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Goodwill, Customer Relationships and Other Intangible Assets

3 Months Ended

Mar. 31, 2012

Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, Customer Relationships and Other Intangible Assets

(3) Goodwill, Customer Relationships and Other Intangible Assets

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

	March 31, 2012

	(Dollars in millions)
Goodwill	$	21,726	21,726

Customer relationships, less accumulated amortization of $1,639 and $1,337	$	7,937	8,239

Indefinite-life intangible assets		422	418
Other intangible assets subject to amortization
Capitalized software, less accumulated amortization of $553 and $441		1,559	1,622
Tradenames and patents, less accumulated amortization of $90 and $73		180	199

Total other intangible assets, net	$	2,161	2,239

Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired. For more information on our recent acquisitions and resulting fair values, see Note 2—Acquisitions. As of March 31, 2012, the net carrying amounts of goodwill, customer relationships and other intangible assets included preliminary estimates of $2.074 billion as a result of our acquisition of Savvis. We expect to complete the final determination of these estimates and related estimated lives for amortizable intangible assets no later than the second quarter of 2012.

We attributed our goodwill balances to our segments as follows:

	March 31, 2012

	(Dollars in millions)
Regional markets	$	11,799
Business markets		5,323
Wholesale markets		3,261
Savvis operations		1,343

Total goodwill	$	21,726

In the first quarter of 2012, we announced we were restructuring our operating segments effective April 1, 2012. We believe that changing the composition of our segments will result in changes to our attribution of goodwill to our segments. For additional information on the announced change in composition of our segments, see Note 9—Segment information.

We amortize customer relationships over estimated lives ranging from 10 years to 12.5 years, using either the sum-of-the-years-digits or straight-line methods, depending on the type of customer. We amortize capitalized software, which consists primarily of assets obtained from the Qwest acquisition, using the straight-line method over estimated lives ranging up to seven years. Approximately $237 million of our capitalized software, net, represents costs to develop an integrated billing and customer care system and is being amortized over a 20 year period. We amortize tradenames and patent assets predominantly using the sum-of-the-years digits method over an estimated life of four years.

Total amortization expense for intangible assets for the three months ended March 31, 2012 and 2011 was $430 million and $54 million, respectively. During the three months ended March 31, 2012, our intangible amortization expense included $17 million related to the Savvis acquisition and $363 million for the Qwest acquisition.

- 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.

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