Facebook 2012 Annual Report Download - page 88

Goodwill Impairment Testing
In September 2011, the FASB issued an amendment to an existing accounting standard which provides
entities an option to perform a qualitative assessment to determine whether further impairment testing on
goodwill is necessary. An entity now has the option to first assess qualitative factors to determine whether it is
necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative
assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount,
the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective
for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.
We adopted this new standard on January 1, 2012 and the adoption did not have a material impact on our
financial statements.
Note 2. Acquisitions
In August 2012, we completed our acquisition of Instagram, Inc. (Instagram), a privately-held company
which has built a mobile phone-based photo-sharing service that is expected to enhance our photos product
offerings and to enable users to increase their levels of mobile engagement and photo sharing. We have
accounted for this transaction as a business acquisition for a total purchase price of $521 million, consisting of
the issuance of approximately 12 million vested shares of our Class B common stock to non-employee
stockholders of Instagram and $300 million in cash. The value of the equity component of the purchase price was
determined for accounting purposes based on the fair value of our common stock on the closing date. We also
issued approximately 11 million unvested shares of our Class B common stock to employee stockholders of
Instagram on the closing date, with an aggregate fair value of $194 million, which will be recognized as they vest
over a three-year service period as share-based compensation expense.
In 2012, we also completed other business acquisitions for total consideration of $87 million. These
acquisitions were not material to our consolidated financial statements individually or in the aggregate. Pro forma
results of operations related to our acquisition of Instagram or of other companies during the year ended
December 31, 2012 have not been presented because they are not material to our consolidated statements of
income, either individually or in the aggregate.
The following table summarizes the allocation of the fair values of the assets acquired and liabilities
assumed and the related useful lives, where applicable:
Instagram, Inc. Other
(in millions)
Useful lives
(in years) (in millions)
Useful lives
(in years)
Amortizable intangible assets:
Acquired technology .......................... $ 74 5 $ 20 3–5
Tradename and other .......................... 64 2–7 8 2–3
Net liabilities assumed ............................. (1) (4)
Deferred tax liabilities ............................. (49) (9)
Net assets acquired ............................... $ 88 $ 15
Goodwill ....................................... 433 72
Total fair value considerations ...................... $521 $ 87
Goodwill generated from all business acquisitions completed during 2012 is primarily attributable to
expected synergies from future growth and potential monetization opportunities and is not deductible for tax
purposes.
In 2012, we also acquired $633 million of patents and other intellectual property rights. We completed the
largest of these intangible asset purchases in June 2012 under an agreement with Microsoft Corporation pursuant
to which we were assigned Microsoft’s rights to acquire approximately 615 U.S. patents and patent applications
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