Goodwill, Customer Relationships and Other Intangible Assets

6 Months Ended

Jun. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, customer relationships and other intangible assets consisted of the following:


	June 30, 2023(1)		December 31, 2022(1)
	(Dollars in millions)
Goodwill	$	3,864	12,657
Indefinite-lived intangible assets	$	9	9
Other intangible assets subject to amortization:
Customer relationships, less accumulated amortization of $3,931 and $3,606	4,246		4,574
Capitalized software, less accumulated amortization of $3,869 and $3,895(2)	1,551		1,482
Trade names, patents and other, less accumulated amortization of $65 and $188(2)	93		101
Total other intangible assets, net	$	5,899	6,166

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(1) These values exclude assets classified as held for sale.

(2) Certain capitalized software with a gross carrying value of $183 million and trade names with a gross carrying value of $130 million became fully amortized during 2022 and were retired during the first quarter of 2023.

As of June 30, 2023, the gross carrying amount of goodwill, customer relationships, indefinite-lived and other intangible assets was $17.6 billion.

Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired. We report our results within two segments: Business and Mass Markets. See Note 11—Segment Information for more information on these segments.

We are required to assess our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our assessment determines the carrying value of equity of any of our reporting units exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess our reporting units. Our annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31.

As of June 30, 2023, we have three reporting units for goodwill impairment testing, which are (i) Mass Markets, (ii) North America Business and (iii) Asia Pacific region. Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the reporting unit is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, we record a non-cash impairment charge equal to the excess amount. Depending on the facts and circumstances, we typically estimate the fair value of our reporting units by considering either or both of (i) a discounted cash flow method, which is based on the present value of projected cash flows over a discrete projection period and a terminal value, which is based on the expected normalized cash flows of the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of market multiples of publicly-traded companies whose services and markets are comparable to ours.

Second Quarter 2023 Goodwill Impairment Analysis

When we performed our October 31, 2022 annual impairment test, we estimated the fair value of our reporting units by considering both a market approach and a discounted cash flow method.

The sustained decline in our share price during the second quarter of 2023 was considered a triggering event requiring evaluation of goodwill impairment. Given the continued erosion in our market capitalization, primarily due to the prevailing macroeconomic conditions and market sentiments, we determined our quantitative impairment analysis would estimate the fair value of our reporting units using only the market approach. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which supported a range of fair values derived from annualized revenue and EBITDA multiples between 1.5x and 4.3x and 4.6x and 10.5x, respectively. The revenue and EBITDA multiples used in the quantitative impairment analysis for each of our reporting units were below these comparable market multiples. The estimated fair values of the reporting units determined in connection with our impairment analysis in the second quarter of 2023 resulted in no control premium, which was determined to be reasonable based on our market capitalization relative to recent transactions. For the three months ended June 30, 2023, based on our assessments performed with respect to the reporting units as described above, we concluded the estimated fair value of certain of our reporting units was less than their carrying value of equity. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge of $8.8 billion for the three months ended June 30, 2023.

The market approach that we used in the quarter ended June 30, 2023 incorporated estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of certain strategic initiatives. In developing the market multiples applicable for each reporting unit, we considered observed trends of our industry participants. Our assessment included many factors that required significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the size of our impairments.

The following table shows the rollforward of goodwill assigned to our reportable segments from December 31, 2022 through June 30, 2023.


	Business		Mass Markets	Total
	(Dollars in Millions)
As of December 31, 2022(1)	$	7,906	4,751	12,657
Impairment	(6,580)		(2,213)	(8,793)
As of June 30, 2023(1)	$	1,326	2,538	3,864

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(1)Goodwill at June 30, 2023 and December 31, 2022 is net of accumulated impairment losses of $19.8 billion and $11.0 billion, respectively.

Total amortization expense for finite-lived intangible assets for the three months ended June 30, 2023 and 2022 totaled $263 million and $277 million, respectively, and for the six months ended June 30, 2023 and 2022 totaled $523 million and $551 million, respectively.

We estimate that amortization expense for finite-lived intangible assets for the years ending December 31, 2023 through 2027 will be as provided in the table below. As a result of classifying our EMEA business as held for sale on our June 30, 2023 consolidated balance sheet, the amounts presented below do not include future amortization expense for intangible assets of the business to be divested. See Note 2—Planned Divestiture of the EMEA Business for more information.


	(Dollars in millions)
2023 (remaining six months)	$	490
2024	904
2025	843
2026	799
2027	719