Amazon.com 2004 Annual Report Download - page 89

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The significant components of deferred income tax expense/(benefit) attributable to income from continuing
operations for the year ended December 31, 2004 are as follows:
For the year ended December 31,
2004 2003 2002
Deferred tax expense/(benefit) exclusive of the effect of the items listed
below ........................................................ $145,374 $43,093 $ 1,468
Decrease in beginning-of-year balance of the valuation allowance ........... (240,067) — —
Tax benefit of net operating loss carryforwards ......................... (162,003) (42,162) (2,021)
Total deferred tax expense/(benefit) .............................. $(256,696) $ 931 $ (553)
Deferred income taxes were:
December 31,
2004 2003
Deferred tax assets:
Net operating losses ................................................ $ 801,000 $ 898,000
Assets held for investment ........................................... 273,000 343,000
Revenue items .................................................... 29,000 25,000
Expense items, including stock-based compensation ...................... 128,000 235,000
Tax credits ....................................................... 6,000 —
Total gross deferred tax assets .................................... 1,237,000 1,501,000
Less valuation allowance ........................................ (874,000) (1,496,000)
Net deferred tax assets ...................................... 363,000 5,000
Deferred tax liabilities:
Expense items .................................................... (7,000) (3,000)
Net deferred tax ........................................... $ 356,000 $ 2,000
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of
assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are
actually paid or recovered.
We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the carrying
amount of these deferred tax assets by a valuation allowance to the extent we believe a portion will not be
realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets,
including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable
income, the carryforward periods available to us for tax reporting purposes, and other relevant factors.
Significant judgment is required in making this assessment, and it is very difficult to predict when, if ever, our
assessment may conclude that the remaining portion of our deferred tax assets are realizable.
We had a net tax benefit in 2004 of $233 million, representing $0.57 and $0.55 of basic and diluted earnings
per share, resulting primarily from the effect of changes in our valuation assessment of deferred tax assets during
2004. In connection with this assessment we also recorded a net credit to “Stockholders’ Deficit” of $106 million
on our consolidated balance sheet for 2004.
At December 31, 2004, our gross deferred tax assets related to our NOLs were approximately $800 million
(relating to approximately $2.6 billion of NOLs), offset by a valuation allowance of approximately $530 million
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