Amazon.com 2004 Annual Report Download - page 37

Outbound shipping charges to customers are included in “Net sales” and, excluding amounts earned from
third-party sellers where we don’t provide fulfillment services, amounted to $420 million, $372 million, and
$365 million for 2004, 2003, and 2002.
Inventories
Inventories, consisting of products available for sale, are accounted for using the first-in first-out (“FIFO”)
method, and are valued at the lower of cost or market value. This valuation requires us to make judgments, based
on currently-available information, about the likely method of disposition, such as through sales to individual
customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition
category. Based on this evaluation, we adjust the carrying amount of our inventories to lower of cost or market
value.
We provide fulfillment-related services in connection with certain of our Merchants@ and Merchant.com
programs. In those arrangements, as well as other product sales by third parties, the third-party maintains
ownership of the related products.
Internal-Use Software
Included in fixed assets is the capitalized cost of internal-use software and website development, including
software used to upgrade and enhance our websites and processes supporting our business. In accordance with
Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use,” we capitalize costs incurred during the application development stage related to the development
of internal-use software and amortize these costs over the estimated useful life of two years. Costs incurred
related to design or maintenance of internal-use software are expensed as incurred.
During 2004, 2003, and 2002 we capitalized $44 million, $30 million, and $25 million of costs associated
with development of internal-use software, which is offset by amortization of previously capitalized amounts of
$30 million, $24 million, and $26 million.
Restructuring Estimates
Restructuring-related liabilities include estimates for, among other things, anticipated disposition of lease
obligations. Key variables in determining such estimates include anticipated timing of sublease rentals, estimates
of sublease rental payment amounts and tenant improvement costs, and estimates for brokerage and other related
costs. We periodically evaluate and, if necessary, adjust our estimates based on currently-available information.
Additionally, we may determine, as we did in 2004, that certain of the office space vacated as part of our 2001
restructuring, which we have been unable to sublease due to poor real estate market conditions, may be necessary
for our future needs. To the extent we elect to utilize this office space, we adjust our restructuring-related liability
and classify future payments to the corresponding operating expense categories on the consolidated statements of
operations.
Currency Effect on Intercompany Balances
Aprovision of Statement of Financial Accounting Standard (“SFAS”) No. 52, Foreign Currency
Translation,requires that gains and losses arising from intercompany foreign currency transactions considered
long-term investments, in which settlement is not planned or anticipated in the foreseeable future, be excluded in
the determination of net income. Our international operations are financed, in part, by the U.S. parent company.
Prior to the fourth quarter of 2003, currency adjustments for these intercompany balances were recorded to
stockholders’ deficit as translation adjustments and not included in the determination of net income because we
intended to permanently invest such amounts. During the fourth quarter of 2003, we made the decision that these
amounts would be repaid among the entities and, accordingly, upon consolidation, any exchange gain or loss
arising from remeasurements of intercompany balances is required to be recorded in the determination of net
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