengthen our networking portfolios through acquisitions and strategic investments.

Results of Operations We report our fiscal year on a 52/53-week period ending on the last Saturday in October. As is customary for companies that use the 52/53-week convention, every fifth year contains a 53-week year. Fiscal years 2012, 2011 and 2010 were 52-week fiscal years. Our next 53-week fiscal year will be fiscal year 2014 and our next 14-week quarter will be in the second quarter of fiscal year 2014.

Our results of operations for the years ended October 27, 2012, October 29, 2011 and October 30, 2010 are reported in this discussion and analysis as a percentage of total net revenues, except for gross margin with respect to each segment, which is indicated as a percentage of the respective segment net revenues.

Revenues. Our revenues are derived primarily from sales of our SAN products, IP Networking products, and support and services related to these products, which we call Global Services.

31-------------------------------------------------------------------------------- Table of Contents Our total net revenues are summarized as follows (in thousands, except percentages): Fiscal Year Ended October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change SAN Products $ 1,356,099 60.6 % $ 1,237,994 57.6 % $ 118,105 9.5 % IP Networking Products 534,757 23.9 % 551,820 25.7 % (17,063 ) (3.1 )% Global Services 346,914 15.5 % 357,628 16.7 % (10,714 ) (3.0 )% Total net revenues $ 2,237,770 100.0 % $ 2,147,442 100.0 % $ 90,328 4.2 % Fiscal Year Ended October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change SAN Products $ 1,237,994 57.6 % $ 1,240,626 59.3 % $ (2,632 ) (0.2 )% IP Networking Products 551,820 25.7 % 488,188 23.4 % 63,632 13.0 % Global Services 357,628 16.7 % 362,339 17.3 % (4,711 ) (1.3 )% Total net revenues $ 2,147,442 100.0 % $ 2,091,153 100.0 % $ 56,289 2.7 % The increase in total net revenues for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011 reflects higher sales of our SAN products, partially offset by lower revenues from our IP Networking products and Global Services offerings.

• The increase in SAN product revenues was driven by a shift in mix to our high-end, higher bandwidth director and switch products, including strong growth in sales of our 16 Gbps products. The number of ports shipped during the fiscal year ended October 27, 2012 increased by 3.5%, and average selling price per portincreased by 5.7%.

• The decrease in IP Networking product revenues reflects lower revenues from our IP routing and application delivery products while Ethernet switching product revenue was flat year-over-year. As more of our IP Networking products are being sold through ourtwo-tier distribution channel, it has become increasingly difficult to consistently identify the customer split of our end users. Based on our estimated customer split, revenues from our enterprise customers decreased, partially offset by an increase in revenues from both service provider and U.S. federal government customers. Our IP Networking business has been impacted by slower enterprise customer spending and the competitive enterprise environment. Inaddition, enterprise product revenue decreased in part due to ourtransition to a two-tier distribution channel model. This transition resulted in lower average selling prices through the distribution channel which was not yet compensated by an increase in distribution channel sales volumes; and • The decrease in Global Services revenues was primarilyattributed to the sale of Strategic Business Systems, Inc. ("SBS"), awholly-owned subsidiary, in September 2011, partially offset by an increase in IP Networking support revenues.

The increase in total net revenues for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010 reflects higher sales of our IP Networking products, partially offset by lower revenues from our SAN products and Global Services offerings.

• The marginal decrease in SAN product revenues for the fiscal year ended October 29, 2011 reflects a 2.0% decrease in average selling price per port which includes the impact of lower pricing and a reduction in inventory held at our OEM partners. This decrease was slightly offset by a favorable mix shift from 4 Gb and 8 Gb director and switch products to 8 Gb and 16 Gb director and switch products, which carry a higher price per port, and by an increase of 1.9% in the number of ports shipped.

• The increase in IP Networking product revenues for thefiscal year ended October 29, 2011 reflects higher revenues from our enterprise and service provider customers, which we believe was influenced by the implementation of initiatives to drive both immediate and long-term growth in our IP Networking business. The higher enterprise and service provider revenue was partially offset by lower pricing and lower revenues from United States federal customers; and 32-------------------------------------------------------------------------------- Table of Contents • The decrease in Global Services revenues for the fiscal year ended October 29, 2011 was primarily a result of lower SAN support and lower service revenues during the year as a result of the sale of SBS in September 2011, partially offset by an increase in IP Networking support revenues.

Our total net revenues by geographical area are summarized as follows (in thousands, except percentages): Fiscal Year Ended October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change United States $ 1,414,390 63.2 % $ 1,313,302 61.2 % $ 101,088 7.7 % Europe, the Middle East and Africa (1) 493,979 22.1 % 502,999 23.4 % (9,020 ) (1.8 )% Asia Pacific 186,244 8.3 % 212,636 9.9 % (26,392 ) (12.4 )% Japan 99,887 4.5 % 75,542 3.5 % 24,345 32.2 % Canada, Central and South America 43,270 1.9 % 42,963 2.0 % 307 0.7 % Total net revenues $ 2,237,770 100.0 % $ 2,147,442 100.0 % $ 90,328 4.2 % Fiscal Year Ended October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change United States $ 1,313,302 61.2 % $ 1,338,262 64.0 % $ (24,960 ) (1.9 )% Europe, the Middle East and Africa (1) 502,999 23.4 % 482,707 23.1 % 20,292 4.2 % Asia Pacific $ 212,636 9.9 % $ 173,243 8.3 % $ 39,393 22.7 % Japan 75,542 3.5 % 58,914 2.8 % 16,628 28.2 % Canada, Central and South America $ 42,963 2.0 % $ 38,027 1.8 % $ 4,936 13.0 % Total net revenues $ 2,147,442 100.0 % $ 2,091,153 100.0 % $ 56,289 2.7 % (1) Includes net revenues of $259.2 million, $257.5 million and $254.4 million for the years ended October 27, 2012, October 29, 2011 and October 30, 2010, respectively, relating to the Netherlands.

Revenues are attributed to geographic areas based on where our products are shipped. However, certain OEM partners take possession of our products domestically and then distribute these products to their international customers. Because we account for all of those OEM revenues as domestic revenues, we cannot be certain of the extent to which our domestic and international revenue mix is impacted by the practices of our OEM partners, but we believe that international revenues comprise a larger percentage of our total net revenues than the attributed revenues may indicate.

International revenues for the fiscal year ended October 27, 2012 decreased as a percentage of total net revenues compared to the prior year primarily due to higher revenues from our SAN product sales to U.S. OEM partners, which strengthened U.S. revenues, as well as lower product sales in EMEA due to a weak macroeconomic environment. International revenues for the fiscal year ended October 29, 2011 increased as a percentage of total net revenues compared to the prior year primarily due to growth in Japan and the Asia Pacific region.

A significant portion of our revenues are concentrated among a relatively small number of OEM customers. For the fiscal years ended October 27, 2012, October 29, 2011 and October 30, 2010, the same three customers each represented 10% or more of our total net revenues for a combined total of 47% (EMC with 16%, HP with 13% and IBM with 18%), 43% (EMC with 15%, HP with 13% and IBM with 15%) and 47% (EMC with 16%, HP with 14% and IBM with 17%), respectively, of our total net revenues. We expect that a significant portion of our future revenues will continue to come from sales of products to a relatively small number of OEM partners and to the U.S. federal government and its individual agencies through our distributors and resellers. Therefore, the loss of, or a significant decrease in the level of sales to, or a change in the ordering pattern of any one of these customers could seriously harm our financial condition and results of operations.

Gross margin. Gross margin as stated below is indicated as a percentage of the respective segment net revenues, except for total gross margin, which is stated as a percentage of total net revenues.

