Amazon.com 2002 Annual Report Download - page 60

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
expected recoverable values of each disposition category. Based on this evaluation, which is applied
consistently from period to period, the Company records a valuation allowance to adjust the carrying
amount of its inventories to lower of cost or market value.
Accounting Changes
Inventories
EÅective January 1, 2002, the Company prospectively changed its inventory costing method to the
Ñrst-in Ñrst-out (""FIFO'') method of accounting. This change resulted in a cumulative increase in
inventory of $0.8 million, with a corresponding amount recorded to ""Cumulative eÅect of change in
accounting principle'' on the consolidated statements of operations. The Company evaluated the eÅect of
the change on each quarter of 2001 and determined such eÅect to be less than $1.2 million individually
and in the aggregate. The Company determined this change to be preferable under accounting principles
generally accepted in the United States since, among other reasons, it facilitates the Company's record
keeping process, signiÑcantly improves its ability to provide cost-eÇcient fulÑllment services to third-party
companies as part of its services oÅering and results in increased consistency with others in the industry.
The Company received a letter of preferability for this change in inventory costing from its independent
auditors.
Goodwill and Other Intangibles
EÅective July 1, 2001, the Company adopted certain provisions of Financial Accounting Standards
Board (""FASB'') Statement of Financial Accounting Standards (""SFAS'') No. 141, ""Business
Combinations,'' and eÅective January 1, 2002, the Company adopted the full provisions of SFAS No. 141
and SFAS No. 142, ""Goodwill and Other Intangible Assets.'' SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting,
and broadens the criteria for recording intangible assets apart from goodwill. The Company evaluated its
goodwill and intangibles acquired prior to June 30, 2001 using the criteria of SFAS No. 141, which
resulted in $25 million of other intangibles (comprised entirely of assembled workforce intangibles) being
subsumed into goodwill at January 1, 2002. SFAS No. 142 requires that purchased goodwill and certain
indeÑnite-lived intangibles no longer be amortized, but instead be tested for impairment at least annually.
The Company evaluated its intangible assets and determined that all such assets have determinable lives.
SFAS No. 142 prescribes a two-phase process for impairment testing of goodwill. The Ñrst phase
screens for impairment; while the second phase (if necessary) measures the impairment. The Company
completed its Ñrst phase impairment analysis during the Ñrst quarter of 2002 and found no instances of
impairment of its recorded goodwill; accordingly, the second testing phase was not necessary. No
subsequent indicators of impairment have been noted by the Company.
In accordance with Accounting Principles Board (""APB'') Opinion No. 20, ""Accounting Changes,''
the eÅect of these accounting changes is reÖected prospectively. Supplemental comparative disclosure, as if
the change had been retroactively applied, is as follows (in thousands, except per share data):
For the Years Ended December 31,
2002 2001 2000
Net loss:
Reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(149,132) $(567,277) $(1,411,273)
Goodwill amortization(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 172,159 310,679
Inventory costing change(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (801) 380 421
Adjusted net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(149,933) $(394,738) $(1,100,173)
51