Amazon.com 2013 Annual Report Download - page 51

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be Earth’s most customer-centric
company. In each of our two geographic segments, we serve our primary customer sets, consisting of consumers, sellers,
enterprises, and content creators. We serve consumers through our retail websites and focus on selection, price, and
convenience. We also manufacture and sell electronic devices. We offer programs that enable sellers to sell their products on
our websites and their own branded websites and to fulfill orders through us, and programs that allow authors, musicians,
filmmakers, app developers, and others to publish and sell content. We serve developers and enterprises of all sizes through
AWS, which provides access to technology infrastructure that enables virtually any type of business. In addition, we provide
services, such as advertising services and co-branded credit card agreements.
We have organized our operations into two segments: North America and International. See “Note 12—Segment
Information.”
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. Unearned revenue is
now presented separately on our consolidated balance sheets.
Principles of Consolidation
The consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned subsidiaries, and
those entities in which we have a variable interest and of which we are the primary beneficiary. Intercompany balances and
transactions between consolidated entities are 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 liabilities in the
consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining the selling
price of products and services in multiple element revenue arrangements and determining the lives of these elements, incentive
discount offers, sales returns, vendor funding, stock-based compensation forfeiture rates, income taxes, valuation and
impairment of investments, inventory valuation and inventory purchase commitments, collectability of receivables, valuation of
acquired intangibles and goodwill, depreciable lives of property and equipment, internal-use software, acquisition purchase
price allocations, investments in equity interests, and contingencies. Actual results could differ materially from those estimates.
Earnings per Share
Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share
is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as
determined under the treasury stock method. In periods when we recognize a net loss, we exclude the impact of outstanding
stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect.
The following table shows the calculation of diluted shares (in millions):
Year Ended December 31,
2013 2012 2011
Shares used in computation of basic earnings per share 457 453 453
Total dilutive effect of outstanding stock awards 8 — 8
Shares used in computation of diluted earnings per share 465 453 461
Revenue
We recognize revenue from product sales or services rendered when the following four criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or