NOTE 8    GOODWILL

Changes in the carrying amount of goodwill for fiscal years 2006 and 2005 by segment were as follows:

(In millions)
	Balance as of June 30, 2004		Acquisitions / purchase accounting adjustments		Divestitures		Balance as of June 30, 2005		Acquisitions		Other		Balance as of June 30, 2006
Client	$0,037		$(6		$(0 –		$0,043		$0031		$(0–		$0,074
Server and Tools	106		135		–		241		29		(14)		256
Information Worker	178		47		–		225		246		–		471
Microsoft Business     Solutions	2,207		3		–		2,210		–		–		2,210
MSN	154		17		–		171		263		21		455
Mobile and Embedded     Devices	30		–		–		30		–		(24)		6
Home and Entertainment	403		–		$ (14)		389		23		(18)		393
Total	$ 3,115		$(208)		$ (14)		$3,309		$592		$(35)		$3,866

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 No. 142, Goodwill and Other Intangible Assets. Our annual testing resulted in no impairments of goodwill in fiscal years 2006 and 2005. 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 year 2005, we had no material acquisitions. During the fiscal year 2006, we acquired the following entities for a total consideration of $689 million, which was primarily paid in cash:

•   Frontbridge Technologies, Inc., a California-based provider of managed services that addresses corporate e-mail compliance,
    security, and availability requirements;

•   Teleo, Inc., a California-based voice over Internet protocol software and services provider;

•   MediaStreams.com AG, a Zurich, Switzerland-based developer of PC-based voice over Internet protocol communication systems
    and peripheral equipment;

•   Lionhead Studios Ltd., a Guildford, England-based software studio specializing in PC game development;

•   Vexcel Corporation, a Colorado-based imagery technology and systems provider;

•   Massive Corporation, a New York-based developer of video game advertising;

•   ProClarity Corporation, an Idaho-based developer of advanced analysis and visualization technologies for business platforms; and

•   14 various other entities specializing in areas such as application security, digital access management, and networking solutions.

As a result of these acquisitions, we recorded $592 million of goodwill. None of that amount is expected to be deductible for tax purposes. Goodwill was assigned to our operating segments as follows: $29 million to Server & Tools, $263 million to MSN, $31 million to Client, $246 million to Information Worker, and $23 million to Home and Entertainment. We also recorded $125 million of technology-based intangible assets with a weighted-average amortization period of 3.25 years, and $26 million of other intangible assets with a weighted-average amortization period of 4.5 years. All of the entities 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 information has not been included.