Amazon.com 2012 Annual Report Download - page 51

Property and Equipment, Net
Property and equipment are stated at cost. Property includes buildings and land that we own, along with
property we have acquired under build-to-suit, financing, and capital lease arrangements. Equipment includes
assets such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal-use
software and website development. Depreciation is recorded on a straight-line basis over the estimated useful
lives of the assets (generally the lesser of 40 years or the remaining life of the underlying building, two years for
assets such as internal-use software, three years for our servers, five years for networking equipment, five years
for furniture and fixtures, and ten years for heavy equipment). Depreciation expense is classified within the
corresponding operating expense categories on our consolidated statements of operations.
Leases and Asset Retirement Obligations
We categorize leases at their inception as either operating or capital leases. 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 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, 2012 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 acquired
intangible assets, net of amortization; digital video content, net of amortization; certain equity investments;
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; and intellectual property rights, net of
amortization.
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