Amazon.com 2008 Annual Report Download - page 33

Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, requires that
deferred tax assets be evaluated for future realization and reduced 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 and expectations of
future taxable income by taxing jurisdiction, the carry-forward periods available to us for tax reporting purposes,
and other relevant factors. In accordance with the provisions of SFAS No. 109, we allocate our valuation
allowance to current and long-term deferred tax assets on a pro-rata basis.
If we determine that additional portions of our deferred tax assets are realizable the majority of the benefit
will come from the assets associated with the stock-based compensation that was not recognized in the financial
statements, but was claimed on the tax return. Since this compensation did not originally run through our
consolidated statements of operations, the benefit generated will be recorded to stockholders’ equity.
Effective January 1, 2007, we adopted the provisions of FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109. FIN 48 contains a two-step
approach to recognizing and measuring uncertain tax positions (tax contingencies) accounted for in accordance
with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many
factors when evaluating and estimating our tax positions and tax benefits, which may require periodic
adjustments and which may not accurately anticipate actual outcomes.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring fair value in accordance with
U.S. GAAP and expands disclosures about fair value measurements. For financial assets and liabilities, SFAS
No. 157 was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal
years. See “Note 1—Description of Business and Accounting Policies” and “Note 2—Cash, Cash Equivalents,
and Marketable Securities” for further discussion. In February 2008, the FASB issued Staff Position (FSP)
No. 157-2 which delays the effective date of SFAS No. 157 one year for all nonfinancial assets and nonfinancial
liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis. FSP
157-2 is effective for us beginning January 1, 2009.
Those assets and liabilities measured at fair value under SFAS No. 157 in Q1 2008 did not have a material
impact on our consolidated financial statements. In accordance with FSP 157-2, we will measure the remaining
assets and liabilities beginning Q1 2009. We do not expect the adoption of SFAS No. 157, as amended by FSP
157-2, will have a material impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), Business Combinations, and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141 (R) requires an acquirer to
measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired
entity at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable
assets acquired. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity
in the consolidated financial statements. The calculation of earnings per share will continue to be based on
income amounts attributable to the parent. SFAS No. 141 (R) and SFAS No. 160 are effective for financial
statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We do not
expect the adoption of SFAS No. 141 (R) and SFAS No. 160 will have a material impact on our consolidated
financial statements.
In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets. FSP
No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to
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