33-------------------------------------------------------------------------------- Table of Contents Gross margin is summarized as follows (in thousands, except percentages): Fiscal Year Ended October 27, % of Net October 29, % of Net Increase/ % Points 2012 Revenues 2011 Revenues (Decrease) Change SAN Products $ 993,491 73.3 % $ 881,981 71.2 % $ 111,510 2.1 % IP Networking Products 207,509 38.8 % 230,637 41.8 % (23,128 ) (3.0 )% Global Services 182,019 52.5 % 170,916 47.8 % 11,103 4.7 % Total gross margin $ 1,383,019 61.8 % $ 1,283,534 59.8 % $ 99,485 2.0 % Fiscal Year Ended October 29, % of Net October 30, % of Net Increase/ % Points 2011 Revenues 2010 Revenues (Decrease) Change SAN Products $ 881,981 71.2 % $ 846,120 68.2 % $ 35,861 3.0 % IP Networking Products 230,637 41.8 % 199,208 40.8 % 31,429 1.0 % Global Services 170,916 47.8 % 185,792 51.3 % (14,876 ) (3.5 )% Total gross margin $ 1,283,534 59.8 % $ 1,231,120 58.9 % $ 52,414 0.9 % For the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011, total gross margin increased in absolute dollars and percentage primarily due to an increase in margins on SAN products and Global Services offerings, and a favorable product mix resulting from a year over year increase in the relative percentage of SAN products sold, which yield higher gross margins. This was partially offset by a decrease in margins on IP Networking products.

Gross margin percentage by reportable segment increased or decreased for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011 primarily due to the following factors (the percentages below reflect the impact on gross margin): • SAN gross margins relative to net revenues increased due to a 1.1% decrease in product costs relative to net revenues. Additionally, amortization of SAN-related intangible assets decreased by 0.9% relative to net revenues; • IP Networking gross margins relative to net revenuesdecreased due to a 4.3% increase in manufacturing costs, as well as a 1.1% increase in product costs relative to net revenues, which is primarily due to the impact of a decrease in average selling prices and an unfavorable mix due to an increase in the percentage of sales of our fixed form products which yield lower gross margins. These increases were partially offset by a 2.6% decrease in other costs relative to net revenues, primarily by a decrease in inventory excess and obsolescence charges and warranty expense; and • Global Services gross margins relative to net revenuesincreased due to a 4.7% decrease in service and support costs relative to net revenues, primarily from decreased headcount as a result of the sale of SBS.

For the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010, total gross margin increased in absolute dollars and percentage primarily due to higher revenues, as well as higher margins on SAN products and IP Networking products. This was partially offset by a decrease in Global Services gross margins, and increased mix of IP Networking Products revenues, which carry a lower overall gross margin.

Gross margin percentage by reportable segment increased or decreased for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010 primarily due to the following factors (the percentages below reflect the impact on gross margin): • SAN gross margins relative to net revenues increased primarily due to a benefit of 1.2% from the release of a provision for certain litigation originally recorded in cost of sales, and a 1.3% decrease in direct product costs relative to net revenues, which more than offset the decline in average selling price. Additionally, amortization of intangible assets related to the McDATA acquisition decreased by 0.2%, and other manufacturing costs relative to net revenues decreased by 0.3%; • IP Networking gross margins relative to net revenuesincreased due to a 1.0% decrease in amortization of intangible assets related to the Foundry acquisition, improved overhead absorption from higher revenues, and a 0.3% decrease in direct product costs, partially offset by a 0.3% increase in other manufacturing costs.

34-------------------------------------------------------------------------------- Table of Contents • Global Services gross margins relative to net revenues decreased due to a 2.9% increase in service and support costs, primarily due to increased headcount, which offset the impact of a one-time settlement of a litigation matter during the first fiscal quarter of 2010. Additionally, stock-based compensation relative to net revenues increased by 0.6% due to increased headcount.Stock-based compensation expense. Stock-based compensation expense is summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ 77,169 3.4 % $ 83,076 3.9 % $ (5,907 ) (7.1 )% October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ 83,076 3.9 % $ 101,625 4.9 % $ (18,549 ) (18.3 )% The decrease in stock-based compensation expense for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011 was due to fewer restricted stock units granted to employees in fiscal year 2012, and a recognition of a benefit as a result of actual forfeitures exceeding prior estimates in fiscal year 2012.

The decrease in stock-based compensation expense for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010 was primarily due to the decrease in Foundry-related deferred compensation and lower expenses related to our 2009 Employee Stock Purchase Plan ("ESPP") for which higher compensation expense was recognized under the graded vesting methodology in fiscal year 2010. This was partially offset by higher expenses from an increase in new equity grants in fiscal year 2011.

Research and development expenses. Research and development ("R&D") expenses consist primarily of compensation and related expenses for personnel engaged in engineering and R&D activities, fees paid to consultants and outside service providers, engineering expenses, which primarily consist of nonrecurring engineering charges and prototyping expenses related to the design, development, testing and enhancement of our products, depreciation related to engineering and test equipment, and related IT and facilities expenses.

R&D expenses are summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ 363,090 16.2 % $ 354,401 16.5 % $ 8,689 2.5 % October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ 354,401 16.5 % $ 354,260 16.9 % $ 141 - % R&D expenses increased for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011 due to the following (in thousands): Increase (Decrease) Salaries and wages $ 6,999 Outside services expense 4,143 Depreciation and amortization expense 1,905 Engineering expenses 1,187 The increase in R&D expenses was partially offset by decreases in the following: Engineering equipment expenses (3,615 ) Stock-based compensation expense (1,007 ) Various individually insignificant items (923 ) Total change $ 8,689 Salaries and wages increased primarily due to an increase in our variable compensation due to improved financial results during fiscal year 2012. Outside services expense increased primarily due to increased certification and technical publication expenses as we penetrated new markets and fulfilled additional U.S. federal government customer testing requirements. In addition, depreciation and amortization expense increased due to additional depreciation expenses related to equipment for our 35-------------------------------------------------------------------------------- Table of Contents laboratories. These increases were partially offset by the decrease in engineering equipment expenses mainly due to reduced spending on equipment for product testing. In addition, stock-based compensation expense decreased mainly because of fewer grants of restricted stock units in fiscal year 2012, and forfeiture-related expense adjustments due to employee terminations.

R&D expenses increased for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010 due to the following (in thousands): Increase (Decrease) Salaries and wages $ 14,288 Outside services expense 3,647 Depreciation and amortization expense 2,586 Various individually insignificant items 625 The increase in R&D expenses was partially offset by decreases in the following: Stock-based compensation expense (8,835 ) Nonrecurring engineering charges (8,548 ) Sustaining engineering expenses allocated to cost of revenues (3,622 ) Total change $ 141 Salaries and wages increased primarily due to increased headcount and higher bonuses, partially offset by five days of unpaid time resulting from the implementation of a company-wide unpaid time-off program during the fourth fiscal quarter of 2011. Outside services expense increased primarily due to projects related to our new IP Networking product offerings. Depreciation and amortization expense increased primarily due to the continued build-up of our development and testing labs. Nonrecurring engineering charges decreased primarily due to lower prototype costs and lower chip design expenses.

Sustaining engineering expenses allocated to cost of revenues increased primarily as a result of new IP Networking products launched, partially offsetting the increase in R&D expenses.

Sales and marketing expenses. Sales and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in sales, marketing and customer service functions, costs associated with promotional and marketing programs, travel and entertainment expenses, and expenses related to IT and facilities and other shared functions.

Sales and marketing expenses are summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ 608,502 27.2 % $ 608,513 28.3 % $ (11 ) - % October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ 608,513 28.3 % $ 534,458 25.6 % $ 74,055 13.9 % 36-------------------------------------------------------------------------------- Table of Contents Sales and marketing expenses remained flat for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011 due to the following (in thousands): Increase (Decrease) Salaries and wages $ (9,958 ) Stock-based compensation expense (2,810 ) Outside services expense (1,443 ) Sales office facilities expenses (1,094 ) Travel and entertainment expenses (961 ) Various individually insignificant items (460 ) The decrease in sales and marketing expenses was offset by increases in the following: Marketing and advertising expenses 9,714 Expenses related to shared functions 7,001 Total change $ (11 ) Salaries and wages decreased primarily due to a reduction in variable compensation mainly attributable to lower sales commissions and lower headcount.

