Goodwill And Intangible Assets

3 Months Ended

Jan. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

The following table presents a summary of the net carrying value of the Company’s intangible assets (in thousands):



	January 31, 2015		November 1, 2014
Indefinite-lived intangible assets
Goodwill	$	1,567,718	$	1,567,723
In-process research and development ⁽¹⁾	15,110		15,110
Finite-lived intangible assets
Total intangible assets subject to amortization ⁽²⁾	18,523		11,548
Total intangible assets	$	1,601,351	$	1,594,381

⁽¹⁾

Acquired in-process research and development (“IPR&D”) is an intangible asset accounted for as an indefinite-lived asset until the completion or abandonment of the associated research and development effort. If the research and development effort associated with the IPR&D is successfully completed, then the IPR&D intangible asset will be amortized over its estimated useful life to be determined at the date the effort is completed. The development effort on the IPR&D intangible asset is expected to be completed by the first half of fiscal year 2016.


⁽²⁾	During the three months ended January 31, 2015, the Company purchased a perpetual, non-exclusive license to certain patents for $7.8 million.

The following table summarizes goodwill activity by reportable segment for the three months ended January 31, 2015 (in thousands):



	SAN Products			Internet Protocol (“IP”) Networking Products			Global Services		Total
Balance at November 1, 2014
Goodwill	$	176,346		$	1,365,175		$	155,416	$	1,696,937
Accumulated impairment losses	—			(129,214		)	—		(129,214		)
	176,346			1,235,961			155,416		1,567,723
Tax and other adjustments during the three months ended January 31, 2015 ⁽¹⁾	(5		)	—			—		(5		)
Balance at January 31, 2015
Goodwill	176,341			1,365,175			155,416		1,696,932
Accumulated impairment losses	—			(129,214		)	—		(129,214		)
	$	176,341		$	1,235,961		$	155,416	$	1,567,718


⁽¹⁾	The goodwill adjustments during the three months ended January 31, 2015, were primarily a result of tax benefits from the exercise of stock awards of acquired companies.

The Company conducts the goodwill impairment test annually, as of the first day of the second fiscal quarter, and whenever events occur or facts and circumstances indicate it is more likely than not that the fair value of a reporting unit has fallen below its carrying amount. For the annual goodwill impairment test, the Company uses the income approach, the market approach, or a combination thereof to determine each reporting unit’s fair value. The income approach provides an estimate of fair value based on discounted expected future cash flows (“DCF”). The market approach provides an estimate of fair value applying various observable market-based multiples to the reporting unit’s operating results and then applying an appropriate control premium. For the fiscal year 2014 annual goodwill impairment test, the Company used a combination of approaches to estimate each reporting unit’s fair value. The Company believed that, at the time of the impairment testing performed in the second fiscal quarter of 2014, 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 requires judgment and involves the use of significant estimates and assumptions. The Company based its fair value estimates on assumptions it believes to be reasonable, but inherently uncertain. Estimates and assumptions with respect to the determination of the fair value of its 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.

The Company’s 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 the acquisitions that have occurred in market segments that are comparable with the Company’s reporting units.

Based on the results of the annual goodwill impairment analysis performed during the second fiscal quarter of 2014, the Company determined that no impairment needed to be recorded for Storage Area Networking (“SAN”) Products, Ethernet Switching & IP Routing, and Global Services reporting units, as these reporting units passed the first step of goodwill impairment testing.

However, the Company determined that the fair value of the ADP reporting unit was below the reporting unit’s carrying value. Accordingly, the Company performed the second step of the goodwill impairment test to measure the amount of the impairment. During the second step, the Company assigned the ADP reporting unit’s fair value to the reporting unit’s assets and liabilities, using the relevant acquisition accounting guidance, to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the ADP reporting unit was below the carrying cost and, as a result, an impairment loss of $83.4 million was recorded.

As of January 31, 2015, there were no facts and circumstances that indicated that the fair value of the reporting units may be less than their current carrying amount since the annual goodwill impairment analysis performed during the second quarter of fiscal year 2014.

Intangible assets other than goodwill are amortized on a straight-line basis over the following estimated remaining useful lives, unless the Company has determined these lives to be indefinite. The Company did not incur costs to renew or extend the term of recognized intangible assets during the three months ended January 31, 2015. The following tables present details of the Company’s finite-lived intangible assets (in thousands, except for weighted-average remaining useful life):



January 31, 2015	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (in years)
Trade name	$	590	$	262	$	328	2.80
Core/developed technology	12,080		2,602		9,478		4.07
Patent license ⁽¹⁾	7,750		—		7,750		18.74
Customer relationships	1,080		479		601		2.76
Non-compete agreements	810		444		366		1.76
Total intangible assets	$	22,310	$	3,787	$	18,523	10.10

November 1, 2014	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (in years)
Trade name	$	590	$	227	$	363	3.00
Core/developed technology	12,080		1,964		10,116		4.30
Customer relationships	1,080		427		653		3.01
Non-compete agreements	810		394		416		2.01
Total intangible assets	$	14,560	$	3,012	$	11,548	4.10

⁽¹⁾

The patent license was assigned an estimated useful life that reflects the Company’s consumption of the expected defensive benefits related to this intangible asset. The method of amortization for the patent license reflects the Company’s estimate of the pattern in which these expected defensive benefits will be consumed or otherwise used up by the Company, and is primarily driven by a mix of expiration patterns of the individual patents included in the license.

The following table presents the amortization of finite-lived intangible assets included in the Condensed Consolidated Statements of Income (in thousands):



	Three Months Ended
	January 31, 2015		January 25, 2014
Cost of revenues	$	637	$	6,462
Operating expenses	138		9,883
Total	$	775	$	16,345

The following table presents the estimated future amortization of finite-lived intangible assets as of January 31, 2015 (in thousands):



Fiscal Year	Estimated Future Amortization
2015 (remaining nine months)	$	3,173
2016	3,875
2017	3,476
2018	3,139
2019	1,680
Thereafter	3,180
Total	$	18,523

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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