Now Bloomberg has pulled on that thread more strongly, with an in-depth look at how companies adjust the useful lifespan of assets they use. It turns out that numerous companies do this — sometimes extending the estimated lifespan, which can push net income up; and sometimes shortening the estimated lifespan, which pushes net income down.

The key issue here is that as you shorten estimated lifespan, your annual depreciation charges increase; that’s what whittles down net income. The same principle runs in reverse, too: extending estimated lifespan spreads out depreciation across more years, so your annual depreciation is lower; that pushes net income up.

Cynics will suspect that adjustments to estimated lifespan are simply a form of earnings manipulation, and that does indeed happen sometimes. For example, back in 2019 car rental giant Hertz ($HTZ) was sanctioned by the Securities and Exchange Commission for sloppy accounting practices. One of those practices was to extend the estimated lifespan of its vehicle fleet from 24 to 30 months, well beyond industry norms and Hertz’ prior estimates.

Then again, companies do have legitimate reasons for adjusting estimated lifespan, too. For example, a tech firm might scrap some planned strategic shift that would have required new servers, so the existing ones can be used longer than expected. It’s possible that one company might extend the estimated lifespan of its servers, while a peer company decided to shorten it. That’s what happened with Amazon (shortened) and Facebook (extended) just this year. 

Finding Lifespan Adjustments

Finding disclosures about adjustments to estimated lifespan can be tricky, because companies tuck that information away in the footnotes — but fear not! As always, Calcbench makes it easy.

Start at our Multi-Company Search page. There, begin typing “useful life” into the standardized metrics search field on the left side of your screen. You’ll quickly see several choices, all of them related to the PPE (property, plant & equipment) disclosures that all publicly traded companies need to make.

We selected “PPE, Equipment, Useful Life, Maximum” for the S&P 500. You can see the results in Figure 1, below; and note the line for Amazon highlighted in blue.

OK, Amazon extended the estimated lifespan of certain equipment from five years in 2023 to 10 years in 2024. What’s that about? We clicked on our world-famous Trace feature and were immediately whisked away to Amazon’s specific disclosure in its accounting policies footnote. There, we found these disclosures:

In Q4 2024, we completed a useful life study for certain types of heavy equipment and are increasing the useful life from ten years to thirteen years for such equipment effective January 1, 2025. Based on heavy equipment included in “Property and equipment, net” as of December 31, 2024, we estimate an increase in 2025 operating income of approximately $0.9 billion, which will be recorded primarily in “Fulfillment” and impact our North America and International segments.

We completed our most recent servers and networking equipment useful life study in Q4 2024, and are changing the useful lives of a subset of our servers and networking equipment, effective January 1, 2025, from six years to five years. For those assets included in “Property and equipment, net” as of December 31, 2024, whose useful life will change from six years to five years, we anticipate a decrease in 2025 operating income of approximately $0.7 billion.

So Amazon made multiple adjustments to the estimated lifespan of multiple assets, not just computer servers. Taken together, however, the two adjustments essentially cancel out each other’s effect on operating income. 

Analysts would not know any of that by sticking with the fundamental disclosures in the income statement. You’d only know what operating income is (or is expected to be), without any deeper understanding of why operating income is what it is. You wouldn’t understand the quality of Amazon’s earnings.

That’s the insight Calcbench delivers. It lets you ask the probing questions and find the right answers, all with a few keystrokes.