Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill

Goodwill and related changes in the carrying amount by reportable segment were as follows:



	Enterprise Group			Enterprise Services⁽¹⁾			Software			Financial Services		Total
	In millions
Balance at October 31, 2014⁽²⁾	$	16,867		$	97		$	8,852		$	144	$	25,960
Goodwill acquired during the period	1,891			—			96			—		1,987
Goodwill divested during the period⁽³⁾	—			—			(123		)	—		(123		)
Changes due to foreign currency	(52		)	(5		)	—			—		(57		)
Goodwill adjustments⁽⁴⁾	6			—			(512		)	—		(506		)
Balance at October 31, 2015⁽²⁾	18,712			92			8,313			144		27,261
Goodwill acquired during the period	2			—			10			—		12
Goodwill divested during the period⁽⁵⁾	(3,000		)	(90		)	(234		)	—		(3,324		)
Changes due to foreign currency	(29		)	(2		)	—			—		(31		)
Goodwill adjustments⁽⁶⁾	260			—			—			—		260
Balance at October 31, 2016⁽²⁾	$	15,945		$	—		$	8,089		$	144	$	24,178

_______________________________________________________________________________

(1) Goodwill related to the MphasiS Limited reporting unit, which was sold in the fourth quarter of 2016.

(2) Goodwill is net of accumulated impairment losses of $13.7 billion, which were recorded prior to October 31, 2014. Of that amount, $8.0 billion relates to the Enterprise Services segment and the remaining $5.7 billion relates to the Software segment.

(3) Goodwill divested as part of the divestiture of the LiveVault and iManage businesses.

(4) In connection with the Separation, former Parent retained the marketing optimization software product group, a continuing business which had historically been managed by the Company and included in the Software segment. The adjustment reflects the impact of removing the related goodwill of $512 million, allocated on a relative fair value basis, from former Parent.

(5) Goodwill divested as part of the H3C transaction (EG), sale of TippingPoint (Software) and sale of MphasiS (ES).

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

Goodwill Impairments

Goodwill is tested for impairment at the reporting unit level. As of October 31, 2016, the Company's reporting units were consistent with the reportable segments identified in Note 2, "Segment Information". Based on the results of the Company's annual impairment tests for fiscal 2016, 2015 and 2014, the Company determined that no impairment of goodwill existed.

Intangible Assets

Intangible assets are comprised of:



	As of October 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	$	1,394	$	(322	)	$	(856	)	$	216	$	5,109	$	(3,517	)	$	(856	)	$	736
Developed and core technology and patents	4,190		(1,232		)	(2,138		)	820		4,218		(1,110		)	(2,138		)	970
Trade name and trade marks	178		(21		)	(109		)	48		231		(57		)	(109		)	65
In-process research and development	—		—			—			—		159		—			—			159
Total intangible assets	$	5,762	$	(1,575	)	$	(3,103	)	$	1,084	$	9,717	$	(4,684	)	$	(3,103	)	$	1,930

For fiscal 2016, the decrease in gross intangible assets was due primarily to $3.5 billion of intangible assets which became fully amortized and have been eliminated from gross intangible assets and accumulated amortization, and $478 million of intangible assets that have been divested ($379 million of accumulated amortization was associated with the divested assets). The decrease was partially offset by $11 million of purchases related to acquisitions. Intangible asset amortization expense for the fiscal year ended October 31, 2016 was $755 million.

For fiscal 2015, the decrease in gross intangible assets was due primarily to $703 million of intangible assets that became fully amortized and have been eliminated from gross intangible assets and accumulated amortization, and the impact of removing intangible assets related to the marketing optimization software product group, which was retained by former Parent. The decrease was partially offset by intangible assets and in-process research and development resulting from the Company's acquisitions, primarily the acquisition of Aruba. Intangible asset amortization expense for the fiscal years ended October 31, 2015 and 2014 was $852 million and $906 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 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 fiscal 2016.

As of October 31, 2016, the weighted-average remaining useful lives of the Company's finite-lived intangible assets were as follows:



Finite-Lived Intangible Assets	Weighted-Average Remaining Useful Lives
	In years
Customer contracts, customer lists and distribution agreements	5
Developed and core technology and patents	5
Trade name and trade marks	7

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



Fiscal year	In millions
2017	$	339
2018	248
2019	202
2020	172
2021	55
Thereafter	68
Total	$	1,084

- 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