Amazon.com 2011 Annual Report Download - page 48

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 and offers Earth’s Biggest
Selection. We seek to be Earth’s most customer-centric company for four primary customer sets: 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 Kindle 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. 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 generate revenue through other marketing and promotional
services, such as online advertising, and co-branded credit card agreements.
We have organized our operations into two principal segments: North America and International. See
“Note 11—Segment Information.”
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. Services
sales is presented separately, because it is now more than 10% of total net sales.
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 are the primary beneficiary.
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
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, income taxes, valuation of investments and inventory, collectability of receivables, valuation of
acquired intangibles and goodwill, depreciable lives of fixed assets , and internally-developed software, 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.
The following table shows the calculation of diluted shares (in millions):
Year Ended December 31,
2011 2010 2009
Shares used in computation of basic earnings per share .......................... 453 447 433
Total dilutive effect of outstanding stock awards (1) ............................. 8 9 9
Shares used in computation of diluted earnings per share ......................... 461 456 442
(1) Calculated using the treasury stock method, which assumes proceeds are used to reduce the dilutive effect of
outstanding stock awards. Assumed proceeds include the unrecognized deferred compensation of stock
awards, and assumed tax proceeds from excess stock-based compensation deductions.
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