Amazon.com 2000 Annual Report Download - page 31

Technology and Content
Technology and content expenses consist principally of payroll and related expenses for development,
editorial, systems and telecommunications operations personnel and consultants; systems and
telecommunications infrastructure; and costs of acquired content, including freelance reviews. Technology and
content expense was $269 million, $160 million and $46 million for 2000, 1999 and 1998, representing 10%,
10%, and 8% of net sales for the corresponding periods. The increase in absolute dollars spent during 2000 and
1999 were primarily reflective of our continual enhancements to the features, content and functionality of our
Web sites and transaction-processing systems, as well as increased investment in systems and
telecommunications infrastructure. These increases were also attributable to our new product offerings and
expansions of existing product offerings, as well as costs associated with launching our www.amazon.fr and
www.amazon.co.jp sites during 2000. During 2000 and 1999, in accordance with SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, which we adopted in 1999, we
capitalized, net of depreciation, $16 million and $8 million, respectively, of costs related to the development of
internal-use software, including those relating to operating our Web sites. We expect to continue to invest in
technology and improvements in our Web sites during 2001, including, but not limited to, offering additional
product categories to our customers, as well as potentially continuing our international expansion.
General and Administrative
General and administrative expenses consist of payroll and related expenses for executive, finance and
administrative personnel, recruiting, professional fees and other general corporate expenses. General and
administrative expenses were $109 million, $70 million and $16 million for 2000, 1999 and 1998, respectively,
representing 4%, 4%, and 3% of net sales for the corresponding periods.
Stock-Based Compensation
Stock-based compensation is comprised of the portion of acquisition-related consideration conditioned on
the continued tenure of key employees of certain of our acquired businesses, which must be classified as
compensation expense rather than as a component of purchase price under accounting principles generally
accepted in the United States. Stock-based compensation also includes stock-based charges such as option-
related deferred compensation recorded at our initial public offering, as well as certain other compensation and
severance arrangements. Stock-based compensation was $25 million, $31 million, and $2 million for 2000,
1999 and 1998, respectively. During 2000, declines in the Company’s stock price and the termination of certain
acquisition-related employees prior to vesting in stock-based compensation awards had the effect of reducing
stock-based compensation in comparison with 1999. The increase during 1999 of stock-based compensation
was primarily attributable to deferred compensation arrangements associated with our business acquisitions
during 1999. In the first quarter of 2001, we announced plans to offer a limited non-compulsory exchange of
employee stock options. This option exchange offer will result in variable accounting treatment for stock
options representing approximately 15 million shares of the Company’s common stock. Variable accounting
treatment will result in unpredictable stock-based compensation dependent on fluctuations in quoted prices for
the Company’s common stock. These unpredictable fluctuations in stock-based compensation may result in
material non-cash fluctuations in our results of operations. For example, in periods of general decline in the
quoted price of our common stock, if any, variable accounting will cause us to recognize less stock-based
compensation than in periods of general appreciation in the quoted price of our common stock. Furthermore, in
circumstances where increases in the quoted price of our common stock are followed by declines in the quoted
price of our common stock, variable accounting may result in negative expense recognition as we adjust the
cumulative compensation of our stock-based awards. Stock-based compensation is non-cash and will therefore
have no impact on our cash flows or liquidity. Pursuant to the option exchange offer, the number of shares
issuable upon option exercises decreased from approximately 70 million shares, or 19.5% of the Company’s
outstanding common stock, to approximately 52 million shares, or 14.4% of the Company’s outstanding
common stock.
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