Intangible Assets Including Goodwill

9 Months Ended

Sep. 30, 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 September 30, 2016
(Dollars in millions)	Gross Carrying		Accumulated			Net Carrying
Intangible asset class	Amount		Amortization			Amount
Capitalized software	$	1,512	$	(630	)	$	882
Client relationships	2,831		(1,163		)	1,668
Completed technology	3,336		(1,577		)	1,759
Patents/trademarks	723		(183		)	540
Other*	46		(14		)	32

Total	$	8,447	$	(3,566	)	$	4,881

* 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 non-proprietary business processes, methodologies and systems.

The net carrying amount of intangible assets increased $1,394 million during the first nine months of 2016, primarily due to intangible asset additions resulting from acquisitions, partially offset by amortization. The aggregate intangible amortization expense was $403 million and $1,148 million for the third quarter and first nine months of 2016, respectively, versus $290 million and $884 million for the third quarter and first nine months of 2015, respectively. In addition, in the first nine months of 2016, the company retired $634 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 September 30, 2016:

	Capitalized		Acquired
(Dollars in millions)	Software		Intangibles		Total
2016 (for Q4)	$	138	$	254	$	392
2017	444		944		1,388
2018	250		798		1,048
2019	50		635		685
2020	—		535		535

The change in the goodwill balances by reportable segment, for the nine months ended September 30, 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**		9/30/16
Cognitive Solutions	$	15,621	$	3,769	$	4	$	(12	)	$	134	$	19,516
Global Business Services	4,396		278		5		(1		)	16		4,693
Technology Services & Cloud Platforms	10,156		91		1		(5		)	89		10,333
Systems	1,848		—		2		—			10		1,859

Total	$	32,021	$	4,137	$	11	$	(17	)	$	248	$	36,401

* Recast 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

* Recast 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 nine 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 nine months of 2016 and full year 2015 were related to acquisitions that were completed on or prior to June 30, 2016 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. Net purchase price adjustments of $11 million were recorded during the first nine months of 2016 with the primary drivers being accounts receivable, inventory, deferred tax assets, deferred income and other current and noncurrent liabilities.

- 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.

+ References + Details