MSFT Annual Report 2004 - Financial Review

NOTE 8 GOODWILL

Changes in the carrying amount of goodwill for fiscal 2003 and 2004 by segment, are as follows:

(In millions)
	Balance as of June 30, 2002	Acquisitions / purchase accounting adjustments	Balance as of June 30, 2003	Acquisitions / purchase accounting adjustments	Divestitures	Balance as of June 30, 2004

Client	$1,426	$1,711	$3,137	$4-	$19)-	$3,137
Server and Tools	97	9	106	-	-	106
Information Worker	-	180	180	(2)	-	178
Microsoft Business Solutions	1,021	1,198	2,219	7	(19)	2,207
MSN	160	(6)	154	-	-	154
Mobile and Embedded Devices	5	23	28	2	-	30
Home and Entertainment	117	287	404	(1)	-	403

Total	$ 1,426	$1,702	$ 3,128	$ 6	$ (19)	$ 3,115

We test goodwill for impairment annually during the first quarter of each fiscal year at the reporting unit level using a fair value approach, in accordance with the provisions of SFAS 142. Our annual testing resulted in no impairment charges to goodwill in fiscal 2003 and 2004. If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value, goodwill will be evaluated for impairment between annual tests.

During fiscal 2004, we had no material acquisitions. Goodwill decreased $13 million primarily as a result of goodwill allocated to a business that was divested in the current year.

The $1.7 billion increase in goodwill during fiscal 2003 related principally to the following acquisitions: Navision a/s with $1.2 billion allocated to Microsoft Business Solutions; $281 million for the Rare Ltd. acquisition allocated to Home and Entertainment; and Placeware, Inc. with $180 million allocated to Information Worker.