Identifiable Intangible Assets and Goodwill

9 Months Ended

Oct. 02, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Identifiable Intangible Assets and Goodwill

A. Identifiable Intangible Assets

Balance Sheet Information



The following table provides the components of Identifiable intangible assets:
	October 2, 2016							December 31, 2015
(MILLIONS OF DOLLARS)	Gross Carrying Amount		Accumulated Amortization			Identifiable Intangible Assets, less Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Identifiable Intangible Assets, less Accumulated Amortization
Finite-lived intangible assets
Developed technology rights	$	83,935	$	(49,105	)	$	34,830	$	77,613	$	(47,193	)	$	30,419
Brands	2,117		(1,013		)	1,104		1,973		(928		)	1,044
Licensing agreements and other	1,801		(985		)	816		1,619		(918		)	701
	87,854		(51,103		)	36,750		81,205		(49,040		)	32,165
Indefinite-lived intangible assets
Brands and other	6,918					6,918		7,021					7,021
In-process research and development	10,569					10,569		1,171					1,171
	17,487					17,487		8,192					8,192
Identifiable intangible assets^(a)	$	105,341	$	(51,103	)	$	54,238	$	89,396	$	(49,040	)	$	40,356

^(a)

The increase in Identifiable intangible assets, less accumulated amortization, is primarily related to assets acquired as part of the acquisitions of Medivation, Anacor and Bamboo (see Note 2A), the impact of foreign exchange and the impact of measurement period adjustments related to our acquisition of Hospira (see Note 2A), partially offset by amortization, impairments and the reclassification of $1.3 billion to Assets held for sale during the third quarter of 2016 (see Note 2B). For information about impairments, see Note 4.



Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization:
	October 2, 2016
	IH		EH		WRD
Developed technology rights	64	%	35	%	—	%
Brands, finite-lived	74	%	26	%	—	%
Brands, indefinite-lived	71	%	29	%	—	%
In-process research and development	92	%	5	%	3	%

Amortization

Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets, as these intangible assets benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function is included in Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $988 million for the third quarter of 2016 and $950 million for the third quarter of 2015, and $3.0 billion for the first nine months of 2016 and $2.8 billion for the first nine months of 2015.

In-Process Research and Development

For IPR&D assets, the risk of failure is significant and there can be no certainty that these assets ultimately will yield successful products. The nature of the biopharmaceutical business is high-risk and, as such, we expect that many of these IPR&D assets will become impaired and be written off at some time in the future.

B. Goodwill



The following table provides the components of and changes in the carrying amount of Goodwill:
(MILLIONS OF DOLLARS)	IH		EH		Total
Balance, December 31, 2015	$	23,809	$	24,433	$	48,242
Additions^(a)	7,403		12		7,415
Other^(b)	494		130		624
Balance, October 2, 2016	$	31,706	$	24,575	$	56,281


^(a)	IH additions primarily relate to our acquisitions of Medivation, Anacor and Bamboo and are subject to change until we complete the valuations of assets acquired and liabilities assumed from Medivation, Anacor and Bamboo (see Note 2A).


^(b)	Primarily reflects the impact of foreign exchange and, with respect to EH, the impact of the reclassification of $243 million to Assets held for sale during the third quarter of 2016 (see Note 2B).

Effective in the second quarter of 2016, our segments were reorganized to reflect that we now manage our innovative pharmaceutical and consumer healthcare operations as one business segment, IH (previously these businesses were managed as two segments: the GIP segment and the VOC segment). As a result of this change, our goodwill associated with our former GIP segment is required to be reallocated to new reporting units. The allocation of goodwill is a complex process that requires, among other things, that we determine the fair value of each reporting unit. Therefore, we have not yet completed the allocation, but we expect that it will be completed in the current year.

- 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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