Goodwill and Intangible Assets

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



	October 31, 2015		November 1, 2014
Indefinite-lived intangible assets:
Goodwill	$	1,617,161	$	1,567,723
In-process research and development ⁽¹⁾	15,110		15,110
Finite-lived intangible assets:
Total intangible assets subject to amortization ^{(2), (3)}	60,513		11,548
Total intangible assets	$	1,692,784	$	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 remaining IPR&D intangible asset is expected to be completed by the first quarter of fiscal year 2016.


(2)	During the fiscal year ended October 31, 2015, the Company purchased a perpetual, nonexclusive license to certain patents for $7.8 million.


(3)	During the fiscal year ended October 31, 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 Consolidated Financial Statements.

The Company conducts the IPR&D impairment test annually, as of the first day of the second fiscal quarter, or when 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 for fiscal year 2015, 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 October 31, 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 during the fiscal years ended October 31, 2015, and November 1, 2014 (in thousands):



	SAN Products			IP Networking Products			Global Services		Total
Balance at October 26, 2013
Goodwill	$	176,878		$	1,358,975		$	155,416	$	1,691,269
Accumulated impairment losses	—			(45,832		)	—		(45,832		)
	176,878			1,313,143			155,416		1,645,437
Impairment ⁽¹⁾	—			(83,382		)	—		(83,382		)
Divestitures ⁽²⁾	(474		)	(3,657		)	—		(4,131		)
Acquisition	—			11,475			—		11,475
Tax and other adjustments ⁽³⁾	(58		)	(1,618		)	—		(1,676		)
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 ⁽⁴⁾	—			49,458			—		49,458
Purchase accounting adjustments	—			(15		)	—		(15		)
Tax and other adjustments ⁽³⁾	(21		)	—			—		(21		)
Translation adjustments	—			16			—		16
Balance at October 31, 2015
Goodwill	176,325			1,414,634			155,416		1,746,375
Accumulated impairment losses	—			(129,214		)	—		(129,214		)
	$	176,325		$	1,285,420		$	155,416	$	1,617,161

⁽¹⁾

In the second quarter of fiscal year 2014, the Company made a strategic change in the allocation of its engineering resources by reducing its investment in engineering and sales for the hardware-based Brocade ADX products and increasing engineering investment in the software-based Brocade ADX products for Layer 4-7 applications. As a result of this change in strategy, the Company expected hardware-based Brocade ADX and related support revenue to be negatively impacted. Based on these changes in estimates, the Company recognized an impairment charge during the second fiscal quarter of 2014 because the book value of its Application Delivery Products (“ADP”) reporting unit net assets, which includes the Brocade ADX products, exceeded the estimated fair value of these assets. The goodwill amount related to the Company’s other reporting units was not impacted.


⁽²⁾	The goodwill disposed relates to the sale of the Company’s network adapter business. See Note 3, “Acquisitions and Divestitures,” of the Notes to Consolidated Financial Statements.


⁽³⁾	The goodwill adjustments were primarily a result of tax benefits from the exercise of stock awards of acquired companies.


⁽⁴⁾	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 Consolidated Financial Statements.

The Company conducts its goodwill impairment test annually, as of the first day of the second fiscal quarter, and whenever events occur or facts and circumstances change that would more likely than not reduce the fair value of a reporting unit 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 by 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 approaches to estimate each reporting unit’s fair value. The Company believed that at the time of impairment testing performed in the second fiscal quarter of 2015, 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;


•	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 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 2015, the Company determined that no impairment needed to be recorded. As of October 31, 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 acquisitions during the fiscal years ended October 31, 2015, November 1, 2014, and October 26, 2013 (see Note 3, “Acquisitions and Divestitures,” of the Notes to 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 fiscal years ended October 31, 2015, November 1, 2014, and October 26, 2013. 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):



	Fiscal Year Ended
	October 31, 2015			November 1, 2014			October 26, 2013
	Fair Value		Weighted- Average Useful Life (in years)	Fair Value		Weighted- Average Useful Life (in years)	Fair Value		Weighted- Average Useful Life (in years)
Trade names	$	500	6.00	$	130	5.00	$	460	4.00
Core/developed technology	28,450		4.04	1,710		5.00	1,040		3.00
Customer relationships	22,030		7.93	—		—	1,080		5.00
Non-compete agreements	240		2.00	—		—	810		4.00
Patents with broader applications ⁽¹⁾	1,040		15.00	—		—	—		—
Total intangible assets	$	52,260	5.91	$	1,840	5.00	$	3,390	4.01


⁽¹⁾	These patents were acquired by the Company as part of an acquisition in fiscal year 2015. The potential use of these patents extends beyond their use in the core/developed technology acquired.

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 following tables present details of the Company’s finite-lived intangible assets (in thousands, except for weighted-average remaining useful life):



	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (in years)
October 31, 2015
Trade names	$	1,090	$	415	$	675	4.36
Core/developed technology	40,530		9,605		30,925		3.49
Patent portfolio license ⁽¹⁾	7,750		849		6,901		17.74
Customer relationships	23,110		2,484		20,626		7.18
Non-compete agreements	1,050		664		386		1.17
Patents with broader applications	1,040		40		1,000		14.38
Total intangible assets	$	74,570	$	14,057	$	60,513	6.55



	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (in years)
November 1, 2014
Trade names	$	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 ⁽²⁾	$	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 based on the mix of expiration patterns of the individual patents included in the license.


⁽²⁾	During the fiscal year ended November 1, 2014, $477.3 million of finite-lived intangible assets became fully amortized and, therefore, were removed from the balance sheet.

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



	Fiscal Year Ended
	October 31, 2015		November 1, 2014		October 26, 2013
Cost of revenues	$	7,640	$	8,010	$	39,731
General and administrative ⁽¹⁾	849		—		—
Other operating expense	2,556		10,280		54,256
Total	$	11,045	$	18,290	$	93,987


⁽¹⁾	The amortization is related to the $7.8 million of perpetual, nonexclusive license to certain patents purchased during the fiscal year ended October 31, 2015.

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



Fiscal Year	Estimated Future Amortization
2016	$	14,774
2017	14,305
2018	9,785
2019	6,259
2020	5,168
Thereafter	10,222
Total	$	60,513