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Acquisitions, Goodwill, and Acquired Intangible Assets
9 Months Ended
Sep. 30, 2015
Business Combinations [Abstract]  
Acquisitions, Goodwill, and Acquired Intangible Assets
ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
2015 Acquisition Activity
During the nine months ended September 30, 2015, we acquired certain companies for an aggregate purchase price of $393 million. The primary reasons for these acquisitions, none of which was individually material to our consolidated financial statements, 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
$
340

Indemnification holdback
53

 
$
393

Allocation
 
Goodwill
$
239

Intangible assets (1):
 
Contract-based
1

Technology-based
181

Customer-related
4

 
186

Property and equipment
1

Deferred tax assets
34

Other assets acquired
23

Deferred tax liabilities
(65
)
Other liabilities assumed
(25
)
 
$
393

 ___________________
(1)
Acquired intangible assets have estimated useful lives of between one and six years, with a weighted-average amortization period of five years.
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 basis over their estimated useful lives.
On October 19, 2015, we acquired Elemental Technologies, Inc. (“Elemental”), for total consideration of approximately $296 million. The acquisition combines Elemental’s video solutions with the AWS Cloud platform to provide customers integrated solutions to efficiently and economically scale video infrastructures. We are currently in the process of estimating the fair values of the assets acquired and liabilities assumed and will include the impact of this acquisition in our 2015 Annual Report on Form 10-K.
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 operating loss of the companies acquired was $7 million and $(78) million for the nine months ended September 30, 2015. The following financial information, which excludes certain acquired companies for which the pro forma impact is not meaningful, presents our results as if the companies acquired during the nine months ended September 30, 2015 had occurred at the beginning of 2014 (in millions):
  
Nine Months Ended September 30,
 
2015
 
2014
Net sales
$
71,261

 
$
59,660

Net income (loss)
$
126

 
$
(486
)

2014 Acquisition Activity
During the nine months ended September 30, 2014, we acquired companies for an aggregate purchase price of approximately $862 million in cash, as adjusted for the assumption of options and other items, which resulted in goodwill of $707 million and acquired intangible assets of $230 million. The primary reasons for these acquisitions were to acquire technologies and know-how to enable Amazon to serve customers more effectively. 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 basis over their estimated useful lives. Acquisition-related costs were expensed as incurred and 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.
Goodwill
The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition.
The following summarizes our goodwill activity during the nine months ended September 30, 2015 by segment (in millions):
 
 
North
America
 
International
 
AWS
 
Consolidated
Goodwill - January 1, 2015
$
1,978

 
$
735

 
$
606

 
$
3,319

New acquisitions
41

 
17

 
181

 
239

Other adjustments (1)
(5
)
 
(22
)
 
(2
)
 
(29
)
Goodwill - September 30, 2015
$
2,014

 
$
730

 
$
785

 
$
3,529

 ___________________
(1)
Primarily includes changes in foreign exchange rates.
During the second quarter of 2015, we changed the measurement date of our annual goodwill impairment test from October 1 to April 1. This change was not material to our consolidated financial statements as it did not result in the delay, acceleration, or avoidance of an impairment charge. We believe this timing better aligns the goodwill impairment test with our strategic business planning process, which is a key component of the goodwill impairment test. We completed the required annual testing of goodwill for impairment for all reporting units as of April 1, 2015 and determined that goodwill is not impaired.