Amazon.com 2003 Annual Report Download - page 40

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operating income is a GAAP financial measure; however, since we also present this financial measure outside the
context of our financial statement footnotes, we have included this financial measure in our discussion of
non-GAAP financial measures.
We use consolidated segment operating income (loss), and ratios based on it, to manage and evaluate our
business operations and overall financial performance. Our management evaluates consolidated segment income
(loss) because it excludes certain cash and non-cash items that are either beyond our immediate control or that we
believe are not characteristic of our underlying business operations for the period in which they are recorded, or
both.
Items Excluded From Consolidated Segment Operating Income (Loss)
Stock-Based Compensation
We exclude stock-based compensation for the following reasons:
• Stock-based compensation expense is excluded from our internal operating plans and measurement of
financial performance, although we consider the dilutive impact to our investors when awarding stock-
based compensation and value such awards accordingly;
• Stock-based compensation charges or gains are non-cash; and
• The measurement of stock-based compensation is determined under a variety of methods depending on
the underlying award. These methods include: (a) fixed accounting on stock options granted at market
prices, resulting in no compensation expense, (b) variable accounting on certain stock options and
restricted stock units, resulting in unpredictable charges or gains beyond our control, and (c) fixed
accounting for certain restricted stock units, resulting in the estimated fair value of the award recognized
over the service period.
We record the employer portion of payroll tax expense, a cash expense, resulting from exercises of stock-
based awards in “Fulfillment,” “Marketing,” “Technology and content,” and “General and administrative” on our
consolidated statements of operations and do not include such expenses in “Stock-based compensation.”
Amortization of Other Intangibles
We exclude “Amortization of other intangibles” for the following reasons:
• Amortization of other intangibles is excluded from our internal operating plans and measurement of
financial performance;
• Amortization of other intangibles is a non-cash charge to current operations; and
• Amortization of other intangibles has diminished, is currently immaterial, and is scheduled to fully
amortize by the end of 2004.
Restructuring-Related and Other
We exclude restructuring-related and other expenses, which are cash and non-cash amounts, for the
following reasons:
• We have implemented only one restructuring event in our history, which we announced in January
2001, and accordingly we believe internally that this line item is not as important to understanding our
quarterly trends as other line items;
• Since we do not regularly have restructuring-related charges, the exclusion of such charges from prior
periods provides better comparability of our results of operations as viewed by management; and
• Our restructuring-related and other charges have diminished, and except for periodic adjustments to our
estimates that may be required from time to time, we do not currently expect to record additional
restructuring-related charges in the foreseeable future.
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