Microsoft 2015 Annual Report Download - page 64

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NOTE 10 — GOODWILL
Changes in the carrying amount of goodwill were as follows:
(In millions)
June 30,
2013 Acquisitions Other
June 30,
2014 Acquisitions
Other
June 30,
2015
Devices and
Consumer Licensing $ 866 $ 0 $2 $868 $ 4 $ 0 $ 872
Hardware:
Computing and
Gaming
Hardware 1,689 0 9 1,698 13 (36) 1,675
Phone Hardware 0 5,458 (a) (104) 5,354 0 (5,238) 116
Total Devices
and
Consumer
Hardware 1,689 5,458 (95) 7,052 13 (5,274) 1,791
Other 738 0 0 738 1,772 (195) 2,315
Total Devices and
Consumer 3,293 5,458 (93) 8,658 1,789 (5,469) 4,978
Commercial Licensing 10,051 2 5 10,058 77 (170) 9,965
Other 1,311 105 (5) 1,411 589 (4) 1,996
Total Commercial 11,362 107 0 11,469 666 (174) 11,961
Total goodwill $ 14,655 $ 5,565 $ (93) $ 20,127 $ 2,455 $ (5,643) $ 16,939
(a) Goodwill acquired during fiscal year 2014 related to the acquisition of NDS. See Note 9 – Business
Combinations for additional details.
The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on
the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12
months. Adjustments in purchase price allocations may require a recasting of the amounts allocated to goodwill
retroactive to the periods in which the acquisitions occurred.
Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting
adjustments are presented as “Other” in the above table. Also included in “Other” are business dispositions and
transfers between business segments due to reorganizations, as applicable. For fiscal year 2015, a $5.1 billion
goodwill impairment charge was included in “Other,” as discussed further below. This goodwill impairment charge
was included in impairment, integration, and restructuring expenses in our consolidated income statement, and
reflected in Corporate and Other in our table of operating income (loss) by segment group in Note 22 – Segment
Information and Geographic Data.
Our accumulated goodwill impairment as of June 30, 2015 and 2014 was $11.3 billion and $6.2 billion, respectively.
Goodwill Impairment
We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow
methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash
flow approach is the most reliable indicator of the fair values of the businesses.
Upon completion of the annual testing as of May 1, 2015, Phone Hardware goodwill was determined to be impaired.
In the second half of fiscal year 2015, Phone Hardware did not meet its sales volume and revenue goals, and the mix
of units sold had lower margins than planned. These results, along with changes in the competitive marketplace and
an evaluation of business priorities, led to a shift in strategic direction and reduced future revenue and profitability
expectations for the business. As a result of these changes in strategy and expectations, we have forecasted
reductions in unit volume growth rates and lower future cash flows used to estimate the fair value of the Phone
Hardware reporting unit, which resulted in the determination that an impairment adjustment was required.