Amazon.com 2011 Annual Report Download - page 50

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 non-cancellable term of the lease.
We establish assets and liabilities for the estimated construction costs incurred under build-to-suit lease
arrangements to the extent we are involved in the construction of structural improvements or take construction
risk prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, we assess
whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance. If we
continue to be the deemed owner, the facilities are accounted for as financing leases.
We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at
the termination or expiration of a lease. Such assets are depreciated over the lease period into operating expense,
and the recorded liabilities are accreted to the future value of the estimated retirement costs.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances
change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by first
comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be
less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a
second step is performed to compute the amount of impairment as the difference between the estimated fair value
of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows.
Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based
primarily on expected category expansion, pricing, market segment share and general economic conditions.
We conduct our annual impairment test as of October 1 of each year, and have determined there to be no
impairment for any of the periods presented. There were no triggering events identified from the date of our
assessment through December 31, 2011 that would require an update to our annual impairment test. See
“Note 4—Acquisitions, Goodwill, and Acquired Intangible Assets.”
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to marketable
securities restricted for longer than one year, the majority of which are attributable to collateralization of bank
guarantees and debt related to our international operations; acquired intangible assets, net of amortization;
deferred costs; certain equity investments; and intellectual property rights, net of amortization.
Investments
We generally invest our excess cash in investment grade short-to intermediate-term fixed income securities
and AAA-rated money market funds. Such investments are included in “Cash and cash equivalents,” or
“Marketable securities” on the accompanying consolidated balance sheets, classified as available-for-sale, and
reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income
(loss).”
Equity investments, including our 31% investment in LivingSocial, 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. The total of these investments in equity-method investees, including identifiable intangible assets,
deferred tax liabilities and goodwill, is classified on our consolidated balance sheets as “Other assets.” Our share
of the investees’ earnings or losses as reported by equity method investees, amortization of the related intangible
assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on our
consolidated statements of operations. Our share of the net income or loss of our equity method investees
includes operating and non-operating gains and charges, which can have a significant impact on our reported
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