Changes in the carrying
amount of goodwill were as follows:
of June 30,
of June 30,
of June 30,
Server and Tools
Online Services Division
Entertainment and Devices
The measurement periods
for purchase price allocations end as soon as information on the
facts and circumstances 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 are
presented as “other” in the above table. Also included
within “other” are business dispositions and transfers
between business segments due to reorganizations, as applicable.
For fiscal year 2012, a $6.2 billion goodwill impairment charge was
included in “other,” as discussed further below. This
goodwill impairment charge also represented our accumulated
goodwill impairment as of June 30, 2013 and 2012.
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. We believe use of a discounted
cash flow approach is the most reliable indicator of the fair
values of the businesses.
No impairment of goodwill
was identified as of May 1, 2013. Upon completion of the
fiscal year 2012 test, OSD goodwill was determined to be impaired.
The impairment was the result of the OSD unit experiencing slower
than projected growth in search queries and search advertising
revenue per query, slower growth in display revenue, and changes in
the timing and implementation of certain initiatives designed to
drive search and display revenue growth in the future.
Because our fiscal year
2012 annual test indicated that OSD’s carrying value exceeded
its estimated fair value, a second phase of the goodwill impairment
test (“Step 2”) was performed specific to OSD. Under
Step 2, the fair value of all OSD assets and liabilities were
estimated, including tangible assets, existing technology, trade
names, and partner relationships 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, royalty rates, and obsolescence rates used in
valuing the intangible assets, and pricing of comparable
transactions in the market in valuing the tangible
No other instances of
impairment were identified in our May 1, 2012 test.