Microsoft 2007 Annual Report Download - page 47

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PAGE 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 INVENTORIES
(In millions)
June 30 2007 2006
Raw materials $ 435 $ 465
Work in process 148 –
Finished goods 544 1,013
Inventories $1,127 $1,478
NOTE 7 PROPERTY AND EQUIPMENT
(In millions)
June 30 2007 2006
Land $ 428 $ 362
Buildings and improvements 3,170 2,228
Leasehold improvements 1,077 918
Computer equipment and software 3,458 2,682
Furniture and equipment 1,233 1,033
Property and equipment, at cost 9,366 7,223
Accumulated depreciation (5,016) (4,179)
Property and equipment, net $ 4,350 $ 3,044
Property and equipment are stated at cost. Depreciation is computed principally on the straight-line method over
the estimated useful lives of the assets. The useful lives for buildings range from five to 15 years, leasehold
improvements generally range from two to ten years – representing the applicable lease terms plus reasonably
assured extensions, computer equipment and software range from two to three years, and furniture and
equipment range from one to five years. Land is not depreciated.
During fiscal years 2007, 2006, and 2005, depreciation expense was $1.17 billion, $863 million, and $723
million, respectively. The majority of depreciation expense in all years related to computer equipment.
NOTE 8 GOODWILL
Changes in the carrying amount of goodwill for fiscal years 2007 and 2006 by segment were as follows:
(In millions)
Balance as
of June 30,
2005 Acquisitions Other
Balance as
of June 30,
2006 Acquisitions Other
Balance as
of June 30,
2007
Client $ 43 $ 31 $ – $ 74 $ 6$ (3) $ 77
Server and Tools 241 29 (14) 256
325 (1) 580
Microsoft Business Division 2,435 246
–2,681 508 (57) 3,132
Online Services Business 171 263
21 455 123 (26) 552
Entertainment and Devices Division 419 23 (42) 400 21 (2) 419
Total $3,309 $592 $(35) $3,866 $983 $(89) $4,760
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 2007 and 2006. 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