Amazon.com 2004 Annual Report Download - page 65

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). Depreciation expense
is classified within the corresponding operating expense categories on the consolidated statements of operations.
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
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.
Leases
We account for our lease agreements pursuant to SFAS No 13, “Accounting for Leases,” which categorizes
leases at their inception as either operating or capital leases depending on certain defined criteria. On certain of
our lease agreements, we may receive rent holidays and other incentives. We recognize lease costs on a straight-
line basis without regard to deferred payment terms, such as rent holidays that defer the commencement date of
required payments. Additionally, incentives we receive are treated as a reduction of our costs over the term of the
agreement. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful
life and the life of the lease, without assuming renewal features, if any, are exercised.
Goodwill
We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances
suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested at the reporting unit
level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting
unit. The fair values of the reporting units are estimated using discounted projected cash flows. If the carrying
amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is
performed to measure the amount of impairment loss, if any. We conduct our annual impairment test as of
October 1 of each year, and have determined there to be no impairment in 2004 or 2003. There were no events or
circumstances from the date of our assessment through December 31, 2004 that would impact this assessment.
Additionally, during 2004, we acquired $70 million of goodwill related to our acquisition of Joyo.com.
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to deferred
issuance charges on our long-term debt, which are amortized over the life of the debt; certain equity investments;
and intangible assets, net of amortization. At December 31, 2004, and 2003, deferred issuance charges were $19
million, and $25 million; equity investments were $15 million and $15 million; and intangibles, net of
amortization, were $5 million, and $1 million.
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