Amazon.com 2004 Annual Report Download - page 63

Download and view the complete annual report

Please find page 63 of the 2004 Amazon.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 104

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
Amazon.com, Inc., a Fortune 500 company, opened its virtual doors on the World Wide Web in July 1995.
We seek to be Earth’s most customer-centric company, where customers can find and discover anything they
might want to buy online, and endeavor to offer customers the lowest possible prices. We and third-party sellers
offer millions of new, used, refurbished, and collectible items, in dozens of product categories.
Amazon.com and its affiliates operate seven retail websites: www.amazon.com, www.amazon.co.uk,
www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo.com.Wehave organized
our operations into two principal segments: North America and International. The North America segment
includes the operating results of www.amazon.com and www.amazon.ca.The International segment includes the
operating results of www.amazon.co.uk, www.amazon.de, www.amazon.fr,www.amazon.co.jp, and
www.joyo.com.Inaddition, we operate www.a9.com and www.alexa.com that enable search and navigation, and
www.imdb.com,acomprehensive movie database.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries,
and those entities (relating to www.joyo.com)inwhich we have a variable interest. Intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but
not limited to, inventory valuation, depreciable lives, sales returns, receivables valuation, restructuring-related
liabilities, incentive discount offers, valuation of investments, acquired intangibles, taxes, and contingencies.
Actual results could differ materially from those estimates.
Business Acquisition
In September 2004, we acquired all of the outstanding shares of Joyo.com Limited (“Joyo.com”), a British
Virgin Islands company that operates an Internet retail website in the People’s Republic of China (“PRC”) in
cooperation with a PRC subsidiary and PRC affiliates, at a purchase price of $75 million, including a cash
payment of $71 million (net of cash acquired), the assumption of employee stock options, and transaction-related
costs. Acquired intangibles were $6 million with estimated useful lives of between one and four years. The
excess of purchase price over the fair value of the net assets acquired was $70 million and is classified as
“Goodwill” on the consolidated balance sheets. The results of operations of Joyo.com have been included in our
consolidated results from the acquisition date forward. The effect on consolidated net sales and operating income
was not significant for 2004.
Joyo.com does not own any capital stock of the PRC affiliates, but is the primary beneficiary of future
losses or profits through contractual rights. As a result, we consolidate the results of the PRC affiliates in
accordance with FIN 46R, “Consolidation of Variable Interest Entities.” The net assets and operating results for
the PRC affiliates were not significant.
The intrinsic value of the unvested employee stock options that were assumed in connection with the
Joyo.com acquisition is recorded to “Deferred stock-based compensation” on the consolidated balance sheets and
55