Notes to Financial Statements

NOTE 11 — INTANGIBLE ASSETS

The components of intangible assets, all of which are finite-lived, were as follows:

 

(In millions)    Gross
Carrying
Amount
    Accumulated
Amortization
    Net Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net Carrying
Amount
 


June 30,                2016                 2015  

Technology-based (a)

   $   5,970      $ (3,648   $ 2,322      $ 5,926      $ (3,149   $ 2,777   

Marketing-related

     1,869        (616     1,253        1,942        (508     1,434   

Contract-based

     796        (718     78        1,192        (710     482   

Customer-related

     465        (385     80        492        (350     142   


 


 


 


 


 


Total

   $ 9,100      $   (5,367   $   3,733      $   9,552      $   (4,717   $   4,835   
    


 


 


 


 


 


 

(a)

Technology-based intangible assets included $115 million and $116 million as of June 30, 2016 and 2015, respectively, of net carrying amount of software to be sold, leased, or otherwise marketed.

In the third quarter of fiscal year 2016, we corrected our intangible assets in the table above for a $585 million misstatement between gross carrying amount and accumulated amortization as of June 30, 2015. We do not consider this correction to be material, and there was no impact to our consolidated financial statements.

During fiscal year 2016, we recorded impairment charges of $480 million related to intangible assets in the Devices reporting unit within our More Personal Computing segment. In the fourth quarter of fiscal year 2016, we tested these intangible assets for recoverability due to changes in facts and circumstances associated with the shift in strategic direction and reduced profitability expectations for our phone business. Based on the results of our testing, we determined that the carrying value of the intangible assets was not recoverable, and an impairment charge was recorded to the extent that estimated fair value exceeded carrying value. We primarily used the income approach to determine the fair value of the intangible assets and determine the amount of impairment.

During fiscal year 2015, we recorded impairment charges of $2.2 billion related to intangible assets in our previous Phone Hardware reporting unit. Phone Hardware intangible assets are included in the Devices reporting unit under our current segment structure. In the fourth quarter of fiscal year 2015, we tested these intangible assets for recoverability due to changes in facts and circumstances associated with the shift in strategic direction and reduced profitability expectations for Phone Hardware. Based on the results of our testing, we determined that the carrying value of the intangible assets was not recoverable, and an impairment charge was recorded to the extent that estimated fair value exceeded carrying value. We primarily used a relief from royalty income approach to determine the fair value of the intangible assets and determine the amount of impairment.

These intangible assets impairment charges were included in impairment, integration, and restructuring expenses on our consolidated income statement, and reflected in Corporate and Other in our table of operating income (loss) by segment in Note 21 – Segment Information and Geographic Data.

We estimate that we have no significant residual value related to our intangible assets.

 

The components of intangible assets acquired during the periods presented were as follows:

 

(In millions)    Amount    

Weighted

Average Life

    Amount    

Weighted

Average Life

 


Year Ended June 30,    2016           2015        

Technology-based

   $ 361        4 years      $ 874        5 years   

Marketing-related

     2        1 year        543        8 years   

Customer-related

     30        3 years        37        4 years   


         


       

Total

   $   393        4 years      $   1,454        6 years   
    


         


       

Intangible assets amortization expense was $978 million, $1.3 billion, and $845 million for fiscal years 2016, 2015, and 2014, respectively. Amortization of capitalized software was $69 million, $79 million, and $200 million for fiscal years 2016, 2015, and 2014, respectively.

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2016:

 

(In millions)       


Year Ending June 30,

        

2017

   $ 787   

2018

     677   

2019

     526   

2020

     448   

2021

     379   

Thereafter

     916   


Total

   $   3,733