GOODWILL (Notes)

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure

5. GOODWILL AND INTANGIBLE ASSETS

The following table sets forth the changes in the carrying value of goodwill:


	Nine Months Ended
	September 30
	2020
	EES		CSS		UBS		Total
	(In thousands)
Beginning balance January 1	$	573,447	$	235,711	$	949,882	$	1,759,040
Adjustments to goodwill for acquisitions (Note 4)(1) (2)	245,624		858,022		262,544		1,366,190
Foreign currency exchange rate changes	(9,137)		323		2,402		(6,412)
Ending balance September 30	$	809,934	$	1,094,056	$	1,214,828	$	3,118,818

(1) Adjustments to goodwill include the final allocation of the purchase price paid for SLS, as described in Note 4, to the respective assets acquired and liabilities assumed.

(2) The effect of the merger with Anixter on the Company's determination of reportable segments is disclosed in Note 14.

Certain triggering events occurred during the first quarter of 2020, including the effect of the ongoing macroeconomic disruption and uncertainty caused by the COVID-19 pandemic, as well as the decline in the Company's share price and market capitalization, both of which indicated that the carrying value of goodwill and indefinite-lived intangible assets may not be recoverable. Accordingly, the Company performed an interim test for impairment as of March 31, 2020. There were no impairment losses identified as a result of this interim test.

As disclosed in Note 1, the Company identified new operating segments during the third quarter of 2020, which changed the composition of its reporting units. Accordingly, the Company reassigned goodwill to the new reporting units using a relative fair value allocation approach. The Company performed a goodwill impairment test immediately before and after it reorganized its reporting structure. Goodwill was tested for impairment on a reporting unit level and the evaluation involved comparing the fair value of each reporting unit to its carrying value. The fair values of the Company's reporting units were determined using a combination of a discounted cash flow analysis and market multiples. In performing the quantitative assessments, management used expected operating margins supported by a combination of historical results, current forecasts, market data and recent economic events, which are categorized within Level 3 of the fair value hierarchy. The Company used a discount rate that reflects market participants' cost of capital. There were no impairment losses identified as a result of these tests.

Although all of the Company's reporting units have fair values that currently exceed the respective carrying values, the EES reporting unit with goodwill of $809.9 million had an estimated fair value that exceeded its respective carrying value by less than 10%. The determination of fair value of the reporting units involves significant management judgment, particularly as it relates to the underlying assumptions and factors around expected operating margins and discount rate.

Due to the ongoing uncertainty surrounding the current macroeconomic environment and conditions in the markets in which WESCO operates, as well as the risk that the Company may not fully realize cost savings, operating synergies or revenue improvement as a result of its acquisition of Anixter, there can be no assurance that the fair values of the Company's reporting units will exceed their carrying values in the future, and that goodwill and indefinite-lived intangible assets will be fully recoverable.

The components of intangible assets are as follows:


		September 30, 2020						December 31, 2019
(In thousands)		Gross Carrying Amount (1)		Accumulated Amortization (1)		Net Carrying Amount		Gross Carrying Amount (1)		Accumulated Amortization (1)		Net Carrying Amount
Intangible assets:	Life
Trademarks	Indefinite	$	832,525	$	—	$	832,525	$	98,699	$	—	$	98,699
Trademarks	10 - 15	24,894		(10,961)		13,933		24,800		(9,319)		15,481
Non-compete agreements	2 - 5	4,342		(694)		3,648		196		(180)		16
Customer relationships	10 - 20	1,455,003		(237,896)		1,217,107		358,341		(201,962)		156,379
Distribution agreements	10 - 19	37,281		(27,031)		10,250		37,371		(25,294)		12,077
Patents	10	48,310		(47,305)		1,005		48,310		(43,687)		4,623
		$	2,402,355	$	(323,887)	$	2,078,468	$	567,717	$	(280,442)	$	287,275

(1) Excludes the original cost and related accumulated amortization of fully-amortized intangible assets.

Amortization expense related to intangible assets totaled $27.3 million and $8.6 million for the three months ended September 30, 2020 and 2019, respectively, and $45.9 million and $25.7 million for the nine months ended September 30, 2020 and 2019, respectively.

The following table sets forth the remaining estimated amortization expense for intangible assets for the next five years and thereafter:


For year ending December 31,	(In thousands)
2020	$	26,960
2021	100,459
2022	96,608
2023	95,288
2024	91,870
Thereafter	834,758