Intangible Assets Including Goodwill

3 Months Ended

Mar. 31, 2016

Intangible Assets Including Goodwill:

10. Intangible Assets Including Goodwill: The following table details the company’s intangible asset balances by major asset class:


	At March 31, 2016
(Dollars in millions)	Gross Carrying		Accumulated		Net Carrying
Intangible asset class	Amount		Amortization		Amount
Capitalized software	$	1,465	$	(593)	$	872
Client relationships		2,297		(987)		1,310
Completed technology		3,121		(1,486)		1,635
Patents/trademarks		683		(160)		523
Other*		44		(11)		33
Total	$	7,610	$	(3,237)	$	4,373

* Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems.

	At December 31, 2015
(Dollars in millions)	Gross Carrying		Accumulated		Net Carrying
Intangible asset class	Amount		Amortization		Amount
Capitalized software	$	1,348	$	(581)	$	767
Client relationships		1,856		(927)		929
Completed technology		2,960		(1,397)		1,563
Patents/trademarks		335		(142)		193
Other*		44		(10)		35
Total	$	6,543	$	(3,057)	$	3,487

* Other intangibles are primarily acquired proprietary and nonproprietary business processes, methodologies and systems.

The net carrying amount of intangible assets increased $886 million during the first quarter of 2016, primarily due to intangible asset additions resulting from acquisitions, partially offset by amortization. The aggregate intangible amortization expense was $347 million and $298 million for the quarters ended March 31, 2016 and 2015, respectively. In addition, in the first three months of 2016, the company retired $163 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.

The amortization expense for each of the five succeeding years relating to intangible assets currently recorded in the Consolidated Statement of Financial Position is estimated to be the following at March 31, 2016:


	Capitalized		Acquired
(Dollars in millions)	Software		Intangibles		Total
2016 (for Q2-Q4)	$	365	$	674	$	1,039
2017		340		792		1,132
2018		160		645		805
2019		8		484		492
2020		—		384		384

The change in the goodwill balances by reportable segment, for the three months ended March 31, 2016 and for the year ended December 31, 2015 are as follows:

									Foreign
									Currency
					Purchase				Translation
(Dollars in millions)	Balance		Goodwill		Price				And Other		Balance
Segment	1/1/2016*		Additions		Adjustments		Divestitures		Adjustments**		3/31/16
Cognitive Solutions	$	15,621	$	1,723	$	1	$	(12)	$	199	$	17,533
Global Business Services		4,396		101		1		(1)		72		4,569
Technology Services &
Cloud Platforms		10,156		91		1		(5)		115		10,358
Systems		1,848		—		1		—		12		1,861
Total	$	32,021	$	1,915	$	4	$	(17)	$	398	$	34,322

* Reclassified to conform with 2016 presentation.
** Primarily driven by foreign currency translation.

									Foreign
									Currency
					Purchase				Translation
(Dollars in millions)	Balance		Goodwill		Price				And Other		Balance
Segment	1/1/2015*		Additions*		Adjustments*		Divestitures*		Adjustments* **		12/31/15*
Cognitive Solutions	$	15,156	$	1,020	$	(2)	$	(18)	$	(535)	$	15,621
Global Business Services		4,555		74		0		(1)		(232)		4,396
Technology Services &
Cloud Platforms		9,373		1,087		(1)		(7)		(296)		10,156
Systems		1,472		410		0		—		(33)		1,848
Total	$	30,556	$	2,590	$	(3)	$	(26)	$	(1,096)	$	32,021

* Reclassified to conform with 2016 presentation.
** Primarily driven by foreign currency translation.

In January 2016, the company made a number of changes to its organizational structure and management system consistent with the ongoing transformation to a cognitive solutions and cloud platform business. With these changes, the company revised its reportable segments. Goodwill was reallocated to the new reporting segments, and as a result, an impairment assessment was performed. There were no goodwill impairment losses recorded during the first three months of 2016 or the full year of 2015 and the company has no accumulated impairment losses. For further information regarding the segment change, refer to note 6, “Segments”.

Purchase price adjustments recorded in the first three months of 2016 and full year 2015 were related to acquisitions that were completed on or prior to December 31, 2015 or December 31, 2014, respectively, and were still subject to the measurement period that ends at the earlier of 12 months from the acquisition date or when information becomes available. Purchase price adjustments of $4 million were recorded in the first three months of 2016 related to various asset and liability adjustments.

- 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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