Goodwill and Intangible Assets

9 Months Ended

Jul. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill allocated to the Company's reportable segments as of July 31, 2016 and changes in the respective carrying amounts during the nine months then ended were as follows:



	Enterprise Group			Enterprise Services⁽²⁾			Software			Financial Services		Total
	In millions
Balance at October 31, 2015⁽¹⁾	$	18,712		$	92		$	8,313		$	144	$	27,261
Goodwill acquired during the period	2			—			10			—		12
Goodwill reclassified as held for sale or divested during the period⁽³⁾	(3,007		)	(90		)	(234		)	—		(3,331		)
Changes due to foreign currency	(29		)	(2		)	—			—		(31		)
Goodwill adjustments⁽⁴⁾	260			—			—			—		260
Balance at July 31, 2016⁽¹⁾	$	15,938		$	—		$	8,089		$	144	$	24,171

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(1)	Goodwill is net of accumulated impairment losses of $13.7 billion which were recorded prior to October 31, 2013. Of that amount, $8 billion relates to the Enterprise Services segment and the remaining $5.7 billion relates to the Software segment.


(2)	Goodwill relates to the MphasiS reporting unit.


(3)	Goodwill divested as part of the H3C transaction (Enterprise Group) and sale of TippingPoint (Software), and MphasiS (Enterprise Services) goodwill reclassified as held for sale.


(4)	Primarily measurement period adjustments to provisional tax items, recorded in conjunction with the Aruba acquisition.

The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. During the first half of fiscal 2016, the Company's stock price experienced volatility and the Company's market capitalization was below its book value. However, during the third quarter, the Company's stock price showed significant improvement and market capitalization is now in excess of book value. The Company considered this along with other factors including, its execution of its planned forecast and anticipated cash flows and the length of time that the Company's stock has been trading. Based upon its evaluation, the Company determined that there have been no events or circumstances which would more likely than not reduce fair value for its reporting units below their carrying value and an interim impairment test was not necessary as of July 31, 2016. However, if the Company's market capitalization is again subject to a sustained decrease or if the Company's outlook for its business and industry in general is subject to a significant adverse change, the Company may be required to record an impairment to goodwill in the future. The Company will continue to evaluate the recoverability of goodwill on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.

Intangible Assets

The Company's intangible assets are composed of:



	As of July 31, 2016										As of October 31, 2015
	Gross		Accumulated Amortization			Accumulated Impairment Loss			Net		Gross		Accumulated Amortization			Accumulated Impairment Loss			Net
	In millions
Customer contracts, customer lists and distribution agreements	$	4,648	$	(3,525	)	$	(856	)	$	267	$	5,109	$	(3,517	)	$	(856	)	$	736
Developed and core technology and patents	4,218		(1,187		)	(2,138		)	893		4,218		(1,110		)	(2,138		)	970
Trade name and trademarks	219		(59		)	(109		)	51		231		(57		)	(109		)	65
In-process research and development	—		—			—			—		159		—			—			159
Total intangible assets	$	9,085	$	(4,771	)	$	(3,103	)	$	1,211	$	9,717	$	(4,684	)	$	(3,103	)	$	1,930

The decrease in gross intangible assets during the first nine months of fiscal 2016 was related to $478 million of intangible assets that were divested or reclassified as held for sale; $164 million of intangible assets which became fully amortized and have been eliminated from gross intangible assets and accumulated amortization, partially offset by $11 million of purchases related to acquisitions. Intangible asset amortization expense for the three months ended July 31, 2016 and 2015 was $210 million and $225 million, respectively, and for the nine months ended July 31, 2016 and 2015 was $629 million and $632 million, respectively.

In-process research and development consists of efforts that are in process on the date the Company acquires a business. Under the accounting guidance for intangible assets, in-process research and development acquired in a business combination is considered an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. The Company begins amortizing its in-process research and development intangible assets upon completion of the projects. If an in-process research and development project is abandoned, the Company records an expense for the value of the related intangible asset to its Condensed Consolidated and Combined Statement of Earnings in the period of abandonment. The Company reclassified in-process research and development assets acquired of $159 million to developed and core technology and patents as the projects were completed and began amortization during the first nine months of fiscal 2016.

As of July 31, 2016, estimated future amortization expense related to finite-lived intangible assets was as follows:



Fiscal year:	In millions
2016 (remaining 3 months)	$	126
2017	340
2018	249
2019	202
2020	172
2021	55
Thereafter	67
Total	$	1,211

- 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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