Shutterfly 2012 Annual Report Download - page 75

Note 4 — Acquisitions
Purchased Intangible Assets
Eastman Kodak Gallery Assets
On March 1, 2012, the Company entered into an agreement with Kodak for the proposed sale of
certain assets of its Kodak Gallery online photo services business for $23.8 million through a court-
supervised auction process. On April 30, 2012, the transaction was approved by the bankruptcy court and
on May 2, 2012 the transaction closed. The Company paid $19.0 million at close and the remaining
$4.8 million at the end of the transition period, which was during 2012. This acquisition was accounted for
as an asset acquisition and as such the Company has capitalized transaction costs of approximately
$0.6 million, for a total purchase price of $24.4 million. The purchase price was allocated to a single asset,
customer list, which will be amortized over its estimated useful life of four years.
Business Combinations
ThisLife.com, Inc.
On December 28, 2012, the Company acquired ThisLife.com, Inc. (‘‘ThisLife’’) for a total aggregate
cash purchase price of $22.5 million. ThisLife provides cloud-based services for protecting, organizing,
storing and sharing photos and videos which will strengthen the Company’s photo storage and sharing
capabilities as well as enable the creation of products across the web and mobile efficiently. The acquisition
was accounted for as a non-taxable purchase transaction and, accordingly, the purchase price has been
allocated to the acquired tangible assets, liabilities assumed, and identifiable intangible assets acquired
based on their estimated fair values on the acquisition date. The excess of the purchase price over the
aggregate fair values was recorded as goodwill. In addition, restricted stock awards were granted to certain
ThisLife employees contingent upon their continued employment for a period of three years and will be
recorded as stock-based compensation over the vesting period. Also, performance-based restricted stock
units (‘‘PBRSU’’) were granted to certain ThisLife employees contingent on achieving certain performance
milestones and continued employment for a period of three years. These awards will be recorded as stock-
based compensation over the vesting period.
Of the total purchase price, $14.6 million was allocated to developed technology and is being
amortized over an estimated useful life of five years and $0.2 million was allocated to the active user base
which will be amortized over an estimated useful life of two years. The assets and liabilities acquired
totaled approximately $1.0 million and $1.2 million, respectively. The remaining excess purchase price of
approximately $7.9 million was allocated to goodwill primarily representing the assembled workforce and
synergies from the accelerated time to market. In addition, $4.3 million was recorded as a deferred tax
liability representing the difference between the assigned values of the assets acquired and the tax basis of
those assets, with the offset recorded as additional goodwill. The results of operations for the acquired
business have been included in the consolidated statement of income for the period subsequent to the
Company’s acquisition of ThisLife. ThisLife’s results of operations for periods prior to this acquisition
were not material to the consolidated statement of operations and, accordingly, pro forma financial
information has not been presented.
Penguin Digital, Inc.
On September 14, 2012, the Company acquired Penguin Digital, Inc. (‘‘Penguin Digital’’) for a total
aggregate cash purchase price of $7.1 million. Penguin Digital is a mobile application development
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