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Notes to consolidated financial statements (audited)
International Business Machines Corporation and Subsidiary Companies

I. Intangible assets including goodwill

Intangible assets

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

($ in millions)
At December 31, 2007
Intangible Asset Class Gross Carrying Amount Accumulated Amortization Net Carrying Amount

* Other intangibles are primarily acquired proprietary and nonproprietary business processes, methodologies and systems, and impacts from currency translation.

Capitalized software $ 1,926 $ (826) $ 1,100
Client-related 1,054 (495) 559
Completed technology 536 (194) 342
Strategic alliances 103 (103)
Patents/trademarks 128 (61) 67
Other* 154 (115) 39
Total $ 3,901 $ (1,794) $ 2,107
($ in millions)
At December 31, 2006
Intangible Asset Class Gross Carrying Amount Accumulated Amortization Net Carrying Amount

* Other intangibles are primarily acquired proprietary and nonproprietary business processes, methodologies and systems, and impacts from currency translation.

Capitalized software $ 1,871 $ (837) $ 1,034
Client-related 1,038 (424) 614
Completed technology 500 (128) 372
Strategic alliances 104 (89) 15
Patents/trademarks 112 (29) 83
Other* 264 (179) 84
Total $ 3,888 $ (1,686) $ 2,202

The company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required. No impairment of intangible assets has been recorded during any of the periods presented.

The net carrying amount of intangible assets decreased by $95 million for the year ended December 31, 2007, primarily due to the amortization of acquired intangibles, partially offset by net increases in capitalized software.

Total amortization was $1,163 million and $1,076 million for the years ended December 31, 2007 and 2006, respectively. The aggregate amortization expense for acquired intangibles (excluding capitalized software) was $367 million and $316 million for the years ended December 31, 2007 and 2006, respectively. In addition, in 2007 the company retired $1,066 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization for this amount.

The future amortization expense for each of the five succeeding years related to all intangible assets that are currently recorded in the Consolidated Statement of Financial Position is estimated to be as follows at December 31, 2007:

($ in millions)
  Capitalized Software Acquired Intangibles Total
2008 $ 670 $ 324 $ 995
2009 338 266 604
2010 92 174 266
2011 124 124
2012 57 57

Goodwill

The changes in the carrying amount of goodwill, by reportable segment, for the year ended December 31, 2007, are presented in the table below. There was no impairment of goodwill recorded in 2007:

($ in millions)
Segment Balance January 1, 2007 Goodwill Additions Purchase Price Adjustments Divestitures Foreign Currency Translation Adjustments Balance December 31, 2007
Global Business Services $ 3,811 $ 14 $ (5) $ — $ 221 $ 4,041
Global Technology Services 2,700 77 27 110 2,914
Systems and Technology 214 269 1 484
Software 6,129 639 54 24 6,846
Total $ 12,854 $ 999 $ 76 $ — $ 356 $ 14,285
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