Amazon.com 2001 Annual Report Download - page 36

The following table shows the amounts of stock-based compensation that would have been recorded under
the following categories had stock-based compensation not been separately stated on the statements of
operations.
For the Years Ended December 31,
2001 2000 1999
(in thousands)
Fulfillment ............................................... $ 481 $(1,606) $ 188
Marketing ............................................... 690 (858) 3,957
Technology and content .................................... 2,723 28,253 25,322
General and administrative .................................. 743 (992) 1,151
$4,637 $24,797 $30,618
During the first quarter of 2001, we offered a limited non-compulsory exchange of employee stock options.
The exchange resulted in the voluntary cancellation of employee stock options to purchase 31 million shares of
common stock with varying exercise prices in exchange for 12 million employee stock options with an exercise
price of $13.375. The option exchange offer resulted in variable accounting treatment for, at the time of the
exchange, approximately 15 million stock options, which includes options granted under the exchange offer and
3 million options, with a weighted average exercise price of $52.41, that were subject to the exchange offer but
were not exchanged. Variable accounting will continue until all options subject to variable accounting treatment
are exercised, cancelled or expired. At December 31, 2001, approximately 12 million options remain under
variable accounting treatment, which includes 11 million options granted under the exchange offer, which, if not
previously exercised, will expire on September 30, 2003, and 1 million options, with a weighted average exercise
price of $39.61, that were subject to the exchange offer but were not exchanged.
Variable accounting treatment will result in unpredictable and potentially significant charges or credits
recorded to “Stock-based compensation,” dependent on fluctuations in quoted prices for our common stock. We
have quantified the hypothetical effect on “Stock-based compensation” associated with increases in the quoted
price of our common stock using a sensitivity analysis for our outstanding stock options subject to variable
accounting at December 31, 2001. We have provided this information to provide additional insight into the
potential volatility we may experience in the future in our results of operations to the extent that the quoted price
for our common stock rises above $13.375. This sensitivity analysis is not a prediction of future performance of
the quoted prices of our common stock. Using the following hypothetical increases in the market price of our
common stock above $13.375, our hypothetical cumulative compensation expense at December 31, 2001
resulting from variable-accounting treatment would have been as follows:
Hypothetical
Increase
Over
$13.375
Hypothetical
Market
Price per
Share
Hypothetical
Cumulative
Compensation
Expense
(in thousands)
5% $14.04 $ 6,788
10% $14.71 $ 12,578
15% $15.38 $ 18,369
25% $16.72 $ 29,950
50% $20.06 $ 58,902
If at the end of any fiscal quarter the quoted price of our common stock is lower than the quoted price at the
end of the previous fiscal quarter, or to the extent previously-recorded amounts relate to unvested portions of
options that were cancelled, compensation expense associated with variable accounting will be recalculated using
the cumulative expense method and may result, in certain circumstances, in a net benefit to our results of
operations.
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