Amazon.com 2001 Annual Report Download - page 57

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation, which includes the amortization of assets
recorded under capital leases. Fixed assets, including assets purchased under capital leases, are depreciated on a
straight-line basis over the estimated useful lives of the assets (generally two to ten years).
Included in fixed assets is the cost of internal-use software, including software used to develop and operate
the Company’s Web sites. The Company expenses all costs related to the development of internal-use software
other than those incurred during the application development stage. Costs incurred during the application
development stage are capitalized and amortized over the estimated useful life of the software (generally two
years).
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business
acquisitions accounted for under the purchase accounting method. Other intangibles include identifiable
intangible assets purchased by the Company, primarily in connection with business acquisitions. Goodwill and
other intangibles are presented net of related accumulated amortization and impairment charges and are being
amortized over lives ranging from two to four years. Acquisitions subsequent to June 30, 2001 resulting in
goodwill and indefinite-lived intangibles are accounted for under a non-amortization approach and are evaluated
periodically for impairment.
The Company records impairment losses on goodwill and other intangible assets when events and
circumstances indicate that such assets might be impaired and the estimated fair value of the asset is less than its
recorded amount. Conditions that would necessitate an impairment assessment include material adverse changes
in operations, significant adverse differences in actual results in comparison with initial valuation forecasts
prepared at the time of acquisition, a decision to abandon acquired products, services or technologies, or other
significant adverse changes that would indicate the carrying amount of the recorded asset might not be
recoverable.
Goodwill is viewed in two separate categories: enterprise-level and business-unit level. Enterprise-level
goodwill results from purchase acquisitions of businesses that have been fully integrated into the Company’s
operations and no longer exist as a discrete business unit. Business-unit goodwill results from purchase business
combinations where the acquired operations have been managed as a separate business unit and not fully
absorbed into the Company. Enterprise-level goodwill is evaluated using the market-value method, which
compares the Company’s net book value to the value indicated by the market price of the Company’s equity
securities; if the net book value were to exceed the Company’s market capitalization, the excess carrying amount
of goodwill would be written off as an impairment-related charge. Measurement of fair value for business-unit
goodwill as well as other intangibles is based on discounted cash flow analysis at the business-unit level.
Investments
The Company has certain investments in debt and equity securities.
Investments are accounted for using the equity method of accounting if the investment gives the Company
the ability to exercise significant influence, but not control, over an investee. Significant influence is generally
deemed to exist if the Company has an ownership interest in the voting stock of the investee of between 20% and
50%, although other factors, such as representation on the investee’s Board of Directors and the effect of
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