MSFT Annual Report 2004 - Financial Review

NOTE 15 ACQUISITIONS

In fiscal 2004, we had no material acquisitions. In fiscal 2003, we acquired all of the outstanding equity interests of Navision a/s, Rare Ltd., and Placeware, Inc. Navision, headquartered in Vedbaek, Denmark, is a provider of integrated business solutions software for small and mid-sized businesses in the European market that is part of the Microsoft Business Solutions segment. We acquired Navision on July 12, 2002 for $1.465 billion consisting primarily of $662 million in cash and the issuance of 29.1 million common shares of our common stock valued at $773 million. The value of the common shares issued was determined based on the average market price of our common shares over the two-day period before and after terms of the acquisition were agreed to and approved. Rare is a video game developer located outside Leicestershire, England, that has broaden the portfolio of games available for the Xbox video game system. Rare was acquired on September 24, 2002 for $377 million consisting primarily of $375 million in cash and is included in the Home and Entertainment segment. Placeware, located in Mountain View, California, facilitates secure, highly reliable, cross-firewall Web conferencing experiences allowing users to conduct business meetings online from a PC, and is part of our Real Time Collaboration business unit in the Information Worker segment. Placeware was acquired on April 30, 2003 for $202 million, consisting primarily of $189 million in cash. Navision, Rare, and Placeware have been consolidated into our financial statements since their respective acquisition dates. None of the acquisitions, individually or in the aggregate, are material to our consolidated results of operations. Accordingly, pro forma financial information is not included in this note.

The estimated fair values of the assets acquired and liabilities assumed at the date of the acquisitions for fiscal 2003 are as follows:

(In millions)
	Navision a/s at July 12, 2002	Rare Ltd. at September 24, 2002	Placeware, Inc. at April 30, 2003

Current assets	$1,240	$325	$230
Property, plant and equipment	8	8	7
Intangible assets	169	75	30
Goodwill	1,197	281	180
Total assets acquired	1,614	389	247
Current liabilities	(148)	(12)	(32)
Long-term liabilities	(1)	-	(13)
Total liabilities assumed	(149)	(12)	(45)
Net assets acquired	$1,465	$377	$202

The $1.20 billion of goodwill resulting from the Navision acquisition was assigned to the Microsoft Business Solutions segment. Of that total amount, approximately $900 million is expected to be deductible for tax purposes. The $281 million of goodwill in the Rare acquisition was assigned to the Home and Entertainment segment. Of that total amount, approximately $270 million is expected to be deductible for tax purposes. The $180 million of goodwill in the Placeware acquisition was assigned to the Information Worker segment. None of the goodwill is expected to be deductible for tax purposes.

The components of intangible assets acquired in the acquisitions above are as follows (no significant residual value is estimated for these assets):

(In millions)
	Navision a/s		Weighted average life	Rare Ltd.		Weighted average life	Placeware, Inc.	Weighted average life

Contract-based	$115		6 years	$16		5 years	$1	6 years
Technology-based	48		4 years	36		5 years	4	4 years
Marketing-related	4		3 years	10		5 years	2	1 year
Customer-related	-		-	-		-	23	10 years
Research and Development	2	⁽¹⁾	-	13	⁽¹⁾	-	-	-
Total	$169		5 years	$75		5 years	$30	8 years

(1)	Amounts assigned to research and development assets were written off in accordance with FIN 4. Those write-offs were included in Research and Development expenses.