Goodwill, Customer Relationships and Other Intangible Assets

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, Customer Relationships and Other Intangible Assets

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

	September 30, 2021		December 31, 2020
	(Dollars in millions)
Goodwill	$	6,667	7,405
Customer relationships, less accumulated amortization of $2,617 and $2,246	$	5,487	6,156
Capitalized software, less accumulated amortization of $322 and $256	387		401
Trade names, less accumulated amortization of $98 and $83	33		48
Total other intangible assets, net	$	5,907	6,605

Our goodwill was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We assess our goodwill 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 our reporting unit exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess goodwill at our reporting unit. In reviewing the criteria for reporting units, we have determined that we are one reporting unit.

The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American Business, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test to determine whether there was an impairment prior to the reclassification and to determine the July 31, 2021 fair values to be utilized for goodwill allocation to the disposal group to be reclassified as assets held for sale. We concluded it is more likely than not that the fair value of our reporting unit exceeded the carrying value of equity of our reporting unit at July 31, 2021. We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to evaluate whether the fair value of our reporting unit that will remain following the divestiture exceeds the carrying value of the equity of the reporting unit after reclassification of assets held for sale.

At July 31, 2021, we estimated the fair value of equity by considering both a market approach and a discounted cash flow methodology. The market approach includes the use of comparable multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow methodology is based on the present value of projected cash flows and a terminal value equal to the present value of all normalized cash flows after the projection period. As of July 31, 2021, based on our assessment performed, the estimated fair value of our equity exceeded our carrying value of equity by approximately 17%. We concluded that we did not have any impairment as of July 31, 2021.

The following table shows the rollforward of goodwill from December 31, 2020 through September 30, 2021:

	(Dollars in millions)
As of December 31, 2020 (1)	$	7,405
Reclassified as held for sale (2)	(718)
Effect of foreign currency exchange rate changes	(20)
As of September 30, 2021 (1)	$	6,667

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(1)Goodwill at September 30, 2021 and December 31, 2020 is net of accumulated impairment loss of $3.6 billion and $3.7 billion, respectively. The change in accumulated impairment losses at September 30, 2021 is a result of amounts reclassified to held for sale related to our planned divestiture.

(2)Represents the amount of goodwill, net of accumulated impairment loss reclassified as held for sale related to our planned divestiture. See Note 2—Planned Divestiture of the Latin American Business.

Total amortization expense for intangible assets for both the three months ended September 30, 2021 and 2020 totaled $210 million, and for the nine months ended September 30, 2021 and 2020 totaled $637 million and $626 million, respectively. As of September 30, 2021, the gross carrying amount of goodwill, customer relationships, capitalized software, indefinite-life and other intangible assets was $15.6 billion.

We estimate that total amortization expense for intangible assets for the years ending December 31, 2021 through 2025 will be as provided in the table below. As a result of reclassifying our disposal group as being held for sale on our September 30, 2021 consolidated balance sheet, the amounts presented below do not include the future amortization of the intangible assets for the disposal group. See Note 2—Planned Divestiture of the Latin American Business for more information.

	(Dollars in millions)
2021 (remaining three months)	$	200
2022	736
2023	708
2024	704
2025	689