Goodwill and Intangible Assets

Goodwill – Changes in the carrying amount of goodwill by applicable reporting unit were as follows:



(in thousands)	Signal Integrity		Power and High-Reliability		Wireless and Sensing		Total
Balance as of January 25, 2015	$	261,891	$	—	$	18,428	$	280,319
Additions	—		49,384		—		49,384
Balance at January 31, 2016	$	261,891	$	49,384	$	18,428	$	329,703

During fiscal year 2016, goodwill associated with the Power and High-Reliability product group increased due to the Company’s acquisition of Triune (see Note 3).

Goodwill is not amortized, but is tested for impairment using a two-step method on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit.

Goodwill is allocated to three reporting units (Signal Integrity, Power and High-Reliability and Wireless and Sensing) (see Note 16). The difference between the fair value and the carrying amount of these reporting units is one of several factors the Company will consider before reaching its conclusion about whether to perform the first step of the goodwill impairment test.

Goodwill was tested for impairment at the reporting unit level as of November 30, 2015 and November 30, 2014, the dates of the Company’s annual impairment review for fiscal years 2016 and 2015, respectively. The Company estimated the fair values using an income approach. The cash flows for each reporting unit were based on discrete financial forecasts developed by management for planning purposes. Cash flows beyond the discrete forecasts were estimated using a terminal value calculation, which incorporated historical and forecasted financial trends for each identified reporting unit and considered perpetual earnings growth rates for publicly traded peer companies. Specifically, the income approach valuations included the following assumptions:



	November 30, 2015	November 30, 2014
Discount rate	11.0% - 24.0%	12.0% - 15.0%
Perpetual growth rate	3.0%	3.0%
Tax rate	13.5% - 40.0%	10.1% - 28.1%
Risk-free rate	2.6%	2.6%
Peer company beta	1.2 - 1.9	1.0 - 1.8

Goodwill is measured at fair value on a non-recurring basis. That is, goodwill is not measured at fair value on an ongoing basis, but is subject to fair value adjustments using Level 3 inputs in certain circumstances (e.g., when there is evidence of impairment).

In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. As of January 31, 2016 and January 25, 2015, there were no indications of impairment of the Company's goodwill balances.

In December 2013, goodwill relating to the former Advanced Communications reporting unit was determined to be impaired by $116.7 million, prior to its integration with the Gennum reporting unit into the former Signal Integrity and Timing reporting unit, as a result of a reduction in forecasted revenue resulting from the Company's decision to reduce investments in the optical long-haul market. This impairment is included in the consolidated statements of operations under “Goodwill impairment.”

Purchased Intangibles - The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and technology licenses purchased, which continue to be amortized:



		January 31, 2016							January 25, 2015
(in thousands)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core technologies	5-8 years	$	148,210	$	(74,006	)	$	74,204	$	134,155	$	(53,286	)	$	80,869
Customer relationships	5-10 years	30,030		(15,847		)	14,183		28,030		(11,480		)	16,550
Technology licenses ⁽¹⁾	2 years	100		(58		)	42		263		(169		)	94
Other intangibles assets	1-5 years	6,600		(6,600		)	—		6,600		(6,513		)	87
Total finite-lived intangible assets		$	184,940	$	(96,511	)	$	88,429	$	169,048	$	(71,448	)	$	97,600


(1)	Technology licenses relate to licensing agreements entered into by the Company that are used in research and development activities and have alternative future uses. Amortization expense related to technology licenses is reported as “Product development and engineering” in the consolidated statements of operations.

The Company reviews finite-lived intangible assets for impairment when there are indicators of impairment, by comparing the carrying amount of the asset to the future discounted cash flows that asset is expected to generate. In December 2014, certain intangible assets relating to the Systems Innovation reporting unit were determined to be impaired as a result of the Company's strategic decision to reduce its investment in the defense and microwave communications markets and its additional reductions in the long-haul optical market.

