Amazon.com 2006 Annual Report Download - page 61

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Leases and Asset Retirement Obligations
We account for our lease agreements pursuant to Statement of Financial Accounting Standards (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 or the life of the lease, without assuming renewal
features, if any, are exercised.
In accordance with SFAS No. 143, Accounting for Asset Retirement Obligations, we establish assets and
liabilities for the present value of estimated future costs to return certain of our leased facilities to their original
condition. Such assets are depreciated over the lease period into operating expense, and the recorded liabilities
are accreted to the future value of the estimated restoration costs.
Goodwill
We evaluate goodwill for impairment, 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 2006 or 2005. There were no events or
circumstances from the date of our assessment through December 31, 2006 that would impact this assessment.
At December 31, 2006 and December 31, 2005, approximately 60% and 70% of our acquired goodwill was
assigned to our International segment, the majority of which relates to our acquisition of Joyo.com in 2004.
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;
marketable securities restricted for longer than one year; and intangible assets, net of amortization. At
December 31, 2006, and 2005, deferred issuance charges were $7 million, and $13 million; and equity
investments were $19 million and $8 million. At December 31, 2006, the cost basis and fair value of marketable
securities restricted for longer than one year was $86 million, primarily attributable to collateralization of debt
related to our international operations; at December 31, 2005 these amounts were not significant.
Other intangibles, net, included within “Other assets,” were $21 million and $11 million at December 31,
2006 and 2005. Accumulated amortization was $16 million and $6 million at December 31, 2006 and 2005,
which excludes the accumulated amortization of fully-amortized intangibles. Amortization expense was $10
million, $5 million, and $1 million in 2006, 2005, and 2004. Amortization expense of intangible assets over the
next five years is as follows: $9 million in 2007; $4 million in 2008; $2 million in 2009; $1 million in 2010; $1
million in 2011. The weighted-average amortization period is three years based on useful life assumptions
between one and ten years.
Investments
The initial carrying cost of our investments is the price we paid. Investments are accounted for using the
equity method of accounting if the investment gives us the ability to exercise significant influence, but not
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