Amazon.com 2007 Annual Report Download - page 60

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. We account for build-to-suit lease arrangements in accordance with Emerging
Issues Task Force (EITF) 97-10, The Effect of Lessee Involvement in Asset Construction, to the extent we are
involved in the construction of structural improvements prior to commencement of a lease.
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 2007 or 2006. There were no events or
circumstances from the date of our assessment through December 31, 2007 that would impact this assessment.
At December 31, 2007 and December 31, 2006, approximately 55% and 60% of our acquired goodwill was
assigned to our International segment, the majority of which relates to our acquisition of Joyo.com Limited.
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to marketable
securities restricted for longer than one year; intellectual property rights; certain equity investments; and
intangible assets, net of amortization. At December 31, 2007 and 2006, the cost basis and fair value of
marketable securities restricted for longer than one year was $197 million and $86 million, primarily attributable
to collateralization of bank guarantees and debt related to our international operations. At December 31, 2007,
intellectual property rights were $28 million; at December 31, 2006, these amounts were not significant. At
December 31, 2007, and 2006, equity investments were $17 million and $19 million.
Other intangibles, net, included within “Other assets,” were $26 million and $21 million at December 31,
2007 and 2006. Accumulated amortization was $29 million and $16 million at December 31, 2007 and 2006,
which excludes the accumulated amortization of fully-amortized intangibles. Amortization expense was $13
million, $10 million, and $5 million in 2007, 2006, and 2005. Amortization expense of intangible assets over the
next five years is as follows: $8 million in 2008; $4 million in 2009; $3 million in 2010; $2 million in 2011; $2
million in 2012. The weighted-average amortization period is five 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
control, over an investee. We classify our investments in equity-method investees on our consolidated balance
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