Goodwill, Customer Relationships and Other Intangible Assets Goodwill, Customer Relationships and Other Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Customer Relationships and Other Intangible Assets

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



	September 30, 2019		December 31, 2018
	(Dollars in millions)
Goodwill	$	21,507	28,031
Customer relationships, less accumulated amortization of $9,481 and $8,492	$	7,902	8,911
Indefinite-life intangible assets	$	269	269
Other intangible assets subject to amortization:
Capitalized software, less accumulated amortization of $2,858 and $2,616	$	1,599	1,468
Trade names and patents, less accumulated amortization of $83 and $61	109		131
Total other intangible assets, net	$	1,977	1,868

Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired.

We are required to perform impairment tests related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. Both our January 2019 internal reorganization and the decline in our stock price triggered impairment testing in the first quarter of 2019. Consequently, we evaluated our goodwill for the internal reorganization in January 2019 and again as of March 31, 2019, which led to the first quarter 2019 impairment charges described below. In our judgment, there were no additional triggering events during the second or third quarter of 2019.

Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the reporting unit is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, we record an impairment equal to the difference.

When we performed our October 31, 2018 annual impairment test, we estimated the fair value of our reporting units by considering both a market approach and a discounted cash flow method. The market approach method includes the use of 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 equal to the present value of all normalized cash flows after the projection period. Because our low stock price was a key trigger for impairment testing in early 2019, we estimated the fair value of our operations using only the market approach in the quarter ended March 31, 2019. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values derived from annualized revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple for each of our reporting units within this range. We reconciled the estimated fair values of the reporting units to our market capitalization as of the date of each of our triggering events during the first quarter of 2019 and concluded that the indicated control premium of approximately 4.5% and 4.1% was reasonable based on recent transactions in the market place. In the quarter ended March 31, 2019, based on our assessments performed with respect to the reporting units as described above, we concluded that the estimated fair value of certain of our reporting units was less than our carrying value of equity as of the date of each of our triggering events during the first quarter. As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion in the quarter ended March 31, 2019.

The market multiples approach that we used in the quarter ended March 31, 2019 incorporated significant estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of other cost synergies. In developing the market multiple, we also considered observed trends of our industry participants. Our failure to attain these forecasted results or changes in trends could result in future impairments. Our assessment included many qualitative factors that required significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the size of our impairments. Continued declines in our profitability or cash flows or continued sustained low trading prices of our common stock may result in further impairment.

Amortization expense for intangible assets for the three months ended September 30, 2019 and 2018 totaled $438 million and $446 million, respectively, and for the nine months ended September 30, 2019 and 2018 totaled $1.3 billion and $1.3 billion, respectively. As of September 30, 2019, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $43.8 billion.

We estimate that total amortization expense for intangible assets for the years ending December 31, 2019 through 2023 will be as follows:



	(Dollars in millions)
2019 (remaining three months)	$	427
2020	1,647
2021	1,212
2022	983
2023	898

In January 2019, Jeff Storey, our Chief Operating Decision Maker ("CODM"), announced a new organization structure and began managing our operations in the following five segments: international and global accounts management, enterprise, small and medium business, wholesale and consumer. As a result of this decision, we reclassified certain prior period amounts to conform to the current period presentation.

The following table shows the rollforward of goodwill assigned to our reportable segments from December 31, 2018 through September 30, 2019:



	International and Global Accounts			Enterprise		Small and Medium Business		Wholesale		Consumer		Total
	(Dollars in millions)
As of December 31, 2018	$	3,595		5,222		5,193		6,437		7,584		28,031
January 2019 reorganization	—			987		(1,038	)	395		(344	)	—
Effect of foreign currency rate change and other	(18		)	—		—		—		—		(18	)
Impairments	(934		)	(1,471	)	(896	)	(3,019	)	(186	)	(6,506	)
As of September 30, 2019	$	2,643		4,738		3,259		3,813		7,054		21,507