Goodwill and Acquired Intangible Assets

The following table identifies the activity relating to goodwill by operating segment:



In millions	Balance December 31, 2014		Additions		Currency Translation Adjustments			Impairment			Transfers to Held for Sale			Balance December 31, 2015
Goodwill
Data and Analytics	$	351	$	4	$	(4	)	$	—		$	—		$	351
Marketing Applications	597		—		(18		)	(437		)	(113		)	29
Total goodwill	$	948	$	4	$	(22	)	$	(437	)	$	(113	)	$	380

The changes to goodwill for the year ended December 31, 2015 were due to an impairment of goodwill discussed below, the transfer of goodwill to held for sale (See Note 15), an immaterial complementary acquisition, and changes in foreign currency exchange rates.

The Company reviews goodwill for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The guidance on goodwill impairment requires the Company to perform a step one impairment test, which may result in a second step if the fair value of the reporting unit is less than the carrying value of the net assets. In the first step, the Company compares the fair value of each reporting unit to its carrying value. The Company’s reporting units are at one level below the operating segment level, which include the Americas and International reporting units for the data and analytics and marketing applications operating segments. The Company typically determines the fair value of its reporting units using a weighting of fair values derived from the income approach and the market approach. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable companies with similar operating and investment characteristics as the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting unit’s goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the Company records an impairment loss equal to the difference.

During the second quarter of 2015, the Company determined that indicators were present in the marketing applications reporting units which would suggest the fair value of the reporting units may have declined below the carrying value. The indicators were primarily due to lower than forecasted revenue and profitability levels for 2015 and future periods. The lower projected operating results reflect further review and analysis of the marketing applications business performed following the creation of the business as a separate business unit as was announced at the end of the first quarter of 2015. Based on our analysis, the implied fair value of goodwill was substantially lower than the carrying value of goodwill for the Americas and International marketing applications reporting units. As a result, the Company recorded an impairment charge of $241 million for the Americas marketing applications reporting unit and $99 million for the International marketing applications reporting unit during the second quarter of 2015.

For the impairment analysis performed in the second quarter of 2015, the Company utilized a combination of income and market approaches evenly weighted to estimate the fair value of the reporting units for step one. The income approach was determined based on the present value of estimated future cash flows, discounted at a risk-adjusted market rate, including a growth rate to calculate the terminal value. The Company’s forecasted future cash flows, which incorporate anticipated future revenue growth and related expenses to support the growth, were used to calculate fair value. These cash flow projections are based on management’s most current estimates of revenue growth rates and operating margins, taking into consideration historical, industry and market conditions. The discount rate used represents the weighted average cost of capital for the marketing applications reporting units considering the risks and uncertainty inherent in the cash flows of the reporting units and in the internally developed forecasts. In applying the market approach, valuation multiples were derived from historical and projected operating data of selected peer companies and applied to the appropriate historical and projected operating data to arrive at a fair value. The implied fair value of the goodwill in step two was determined by allocating the fair value of the reporting units to all of the assets and liabilities as if the reporting units had been acquired in a business combination and its fair value was the purchase price paid to be acquired. The use of these unobservable inputs resulted in the fair value estimate being classified as a Level 3 measurement.

In the fourth quarter of 2015, the Company committed to a plan to exit the majority of the marketing applications business, which met the criteria for held for sale and will continue to be reported under continuing operations. The Company will retain a portion of the marketing applications business, which was allocated $29 million of goodwill based on the relative fair values of the business to be disposed of and the portion that will be retained. The Company then performed a goodwill impairment analysis on the business to be disposed of along with the remainder reporting units. As a result of this analysis, the Company recognized an additional impairment of $97 million in the fourth quarter of 2015. The fair value of the marketing applications business that will be disposed of was based on a review of indications of interest received from potential buyers and determined based on the best estimate of what the actual sales price will be. The Company believes that this is a better indication of fair value than the income and market approaches used in the interim analysis performed in the second quarter of 2015. The remaining goodwill of $113 million was then transferred to assets held for sale in the Consolidated Balance Sheets. There was no goodwill impairment for the remaining reporting units as the fair value of each reporting unit exceeded their respective carrying amounts.

The determination of whether or not goodwill is impaired involves a significant level of judgment in the assumptions underlying the approaches used to determine the estimated fair value of our reporting units. The Company believes that the assumptions and rates used in the impairment assessment are reasonable. However, these assumptions are judgmental and variations in any assumptions could result in materially different calculations of fair value. The Company will continue to evaluate goodwill on an annual basis as of the beginning of its fourth quarter, and whenever events or changes in circumstances, such as significant adverse changes in operating results, market conditions or changes in management’s business strategy, indicate that there may be a probability of impairment. It is possible that the assumptions used by management related to the evaluation may change or that actual results may vary significantly from management’s estimates. As a result, additional impairment charges may occur in the future.

Acquired intangible assets were specifically identified when acquired, and are deemed to have finite lives. The gross carrying amount and accumulated amortization for Teradata’s acquired intangible assets were as follows:



		December 31, 2015					December 31, 2014
In millions	Amortization Life (in Years)	Gross Carrying Amount		Accumulated Amortization and Currency Translation Adjustments			Gross Carrying Amount		Accumulated Amortization and Currency Translation Adjustments
Acquired intangible assets
Intellectual property/developed technology	1 to 7	$	83	$	(63	)	$	186	$	(95	)
Customer relationships	3 to 10	3		(3		)	77		(35		)
Trademarks/trade names	5	1		(1		)	1		(1		)
In-process research and development	5	5		(3		)	5		(2		)
Total		$	92	$	(70	)	$	269	$	(133	)

The decrease in gross carrying amount of acquired intangible assets was primarily due to a transfer of intangibles to held for sale of $190 million ($85 million net), partially offset by $10 million for newly acquired intangible assets associated with an immaterial acquisition. The $85 million transferred to held for sale was then reduced by an additional $41 million to adjust the carrying amount of the net assets and liabilities down to their fair value less cost to sell (See Note 15).

The aggregate amortization expense (actual and estimated) for acquired intangible assets for the following periods is:



	Actual						For the year ended (estimated)
In millions	2013		2014		2015		2016		2017		2018		2019		2020
Amortization expense	$	44	$	47	$	40	$	10	$	7	$	3	$	2	$	—