Goodwill and Intangible Assets

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



	Storage Area Networking (“SAN”) Products			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
Acquisitions ⁽¹⁾	—			308,456			398,936		707,392
Tax adjustments ⁽²⁾	(5		)	—			—		(5		)
Translation adjustments	—			(233		)	—		(233		)
Balance at July 30, 2016
Goodwill	176,320			1,722,857			554,352		2,453,529
Accumulated impairment losses	—			(129,214		)	—		(129,214		)
	$	176,320		$	1,593,643		$	554,352	$	2,324,315


⁽¹⁾	The goodwill acquired relates to the acquisitions completed in March 2016 and May 2016. See Note 3, “Acquisitions,” of the Notes to Condensed Consolidated Financial Statements.


⁽²⁾	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 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. Effective on the first day of the fourth fiscal quarter, the Company changed the date of its annual impairment test for goodwill from the first day of the second fiscal quarter to the first day of the fourth fiscal quarter. This change in the annual impairment test date was made to better coincide with the timing of when the Company prepares its annual budget and financial plans as part of its regular long-range planning process. 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 initial fiscal year 2016 annual goodwill impairment test, the Company used a combination of these approaches to estimate each reporting unit’s fair value. At the time that the initial fiscal year 2016 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 was determined by considering control premiums offered as part of the acquisitions where acquired companies were comparable with the Company’s reporting units.

Based on the results of the initial annual goodwill impairment analysis performed during the second fiscal quarter of 2016, the Company determined that no impairment needed to be recorded. As of July 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 2016 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 nine months ended July 30, 2016.

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



	July 30, 2016
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life (In years)
Finite-lived intangible assets:
Trade names	$	45,090	$	1,105	$	43,985	14.71
Core/developed technology ^{(1) (2)}	254,290		23,834		230,456		5.67
Patent portfolio license ⁽³⁾	7,750		1,669		6,081		17.00
Customer relationships	141,110		8,805		132,305		6.52
Non-compete agreements	1,050		904		146		0.46
Patents with broader applications	1,040		92		948		13.63
Total finite-lived intangible assets	450,330		36,409		413,921		6.72
Indefinite-lived intangible assets, excluding goodwill:
IPR&D ⁽¹⁾	21,000		—		21,000
Total indefinite-lived intangible assets, excluding goodwill	21,000		—		21,000
Total intangible assets, excluding goodwill	$	471,330	$	36,409	$	434,921

	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	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 July 30, 2016, the Company acquired $23.0 million in IPR&D intangible assets in connection with the acquisition of Ruckus. The research and development efforts associated with these IPR&D intangible assets are expected to be completed in fiscal years 2016 and 2017. During the nine months ended July 30, 2016, research and development efforts were completed on $17.1 million of the IPR&D intangible assets, and the completed IPR&D intangible assets are being amortized as core/developed technology over the estimated useful lives of five to seven years.


⁽²⁾	During the nine months ended July 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 and whenever events occur or facts and circumstances indicate that it is more likely than not that the IPR&D is impaired. Effective on the first day of the fourth fiscal quarter, the Company changed the date of its annual impairment test for IPR&D from the first day of the second fiscal quarter to the first day of the fourth fiscal quarter. This change in the annual impairment test date was made to better coincide with the timing of when the Company prepares its annual budget and financial plans as part of its regular long-range planning process. 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.

The Company has not identified any changes in circumstances requiring an interim IPR&D impairment test for the nine months ended July 30, 2016, and therefore, the Company determined that no impairment needed to be recorded.

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				Nine Months Ended
	July 30, 2016		August 1, 2015		July 30, 2016		August 1, 2015
Cost of revenues	$	8,922	$	2,549	$	15,269	$	5,043
General and administrative ⁽¹⁾	271		889		821		1,654
Amortization of intangible assets	5,498		280		7,302		570
Total	$	14,691	$	3,718	$	23,392	$	7,267


⁽¹⁾	The amortization is related to the $7.8 million of perpetual, non-exclusive 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 July 30, 2016 (in thousands):



Fiscal Year	Estimated Future Amortization
2016 (remaining three months)	$	18,998
2017	72,063
2018	63,562
2019	60,039
2020	59,082
Thereafter	140,177
Total	$	413,921