Stock-based compensation expense decreased primarily due to fewer grants of restricted stock units in fiscal year 2012, and forfeiture-related expense adjustments due to employee terminations. Outside services expense decreased primarily due to a decrease in the use of outside consultants for business development and operational projects in fiscal year 2012. Sales office facilities expenses decreased due to lower headcount and office consolidation.

Travel and entertainment expenses decreased due to lower headcount and lower spending due to cost control initiatives. These decreases were offset by an increase in marketing and advertising expenses primarily due to our marketing awareness campaigns and various other marketing activities. In addition, expenses related to shared functions increased primarily due to an increase in legal expenses allocated to sales and marketing.

Sales and marketing expenses increased for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010 (in thousands): Increase (Decrease) Salaries and wages $ 64,508 Marketing and advertising expenses 10,442 Expenses related to shared functions 3,799 Travel and entertainment expenses 1,931 Depreciation and amortization expense 1,683 Various individually insignificant items 856 The increase in sales and marketing expenses was partially offset by the decrease in the following: Stock-based compensation (9,164 ) Total change $ 74,055 Salaries and wages, expenses related to shared functions, travel and entertainment expenses, and depreciation and amortization increased primarily due to headcount growth. Additionally, salaries and wages increased due to higher bonuses and commissions, partially offset by five days of unpaid time resulting from the implementation of a company-wide unpaid time-off program during the fourth fiscal quarter of 2011. Marketing and advertising expenses increased primarily due to our new marketing awareness campaign, and consulting expenses related to our business model and growth strategy.

General and administrative expenses. General and administrative ("G&A") expenses consist primarily of compensation and related expenses for corporate executives, finance, human resources, legal and investor relations, as well as recruiting expenses, professional fees, other corporate expenses, and related IT and facilities expenses.

37-------------------------------------------------------------------------------- Table of Contents G&A expenses are summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ 74,583 3.3 % $ 69,506 3.2 % $ 5,077 7.3 % October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ 69,506 3.2 % $ 67,848 3.2 % $ 1,658 2.4 % G&A expenses increased for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011 due to the following (in thousands): Increase (Decrease) Outside services expense $ 6,408 Salaries and wages 6,007The increase in G&A expenses was partially offset by decreases in the following: Facilities expenses (2,675 ) Stock-based compensation expense (1,917 ) Equipment and furniture expenses (1,888 ) Various individually insignificant items (858 ) Total change $ 5,077 Outside services expense increased primarily due to increased costs for our ongoing litigation matters. Salaries and wages increased due to merit increases in salaries and increased severance costs in fiscal year 2012, as well as an increase in our variable compensation due to improved financial results during fiscal year 2012. These increases were partially offset by a decrease in various facilities expenses, stock-based compensation expense and spending on equipment and furniture.

G&A expenses increased for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010 due to the following (in thousands): Increase (Decrease) Depreciation and amortization expense $ 8,849 Salaries and wages 7,206 Outside services expense 1,026The increase in G&A expenses was partially offset by decreases in the following: Facilities expenses (11,217 ) Stock-based compensation expense (2,605 ) Various individually insignificant items (1,601 ) Total change $ 1,658 Depreciation and amortization expense increased primarily due to additional furniture and equipment, and depreciation related to our new campus that was completed in the third fiscal quarter of 2010. Salaries and wages increased due to headcount growth and higher bonuses, partially offset by five days of unpaid time resulting from the implementation of a company-wide unpaid time-off program during the fourth fiscal quarter of 2011. Outside services expense increased primarily due to higher legal expenses related to disputes. Other facility expenses decreased primarily due to a decrease in rent and related expenses after moving into our new campus in the third fiscal quarter of 2010.

38-------------------------------------------------------------------------------- Table of Contents Amortization of intangible assets. Amortization of intangible assets is summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ 59,204 2.6 % $ 60,713 2.8 % $ (1,509 ) (2.5 )% October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ 60,713 2.8 % $ 65,623 3.1 % $ (4,910 ) (7.5 )% The decrease in amortization of intangible assets for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011, as well as for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010, was primarily due to the full amortization of certain of our intangible assets.

Intangible assets are recorded based on estimates of fair value at the time of the acquisition and identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives (see Note 3, "Goodwill and Intangible Assets," of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K).

Restructuring, integration and indemnification costs (recoveries).

Restructuring, integration and indemnification costs (recoveries) are summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ (89 ) - % $ 125 - % $ (214 ) (171.2 )% October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ 125 - % $ 1,100 0.1 % $ (975 ) (88.6 )% We did not incur any restructuring and integration costs during the fiscal years ended October 27, 2012 and October 29, 2011.

Restructuring costs for the fiscal year ended October 30, 2010 was primarily due to $0.5 million of severance payments related to certain realignment within our Global Services segment, and $0.5 million related to estimated facility lease losses, net of expected sublease income recorded during the fiscal year ended October 30, 2010. Integration costs for the fiscal year ended October 30, 2010 was primarily for consulting services and other professional fees in connection with our integration of Foundry which we acquired on December 18, 2008.

Indemnification costs (recoveries) were immaterial for the fiscal years ended October 27, 2012, October 29, 2011 and October 30, 2010.

Loss on sale of subsidiary. We did not incur any loss on sale of subsidiary during the fiscal years ended October 27, 2012 and October 30, 2010. During the fiscal year ended October 29, 2011, a loss of $12.8 million was recorded in connection with the sale of SBS, consisting primarily of loss on disposal of goodwill of $1.7 million and write-down of intangible assets of $11.1 million (see Note 17, "Loss on Sale of Subsidiary," of the Notes to Consolidated Financial Statements).

Interest income and other expense, net. Interest income and other expense, net, are summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ (814 ) - $ (378 ) - % $ (436 ) (115.3 )% October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ (378 ) - % $ (6,452 ) (0.3 )% $ 6,074 94.1 % Interest income and other expense, net, were immaterial for the fiscal years ended October 27, 2012 and October 29, 2011.

For the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010, the decrease in interest income and other expense, net, was primarily due to after-tax loss from the effective portion of the foreign currency cash flow 39-------------------------------------------------------------------------------- Table of Contents hedge reclassified from accumulated other comprehensive loss in stockholders' equity into other expense, net during the fiscal year ended October 30, 2010.

Beginning in the first fiscal quarter of 2011, gains or losses relating to the effective portion of foreign currency cash flow derivatives are recorded in cost of revenues and operating expenses to match the underlying exposure to the related hedge results (see Note 10, "Derivative Instruments and Hedging Activities," of the Notes to Consolidated Financial Statements). In the prior periods, net losses recorded in other expenses were not material, and have not been reclassified.

Interest expense. Interest expense primarily represents the interest cost associated with our term loan, senior secured notes and convertible subordinated debt (see Note 8, "Borrowings," of the Notes to Consolidated Financial Statements). Interest expense is summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net (Increase)/ % 2012 Revenues 2011 Revenues Decrease Change Fiscal year ended $ (52,488 ) (2.3 )% $ (97,838 ) (4.6 )% $ 45,350 (46.4 )% October 29, % of Net October 30, % of Net (Increase)/ % 2011 Revenues 2010 Revenues Decrease Change Fiscal year ended $ (97,838 ) (4.6 )% $ (85,858 ) (4.1 )% $ (11,980 ) 14.0 % Interest expense decreased for the fiscal year ended October 27, 2012 compared with the fiscal year ended October 29, 2011 as a result of a reduction in the principal amount of our outstanding debt, and refinancing our term debt credit agreement in June 2011, as described further below in "Liquidity and Capital Resources." In addition, as a result of the June 2011 refinancing, in accordance with the applicable accounting guidance for debt modification and extinguishment, we recorded an expense of $25.5 million of debt issuance costs and original issue discount relating to the portion of the term loan that was extinguished.

Interest expense increased for the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010 primarily as a result of the write-off of debt issuance costs and original issue discount of $25.5 million related to the refinancing of the term loan facility, and capitalization of a portion of interest cost in connection with the development of our San Jose, California campus in fiscal year 2010. This was partially offset by a reduction in debt, because of voluntary accelerated payments we made towards the principal of the term loan, as well as lower interest rates on amending the term debt credit agreement.

