Amazon.com 2011 Annual Report Download - page 55

General and Administrative
General and administrative expenses consist of payroll and related expenses for employees involved in
general corporate functions, including accounting, finance, tax, legal, and human relations, among others; costs
associated with use by these functions of facilities and equipment, such as depreciation expense and rent;
professional fees and litigation costs; and other general corporate costs.
Stock-Based Compensation
Compensation cost for all stock-based awards expected to vest is measured at fair value on the date of grant
and recognized over the service period. The fair value of restricted stock units is determined based on the number
of shares granted and the quoted price of our common stock. Such value is recognized as expense over the
service period, net of estimated forfeitures, using the accelerated method. The estimation of stock awards that
will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our
current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.
We consider many factors when estimating expected forfeitures, including employee class, economic
environment, and historical experience.
Other Operating Expense (Income), Net
Other operating expense (income), net, consists primarily of intangible asset amortization expense, expenses
related to legal settlements, and certain gains and losses on the sale of assets.
Other Income (Expense), Net
Other income (expense), net, consists primarily of foreign currency transaction gains and losses of $64
million, $75 million, and $26 million in 2011, 2010, and 2009, and realized gains and losses on marketable
securities sales of $4 million, $1 million, and $4 million in 2011, 2010, and 2009.
Foreign Currency
We have internationally-focused websites for the United Kingdom, Germany, France, Japan, Canada, China,
Italy, and Spain.Net sales generated from these websites, as well as most of the related expenses directly
incurred from those operations, are denominated in the functional currencies of the resident countries. The
functional currency of our subsidiaries that either operate or support these websites is the same as the local
currency. Assets and liabilities of these subsidiaries are translated into U.S. Dollars at period-end exchange rates,
and revenues and expenses are translated at average rates prevailing throughout the period. Translation
adjustments are included in “Accumulated other comprehensive income (loss),” a separate component of
stockholders’ equity, and in the “Foreign currency effect on cash and cash equivalents,” on our consolidated
statements of cash flows. Transaction gains and losses including intercompany transactions denominated in a
currency other than the functional currency of the entity involved are included in “Other income (expense), net”
on our consolidated statements of operations. In connection with the remeasurement of intercompany balances,
we recorded gains of $70 million, $70 million, and $5 million in 2011, 2010, and 2009.
Recent Accounting Pronouncements
In 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update
(“ASU”) to address diversity in practice in interpreting the pro forma revenue and earnings disclosure
requirements for business combinations. The ASU specifies that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the current year
business combination(s) had occurred as of the beginning of the comparable prior annual reporting period. We
prospectively adopted this ASU effective Q1 2011, with no material impact on our consolidated financial
statements.
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