Goodwill and Intangible Assets

The following table summarizes goodwill activity by reportable segment during the three months ended January 30, 2016 (in thousands):



	Storage Area Networking (“SAN”) Products			Internet Protocol (“IP”) Networking Products			Global Services		Total
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
Tax adjustments ⁽¹⁾	(4		)	—			—		(4		)
Translation adjustments	—			(116		)	—		(116		)
Balance at January 30, 2016
Goodwill	176,321			1,414,518			155,416		1,746,255
Accumulated impairment losses	—			(129,214		)	—		(129,214		)
	$	176,321		$	1,285,304		$	155,416	$	1,617,041


⁽¹⁾	The goodwill adjustments were primarily a result of tax benefits from the exercise of stock awards of acquired companies.

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. At the time that the fiscal year 2015 annual goodwill impairment test was performed, the Company believed that 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 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 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 January 30, 2016, no new events had occurred nor had any facts or circumstances changed 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.

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 acquired finite-lived intangible assets during the three months ended January 30, 2016.

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



	January 30, 2016
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (in years)
Finite-lived intangible assets:
Trade names	$	1,090	$	471	$	619	4.23
Core/developed technology ^{(1) (2)}	51,750		11,719		40,031		3.70
Patent portfolio license ⁽³⁾	7,750		1,125		6,625		17.49
Customer relationships	23,110		3,233		19,877		6.94
Non-compete agreements	1,050		744		306		0.93
Patents with broader applications	1,040		58		982		14.13
Total finite-lived intangible assets	85,790		17,350		68,440		6.12
Indefinite-lived intangible assets, excluding goodwill:
In-process research and development (“IPR&D”) ⁽¹⁾	2,850		—		2,850
Total indefinite-lived intangible assets, excluding goodwill	2,850		—		2,850
Total intangible assets, excluding goodwill	$	88,640	$	17,350	$	71,290

	October 31, 2015
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (in years)
Finite-lived intangible assets:
Trade names	$	1,090	$	415	$	675	4.36
Core/developed technology ⁽²⁾	40,530		9,605		30,925		3.49
Patent portfolio license ⁽³⁾	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 finite-lived intangible assets	74,570		14,057		60,513		6.55
Indefinite-lived intangible assets, excluding goodwill:
IPR&D ⁽¹⁾	15,110		—		15,110
Total indefinite-lived intangible assets, excluding goodwill	15,110		—		15,110
Total intangible assets, excluding goodwill	$	89,680	$	14,057	$	75,623

⁽¹⁾

Acquired IPR&D are intangible assets accounted for as indefinite-lived assets until the completion or abandonment of the associated research and development efforts. If the research and development efforts associated with the IPR&D are successfully completed, then the IPR&D intangible assets will be amortized over the estimated useful lives to be determined as of the date the efforts are completed. During the three months ended January 30, 2016, research and development efforts were completed on $12.3 million of the IPR&D intangible assets, and the completed IPR&D intangible assets are being amortized as Core/developed technology over an estimated useful life of five years. The research and development efforts associated with the remaining IPR&D intangible assets are expected to be completed in the second quarter of fiscal year 2016.


⁽²⁾	During the three months ended January 30, 2016, $1.0 million of finite-lived intangible assets became fully amortized and, therefore, were removed from the balance sheet.

⁽³⁾

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.

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, 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 January 30, 2016, no new events had occurred nor had any facts or circumstances changed 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 amortization of finite-lived intangible assets is included in the following line items of the Company’s Condensed Consolidated Statements of Income as follows (in thousands):



	Three Months Ended
	January 30, 2016		January 31, 2015
Cost of revenues	$	3,154	$	637
General and administrative ⁽¹⁾	277		—
Amortization of intangible assets	902		138
Total	$	4,333	$	775


⁽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 January 30, 2016 (in thousands):



Fiscal Year	Estimated Future Amortization
2016 (remaining nine months)	$	12,894
2017	16,757
2018	12,238
2019	8,709
2020	7,620
Thereafter	10,222
Total	$	68,440