Note 4—ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS

2012 Acquisition Activity

In May 2012, we acquired Kiva Systems, Inc. (“Kiva”) for a purchase price of $678 million. The primary reason for this acquisition was to improve fulfillment center productivity. Acquisition-related costs were expensed as incurred and were not significant. The aggregate purchase price of this acquisition was allocated as follows (in millions):

 

Purchase Price
Cash paid, net of cash acquired		$	613
Stock options assumed			65
		$	678
Allocation
Goodwill		$	560
Intangible assets (1):
Marketing-related			5
Contract-based			3
Technology-based			168
Customer-related			17
			193
Property and equipment			9
Deferred tax assets			34
Other assets acquired			41
Deferred tax liabilities			(81	)
Other liabilities assumed			(78	)
		$	678

 

(1)	Acquired intangible assets have estimated useful lives of between four and 10 years, with a weighted-average amortization period of five years.

The fair value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches. These assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives.

Pro Forma Financial Information – 2012 Acquisition Activity (unaudited)

Kiva was consolidated into our financial statements starting on its acquisition date. The net sales and operating loss of Kiva recorded in our consolidated statement of operations from its acquisition date through December 31, 2012, were $61 million and $(62) million. The following pro forma financial information presents our results as if the Kiva acquisition had occurred at the beginning of 2011 (in millions):

 

		Year Ended December 31,
		2012				2011
Net sales		$	61,118			$	48,157
Net income (loss)			(2	)			499

 

2011 Acquisition Activity

In 2011, we acquired certain companies for an aggregate purchase price of $771 million. The primary reasons for these acquisitions, none of which was individually material to our consolidated financial statements, were to expand our customer base and sales channels, including our consumer channels and subscription entertainment services. Acquisition-related costs were expensed as incurred and were not significant. The aggregate purchase price of these acquisitions was allocated as follows (in millions):

 

Purchase Price
Cash paid, net of cash acquired		$	637
Existing equity interest			89
Indemnification holdbacks			25
Stock options assumed			20
		$	771
Allocation
Goodwill		$	615
Intangible assets (1):
Marketing-related			130
Customer-related			94
Contract-based			6
			230
Property and equipment			119
Deferred tax assets			49
Other assets acquired			68
Accounts payable			(65	)
Debt			(70	)
Deferred tax liabilities			(75	)
Other liabilities assumed (2)			(100	)
		$	771

 

(1)	Amortization periods range from two to 10 years, with a weighted-average amortization period of eight years.

(2)	Includes a $38 million contingent liability related to historic tax exposures.

In addition to cash consideration and the fair value of vested stock options, the aggregate purchase price included the estimated fair value of our previous, noncontrolling interest in one of the acquired companies. We remeasured this equity interest to fair value at the acquisition date and recognized a non-cash gain of $6 million in “Equity-method investment activity, net of tax,” in our 2011 consolidated statement of operations. The fair value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches. Purchased identifiable intangible assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives.

Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our consolidated results of operations.

2010 Acquisition Activity

In 2010, we acquired certain companies for an aggregate purchase price of $228 million, resulting in goodwill of $111 million and acquired intangible assets of $91 million. The primary reasons for these acquisitions were to expand our customer base and sales channels. The purchase price was allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired was determined primarily by using the income and cost approaches. These intangible assets are being amortized on a straight-line or accelerated basis over their respective useful lives.

Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our consolidated results of operations.

Goodwill

The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected improvements in fulfillment center productivity and sales growth from future product offerings and customers, together with certain intangible assets that do not qualify for separate recognition.

The following summarizes our goodwill activity in 2012 and 2011 by segment (in millions):

 

		North America				International				Consolidated
Goodwill - January 1, 2011		$	1,116			$	233			$	1,349
New acquisitions			417				198				615
Other adjustments (1)			—				(9	)			(9	)
Goodwill - December 31, 2011			1,533				422				1,955
New acquisitions (2)			403				184				587
Other adjustments (1)			1				9				10
Goodwill - December 31, 2012		$	1,937			$	615			$	2,552

 

(1)	Primarily includes changes in foreign exchange.

(2)	Primarily includes the goodwill of Kiva.

Intangible Assets

Acquired intangible assets, included within “Other assets” on our consolidated balance sheets, consist of the following (in millions):

 

						December 31,
						2012												2011
		Weighted Average Life Remaining				Acquired Intangibles, Gross (1)				Accumulated Amortization (1)				Acquired Intangibles, Net				Acquired Intangibles, Gross (1)				Accumulated Amortization (1)				Acquired Intangibles, Net
Marketing-related			7.3			$	422			$	(113	)		$	309			$	408			$	(74	)		$	334
Contract-based			3.9				177				(89	)			88				189				(74	)			115
Technology- and content-based			4.9				231				(30	)			201				37				(13	)			24
Customer-related			3.2				332				(205	)			127				343				(169	)			174
Acquired intangibles (2)			5.1			$	1,162			$	(437	)		$	725			$	977			$	(330	)		$	647

 

(1)	Excludes the original cost and accumulated amortization of fully-amortized intangibles.

(2)	Intangible assets have estimated useful lives of between one and 10 years.

 

Amortization expense for acquired intangibles was $163 million, $149 million, and $105 million in 2012, 2011, and 2010. Expected future amortization expense of acquired intangible assets as of December 31, 2012 is as follows (in millions):

 

Year Ended December 31,
2013		$	159
2014			143
2015			126
2016			103
2017			82
Thereafter			112
		$	725