Note 4—ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS

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
Fixed assets		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 2 to 10 years, with a weighted-average amortization period of 8 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 Financial Information (unaudited)

The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The aggregate net sales and net losses of the acquired companies recorded in our consolidated statement of operations from the respective acquisition dates through December 31, 2011 were $511 million and $95 million. The following pro forma financial information presents our results as if these acquisitions had occurred at the beginning of 2010 (in millions):


	Year Ended December 31,
	2011		2010
Net sales	$	48,356	$	34,813
Net income		608		1,051

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.

The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. Pro forma results of operations have not been presented because the effects of these business combinations, individually and in the aggregate, were not material to our consolidated results of operations.

2009 Acquisition Activity

On November 1, 2009, we acquired 100% of the outstanding equity of Zappos.com, Inc. (“Zappos”), in exchange for shares of our common stock, to expand our presence in softline retail categories, such as shoes and apparel.

The fair value of Zappos’ stock options assumed was determined using the Black-Scholes model. The following table summarizes the consideration paid for Zappos (in millions):


Stock issued	$	1,079
Assumed stock options, net		55

	$	1,134

The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach. Purchased identifiable intangible assets are being amortized on a straight-line or accelerated basis over their respective useful lives.

The following summarizes the allocation of the Zappos purchase price (in millions):


Goodwill	$	778
Other net assets acquired		83
Deferred tax liabilities net		(167	)
Intangible assets (1):
Marketing-related		223
Contract-based		103
Customer-related		114

	$	1,134

(1)	Acquired intangible assets have estimated useful lives of between 1 and 10 years.

Zappos’ financial results have been included in our consolidated statements of income since November 1, 2009. The following pro forma financial information presents our results as if the Zappos acquisition had occurred at the beginning of 2009 (in millions):


	Year Ended December 31, 2009
Net sales	$	25,064
Net income		853

We acquired certain additional companies during 2009 for an aggregate purchase price of $26 million, resulting in goodwill of $16 million and acquired intangible assets of $5 million. All of the entities have been consolidated into our financial statements since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of these business combinations, 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 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 2011 and 2010 by segment (in millions):


	North America		International			Consolidated
Goodwill—January 1, 2010	$	1,055	$	179		$	1,234
New acquisitions		60		51			111
Other adjustments (1)		1		3			4

Goodwill—December 31, 2010		1,116		233			1,349

New acquisitions		417		198			615
Other adjustments (1)		—		(9	)		(9	)

Goodwill—December 31, 2011	$	1,533	$	422		$	1,955

(1)	Primarily includes changes in foreign exchange for goodwill in our International segment.

Intangible Assets

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


	Weighted Average Life Remaining		December 31,
			2011							2010
			Acquired Intangibles, Gross (1)		Accumulated Amortization (1)			Acquired Intangibles, Net		Acquired Intangibles, Gross (1)		Accumulated Amortization (1)			Acquired Intangibles, Net
								(in millions)
Marketing-related		8.2	$	408	$	(74	)	$	334	$	277	$	(37	)	$	240
Contract-based		4.5		189		(74	)		115		183		(43	)		140
Technology and content		6.1		37		(13	)		24		34		(10	)		24
Customer-related		3.9		343		(169	)		174		251		(92	)		159

Acquired intangibles (2)		5.9	$	977	$	(330	)	$	647	$	745	$	(182	)	$	563

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

(2)	Intangible assets have estimated useful lives of between 1 and 10 years.

Amortization expense for acquired intangibles was $149 million, $105 million, and $48 million in 2011, 2010, and 2009. Expected future amortization expense of acquired intangible assets as of December 31, 2011 is as follows (in millions):


Year Ended December 31,
2012	$	135
2013		114
2014		95
2015		79
2016		65
Thereafter		159

	$	647