ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS

2014 Acquisition Activity

On September 25, 2014, we acquired Twitch Interactive, Inc. (“Twitch”) for approximately $842 million in cash, as adjusted for the assumption of options and other items. During 2014, we acquired certain other companies for an aggregate purchase price of $20 million. We acquired Twitch because of its user community and the live streaming experience it provides. The primary reasons for our other 2014 acquisitions were to acquire technologies and know-how to enable Amazon to serve customers more effectively.

Acquisition-related costs were expensed as incurred and not significant. The aggregate purchase price of these acquisitions was allocated as follows (in millions):



Purchase Price
Cash paid, net of cash acquired	$	813
Stock options assumed	44
Indemnification holdback	5
	$	862
Allocation
Goodwill	$	707
Intangible assets (1):
Marketing-related	23
Contract-based	1
Technology-based	33
Customer-related	173
	230
Property and equipment	16
Deferred tax assets	64
Other assets acquired	34
Deferred tax liabilities	(88		)
Other liabilities assumed	(101		)
	$	862

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

The fair value of assumed stock options of $39 million, estimated using the Black-Scholes model, will be expensed over the remaining service period. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income approach. 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.

Subsequent to September 30, 2014, we made minor measurement period adjustments to the preliminary purchase price allocation that impacted goodwill, customer-related intangible assets, property and equipment, and deferred taxes and are reflected in the table above. We have not retrospectively adjusted our previously reported consolidated financial statements.

Pro Forma Financial Information – 2014 Acquisition Activity (unaudited)

The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The aggregate net sales and operating loss of the companies acquired was $40 million and $30 million for the year ended December 31, 2014. The following pro forma financial information presents our results as if the current year acquisitions had occurred at the beginning of 2013 (in millions):



	Year Ended December 31,
	2014			2013
Net sales	$	89,041		$	74,505
Net income (loss)	$	(287	)	$	180

2013 Acquisition Activity

In 2013, we acquired several companies in cash transactions for an aggregate purchase price of $195 million, resulting in goodwill of $103 million and acquired intangible assets of $83 million. The primary reasons for these acquisitions were to expand our customer base and sales channels and to obtain certain technologies to be used in product development. 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. Acquisition-related costs were expensed as incurred and were not significant.

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.

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

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(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 results of operations have not been presented because the effect of this acquisition was 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 sales growth from future product and service offerings and new customers and fulfillment center productivity, together with certain intangible assets that do not qualify for separate recognition. The following summarizes our goodwill activity in 2014 and 2013 by segment (in millions):



	North America			International			Consolidated
Goodwill - January 1, 2013	$	1,937		$	615		$	2,552
New acquisitions	99			4			103
Other adjustments (1)	(3		)	3			—
Goodwill - December 31, 2013	2,033			622			2,655
New acquisitions (2)	553			162			715
Other adjustments (1)	(2		)	(49		)	(51		)
Goodwill - December 31, 2014	$	2,584		$	735		$	3,319

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(1)	Primarily includes changes in foreign exchange rates.


(2)	Primarily includes the goodwill of Twitch.

Intangible Assets

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



		December 31,
		2014							2013
	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	5.3	$	457	$	(199	)	$	258	$	429	$	(156	)	$	273
Contract-based	2.2	172		(125		)	47		173		(110		)	63
Technology- and content-based	3.5	370		(129		)	241		278		(74		)	204
Customer-related	2.5	535		(317		)	218		368		(263		)	105
Acquired intangibles (2)	3.5	$	1,534	$	(770	)	$	764	$	1,248	$	(603	)	$	645

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(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 $181 million, $168 million, and $163 million in 2014, 2013, and 2012. Expected future amortization expense of acquired intangible assets as of December 31, 2014 is as follows (in millions):



Year Ended December 31,
2015	$	202
2016	185
2017	161
2018	106
2019	79
Thereafter	31
	$	764