GOODWILL AND INTANGIBLE ASSETS

3 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

We assess goodwill for impairment at the reporting unit level at least annually, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value. The Company completed its annual impairment test on January 31, 2017.

Through the first quarter of fiscal year 2017, the Company had five reporting units: (1) legacy NetScout, (2) cybersecurity (Arbor Networks), (3) service assurance product lines focused on the service provider market (formerly known as Tektronix Communications), (4) network visibility product lines (formerly known as VSS Monitoring) and (5) service assurance product lines primarily focused on the enterprise market (formerly known as FNET). As part of its continued integration efforts with respect to the Comms Transaction, effective July 1, 2016, the Company reorganized its business units. As a result of this change, the Company reduced the number of reporting units from five reporting units to two reporting units. The two reporting units are: (1) Service Assurance and (2) Security. The former cybersecurity reporting unit was aggregated within the Security reporting unit along with portions of the legacy NetScout business while all other former reporting units were aggregated into the Service Assurance reporting unit. Our reporting units are determined based on the components of our operating segments that constitute a business for which financial information is available and for which operating results are regularly reviewed by segment management.

At June 30, 2017, goodwill attributable to our Service Assurance and Security reporting units was $1.2 billion and $548.8 million, respectively. At March 31, 2017, goodwill attributable to our Service Assurance and Security reporting units was $1.2 billion and $548.5 million, respectively.

The change in the carrying amount of goodwill for the three months ended June 30, 2017 is due to the impact of foreign currency translation adjustments related to asset balances that are recorded in currencies other than the U.S. Dollar.

The changes in the carrying amount of goodwill for the three months ended June 30, 2017 are as follows (in thousands):



Balance at March 31, 2017	$	1,718,162
Foreign currency translation impact	(2,650		)
Balance as of June 30, 2017	$	1,715,512

Intangible Assets

The net carrying amounts of intangible assets were $906.3 million and $931.3 million at June 30, 2017 and March 31, 2017, respectively. Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. The Company amortizes intangible assets over their estimated useful lives, except for the acquired trade name which resulted from the Network General Central Corporation (Network General) acquisition, which has an indefinite life and thus is not amortized. The carrying value of the indefinite-lived trade name is evaluated for potential impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Intangible assets include the indefinite-lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets at June 30, 2017 (in thousands):



	Cost		Accumulated Amortization			Net
Developed technology	$	254,895	$	(119,732	)	$	135,163
Customer relationships	834,833		(122,064		)	712,769
Distributor relationships and technology licenses	8,343		(3,603		)	4,740
Definite-lived trademark and trade name	43,951		(13,898		)	30,053
Core technology	7,164		(6,181		)	983
Net beneficial leases	336		(336		)	—
Non-compete agreements	287		(287		)	—
Leasehold interest	2,600		(1,143		)	1,457
Backlog	18,236		(18,230		)	6
Capitalized software	3,092		(839		)	2,253
Other	1,208		(887		)	321
	$	1,174,945	$	(287,200	)	$	887,745

Intangible assets include the indefinite-lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets at March 31, 2017 (in thousands):



	Cost		Accumulated Amortization			Net
Developed technology	$	254,005	$	(110,200	)	$	143,805
Customer relationships	831,731		(105,319		)	726,412
Distributor relationships and technology licenses	8,290		(3,068		)	5,222
Definite-lived trademark and trade name	43,817		(12,078		)	31,739
Core technology	7,108		(6,009		)	1,099
Net beneficial leases	336		(336		)	—
Non-compete agreements	278		(278		)	—
Leasehold interest	2,600		(998		)	1,602
Backlog	18,142		(18,133		)	9
Capitalized software	3,047		(594		)	2,453
Other	1,208		(880		)	328
	$	1,170,562	$	(257,893	)	$	912,669

Amortization included as product revenue consists of amortization of backlog. Amortization included as cost of product revenue consists of amortization of developed technology, distributor relationships and technology licenses, core technology and software. Amortization included as operating expense consists of all other intangible assets. The following table provides a summary of amortization expense for the three months ended June 30, 2017 and 2016, respectively.



	Three Months Ended
	June 30,
	2017		2016
Amortization of intangible assets included as:
Product revenue	$	2	$	2,877
Cost of product revenue	9,814		10,672
Operating expense	18,389		17,627
	$	28,205	$	31,176

The following is the expected future amortization expense at June 30, 2017 for the fiscal years ending March 31 (in thousands):



2018 (remaining nine months)	$	83,917
2019	106,443
2020	98,152
2021	85,659
2022	74,347
Thereafter	439,227
	$	887,745

The weighted average amortization period of developed technology and core technology is 11.5 years. The weighted average amortization period for customer and distributor relationships is 16.1 years. The weighted average amortization period for trademarks and trade names is 8.5 years. The weighted average amortization period for leasehold interests is 5.6 years. The weighted average amortization period for backlog is 2.0 years. The weighted average amortization period for capitalized software is 4.0 years. The weighted average amortization period for amortizing all intangible assets is 14.6 years.

- 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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