Amazon.com 2007 Annual Report Download - page 71

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Construction Liability Related to Seattle Campus
We capitalize construction in progress and record a corresponding long-term liability for certain lease
agreements related to our Seattle, Washington corporate office space subject to leases scheduled to begin in 2010
and 2011.
In accordance with EITF No. 97-10, for build-to-suit lease arrangements where we are involved in the
construction of structural improvements prior to the commencement of the lease or take some level of
construction risk, we are considered the owner of the assets during the construction period under generally
accepted accounting principles. Accordingly, as the landlord incurs the construction project costs, the assets and
corresponding financial obligation are recorded in “Fixed assets, net” and “Other long-term liabilities” on our
consolidated balance sheet. Once the construction is completed, if the lease meets certain “sale-leaseback”
criteria in accordance with SFAS No. 98, Accounting for Leases, we will remove the asset and related financial
obligation from the balance sheet and treat the building lease as an operating lease. If upon completion of
construction, the project does not meet the “sale-leaseback” criteria, the leased property will be treated as a
capital lease for financial reporting purposes.
The remainder of our other long-term liabilities primarily include deferred tax liabilities, unearned revenue,
asset retirement obligations, and deferred rental liabilities.
Note 6—COMMITMENTS AND CONTINGENCIES
Commitments
We lease office and fulfillment center facilities and fixed assets under non-cancelable operating and capital
leases. Rental expense under operating lease agreements was $141 million, $132 million, and $84 million for
2007, 2006, and 2005.
In December 2007, we entered into a series of leases and other agreements for the lease of corporate office
space to be developed in Seattle, Washington with initial terms of up to 16 years commencing on completion of
development in 2010 and 2011 and options to extend for two five year periods. Under the agreements we will
occupy approximately 800,000 square feet of office space. We also have the right to occupy up to an additional
approximately 800,000 square feet subject to a termination fee, estimated to be up to approximately $40 million,
if the Company elects not to occupy the additional space. In addition, we have options to lease up to an additional
approximately 500,000 square feet at rates based on fair market values at the time the options are exercised,
subject to certain conditions. In addition, if interest rates exceed a certain threshold, we have the option to
provide financing for some of the buildings.
The following summarizes our principal contractual commitments, excluding open orders for inventory
purchases that support normal operations, as of December 31, 2007:
Year Ended December 31,
2008 2009 2010 2011 2012 Thereafter Total
(in millions)
Operating and capital commitments:
Debt principal (1) ........................ $ 17 $ 932 $350 $— $— $— $1,299
Debt interest (1) ......................... 69 46 24 — — — 139
Capital leases, including interest ............ 32 29 23 6 6 5 101
Operating leases ......................... 132 107 89 69 52 201 650
Other commitments (2)(3) ................. 60 64 80 60 43 579 886
Total commitments ................... $310 $1,178 $566 $135 $101 $785 $3,075
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