We obtained the term loan during the fourth fiscal quarter of 2008. In January 2010, we issued $600 million of long-term fixed rate notes and used the proceeds to pay down a substantial portion of the outstanding term loan, and retire the convertible subordinated debt we assumed in connection with our acquisition of McDATA in fiscal year 2007. In June 2011, we amended our credit agreement to refinance all of the outstanding term loan that effectively reduced interest rates, and is intended to provide us greater flexibility by, among other things, extending the maturity date on the term loan to October 31, 2014, reducing the required principal payments on a quarterly basis, and providing more flexibility in the use of our cash from operations, including for our share repurchase program. We paid the remaining balance of $190.0 million of our term loan during the fiscal year ended October 27, 2012. As of October 29, 2011, the carrying value of the outstanding balance of our term loan was $186.9 million. We were in compliance with applicable debt covenants as of October 27, 2012 and October 29, 2011.

Gain (loss) on sale of investments and property, net. Gain (loss) on sale of investments and property, net, is summarized as follows (in thousands, except percentages): October 27, % of Net October 29, % of Net Increase/ % 2012 Revenues 2011 Revenues (Decrease) Change Fiscal year ended $ (26 ) - % $ 124 - % $ (150 ) 121.0 % October 29, % of Net October 30, % of Net Increase/ % 2011 Revenues 2010 Revenues (Decrease) Change Fiscal year ended $ 124 - % $ (8,551 ) (0.4 )% $ 8,675 101.5 % Gain (loss) on sale of investments and property, net, were immaterial for the fiscal years ended October 27, 2012 and October 29, 2011.

For the fiscal year ended October 29, 2011 compared with the fiscal year ended October 30, 2010, the increase in gain (loss) on sale of investments and property, net, was primarily due to an immaterial gain on sale of investments, net, for the fiscal year ended October 29, 2011 as compared to an $8.7 million loss on the sale of owned property in San Jose, California to 40-------------------------------------------------------------------------------- Table of Contents an unrelated third party during the first quarter of fiscal year 2010 (see Note 16, "Sale-Leaseback Transaction," of the Notes to Consolidated Financial Statements).

Income tax expense (benefit). Income tax expense (benefit) and the effective tax rates are summarized as follows (in thousands, except effective tax rates): Fiscal Year Ended October 27, October 29, October 30, 2012 2011 2010 Income tax expense (benefit) $ 29,220 $ 28,818 $ (9,553 ) Effective tax rate 13.0 % 36.3 % (8.9 )% In general, our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate due to state taxes, the effect of non-U.S. operations, non-deductible stock-based compensation expense and adjustments to unrecognized tax benefits (additionally, see Note 13, "Income Taxes," of the Notes to Consolidated Financial Statements).

For the fiscal year ended October 27, 2012, we recorded an income tax expense of $29.2 million compared with an income tax expense of $28.8 million for the fiscal year ended October 29, 2011. The tax provision in fiscal year 2012 was impacted by a decrease in benefit from the federal research and development tax credit which expired on December 31, 2011, offset by discrete benefits from reserve releases of settled tax audits, and the expiration of certain statutes of limitations. The effective tax rate in fiscal year 2012 is lower than the 35% U.S. federal statutory rate primarily due to earnings in our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in the U.S. Earnings of our subsidiaries outside of the U.S. primarily relate to our European and Asia Pacific businesses, which are headquartered in Switzerland.

For the fiscal year ended October 29, 2011, we recorded an income tax expense of $28.8 million compared with an income tax benefit of $9.6 million for the fiscal year ended October 30, 2010. The tax provision in fiscal year 2011 was primarily a result of cash repatriated from our foreign subsidiary and foreign tax expenses, partially offset by discrete benefits from the retroactive reinstatement of the federal research and development tax credit provision, reserve releases of settled tax audits, and the expiration of certain statutes of limitations.

Based on the fiscal year 2013 financial forecast, we expect the effective tax rate to be higher than fiscal year 2012. Factors such as the mix of IP Networking versus SAN products, and domestic versus international profits, could affect our tax expense. As estimates and judgments are used to project such domestic and international earnings, the impact to our tax provision could vary if the current planning or assumptions change. Our income tax provision could change from either effects of changing tax laws and regulations, or differences in international revenues and earnings from those historically achieved, a factor largely influenced by the buying behavior of our OEM and channel partners. In addition, we do not forecast discrete events, such as settlement of tax audits with governmental authorities due to their inherent uncertainty. Such settlements could materially impact our tax expense. Given that the tax rate is driven by several different factors, it is not possible to estimate our future tax rate with a high degree of certainty.

The IRS and other tax authorities regularly examine our income tax returns. The IRS is currently examining fiscal years 2009 and 2010. In addition, the IRS has also examined our income tax returns for fiscal years 2007 and 2008, and in May 2011, we received the IRS Revenue Agent's Report. The IRS is contesting our transfer pricing for the cost sharing and buy-in arrangements with our foreign subsidiaries. The IRS' proposed adjustment would offset approximately $317.4 million of our net operating loss carryforwards. We have filed a protest to appeal the amount of proposed adjustments in the Revenue Agent's Report with the Appeals Office of the IRS. We believe we have sufficient reserves recorded for the ultimate settlement of this issue. Furthermore, we are in negotiations with foreign tax authorities to obtain correlative relief on transfer pricing adjustments settled with the IRS. We believe that our reserves for unrecognized tax benefits are adequate for all open tax years. The timing of the resolution of income tax examinations, as well as the amounts and timing of related settlements, is highly uncertain. We believe that before the end of fiscal year 2013, it is reasonably possible that either certain audits will conclude or the statutes of limitations relating to certain income tax examination periods will expire, or both. After we reach settlement with the tax authorities, we expect to record a corresponding adjustment to our unrecognized tax benefits. Given the uncertainty as to settlement terms, the timing of payments and the impact of such settlements on other uncertain tax positions, we believe that the range of estimated potential decreases in underlying uncertain tax positions is between $0 and $24 million in the next twelve months. For additional discussion, see Note 13, "Income Taxes," of the Notes to Consolidated Financial Statements.

We believe that sufficient positive evidence exists from historical operations and projections of taxable income in future years to conclude that it is more likely than not that we will realize our deferred tax assets. Accordingly, we apply a valuation allowance only on certain deferred tax assets relating to capital loss carryforwards due to the limited carryforward periods of these tax assets.

41-------------------------------------------------------------------------------- Table of Contents On November 6, 2012, subsequent to the end of our fiscal year 2012, California voters approved Proposition 39 which revised certain provisions of the California State Tax Code, requiring mandatory single sales factor apportionment in California for most multi-state taxpayers for tax years beginning on or after January 1, 2013. We currently expect that in fiscal year 2013 and beyond, our income subject to tax in California will be lower than under prior tax law and that our California deferred tax assets are, therefore, less likely to be realized. As a result, during the first quarter of fiscal year 2013, we will record a charge of up to $78 million to reduce our previously recognized California deferred tax assets. This charge will not impact cash tax outlays and conformance to the new California apportionment rules is not expected to have a material impact on our future tax provision.

Liquidity and Capital Resources October 27, October 29, Increase/ 2012 2011 (Decrease) (in thousands) Cash and cash equivalents $ 713,226 $ 414,202 $ 299,024 Short-term investments - 774 (774 ) Total $ 713,226 $ 414,976 $ 298,250 Percentage of total assets 20 % 12 % We use cash generated by operations as our primary source of liquidity. We expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors, including fluctuations in our revenues, the timing of product shipments during the quarter, accounts receivable collections, inventory and supply chain management, and the timing and amount of tax and other payments. For additional discussion, see "Part I-Item 1A. Risk Factors." Based on past performance and current expectations, we believe that internally generated cash flows and cash on hand are generally sufficient to support business operations, capital expenditures, contractual obligations, and other liquidity requirements associated with our operations for at least the next twelve months. Also, we have up to $125 million available under our revolving credit facility, and we can factor our trade receivables up to the maximum amount available at any time under our $50 million factoring facility to provide additional liquidity. There are no other transactions, arrangements, or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity and availability of and our requirements for capital resources.

