Amazon.com 2005 Annual Report Download - page 72

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
instruments; accordingly, gains or losses resulting from changes in fair value are recognized on the consolidated
statements of operations, “Remeasurements and other,” in the period of change. We determine the fair value of
our warrants through option-pricing models using current market price and volatility assumptions, including
public-company market comparables for our private-company warrants.
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.
Our convertible debt instruments are excluded from the calculation of diluted earnings per share as their
effect is antidilutive. See “Note 4—Long-Term Debt and Other.”
The following table shows the calculation of diluted shares (in millions):
Year Ended December 31,
2005 2004 2003
Weighted average shares outstanding .................................... 414 407 396
Weighted average shares of restricted stock ............................... (2) (1) (1)
Shares used in computation of basic earnings per share .................. 412 406 395
Total dilutive effect of outstanding stock awards (1) .................... 14 19 24
Shares used in computation of diluted earnings per share ................ 426 425 419
(1) Calculated using the treasury stock method that assumes proceeds available to reduce the dilutive affect of
outstanding stock awards, which include the exercise price of stock options, the unrecognized deferred
compensation of stock awards, and assumed tax proceeds from excess stock-based compensation deductions.
Recent Accounting Pronouncements
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for Conditional Asset
Retirement Obligations, An Interpretation of FASB Statement No. 143. A conditional asset retirement obligation
refers to a legal obligation to retire assets where the timing and/or method of settlement are conditioned on future
events. FIN No. 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liability’s fair value can be reasonably estimated. We adopted the provisions of
FIN 47 in 2005. The adoption of this Interpretation did not have a material impact on our consolidated financial
position, results of operations or cash flows.
In November 2005, the FASB issued Staff Position No. FAS 115-1, The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments (“FSP 115-1”). FSP 115-1 provides accounting guidance
for determining and measuring other-than-temporary impairments of debt and equity securities, and confirms the
disclosure requirements for investments in unrealized loss positions as outlined in EITF issue 03-01, The
Meaning of Other-Than-Temporary Impairments and its Application to Certain Investments. The accounting
requirements of FSP 115-1 are effective for us on January 1, 2006 and will not have a material impact on our
consolidated financial position, results of operations or cash flows.
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