In December 2013, certain intangible assets relating to the former Advanced Communications reporting unit were determined to be impaired prior to its integration with the Gennum reporting unit into the Signal Integrity and Timing reporting unit (known as the Signal Integrity reporting unit since the first quarter of fiscal 2015), as a result of the reduction in forecasted revenue resulting from the Company’s decision to reduce investments in the optical long-haul market. Impairments for technology licenses are included in “Product development and engineering” on the consolidated statements of operations. The impairment of core technologies and customer relationships is included in “Intangible asset impairments” on the consolidated statements of operations. Impairment charges for these items, which resulted in a new basis for the affected intangible assets, are included in the consolidated statements of operations as follows:



(in thousands)	January 31, 2016		January 25, 2015		January 26, 2014
Product development and engineering	$	—	$	3,119	$	2,354
Intangible asset impairments	—		11,636		29,938
Impairment of finite-lived intangible assets	$	—	$	14,755	$	32,292

The following table sets forth the Company’s changes to finite-lived intangible assets resulting from purchases, additions from acquisitions, and transfers from IPR&D:



(in thousands)	Gross Carrying Amount
Gross carrying value at January 26, 2014	$	185,997
Purchased intangible assets	1,100
Acquired intangible assets	1,430
Decrease in gross carrying value due to impairment of finite-lived intangible assets	(19,479		)
Gross carrying value at January 25, 2015	169,048
Purchased intangible assets	12,000
Transfers from in-process research and development	4,000
Other	(108		)
Gross carrying value at January 31, 2016	$	184,940

Amortization expense related to finite-lived intangible assets is reported as “Intangible amortization” in the consolidated statements of operations. The estimated annual amount of future amortization expense for finite-lived intangible assets is expected to be as follows:



(in thousands)
To be recognized in:	Core Technologies		Customer relationships		Technology licenses		Total
Fiscal year 2017	$	21,213	$	4,400	$	42	$	25,655
Fiscal year 2018	21,213		4,400		—		$	25,613
Fiscal year 2019	17,801		4,400		—		$	22,201
Fiscal year 2020	9,970		950		—		$	10,920
Fiscal year 2021	2,856		33		—		$	2,889
Thereafter	1,151		—		—		$	1,151
Total expected amortization expense	$	74,204	$	14,183	$	42	$	88,429

The following table sets forth the Company’s indefinite-lived intangible assets from additions to IPR&D, acquisitions, impairments, and transfers to core technologies:



(in thousands)	Gross Carrying Amount
Net carrying value at January 26, 2014	$	4,000
In-process research and development through acquisitions	—
In-process research and development impairment	—
Transfers to core technologies	—
Net carrying value at January 25, 2015	4,000
In-process research and development through acquisitions	—
In-process research and development impairment	—
Transfers to core technologies	(4,000		)
Net carrying value at January 31, 2016	$	—

The Company reviews indefinite-lived intangible assets for impairment as of November 30, each year, by comparing the carrying amount of the asset to the future discounted cash flows that asset is expected to generate.

At January 25, 2015, the Company had a total of $4.0 million of indefinite-lived intangible assets consisting of IPR&D from a previous acquisition. During the third quarter of fiscal year 2016, these indefinite-lived intangible assets were transferred into finite-lived intangible assets in Core technologies. The Company performed an impairment assessment prior to the transfer of these assets and concluded that no indicators of impairment existed. When performing the annual impairment assessment for fiscal year 2015, the fair value of the IPR&D project was determined using an income approach. The valuation measured the returns attributable to the IPR&D project, discounted to present value using a risk-adjusted rate of return, including, as appropriate, any tax benefits derived from amortizing the intangible asset for tax purposes. Significant factors considered in the calculation of the rate of return were the weighted-average cost of capital and return on assets, as well as the risk inherent in the development process, including the likelihood of achieving technology success and market acceptance. The key unobservable inputs utilized in the model include a discount rate of 12.0%, a market participant tax rate of 28.1%, and expected future cash flows based on current product and market data. In addition to its annual review, the Company performs a test of impairment when indicators are present. As of January 25, 2015, there were no indications of impairment in the balance of the IPR&D asset.