Amazon.com 2013 Annual Report Download - page 56

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factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of
impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of
the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales
and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic
conditions.
We conduct our annual impairment test as of October 1 of each year, and have determined there to be no impairment for
any of the periods presented. There were no triggering events identified from the date of our assessment through December 31,
2013 that would require an update to our annual impairment test. See “Note 4—Acquisitions, Goodwill, and Acquired
Intangible Assets.”
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to acquired intangible assets,
net of amortization; digital video content, net of amortization; long-term deferred tax assets; certain equity investments;
marketable securities restricted for longer than one year, the majority of which are attributable to collateralization of bank
guarantees and debt related to our international operations; and intellectual property rights, net of amortization.
Content Costs
We obtain digital video content through licensing agreements that have a wide range of licensing provisions and
generally have terms from one to five years with fixed payment schedules. When the license fee for a specific movie or
television title is determinable or reasonably estimable and available for streaming, we recognize an asset representing the fee
per title and a corresponding liability for the amounts owed. We relieve the liability as payments are made and we amortize the
asset as cost of sales on a straight-line basis over each title’s contractual window of availability, which typically ranges from six
months to five years. If we are unable to reasonably estimate the cost per title, no asset or liability is recorded and licensing
costs are expensed as incurred.
Investments
We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAA-
rated money market funds. Such investments are included in “Cash and cash equivalents,” or “Marketable securities” on the
accompanying consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and
losses included in “Accumulated other comprehensive loss.”
Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to
exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees,
including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within “Other assets” on our
consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of the
related intangible assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on
our consolidated statements of operations. Our share of the net income or loss of our equity-method investees includes
operating and non-operating gains and charges, which can have a significant impact on our reported equity-method investment
activity and the carrying value of those investments. In the event that net losses of the investee reduce our equity-method
investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted
for under the equity method, are at-risk even if we have not committed to provide financial support to the investee. We
regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment. We also consider
whether our equity-method investments generate sufficient cash flows from their operating or financing activities to meet their
obligations and repay their liabilities when they come due.
We record purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in our
ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between
fair value and our recorded cost reflected as a gain or loss in our equity-method investment activity. In the event we no longer
have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the
investment under the equity method.
Equity investments without readily determinable fair values for which we do not have the ability to exercise significant
influence are accounted for using the cost method of accounting and classified as “Other assets” on our consolidated balance
sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair
value, certain distributions, and additional investments.