Goodwill

During the first quarter of 2013, we reorganized our operating segments to support our new operating structure. As a result, we reassigned goodwill to our segments using a relative fair value allocation approach. In the table below we have reclassified $170 million from our data hosting segment to our business segment compared to the amounts disclosed in our prior 2013 quarterly reports. We determined that there was an error in the calculation used to reallocate goodwill related to our January 3, 2013 segment reorganization and we have revised our goodwill allocation relative to the fair values reflective of the segment changes at that date. This revision does not change the total amount of goodwill recorded on our consolidated balance sheet as of any prior period and would not have resulted in an impairment in a prior period.



	As of January 3, 2013
	(Dollars in millions)
Consumer	$	10,379
Business	6,413
Wholesale	3,283
Data hosting	1,657
Total goodwill	$	21,732

For additional information on the reorganization of our segments, see Note 8—Segment Information.

We test our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is September 30, at which date we test our reporting units, which are our four operating segments (consumer, business, wholesale and data hosting).

Our reporting units, which we refer to as our segments, are not discrete legal entities with discrete financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each segment, we compare its estimated fair value to the carrying value of the assets that we attribute to the segment. If the estimated fair value of the segment is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the segment is less than the carrying value, a second calculation is required in which the implied fair value of goodwill is compared to the carrying value of goodwill that we attribute to the segment. If the implied fair value of goodwill is less than its carrying value, goodwill must be written down to its implied fair value.

At September 30, 2013, as a result of the January 2013 internal reorganization of our four segments, we did not have a baseline valuation upon which to perform a qualitative assessment. Additionally, our stock price and total company forecasted cash flows declined since our previous quantitative assessment. Therefore, we are in the process of completing our goodwill impairment testing by considering both a market approach and a discounted cash flow method. The market approach method includes the use of comparable multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the segments beyond the cash flows from the discrete projection period.

We have not yet completed our impairment testing. However, based on our analysis performed thus far with respect to these segments as described above, we believe that the goodwill related to the wholesale, consumer and business segments was not impaired as of September 30, 2013, but we believe that the goodwill for the data hosting segment was impaired as of September 30, 2013. The data hosting segment is experiencing slower than previously projected revenue and margin growth and greater than anticipated competitive pressures. As a result, we have estimated that the fair value of our data hosting segment is less than its carrying value.

We have not finalized our impairment estimate for the data hosting segment due to the limited time period from the testing date to the filing date for this report, as well as the time required to estimate the fair values of certain assets and liabilities for this segment. Although our analysis is incomplete, we recorded our best estimate of a non-cash, non-tax-deductible goodwill impairment charge of $1.1 billion during the third quarter of 2013 for goodwill attributed to our data hosting segment. We expect to complete our impairment analysis prior to reporting our financial results for the fourth quarter of 2013 and will record an adjustment, which could be material, to our preliminary estimate at that time.

As of September 30, 2013, we attributed our aggregate goodwill balance, after recording the above-described impairment to our data hosting segment, to our four segments as follows:



	As of September 30, 2013
	(Dollars in millions)
Consumer	$	10,379
Business	6,413
Wholesale	3,283
Data hosting ⁽¹⁾	562
Total goodwill	$	20,637

_______________________________________________________________________________

⁽¹⁾ Data hosting includes an adjustment to goodwill for an immaterial acquisition in the second quarter of 2013.