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INTANGIBLE ASSETS INCLUDING GOODWILL
3 Months Ended
Mar. 31, 2022
INTANGIBLE ASSETS INCLUDING GOODWILL  
INTANGIBLE ASSETS INCLUDING GOODWILL

NOTE 8. INTANGIBLE ASSETS INCLUDING GOODWILL

Business Combinations

In the three months ended March 31, 2022, the Company completed two business combinations, both of which closed on February 1, 2022. Our financial statements for the first three months ended 2022 reflect the assets, liabilities, operating results and cash flows of both business combinations, commencing from the acquisition date. These transactions consisted of an immaterial acquisition in our Strategic Markets segment and a transfer of a majority interest (51%) of a managed infrastructure services joint venture in Japan (the “Exa transaction”) from our former Parent that could not be completed prior to the Separation due to local regulatory approvals. The non-controlling interest acquired in the Exa transaction represents the fair value of the joint venture prorated by the non-controlling shareholder’s percentage of ownership (49%). The Company closed the Exa transaction for consideration of $48 million, net of cash acquired of $59 million. Acquisition costs associated with these two acquisitions were immaterial and expensed as incurred.

The Exa transaction enabled us to seamlessly continue our relationships with certain key customers in Japan. The purchase price allocation for the business combinations is preliminary, and there may be changes in the allocation of consideration to assets acquired and liabilities assumed, including intangible assets and goodwill, for up to twelve months from the acquisition closing dates.

The following table summarizes total consideration transferred, fair value of net assets acquired, net liabilities assumed and goodwill for the Exa transaction:

(Dollars in millions)

Cash consideration

$

107

Non-controlling interest

102

Total enterprise value

$

209

Cash acquired

$

59

Net liabilities assumed, excluding cash

(16)

Deferred tax liabilities arising from acquired intangibles

(32)

Intangible assets *

107

Goodwill

91

Total purchase price allocation

$

209


* Intangible assets acquired consists of $16 million of patents and trademarks and $91 million of customer relationships.

Intangible Assets

The following tables present the Company’s intangible asset balances by major asset class.

At March 31, 2022

At December 31, 2021

    

Gross Carrying

    

Accumulated

    

Net Carrying

 

Gross Carrying

    

Accumulated

    

Net Carrying

(Dollars in millions)

    

Amount

    

Amortization

    

Amount

 

Amount

    

Amortization

    

Amount

Capitalized software

$

16

$

(16)

$

1

$

16

$

(13)

$

3

Customer relationships

229

(100)

129

130

(97)

33

Completed technology

 

20

 

(20)

 

 

20

 

(20)

 

Patents and trademarks

 

18

 

(2)

 

16

 

2

 

(2)

 

Total

$

283

$

(138)

$

145

$

169

$

(132)

$

36

The net carrying amount of intangible assets increased by $108 million during the three months ended March 31, 2022, compared to the prior quarter, primarily due to increases in customer relationships and trademarks with useful lives of five to seven years, arising from the business combinations in the quarter, partially offset by intangible asset

amortization. The aggregate intangible asset amortization expense was $7 million for the three months ended March 31, 2022, and 2021.

The future amortization expense relating to intangible assets currently recorded in the Consolidated Balance Sheet was estimated to be the following at March 31, 2022:

Capitalized

Customer

Patents and

(Dollars in millions)

Software

    

Relationships

Trademarks

Total

Year ending March 31:

2023

$

1

$

40

$

4

$

45

2024

28

3

 

31

2025

23

3

 

26

2026

19

3

 

23

2027

16

3

 

19

Thereafter

2

 

2

Goodwill

The changes in the goodwill balances by segment for the three months ended March 31, 2022, and for the year ended December 31, 2021, were as follows:

Additions and

(Dollars in millions)

Balance at

Other

Balance at

Segment

December 31, 2021

Adjustments

    

March 31, 2022

United States

$

$

$

Japan

415

91

506

Principal Markets

 

142

 

 

142

Strategic Markets

 

176

 

 

176

Total

$

732

$

91

$

823

The increase in goodwill in our Japan segment primarily reflects the Exa transaction. Goodwill is calculated as the excess of the fair value of the consideration transferred over the fair value of the net assets recognized and represents the future economic benefits arising from other net assets acquired that could not be individually identified and separately recognized. We believe that the primary items that generated goodwill enable us to serve certain customers in Japan. The Exa transaction did not result in any tax-deductible goodwill.

There were no goodwill impairment losses recorded for the three months ended March 31, 2022 and 2021. We review goodwill for impairment annually during the fourth quarter of the fiscal year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable by first assessing qualitative factors to determine if it is more likely than not that fair value is less than carrying value. Cumulatively, the Company has recorded $469 million in goodwill impairment charges within its former EMEA ($293 million) and current United States ($176 million) reporting units.