INTANGIBLE ASSETS INCLUDING GOODWILL

12 Months Ended

Dec. 31, 2016

INTANGIBLE ASSETS INCLUDING GOODWILL

NOTE I. INTANGIBLE ASSETS INCLUDING GOODWILL

Intangible Assets

The following table details the company’s intangible asset balances by major asset class.

($ in millions)

	Gross					Net
	Carrying		Accumulated			Carrying
At December 31, 2016:	Amount		Amortization			Amount
Intangible asset class
Capitalized software	$	1,537	$	(661	)	$	876
Client relationships	2,831		(1,228		)	1,602
Completed technology	3,322		(1,668		)	1,654
Patents/trademarks	730		(205		)	525
Other*	46		(15		)	31

Total	$	8,466	$	(3,778	)	$	4,688

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

($ in millions)

	Gross					Net
	Carrying		Accumulated			Carrying
At December 31, 2015:	Amount		Amortization			Amount
Intangible asset class
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 $1,201 million during the year ended December 31, 2016, primarily due to intangible asset additions resulting from acquisitions, partially offset by amortization. There was no impairment of intangible assets recorded in 2016 and 2015. The aggregate intangible amortization expense was $1,544 million and $1,193 million for the years ended December 31, 2016 and 2015, respectively. In addition, in 2016 and 2015, respectively, the company retired $817 million and $1,809 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 December 31, 2016:

($ in millions)

	Capitalized		Acquired
	Software		Intangibles		Total
2017	$	494	$	957	$	1,450
2018	300		809		1,109
2019	83		646		729
2020	—		547		547
2021	—		435		435

Goodwill

As described in note T, “Segment Information,” the company changed its reportable segments in January 2016. Goodwill was assigned to the new reportable segments on a fair value allocation basis. The changes in the goodwill balances by reportable segment, for the years ended December 31, 2016 and 2015, are as follows:

($ in millions)

											Foreign
											Currency
	Balance				Purchase						Translation			Balance
	January 1,		Goodwill		Price						and Other			December
Segment	2016		Additions		Adjustments			Divestitures			Adjustments*			31, 2016
Cognitive Solutions	$	15,621	$	3,821	$	5		$	(12	)	$	48		$	19,484
Global Business Services	4,396		303		4			(1		)	(95		)	4,607
Technology Services & Cloud Platforms	10,156		119		(12		)	(5		)	(1		)	10,258
Systems	1,848		—		(4		)	—			5			1,850

Total	$	32,021	$	4,244	$	(7	)	$	(18	)	$	(42	)	$	36,199

Primarily driven by foreign currency translation

($ in millions)

											Foreign
											Currency
	Balance				Purchase						Translation			Balance
	January 1,		Goodwill		Price						and Other			December
Segment	2015		Additions		Adjustments			Divestitures			Adjustments*			31, 2015
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

Primarily driven by foreign currency translation

There were no goodwill impairment losses recorded during the full year of 2016 or 2015 and the company has no accumulated impairment losses.

Purchase price adjustments recorded in 2016 and 2015 were related to acquisitions that were completed on or prior to September 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 $7 million were recorded during 2016 with the primary drivers being deferred tax assets, accounts receivable, deferred income, inventory and other current 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.

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