Amazon.com 2000 Annual Report Download - page 52

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instruments are determined to be highly inversely correlated to the hedged items and are designated, and
considered effective as, hedges of the underlying assets and liabilities. As a matter of policy, the Company does
not enter into derivative transactions for trading or speculative purposes.
Earnings per Share
Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic
earnings per share is computed using the weighted average number of common shares outstanding, net of
shares subject to repurchase, during the period. Diluted earnings per share is computed using the weighted
average number of common and common stock equivalent shares outstanding during the period; common stock
equivalent shares are excluded from the computation as their effect is antidilutive.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities,’’ as
amended by SFAS No. 138, which was issued in June 2000. The Company will adopt SFAS No. 133 on
January 1, 2001. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. Adoption of SFAS No. 133 will result in cumulative transition losses in ‘‘Net
loss’’ of approximately $11 million and in ‘‘Accumulated other comprehensive loss’’ of approximately
$12 million in the first quarter of 2001. Assets and liabilities recorded on the balance sheet will also be
impacted by adoption of SFAS No. 133.
In March 2000, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on EITF
Issue 00-2, ‘‘Accounting for Web Site Development Costs.’’ This consensus provides guidance on what types
of costs incurred to develop Web sites should be capitalized or expensed. The Company adopted this consensus
on July 1, 2000. During the year ended December 31, 2000, the Company capitalized $3 million of Web site
development costs. Such capitalized costs are included in ‘‘Fixed assets, net’’ and will be depreciated over a
period of two years.
In March 2000, the FASB issued Financial Interpretation (FIN) No. 44, ‘‘Accounting for Certain
Transactions Involving Stock Compensation.’’ FIN 44 clarifies the application of Accounting Principles Board
(APB) Opinion No. 25 for certain issues, such as the definition of an employee for purposes of applying
APB Opinion No. 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously fixed stock option or award and
the accounting for an exchange of stock compensation awards in a business combination. Adoption of FIN 44
did not change the Company’s existing accounting policies or disclosures.
In July 2000, the EITF reached a consensus on EITF Issue 99-19, ‘‘Reporting Revenue Gross as a
Principal versus Net as an Agent.’’ This consensus provides guidance concerning under what circumstances a
company should report revenue based on (a) the gross amount billed to a customer because it has earned
revenue from the sale of the goods or services or (b) the net amount retained (that is, the amount billed to the
customer less the amount paid to a supplier) because it has earned a commission or fee. Adoption of this
consensus did not change the Company’s existing accounting policies.
In September 2000, the EITF reached a final consensus on EITF Issue 00-10, ‘‘Accounting for Shipping
and Handling Fees and Costs.’’ This consensus requires that all amounts billed to a customer in a sale
transaction related to shipping and handling, if any, represent revenue and should be classified as revenue. The
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
44