Amazon.com 2008 Annual Report Download - page 31

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other membership programs, are deferred and recognized as revenue over the subscription term. For our products
with multiple elements, where a standalone value for each element cannot be established, we recognize the
revenue and related cost over the estimated economic life of the product.
We periodically provide incentive offers to our customers to encourage purchases. Such offers include
current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for
future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when
accepted by our customers, are treated as a reduction to the purchase price of the related transaction, while
inducement offers, when accepted by our customers, are treated as a reduction to purchase price based on
estimated future redemption rates. Redemption rates are estimated using our historical experience for similar
inducement offers. Current discount offers and inducement offers are classified as an offsetting amount in “Net
sales.”
Commissions and per-unit fees received from sellers and similar amounts earned through other seller sites
are recognized when the item is sold by the seller and our collectability is reasonably assured. When we are
responsible for fulfillment-related services, commissions are recognized when risk of loss and title transfer to the
customer. We record an allowance for estimated refunds on such commissions using historical experience.
Inventories
Inventories, consisting of products available for sale, are accounted for using the first-in first-out (“FIFO”)
method, and are valued at the lower of cost or market value. This valuation requires us to make judgments, based
on currently-available information, about the likely method of disposition, such as through sales to individual
customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition
category. Based on this evaluation, we adjust the carrying amount of our inventories to lower of cost or market
value.
We provide fulfillment-related services in connection with certain of our agreements. In those arrangements,
as well as other product sales by other sellers, the seller maintains ownership of the related products. As such,
these amounts are not included in our consolidated balance sheets.
Investments
We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities
and AAA-rated money market funds. We also have equity-method investments in private companies where we
can exercise significant influence over, but not control, the entity. We periodically evaluate whether declines in
fair values of our investments are other-than-temporary. This evaluation consists of several qualitative and
quantitative factors regarding the severity and duration of the unrealized loss as well as our ability and intent to
hold the investment. Factors considered include, if applicable, quoted market prices; recent financial results and
operating trends; other publicly available information; implied values from any recent transactions or offers of
investee securities; or other conditions that may affect the value of our investments.
Goodwill
We evaluate goodwill for impairment annually and when an event occurs or circumstances change to
suggest that the carrying value may not be recoverable. Our annual testing date is October 1. We test goodwill for
impairment by first comparing the book value of net assets to the fair value of the related operations. If the fair
value is determined to be less than book value, a second step is performed to compute the amount of impairment.
We estimate fair value using discounted cash flows of reporting units. Forecasts of future cash flow are based on
our best estimate of future net sales and operating expenses, based primarily on projected category expansion,
pricing expectations, market segment penetration and general economic conditions. Additionally, certain
estimates of discounted cash flows involve businesses and geographies with limited financial history and
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