Our existing cash, cash equivalents and short-term investments totaled $713.2 million as of October 27, 2012. Of this amount, approximately 60% was held by our foreign subsidiaries. Under current tax laws and regulations, if these funds are distributed to the United States in the form of dividends or otherwise, we may be subject to additional U.S. income taxes and foreign withholding taxes.

Financial Condition Cash, cash equivalents and short-term investments as of October 27, 2012 increased by $298.3 million over the balance as of October 29, 2011 primarily due to increased cash inflow from operating activities and net proceeds from the issuance of common stock under our employee equity compensation arrangements, partially offset by our payments towards the principal of the term loan and cash used to repurchase our common stock.

For the fiscal year ended October 27, 2012, we generated $590.9 million in cash from operating activities, which was higher than our net income for the same period, primarily as a result of adjustments to net income for non-cash items related to depreciation and amortization and stock-based compensation expense, in addition to increases in accrued employee compensation, deferred revenue and other accrued liabilities.

Net cash used in investing activities for the fiscal year ended October 27, 2012 totaled $71.8 million and was primarily the result of $72.8 million in purchases of property and equipment.

Net cash used in financing activities for the fiscal year ended October 27, 2012 totaled $218.1 million and was primarily the result of stock repurchases of $130.2 million and debt payments related to the term loan facility of $190.0 million, partially offset by proceeds from the issuance of common stock from ESPP purchases and stock option exercises of $98.8 million. For the fiscal year ended October 27, 2012, we fully paid our term loan facility and repurchased approximately 24.3 million shares of our stock.

A majority of our accounts receivable balance is derived from sales to our OEM partners. As of October 27, 2012, three customers accounted for 16%, 12% and 10%, respectively, of total accounts receivable. As of October 29, 2011, two customers accounted for 16% and 14%, respectively, of total accounts receivable.

We perform ongoing credit evaluations of our customers 42-------------------------------------------------------------------------------- Table of Contents and generally do not require collateral or security interests on accounts receivable balances. We have established reserves for credit losses, sales allowances, and other allowances. While we have not experienced material credit losses in any of the periods presented, there can be no assurance that we will not experience material credit losses in the future.

Accounts receivable days sales outstanding, which is a measure of the average number of days that a company takes to collect revenue after a sale has been made, for the year ended October 27, 2012 was 38 days, down from 42 days for the year ended October 29, 2011, primarily due to improved sales linearity in 2012.

Net proceeds from the issuance of common stock in connection with employee participation in our equity compensation plans have historically been a significant component of our liquidity. The extent to which our employees participate in these programs generally increases or decreases based upon changes in the market price of our common stock. As a result, our cash flow resulting from the issuance of common stock in connection with employee participation in equity compensation plans will vary.

Fiscal Year 2012 Compared to Fiscal Year 2011 Operating Activities. Net cash provided by operating activities increased by $141.6 million for the fiscal year ended October 27, 2012 compared with fiscal year ended October 29, 2011. The increase was primarily due to an increase in net income during fiscal year 2012 and decreased payments with respect to accrued employee compensation.

Investing Activities. Net cash used in investing activities decreased by $19.5 million for the fiscal year ended October 27, 2012 compared with fiscal year ended October 29, 2011. The decrease was primarily due to lower purchases of property and equipment.

Financing Activities. Net cash used in financing activities decreased by $59.0 million for the fiscal year ended October 27, 2012 compared with fiscal year ended October 29, 2011. The decrease was primarily due to lower repurchases of our Company's stock during fiscal year 2012.

Fiscal Year 2011 Compared to Fiscal Year 2010 Operating Activities. Net cash provided by operating activities increased by $150.7 million for the fiscal year ended October 29, 2011 compared with fiscal year ended October 30, 2010. The increase was primarily due to increased accounts receivable collections and decreased payments with respect to accrued employee compensation and other accrued liabilities, partially offset by a decrease in net income during fiscal year 2011.

Investing Activities. Net cash used in investing activities decreased by $77.1 million for the fiscal year ended October 29, 2011 compared with fiscal year ended October 30, 2010. The decrease was primarily due to lower purchases of property and equipment and proceeds from the sale of SBS in the fiscal year 2011, partially offset by proceeds of $30.2 million from sale of property in fiscal year 2010. Construction of our San Jose, California campus was completed in the third fiscal quarter of 2010.

Financing Activities. Net cash used in financing activities increased by $149.4 million for the fiscal year ended October 29, 2011 compared with fiscal year ended October 30, 2010. The increase was primarily due to higher repurchases of our Company's stock during the fiscal year 2011, partially offset by lower net debt payments and higher proceeds from issuance of common stock during fiscal year 2011.

Liquidity Manufacturing and Purchase Commitments. We have manufacturing arrangements with contract manufacturers under which we provide twelve-month product forecasts and place purchase orders in advance of the scheduled delivery of products to our customers. Our purchase commitments reserve reflects our estimate of purchase commitments we do not expect to consume in normal operations within the next twelve months, in accordance with our policy (see Note 9, "Commitments and Contingencies," of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K).

Income Taxes. We accrue U.S. income taxes on the earnings of our foreign subsidiaries unless the earnings are considered indefinitely reinvested outside of the U.S. We intend to reinvest current and accumulated earnings of our foreign subsidiaries for expansion of our business operations outside the U.S.

for an indefinite period of time. Based on past performance and current expectations, we believe that U.S. generated cash flows are sufficient to support our U.S. business operations, capital expenditures, contractual obligations, and other liquidity requirements associated with our operations.

Our existing cash, cash equivalents and short-term investments totaled $713.2 million as of October 27, 2012. Of this amount, approximately 60% was held by our foreign subsidiaries. Under current tax laws and regulations, if these funds are distributed to the U.S. in the form of dividends or otherwise, we may be subject to additional U.S. income taxes and foreign withholding taxes.

43-------------------------------------------------------------------------------- Table of Contents The IRS and other tax authorities regularly examine our income tax returns (see Note 13, "Income Taxes," of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K). We believe we have adequate reserves for all open tax years.

Senior Secured Credit Facility. In October 2008, we entered into a credit facility agreement for (i) a five-year $1,100 million term loan facility and (ii) a five-year $125 million revolving credit facility, which includes a $25 million swing line loan sub-facility and a $25 million letter of credit sub-facility (the "Credit Agreement"). The Credit Agreement was subsequently amended in January 2010 and June 2011 to reduce interest rates on the term loan facility, and to provide us with greater operating flexibility, including extending the maturity date of the term loan facility to October 31, 2014 and removing certain restrictions on the repurchase of our shares, provided the consolidated senior secured leverage ratio is under 2.00 (see Note 8, "Borrowings," of the Notes to Consolidated Financial Statements).

During the fiscal year ended October 27, 2012, we paid $190.0 million to pay in full the term loan facility, $170.7 million of which were voluntary prepayments.

We have the following resources available under the Senior Secured Credit Facility to obtain short-term or long-term financing, if we need additional liquidity, as of October 27, 2012 (in thousands): Original Amount October 27, 2012 Available Used Available Revolving credit facility $ 125,000 $ - $ 125,000 Senior Secured Notes. In January 2010, we issued $300 million in aggregate principal amount of senior secured notes due 2018 (the "2018 Notes") and $300 million in aggregate principal amount of senior secured notes due 2020 (the "2020 Notes" and together with the 2018 Notes, the "Senior Secured Notes"), see Note 8, "Borrowings," of the Notes to Consolidated Financial Statements. We used the proceeds to pay down a substantial portion of the outstanding term loan, and retire the convertible subordinated debt due on February 15, 2010, which had been assumed in connection with our acquisition of McData.

Trade Receivables Factoring Facility. We have an agreement with a financial institution to sell certain of our trade receivables from customers with limited, non-credit related, recourse provisions. The sale of receivables eliminates our credit exposure in relation to these receivables. Total trade receivables sold under our factoring facility are summarized as follows (in thousands): Fiscal Year Ended October 27, October 29, 2012 2011 Trade receivables sold under factoring agreement $ - $ 50,534 Under the terms of the factoring agreement, the total and available amounts of the factoring facility as of October 27, 2012 were $50.0 million.

