Microsoft 2014 Annual Report Download - page 29

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Goodwill Impairment
We test goodwill for impairment annually on May 1 at the reporting unit level using a discounted cash flow methodology
with a peer-based, risk-adjusted weighted average cost of capital. No impairment of goodwill was identified as of May 1,
2014 or May 2013. Our goodwill impairment test as of May 1, 2012, indicated that the carrying value of our previous
Online Services Division reporting unit (in Devices and Consumer Other under our current segment structure) exceeded
its estimated fair value. Accordingly, we recorded a non-cash, non-tax deductible goodwill impairment charge of $6.2
billion during the three months ended June 30, 2012, reducing the unit’s goodwill from $6.4 billion to $223 million.
Integration and Restructuring
Integration and restructuring expenses consist of transaction fees and direct acquisition costs, including legal, finance,
consulting, and other professional fees. Integration and restructuring expenses also include employee compensation and
termination costs associated with certain reorganization activities.
Integration and restructuring expenses were $127 million for fiscal year 2014, reflecting expenses associated with the
acquisition and integration of NDS.
OTHER INCOME (EXPENSE)
The components of other income (expense) were as follows:
(In millions)
Y
ear Ended June 30, 2014 2013 2012
Dividends and interest income $ 883 $ 677 $ 800
Interest expense (597) (429) (380)
Net recognized gains on investments 437 116 564
Net losses on derivatives (328) (196) (364)
Net losses on foreign currency remeasurements (165) (74) (117)
Other (169) 194 1
Total $ 61 $ 288 $ 504
We use derivative instruments to: manage risks related to foreign currencies, equity prices, interest rates, and credit;
enhance investment returns; and facilitate portfolio diversification. Gains and losses from changes in fair values of
derivatives that are not designated as hedges are primarily recognized in other income (expense). Other than those
derivatives entered into for investment purposes, such as commodity contracts, the gains (losses) are generally
economically offset by unrealized gains (losses) in the underlying available-for-sale securities, which are recorded as a
component of other comprehensive income (“OCI”) until the securities are sold or other-than-temporarily impaired, at
which time the amounts are reclassified from accumulated other comprehensive income (“AOCI”) into other income
(expense).
Fiscal year 2014 compared with fiscal year 2013
Dividends and interest income increased due to higher portfolio balances. Interest expense increased due to higher
outstanding long-term debt. Net recognized gains on investments increased primarily due to higher gains on sales of
equity securities and lower other-than-temporary impairments. Other-than-temporary impairments were $106 million in
fiscal year 2014, compared with $208 million in fiscal year 2013. Net losses on derivatives increased due to higher losses
on foreign exchange contracts, losses on equity derivatives as compared to gains in the prior period, offset in part by
gains on commodity and interest rate derivatives as compared to losses in the prior period. For fiscal year 2014, other
reflects recognized losses from certain joint ventures, offset in part by a recognized gain on a divestiture. For fiscal year
2013, other reflects recognized gains on divestitures, including the gain recognized upon the divestiture of our 50% share
in the MSNBC joint venture.