Note 1. Description of Our Business and Summary of Significant Accounting Policies
Blue Nile, Inc. (the “Company”) is the leading online retailer of high quality diamonds and fine
jewelry. In addition to sales of diamonds, fine jewelry and watches, the Company provides
education, guidance and support to enable customers to more effectively learn about and purchase
diamonds as well as classically styled fine jewelry. The Company, a Delaware corporation, based in
Seattle, Washington, was formed in March 1999. The Company serves consumers in over 40 countries
and territories all over the world and maintains its primary website at www.bluenile.com. The
Company also operates the www.bluenile.co.uk and www.bluenile.ca websites. Information found on the
Company’s websites is not incorporated by reference into this Quarterly Report on Form 10-Q or any
of its other filings with the Securities and Exchange Commission.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements contained in the Company’s Annual
Report on Form 10-K for the year ended January 2, 2011, filed with the Securities and Exchange
Commission on February 28, 2011. The same accounting policies are followed for preparing quarterly
and annual financial statements. In the opinion of management, all adjustments necessary for the
fair presentation of the financial position, results of operations and cash flows for the interim
periods have been included and are of a normal, recurring nature.
The financial information as of January 2, 2011 is derived from the Company’s audited consolidated
financial statements and notes thereto for the fiscal year ended January 2, 2011, included in Item
8 of the Annual Report on Form 10-K for the year ended January 2, 2011.
Due to a number of factors, including the seasonal nature of the retail industry and other factors
described in this report, quarterly results are not necessarily indicative of the results for the
full fiscal year or any other subsequent interim period.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Blue
Nile, Inc. and its wholly-owned subsidiaries, Blue Nile, LLC (“LLC”), Blue Nile Worldwide, Inc.
(“Worldwide”) and Blue Nile Jewellery, Ltd. (“Jewellery”). The Company, LLC, and Worldwide are
Delaware corporations located in Seattle, Washington. Jewellery is an Irish limited company located
in Dublin, Ireland. All intercompany transactions and balances are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Some of the more significant estimates include the allowance
for sales returns and assumptions used to determine stock-based compensation expense. Actual
results could differ materially from those estimates.
The functional currency of Jewellery is the Euro. The assets and liabilities of Jewellery have
been translated to U.S. dollars using the exchange rates effective on the balance sheet dates,
while income and expense accounts are
translated at the average rates in effect during the periods presented. The resulting translation
adjustments are recorded in accumulated other comprehensive income (loss).
The Company offers customers the ability to transact in 24 foreign currencies. In addition, some
of the Company’s entities engage in transactions denominated in currencies other than the entity’s
functional currency. Gains or losses arising from these transactions are recorded in “Other
income, net” in the consolidated statements of operations.