Covenant Compliance.

Senior Secured Notes covenants. The Senior Secured Notes were issued pursuant to two separate indentures (together, the "Indentures"), among the Company, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee.

Each of the Indentures contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to: • pay dividends, make investments or make other restricted payments; • incur additional indebtedness; • sell assets; • enter into transactions with affiliates; • incur liens; • permit consensual encumbrances or restrictions on the Company's restricted subsidiaries' ability to pay dividends or make certain other payments to the Company; • consolidate, merge, sell or otherwise dispose of all or substantially all of the Company's or its restricted subsidiaries' assets; and • designate subsidiaries as unrestricted.

These covenants are subject to a number of other limitations and exceptions set forth in the Indentures. The Company was in compliance with all applicable covenants under the Indentures as of October 27, 2012.

44-------------------------------------------------------------------------------- Table of Contents Each of the Indentures provides for customary events of default, including, but not limited to, cross defaults to specified other debt of the Company and its subsidiaries. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding senior secured notes will become due and payable immediately without further action or notice. If any other event of default under either Indenture occurs or is continuing, the applicable trustee or holders of at least 25% in aggregate principal amount of the then outstanding 2018 Notes or 2020 Notes, as applicable, may declare all of the 2018 Notes or 2020 Notes, respectively, to be due and payable immediately.

Senior Secured Credit Facility covenants. The Senior Secured Credit Facility agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on liens, indebtedness, investments, fundamental changes, dispositions, capital expenditures, prepayment of other indebtedness, redemption or repurchase of subordinated indebtedness, share repurchases, dividends and other distributions.

The credit agreement contains financial covenants that require the Company to maintain a minimum consolidated fixed charge coverage ratio, a maximum consolidated leverage ratio and a maximum consolidated senior secured leverage ratio, each as defined in the credit agreement and described further below. The credit agreement also includes customary events of default, including cross-defaults on the Company's material indebtedness and change of control. The Company was in compliance with all applicable covenants as of October 27, 2012.

Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined in the credit agreement, is used to determine the Company's compliance with certain covenants in the Senior Secured Credit Facility. Consolidated EBITDA is defined as: • Consolidated net income Plus: • Consolidated interest charges; • Provision for federal, state, local and foreign income taxes; • Depreciation and amortization expense; • Fees, costs and expenses incurred on or prior to the closing date of the Foundry acquisition in connection with the acquisition and the financing thereof; • Any cash restructuring charges and integration costs in connection with the Foundry acquisition, in an aggregate amount not to exceed $75.0 million; • Approved non-cash restructuring charges incurred in connection with the Foundry acquisition and the financing thereof; • Other non-recurring expenses reducing consolidated net income which do not represent a cash item in such period or future periods; • Any non-cash stock-based compensation expense; and • Legal fees associated with the indemnification obligations for the benefit of former officers and directors in connection with Brocade's historical stock option litigation; Minus: • Federal, state, local and foreign income tax credits; and • All non-cash items increasing consolidated net income.

The Senior Secured Credit Facility financial covenants are defined as below: Consolidated Fixed Charge Coverage Ratio Consolidated fixed charge coverage ratio means, at any date of determination, the ratio of (a) (i) consolidated EBITDA (excluding interest expense, if any, attributable to the campus sale-leaseback), plus (ii) rentals payable under leases of real property, less (iii) the aggregate amount of all capital expenditures to (b) consolidated fixed charges; provided that, for purposes of calculating the consolidated fixed charge coverage ratio for any period ending prior to the first anniversary of the closing date, consolidated interest charges shall be an amount equal to actual consolidated interest charges from the closing date through the date of determination multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days from the closing date through the date of determination.

45-------------------------------------------------------------------------------- Table of Contents In accordance with the amendment and waiver to the credit agreement, the Company has agreed that it will not permit the consolidated fixed charge coverage ratio as of the end of any fiscal quarter during any period set forth below to be less than the ratio set forth below opposite such period: Four Fiscal Quarters Ending During Period: Minimum Consolidated Fixed Charge Coverage Ratio October 31, 2010 through October 29, 2011 1.50:1.00 October 30, 2011 through October 27, 2012 1.75:1.00 October 28, 2012 and thereafter 1.75:1.00 Consolidated Leverage Ratio Consolidated leverage ratio means, as of any date of determination, the ratio of (a) consolidated funded indebtedness as of such date to (b) consolidated EBITDA for the measurement period ending on such date.

In accordance with the amendment and waiver to the credit agreement, the Company has agreed that it will not permit the consolidated leverage ratio at any time during any period set forth below to be greater than the ratio set forth below opposite such period: Four Fiscal Quarters Ending During Period: Maximum Consolidated Leverage Ratio October 31, 2010 through October 29, 2011 3.00:1.00 October 30, 2011 through October 27, 2012 2.75:1.00 October 28, 2012 and thereafter 2.75:1.00 Consolidated Senior Secured Leverage Ratio Consolidated senior secured leverage ratio means, as of any date of determination, the ratio of (a) consolidated funded indebtedness as of such date, minus, without duplication, all unsecured senior subordinated or subordinated indebtedness of Brocade or its subsidiaries on a consolidated basis as of such date (including the McDATA Corporation ("McDATA") convertible subordinated debt prior to being retired on February 16, 2010), to (b) consolidated EBITDA for the measurement period ending on such date.

In accordance with the amendment and waiver to the credit agreement, the Company has agreed that it will not permit the consolidated senior secured leverage ratio at any time during any period set forth below to be greater than the ratio set forth below opposite such period: Four Fiscal Quarters Ending During Period: Maximum Consolidated Senior Secured Leverage Ratio October 31, 2010 through October 29, 2011 2.50:1.00 October 30, 2011 through October 27, 2012 2.25:1.00 October 28, 2012 and thereafter 2.00:1.00 46-------------------------------------------------------------------------------- Table of Contents Contractual Obligations The following table summarizes our contractual obligations, including interest expense, and commitments as of October 27, 2012 (in thousands): Less than More than Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years Contractual Obligations: Senior secured notes due 2018 (1) $ 404,343 $ 19,875 $ 39,750 $ 39,750 $ 304,968 Senior secured notes due 2020 (1) 449,531 20,625 41,250 41,250 346,406 Non-cancelable operating leases (2) 82,390 22,471 33,888 19,446 6,585 Non-cancelable capital lease 5,305 2,221 3,084 - - Purchase commitments, gross (3) 212,044 212,044 - - - Total contractual obligations $ 1,153,613 $ 277,236 $ 117,972 $ 100,446 $ 657,959 Other Commitments: Standby letters of credit $ 235 n/a n/a n/a n/a Unrecognized tax benefits and related accrued interest (4) $ 121,707 n/a n/a n/a n/a (1) Amount reflects total anticipated cash payments, including anticipated interest payments.

(2) Amount excludes contractual sublease income of $28.7 million, which consists of $6.7 million to be received in less than one year, $13.8 million to be received in one to three years, and $8.2 million to be received in three to five years.

(3) Amount reflects total gross purchase commitments under our manufacturing arrangements with third-party contract manufacturers. Of this amount, we have accrued $4.3 million for estimated purchase commitments that we do not expect to consume in normal operations within the next twelve months, in accordance with our policy.

(4) As of October 27, 2012, we had a liability for unrecognized tax benefits of $119.3 million and a net accrual for the payment of related interest and penalties of $2.4 million.

Share Repurchase Program. As of October 27, 2012, our Board of Directors had authorized, since the inception of the program in August 2004, a total of $1.3 billion for the repurchase of our common stock. The purchases may be made, from time to time, in the open market or by privately negotiated transactions and will be funded from available working capital. The number of shares to be purchased and the timing of purchases will be based on the level of our cash balances, general business and market conditions, our debt covenants, the trading price of our common stock and other factors, including alternative investment opportunities. For the fiscal year ended October 27, 2012, we repurchased 24.3 million shares for an aggregate purchase price of $130.2 million. Approximately $548.2 million remained authorized for future repurchases under this program as of October 27, 2012. We are subject to certain covenants relating to our borrowings that restrict the amount of our Company's shares that we can repurchase. There is no restriction on the repurchase of our Company's shares under the terms of our Senior Secured Credit Facility, provided our consolidated senior secured leverage ratio as defined in the credit agreement is under 2.00.

