Amazon.com 2006 Annual Report Download - page 59

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table shows the calculation of diluted shares (in millions):
Year Ended December 31,
2006 2005 2004
Shares used in computation of basic earnings per share ...................... 416 412 406
Total dilutive effect of outstanding stock awards (1) ........................ 8 14 19
Shares used in computation of diluted earnings per share .................... 424 426 425
(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.
Treasury Stock
In 2006, we repurchased shares of our common stock pursuant to authorization from our Board of Directors.
We account for treasury stock under the cost method and include treasury stock as a component of stockholders’
equity.
Business Acquisitions
We acquired certain companies during 2006 for an aggregate cash purchase price of $50 million, including
cash payments of $30 million and future cash payments of $19 million and $1 million due in 2007 and 2008.
Acquired intangibles totaled $17 million and have estimated useful lives of between one and ten years. The
excess of purchase price over the fair value of the net assets acquired was $33 million and is classified as
“Goodwill” on our consolidated balance sheets.
In 2005, we acquired certain companies for an aggregate cash purchase price of $29 million. Acquired
intangibles totaled $10 million and have estimated useful lives of between one and three years. The excess of
purchase price over the fair value of the net assets acquired was $19 million and is classified as “Goodwill” on
our consolidated balance sheets.
In 2004, we acquired all of the outstanding shares of Joyo.com Limited, 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 our consolidated balance
sheets. The results of operations of Joyo.com have been included in our consolidated results from the transaction
closing date forward.
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 FASB Interpretation No. (FIN) No. 46(R), Consolidation of Variable Interest Entities.
The results of operations of each of the businesses acquired in 2006, 2005, and 2004 have been included in
our consolidated results from each transaction closing date forward. The effect of these acquisitions on
consolidated net sales and operating income during 2006, 2005, and 2004 was not significant.
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