Amazon.com 2015 Annual Report Download - page 58

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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 finance 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 the carrying value may not be recoverable. In testing for goodwill impairment, we may elect to utilize a qualitative
assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If
our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test.
We test goodwill for impairment under the two-step impairment test 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.
During the second quarter of 2015, we changed the measurement date of our annual goodwill impairment test from
October 1 to April 1. This change was not material to our consolidated financial statements as it did not result in the delay,
acceleration, or avoidance of an impairment charge. We believe this timing better aligns the goodwill impairment test with our
strategic business planning process, which is a key component of the goodwill impairment test. We completed the required
annual testing of goodwill for impairment for all reporting units as of April 1, 2015, and determined that goodwill is not
impaired. There were no triggering events identified from the date of our assessment through December 31, 2015 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; video and music content, net of amortization; long-term deferred tax assets; 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; intellectual property rights, net of amortization; and equity warrant
assets.
Video and Music Content
We obtain video and music content to be made available to Prime members through licensing agreements that have a
wide range of licensing provisions and generally have terms from one to five years with fixed payment schedules. When the
license fee for a specific movie, television, or music title is determinable or reasonably estimable and available for streaming,
we recognize an asset representing the fee per title and a corresponding liability for the amounts owed. We relieve the liability
as payments are made and we amortize the asset to “Cost of sales” on a straight-line basis or on an accelerated basis, based on
estimated viewing patterns over each title’s contractual window of availability, which typically ranges from six months to five
years. If we are unable to reasonably estimate the cost per title, no asset or liability is recorded and licensing costs are expensed
as incurred. We also develop original content. The production costs of internally developed content are capitalized only if
persuasive evidence exists that the production will generate revenue. Prior to 2015, because we had limited history to support
the economic benefits of our content, we generally expensed such costs as incurred. In 2015, we began capitalizing a portion of
production costs as we have developed more experience to support that future revenue will be earned. Capitalized internally
developed costs are generally amortized to “Cost of sales” on an accelerated basis that follows the viewing pattern of customer
streams in the first months after availability.
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 loss.”
Equity 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. Equity-method investments are included within “Other assets”