Goodwill and Intangible Assets

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



	August 1, 2015		November 1, 2014
Indefinite-lived intangible assets
Goodwill	$	1,617,136	$	1,567,723
In-process research and development (“IPR&D”) ⁽¹⁾	15,110		15,110
Finite-lived intangible assets
Total intangible assets subject to amortization ^{(2), (3)}	64,291		11,548
Total intangible assets	$	1,696,537	$	1,594,381

⁽¹⁾

Acquired 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 quarter of fiscal year 2016.


⁽²⁾	During the nine months ended August 1, 2015, the Company purchased a perpetual, non-exclusive license to certain patents for $7.8 million.


⁽³⁾	During the nine months ended August 1, 2015, the Company acquired $52.3 million of intangible assets related to the Company’s acquisition of two businesses. See Note 3, “Acquisitions and Divestitures,” of the Notes to Condensed Consolidated Financial Statements.

The Company conducts the IPR&D impairment test annually, as of the first day of the second fiscal quarter, and whenever events occur or facts and circumstances indicate that it is more likely than not that the IPR&D is impaired. For the annual IPR&D impairment test, the Company elects the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the IPR&D assets is less than the carrying amount. If, after assessing the totality of events and circumstances, the Company determines that it is more likely than not that the fair value of the IPR&D assets is less than the carrying amount, then the Company conducts a quantitative analysis to determine the fair value of the IPR&D assets. If the carrying amount of the IPR&D assets exceeds the fair value, then the Company recognizes an impairment loss equal to the difference.

Based on the results of the annual IPR&D impairment analysis performed during the second fiscal quarter of 2015, the Company determined that no impairment needed to be recorded. As of August 1, 2015, no new events or circumstances had arisen since the annual IPR&D impairment analysis performed during the second quarter of fiscal year 2015 that indicated that the fair value of the IPR&D assets may be less than the current carrying amount.

The following table summarizes goodwill activity by reportable segment for the nine months ended August 1, 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
Acquisitions ⁽¹⁾	—			49,458			—		49,458
Purchase accounting adjustments during the nine months ended August 1, 2015	—			(62		)	—		(62		)
Tax and other adjustments during the nine months ended August 1, 2015 ⁽²⁾	(20		)	—			—		(20		)
Translation adjustments during the nine months ended August 1, 2015	—			37			—		37
Balance at August 1, 2015
Goodwill	176,326			1,414,608			155,416		1,746,350
Accumulated impairment losses	—			(129,214		)	—		(129,214		)
	$	176,326		$	1,285,394		$	155,416	$	1,617,136


⁽¹⁾	The goodwill acquired relates to the Company’s acquisition of two businesses, which is gross of the adjustments recorded during the purchase price allocation period. See Note 3, “Acquisitions and Divestitures,” of the Notes to Condensed Consolidated Financial Statements.


⁽²⁾	The goodwill adjustments during the nine months ended August 1, 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 2015 annual goodwill impairment test, the Company used a combination of the income approach and the market approach, weighted equally, to estimate each reporting unit’s fair value.

Determining the fair value of a reporting unit 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 these estimates and assumptions are 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;


•	The Company’s forecasted 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 the Company’s 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 2015, the Company determined that no impairment needed to be recorded. As of August 1, 2015, no new events or circumstances had arisen since the annual goodwill impairment analysis performed during the second quarter of fiscal year 2015 that indicated that the fair values of the reporting units may be less than their current carrying amounts.

The Company acquired certain finite-lived intangible assets as part of its two acquisitions in March 2015 (see Note 3, “Acquisitions and Divestitures,” of the Notes to Condensed Consolidated Financial Statements). The acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company did not incur costs to renew or extend the term of any acquired finite-lived intangible assets during the nine months ended August 1, 2015. The following table presents the fair values and weighted-average useful lives of the acquired finite-lived intangible assets (in thousands, except for weighted-average useful life):



	Fair Value		Weighted- Average Useful Life (in years)
Trade name	$	500	6.00
Core/developed technology	28,450		4.04
Customer relationships	22,030		7.93
Non-compete agreements	240		2.00
Patents with broader applications ⁽¹⁾	1,040		15.00
Total intangible assets	$	52,260	5.91


⁽¹⁾	These are patents acquired by the Company as part of an acquisition during the three months ended May 2, 2015. The potential use of these patents extends beyond their use in the core/developed technology acquired in the acquisition.

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 any recognized intangible assets during the nine months ended August 1, 2015. The following tables present details of the Company’s finite-lived intangible assets (in thousands, except for weighted-average remaining useful life):



August 1, 2015	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (in years)
Trade name	$	1,090	$	360	$	730	4.50
Core/developed technology	40,530		7,007		33,523		3.70
Patent portfolio license ⁽¹⁾	7,750		570		7,180		17.99
Customer relationships	23,110		1,735		21,375		7.42
Non-compete agreements	1,050		584		466		1.42
Patents with broader applications	1,040		23		1,017		14.63
Total intangible assets	$	74,570	$	10,279	$	64,291	6.70

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 portfolio license was assigned an estimated useful life that reflects the Company’s consumption of the expected defensive benefits related to this license to certain patents. The method of amortization for the patent portfolio license reflects the Company’s estimate of the pattern in which these expected defensive benefits will be used by the Company and is primarily due to 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				Nine Months Ended
	August 1, 2015		August 2, 2014		August 1, 2015		August 2, 2014
Cost of revenues	$	2,548	$	552	$	5,043	$	7,410
Research and development	889		131		1,654		10,145
General and administrative ⁽¹⁾	280		—		570		—
Total	$	3,717	$	683	$	7,267	$	17,555


⁽¹⁾	The amortization is related to the $7.8 million of perpetual, non-exclusive license to certain patents purchased during the nine months ended August 1, 2015.

The following table presents the estimated future amortization of finite-lived intangible assets as of August 1, 2015 (in thousands):



Fiscal Year	Estimated Future Amortization
2015 (remaining three months)	$	3,778
2016	14,774
2017	14,305
2018	9,785
2019	6,259
Thereafter	15,390
Total	$	64,291