Off-Balance Sheet Arrangements As part of our ongoing business, we do not participate in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As of October 27, 2012, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Estimates Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of 47-------------------------------------------------------------------------------- Table of Contents these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an ongoing basis, our estimates and judgments, including, but not limited to, those related to sales allowances and programs, bad debts, stock-based compensation, commissions, allocation of purchase price of acquisitions, excess inventory and purchase commitments, restructuring costs, facilities lease losses, impairment of goodwill and intangible assets, litigation, uncertain tax positions and investments. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our Consolidated Financial Statements. We believe the following critical accounting policies, among others, require significant estimates and judgments used in the preparation of our consolidated financial statements.

Revenue recognition. Our multiple-element product offerings include networking hardware with embedded software products and support, which are considered separate units of accounting. For certain of our products, software and non-software components function together to deliver the tangible products' essential functionality. We allocate revenue to each element in a multiple-element arrangement based upon their relative selling price. When applying the relative selling price method, we determine the selling price for each deliverable using vendor-specific objective evidence ("VSOE") of selling price, if it exists, or third-party evidence ("TPE") of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use our best estimate of selling price for that deliverable. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element.

We determine VSOE based on our normal pricing and discounting practices for the specific product or service when sold separately. In determining VSOE, we require that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range. For post-contract customer support, we consider stated renewal rates in determining VSOE.

In most instances, we are not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to us infrequently selling each element separately, not pricing products within a narrow range, or only having a limited sales history. When VSOE cannot be established, we attempt to establish selling price for each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our competitors and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality cannot be obtained.

Furthermore, we are unable to reliably determine what similar competitor products' selling prices are on a stand-alone basis. Therefore, we are typically not able to determine TPE.

When we are unable to establish selling price using VSOE or TPE, we use estimated selling price ("ESP") in our allocation of the arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. ESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings.

We determine ESP for a product by considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. The determination of ESP is made through consultation with and formal approval by our management, taking into consideration the go-to-market strategy. If circumstances related to our estimates for revenue recognition change, our allocation of revenue to each element in a multiple-element arrangement may also change.

Stock-based compensation. We grant stock options for shares in the Company's common stock, restricted stock units and other types of equity compensation awards to our employees and directors under various equity compensation plans.

For additional discussion, see Note 12, "Stock-Based Compensation," of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

The compensation expense for stock-based awards is adjusted for an estimated impact of forfeitures and is recognized over the expected term of the award under a graded or straight-line vesting method. In addition, we record stock-based compensation expense in connection with shares issued under our employee stock purchase plan using the graded vesting method over the twenty-four month offering period.

We use the Black-Scholes option pricing model to determine the fair value of stock options granted when the measurement date is certain. We also use the Black-Scholes option pricing model to determine the fair value of the option component of employee stock purchase plan shares. The determination of the fair value of stock-based awards using the option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, projected and actual employee stock option exercise behaviors, risk-free interest rates, estimated forfeitures and expected dividends.

48-------------------------------------------------------------------------------- Table of Contents We estimate the expected term of stock options granted by calculating the average term from our historical stock option exercise experience. We do not anticipate paying any cash dividends in the foreseeable future, and therefore we use an expected dividend yield of zero in the option pricing model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. We use implied volatilities from traded options of the Company's common stock and historical volatilities of the Company's common stock to estimate volatility over the expected term of the awards.

The assumptions used in calculating the fair value of stock-based awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Acquisitions-Purchase Price Allocation. We allocate the purchase price of an acquired business to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date. The excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets, if any, is recorded as goodwill. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques. We adjust the preliminary purchase price allocation, as necessary, typically up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed.

Inventory valuation and purchase commitment liabilities. We write down inventory and record purchase commitment liabilities for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated fair value based upon forecast of future product demand, product transition cycles and market conditions. Any significant unanticipated changes in demand or technological development could have a significant impact on the value of our inventory and purchase commitments, and our reported results. If actual market conditions are less favorable than those projected, additional inventory write-downs, purchase commitment liabilities and charges against earnings may be required.

Restructuring costs. We monitor and regularly evaluate our organizational structure and associated operating expenses. Depending on events and circumstances, we may decide to take additional actions to reduce future operating costs as our business requirements evolve. In determining restructuring charges, we analyze our future operating requirements, including the required headcount by business functions and facility space requirements.

Our restructuring costs and any resulting accruals involve significant estimates made by management using the best information available at the time the estimates are made. In recording severance accruals, we record a liability when all of the following conditions have been met: employees' rights to receive compensation for future absences is attributable to employees' services already rendered; the obligation relates to rights that vest or accumulate; payment of the compensation is probable; and the amount can be reasonably estimated. In recording facilities lease loss accruals, we make various assumptions, including the time period over which the facilities are expected to be vacant, expected sublease terms, expected sublease rates, expected future operating costs, and expected future use of the facilities. Our estimates involve a number of risks and uncertainties, some of which are beyond our control, including future real estate market conditions and our ability to successfully enter into subleases or lease termination agreements with terms as favorable as those assumed when arriving at our estimates. We regularly evaluate a number of factors to determine the appropriateness and reasonableness of our restructuring accruals, including the various assumptions noted above. If actual results differ significantly from our estimates, we may be required to adjust our restructuring accruals in the future.

Impairment of goodwill and intangible assets. Goodwill is generated as a result of business combinations. We conduct our goodwill impairment test annually, as of the first day of the second fiscal quarter, and whenever events or changes in facts and circumstances indicate that the fair value of the reporting unit may be less than its carrying amount. Events which might indicate impairment include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, material negative changes in relationships with significant customers, and/or a significant decline in our stock price for a sustained period. Consistent with prior years, we performed our annual goodwill impairment test using measurement data as of the first day of the second fiscal quarter of 2012.

We use the income approach, the market approach, or a combination thereof, in testing goodwill for impairment for each reporting unit, which we have determined to be at the operating segment level. The reporting units are determined by the components of our operating segments that constitute a business for which both (i) discrete financial information is available and (ii) segment management regularly reviews the operating results of that component. Our four reporting units are: Storage Area Networking ("SAN") Products; Ethernet Switching & Internet Protocol ("IP") Routing, which includes Open Systems Interconnection Reference Model ("OSI") Layer 2-3 products; Application Delivery Products ("ADP"), which includes OSI Layer 4-7 products; and Global Services.

The first step tests for potential impairment by comparing the fair value of reporting units with reporting units' net asset values. If the fair value of the reporting unit exceeds the carrying value of the reporting unit's net assets, then goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is below the reporting unit's carrying value, 49-------------------------------------------------------------------------------- Table of Contents then the second step is required to measure the amount of potential impairment.

The second step requires an assignment of the reporting unit's fair value to the reporting unit's assets and liabilities, using the initial acquisition accounting guidance in ASC 805 Business Combinations, to determine the implied fair value of the reporting unit's goodwill. The implied fair value of the reporting unit's goodwill is then compared with the carrying amount of the reporting unit's goodwill to determine the goodwill impairment loss to be recognized, if any. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, we record an impairment loss equal to the difference.

To determine the reporting unit's fair values, we use the income approach, the market approach, or a combination thereof. The income approach provides an estimate of fair value based on discounted expected future cash flows. The market approach provides an estimate of the fair value of our four reporting units using various prices or market multiples applied to the reporting unit's operating results and then applying an appropriate control premium. During our fiscal year 2012 annual goodwill impairment test under the first step, we used a combination of approaches to estimate reporting units' fair values. We believe that at the time of impairment testing performed in the second fiscal quarter of 2012, the income approach and the market approach were equally representative of a reporting unit's fair value.

