Microsoft 2015 Annual Report Download - page 65

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Because our annual test indicated that Phone Hardware’s carrying value exceeded its estimated fair value, a second
phase of the goodwill impairment test (“Step 2”) was performed specific to Phone Hardware. Under Step 2, the fair
value of all Phone Hardware assets and liabilities were estimated, including tangible assets, existing technology,
patent agreements, and contractual arrangements, for the purpose of deriving an estimate of the implied fair value of
goodwill. The implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount
of the impairment. Assumptions used in measuring the value of these assets and liabilities included the discount
rates and royalty rates used in valuing the intangible assets, and consideration of the market environment in valuing
the tangible assets.
No other instances of impairment were identified in our May 1, 2015 test. No impairment of goodwill was identified as
of May 1, 2014.
NOTE 11 — INTANGIBLE ASSETS
The components of intangible assets, all of which are finite-lived, were as follows:
(In millions)
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Y
ear Ended June 30, 2015 2014
Technology-based (a) $ 6,187 $ (3,410) $ 2,777 $6,440 $ (2,615) $ 3,825
Marketing-related 1,974 (540) 1,434 1,518 (324) 1,194
Contract-based 1,344 (862) 482 2,266 (716) 1,550
Customer-related 632 (490) 142 732 (320) 412
Total $ 10,137 $ (5,302) $ 4,835 $ 10,956 $ (3,975) $ 6,981
(a) Technology-based intangible assets included $116 million and $98 million as of June 30, 2015 and 2014,
respectively, of net carrying amount of software to be sold, leased, or otherwise marketed.
We estimate that we have no significant residual value related to our intangible assets. During fiscal year 2015, we
recorded impairment charges of $2.2 billion related to our Phone Hardware intangible assets. In the fourth quarter of
fiscal year 2015, we tested the intangible assets for recoverability due to changes in facts and circumstances
associated with the shift in strategic direction and reduced profitability expectations for Phone Hardware. Based on
the results of our testing, we determined that the carrying value of the intangible assets was not recoverable, and an
impairment charge was recorded to the extent that estimated fair value exceeded carrying value. We primarily used a
relief from royalty income approach to determine the fair value of the intangible assets and determine the amount of
impairment. These intangible assets impairment charges were 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. No material impairments of
intangible assets were identified during fiscal year 2014.
The components of intangible assets acquired during the periods presented were as follows:
(In millions) Amount
Weighted
Average Life
Amount
Weighted
Average Life
Y
ear Ended June 30, 2015 2014
Technology-based $874 5 years $ 2,841 9 years
Marketing-related 543 8 years 174 2 years
Contract-based 0 1,500 9 years
Customer-related 37 4 years 363 3 years
Total $ 1,454 6 years $ 4,878 8 years
The table above includes $4.5 billion related to the acquisition of NDS during fiscal year 2014, of which $2.2 billion
was impaired in fiscal year 2015. See Note 9 – Business Combination for additional details.
Intangible assets amortization expense was $1.3 billion, $845 million, and $739 million for fiscal years 2015, 2014,
and 2013, respectively. Amortization of capitalized software was $79 million, $200 million, and $210 million for fiscal
years 2015, 2014, and 2013, respectively.