Acquisitions, Goodwill, and Acquired Intangible Assets

12 Months Ended

Jun. 30, 2012

Acquisitions, Goodwill, and Acquired Intangible Assets

Note 4 — Acquisitions, Goodwill, and Acquired Intangible Assets

In May 2012, we acquired Kiva Systems, Inc. for a purchase price of $678 million. In the six months ended June 30, 2011, we acquired certain other companies for an aggregate purchase price of $686 million. The primary reasons for our 2012 and 2011 acquisitions were to improve fulfillment center productivity and to expand our customer base and sales channels. Acquisition-related costs were expensed as incurred and were not significant. The aggregate purchase price of these acquisitions was allocated as follows (in millions):

	Six Months Ended June 30,
	2012			2011
Purchase Price
Cash paid, net of cash acquired	$	613		$	577
Existing equity interest		—			89
Stock options assumed		65			20
	$	678		$	686
Allocation
Goodwill	$	560		$	553
Intangible assets (1):
Marketing-related		5			120
Contract-based		3			5
Technology-based		168			—
Customer-related		17			71
		193			196
Fixed assets		9			88
Deferred tax assets		34			42
Other assets acquired		41			77
Deferred tax liabilities		(81	)		(61	)
Debt		—			(68	)
Other liabilities assumed (2)		(78	)		(141	)
	$	678		$	686

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

(2) In 2011, other liabilities assumed included a $38 million contingent liability related to historic tax exposures.

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. Additionally, the aggregate purchase price of the acquisitions made during the six months ended June 30, 2011, included the estimated fair value of our previous, noncontrolling interest in one of the acquired companies in addition to cash consideration and the fair value of vested stock options. 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 Q1 2011 consolidated statement of operations.

Pro Forma Financial Information (unaudited)

The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The net sales and operating loss of the company acquired in 2012 recorded in our consolidated statement of operations from the acquisition date through June 30, 2012, were $2 million and $(25) million. The following pro forma financial information presents our results as if the current year acquisition had occurred at the beginning of 2011 (in millions):

	Six Months Ended June 30,
	2012		2011
Net sales	$	26,044	$	19,801
Net income		173		307

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		388			165		553
Other adjustments (1)		3			4		7
Goodwill - June 30, 2011	$	1,507		$	402	$	1,909
Goodwill - January 1, 2012	$	1,533		$	422	$	1,955
New acquisitions (2)		378			189		567
Other adjustments (1)		(1	)		—		(1	)
Goodwill - June 30, 2012	$	1,910		$	611	$	2,521

(1) Primarily includes changes in foreign exchange.

(2) Primarily includes the goodwill of Kiva Systems, Inc.