Amazon.com 2000 Annual Report Download - page 49

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.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets might not be recoverable. The Company does not perform a periodic
assessment of assets for impairment in the absence of such information or indicators. Conditions that would
necessitate an impairment assessment include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be
held and used, the Company measures fair value based on quoted market prices or based on discounted
estimates of future cash flows. Long-lived assets to be disposed of are carried at fair value less costs to sell.
Unearned Revenue
Unearned revenue is recorded when payments, whether received in cash or equity securities, are received
in advance of the Company’s performance in the underlying agreement. Unearned revenue is amortized ratably
over the period in which services are provided.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial
reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a valuation allowance for
deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Revenue Recognition
The Company recognizes revenue from product sales, net of any promotional gift certificates, when the
products are shipped and title passes to customers. Outbound shipping charges are included in net sales and
amounted to $339 million, $239 million and $94 million in 2000, 1999 and 1998, respectively. The Company
provides an allowance for sales returns based on historical experience.
Under an agreement with Toysrus.com and other third parties, the Company acts as an agent for the sale
of certain products ordered on its Web site. For such arrangements, the Company records the net amount of
revenue earned as commissions on transactions rather than the gross amount of product sales and related costs.
The Company also earns revenues from other services, primarily by entering into commercial agreements
that involve the sale of products and services by third-party companies (‘‘strategic partners’’ or ‘‘partners’’) on
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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