Determining the fair value of a reporting unit or an intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. We based our fair value estimates on assumptions we believe to be reasonable, but inherently uncertain. Estimates and assumptions with respect to the determination of the fair value of our reporting units using the income approach include, among other inputs: • The Company's operating forecasts; • Revenue growth rates; and • Risk-commensurate discount rates and costs of capital.

Our estimates of revenues and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of our regular long-range planning process. The control premium used in market or combined approaches is determined by considering control premiums offered as part of acquisitions that have occurred in a reporting unit's comparable market segments.

Based on the results of our step one analysis, we believe that all our reporting units pass the step one test and no further testing is required. However, because some of the inherent assumptions and estimates used in determining the fair value of these reportable segments are outside the control of management, changes in these underlying assumptions can adversely impact fair value. The sensitivity analysis below quantifies the impact of key assumptions on certain reporting units' fair value estimates. The principal key assumptions impacting our estimates were (i) discount rates and (ii) DCF terminal value multipliers.

As the discount rates, ultimately, reflect the risk of achieving reporting units' revenue and cash flow projections, we do not believe that a separate sensitivity analysis for changes in revenue and cash flow projections is meaningful or useful.

The estimated fair value of the Ethernet Switching & IP Routing reporting unit exceeded its carrying value by approximately $117 million and the ADP reporting unit exceeded its carrying value by approximately $40 million. The respective fair values of our remaining reporting units exceeded carrying value by significant amounts and were not subject to the sensitivity analysis presented below.

The following table summarizes the approximate impact that a change in principal key assumptions would have on the estimated fair value of Ethernet Switching & IP Routing reporting unit, leaving all other assumptions unchanged: Approximate Excess of Impact on Fair Fair Value over Value Carrying Value Change (In millions) (In millions) Discount rate ±1% $ (28) - 30 $ 88 - 146DCF terminal value multiplier ±0.5x $ (58) - 58 $ 59 - 175 The following table summarizes the approximate impact that a change in principal key assumptions would have on the estimated fair value of the ADP reporting unit, leaving all other assumptions unchanged: Approximate Excess of Impact on Fair Fair Value over Value Carrying Value Change (In millions) (In millions) Discount rate ±1% $ (5) - 5 $ 35 - 45DCF terminal value multiplier ±0.5x $ (5) - 5 $ 35 - 45 50-------------------------------------------------------------------------------- Table of Contents Accounting for income taxes. The determination of our tax provision is subject to estimates and judgments due to operations in multiple tax jurisdictions inside and outside the United States. Sales to our international customers are principally taxed at rates that are lower than the United States statutory rates. The ability to maintain our current effective tax rate is contingent upon existing tax laws in both the United States and in the respective countries in which our international subsidiaries are located. Future changes in domestic or international tax laws could affect the continued realization of the tax benefits we are currently receiving and expect to receive from international sales. In addition, an increase in the percentage of our total revenue from international customers or in the mix of international revenue among particular tax jurisdictions could change our overall effective tax rate. We intend to reinvest current and remaining accumulated earnings of our foreign subsidiaries for expansion of our business operations outside the United States for an indefinite period of time. These earnings could become subject to United States federal and state income taxes and foreign withholding taxes, as applicable, should they be either deemed or actually remitted from our international subsidiaries to the United States. In addition, we evaluate the expected realization of our deferred tax assets and assess the need for a valuation allowance on a quarterly basis. As of October 27, 2012, our net deferred tax asset balance was $227.7 million. We believe that sufficient positive evidence exists from historical operations and projections of U.S. taxable income in future years to conclude that it is more likely than not that we would realize our deferred tax assets. Historical operations showed that we have cumulative profits for the prior 12 quarters ended October 27, 2012. Accordingly, we only apply a valuation allowance on the deferred tax assets relating to capital loss carryforwards due to limited carryforward periods and the character of such tax attributes. In the event future income by jurisdiction is less than what is currently projected, we may be required to apply a valuation allowance to these deferred tax assets in jurisdictions for which realization is no longer determined to be more likely than not.

On November 6, 2012, subsequent to the end of our fiscal year 2012, California voters approved Proposition 39 which revised certain provisions of the California State Tax Code, requiring mandatory single sales factor apportionment in California for most multi-state taxpayers for tax years beginning on or after January 1, 2013. We currently expect that in fiscal year 2013 and beyond, our income subject to tax in California will be lower than under prior tax law and that our California deferred tax assets are, therefore, less likely to be realized. As a result, during the first quarter of fiscal year 2013, we will record a charge of up to $78 million to reduce our previously recognized California deferred tax assets. This charge will not impact cash tax outlays and conformance to the new California apportionment rules is not expected to have a material impact on our future tax provision.

Accounting for uncertain tax benefits. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. We apply a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Recognition of a tax position is determined when it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. The threshold and measurement attribute requires significant judgment by management.

Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations.

Recent Accounting Pronouncements For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 2, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk In the normal course of business, we are exposed to market risks related to changes in interest rates, foreign currency exchange rates and equity prices that could impact our financial position and results of operations. Our risk management strategy with respect to these three market risks may include the use of derivative financial instruments. We use derivative contracts only to manage existing underlying exposures of the Company. Accordingly, we do not use derivative contracts for speculative purposes. Our risks and risk management strategy are outlined below. Actual gains and losses in the future may differ materially from the sensitivity analysis presented below based on changes in the timing and amount of interest rates and our actual exposures and hedges.

Interest Rate Risk Our exposure to market risk due to changes in the general level of United States interest rates relates primarily to our cash equivalents. Our cash and cash equivalents are primarily maintained at five major financial institutions. The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk.

51-------------------------------------------------------------------------------- Table of Contents The Company did not have any material investments as of October 27, 2012 and October 29, 2011 that are sensitive to changes in interest rates.

Foreign Currency Exchange Rate Risk We are exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies. We are primarily exposed to foreign currency fluctuations related to operating expenses denominated in currencies other than the U.S. dollar, of which the most significant to our operations for fiscal year 2012 were the Chinese yuan, the euro, the Japanese yen, the Indian rupee, the British pound, the Singapore dollar and the Swiss franc. As such, we benefit from a stronger U.S. dollar and may be adversely affected by a weaker U.S. dollar relative to the foreign currency. We use foreign currency forward and option contracts designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted operating expenses denominated in currencies other than the U.S. dollar. We recognize the gains and losses on foreign currency forward contracts in the same period as the remeasurement losses and gains of the related foreign currency denominated exposures.

We also may enter into other non-designated derivatives that consist primarily of forward contracts to minimize the risk associated with the foreign exchange effects of revaluing monetary assets and liabilities. Monetary assets and liabilities denominated in foreign currencies and any associated outstanding forward contracts are marked-to-market with realized and unrealized gains and losses included in earnings.

Alternatively, we may choose not to hedge the foreign currency risk associated with our foreign currency exposures if we believe such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or if the currency is difficult or too expensive to hedge. As of October 27, 2012, we held $117.2 million in cash flow derivative instruments.

The maximum length of time over which we are hedged as of October 27, 2012 is through October 1, 2013.

We have performed a sensitivity analysis as of October 27, 2012, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The analysis covers all of our foreign currency contracts offset by the underlying exposures. The foreign currency exchange rates we used were based on market rates in effect on October 27, 2012. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would not result in a material foreign exchange loss as of October 27, 2012.

Equity Price Risk We had no investments in publicly traded equity securities as of October 27, 2012. The aggregate cost of our equity investments in non-publicly traded companies was $7.0 million as of October 27, 2012. We monitor our equity investments for impairment on a periodic basis. In the event that the carrying value of the equity investment exceeds its fair value, and we determine the decline in value to be other-than-temporary, we reduce the carrying value to its current fair value. Generally, we do not attempt to reduce or eliminate our market exposure on these equity securities. We do not purchase our equity securities with the intent to use them for speculative purposes.

Our common stock is quoted on the NASDAQ Global Select Market under the symbol "BRCD." On October 26, 2012, the last business day of our fourth fiscal quarter of 2012, the last reported sale price of our common stock on the NASDAQ Global Select Market was $5.30 per share.

52-------------------------------------------------------------------------------- Table of Contents

[ Back To Technology News's Homepage ]