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

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

	June 30, 2023(1)		December 31, 2022(1)
	(Dollars in millions)
Goodwill	$	—	1,970
Customer relationships, less accumulated amortization of $3,579 and $3,265	$	4,246	4,563
Capitalized software, less accumulated amortization of $376 and $387	429		410
Trade names, less accumulated amortization of $— and $130 (2)	—		—
Total other intangible assets, net	$	4,675	4,973

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

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

Our goodwill at December 31, 2022 was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We are required to 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 our operations consist of one reporting unit.

Second Quarter 2023 Goodwill Impairment Analysis

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

The sustained decline in Lumen's share price during the second quarter of 2023 was considered a triggering event requiring evaluation of goodwill impairment; as such, we estimated the fair value 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 were below these comparable market multiples. For the three months ended June 30, 2023, based on our assessment performed as described above, we concluded the estimated fair value was less than our carrying value of equity. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge of $2.0 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, 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 segment from December 31, 2022 through June 30, 2023:

	(Dollars in Millions)
As of December 31, 2022(1)	$	1,970
Impairment	(1,970)
As of June 30, 2023(1)	$	—

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(1)Goodwill at June 30, 2023 and December 31, 2022 is net of accumulated impairment losses of $10.2 billion and $8.2 billion, respectively.

Total amortization expense for finite-lived intangible assets for the three months ended June 30, 2023 and 2022 totaled $180 million and $186 million, respectively, and for the six months ended June 30, 2023 and 2022 totaled $356 million and $378 million, respectively. As of June 30, 2023, the gross carrying amount of customer relationships, capitalized software, indefinite-life and other intangible assets was $8.6 billion.

We estimate that amortization expense for 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 being held for sale on our June 30, 2023 consolidated balance sheet, the amounts presented below do not include the future amortization of the intangible assets for the business to be divested. See Note 2—Planned Divestiture of the EMEA Business for more information.

	(Dollars in millions)
2023 (remaining six months)	$	349
2024	681
2025	661
2026	649
2027	607