Amazon.com 2004 Annual Report Download - page 73

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
prevailing throughout the period. Translation adjustments are included in “Accumulated other comprehensive
income (loss),” a separate component of stockholders’ deficit and in the “Effect of exchange-rate changes on
cash and cash equivalents,” on the consolidated statements of cash flows. Transaction gains and losses arising
from transactions denominated in a currency other than the functional currency of the entity involved are
included in “Other income (expense), net” on the consolidated statements of operations. See “Note 9—Other
Income (Expense), Net.”
Aprovision of SFAS No. 52, Foreign Currency Translation,requires that gains and losses arising from
intercompany foreign currency transactions considered long-term investments, where settlement is not planned or
anticipated in the foreseeable future, be excluded in the determination of net income. Our international operations
are financed, in part, by the U.S. parent company. In periods ending prior to the fourth quarter of 2003, currency
adjustments for these intercompany balances were recorded to stockholders’ deficit as translation adjustments
and not included in the determination of net income because we intended to permanently invest such amounts.
During the fourth quarter of 2003, we made the decision that these amounts would be repaid among the entities
and, accordingly, upon consolidation, any exchange gain or loss arising from remeasurements of intercompany
balances is required to be recorded in the determination of net income. In accordance with SFAS No. 52,
currency adjustments arising before the fourth quarter of 2003 continue to be included as a component of
“Accumulated other comprehensive income” on our consolidated balance sheets. In connection with the
remeasurement of intercompany balances, we recorded gains of $41 million and $36 million in 2004 and 2003.
During 2004, $210 million was repaid among the entities.
Derivative Financial Instruments
During the second quarter of 2003, we terminated our Euro Currency Swap that previously was designated
as a cash flow hedge of a portion of the 6.875% PEACS principal and interest. See “Note 4—Long-Term Debt
and Other.”
We hold warrants to purchase equity securities of other companies that are derivative financial instruments,
classified in “Other assets” on the consolidated balance sheets. We do not designate our warrants as hedging
instruments; accordingly, gains or losses resulting from changes in fair value are recognized on the consolidated
statements of operations, “Remeasurements and other,” in the period of change. We determine the fair value of
our warrants through option-pricing models using current market price and volatility assumptions, including
public-company market comparables for our private-company warrants.
Earnings (Loss) per Share
In accordance with SFAS No. 128, Earnings per Share,the weighted-average number of shares used to
calculate basic earnings (loss) per share excludes shares of restricted stock since they are subject to repurchase or
forfeiture.
For periods when we have net income, the dilutive effect of outstanding stock awards, including restricted
stock, is included in the calculation of diluted earnings per share using the treasury stock method for assumed
proceeds, if any. For periods when we have a net loss, the effect of outstanding stock awards, including restricted
stock, is antidilutive and therefore excluded from the calculation of diluted loss per share.
Stock issuable upon conversion of our convertible debt instruments is excluded from the calculation of
diluted earnings per share as its effect is antidilutive. See “Note 4—Long-Term Debt and Other.”
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