Microsoft

Microsoft Corporation Annual Report 2008

Financial Review

NOTES TO FINANCIAL STATEMENTS

NOTE 9  GOODWILL

Changes in the carrying amount of goodwill for fiscal years 2008 and 2007 by segment were as follows:

(In millions)
  Balance as of June 30, 2008 Acquisitions Other Balance as of June 30, 2007 Acquisitions Other Balance as of June 30, 2006
Client $    )153 $    ,77 ,(1) $    77 $  ,6 $ (3) $    74
Server and   Tools 738 90 68 580 325 (1) 256
Online Services   Business 6,274 5,775 (53) 552 123 (26) 455
Microsoft   Business   Division 4,191 1,073 (14) 3,132 508 (57) 2,681
Entertainment   and Devices   Division 752 354 (21) 419 21 (2) 400
Total $12,108 $7,369 $(21) $4,760 $983 $(89) $3,866

We test goodwill for impairment annually on July 1 at the reporting unit level using a fair value approach, in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. Our annual testing resulted in no impairments of goodwill in fiscal years 2008 and 2007. 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.

None of the amount recorded as goodwill during fiscal year 2008 is expected to be deductible for tax purposes. The purchase price allocation for acquisitions is preliminary for up to 12 months after the acquisition date and subject to revision as more detailed analyses are completed and additional information about fair value of assets and liabilities become available. Any change in the fair value of the net assets of the acquired company will change the amount of the purchase price allocable to goodwill. Purchase price adjustments are included in “other” in the above table.