Amazon.com 2001 Annual Report Download - page 47

previously recorded by us, the timing of revenue recognition of these recorded unearned amounts has been
changed to correspond with the terms of the amended agreements. These amendments or future amendments will
affect the timing and amount of revenues recognized in connection with these strategic alliances. To the extent
we believe any such amendments cause or may cause the compensation to be received under an agreement to no
longer be fixed or determinable, we limit our revenue recognition to amounts received, excluding any future
amounts not deemed fixed or determinable. As future amounts are subsequently received, such amounts are
incorporated into our revenue recognition over the remaining term of the agreement.
As of December 31, 2001, our recorded basis in equity securities was $41 million, including $13 million
classified as “Marketable securities,” $10 million classified as “Investments in equity-method investees,” and
$18 million classified as “Other equity investments.”
During 2001 and 2000, activity in unearned revenue was as follows (in thousands):
Balance, December 31, 1999 ................................................. $ 54,790
Cash received or cash receivable .......................................... 97,818
Fair value of equity securities received ..................................... 106,848
Amortization to revenue ................................................. (108,211)
Contract termination .................................................... (20,128)
Balance, December 31, 2000 ................................................. 131,117
Cash received or cash receivable .......................................... 114,738
Fair value of equity securities received ..................................... 331
Amortization to revenue ................................................. (135,808)
Contract termination .................................................... (22,400)
Balance, December 31, 2001 ................................................. $ 87,978
During the first quarter of 2001, we recognized previously unearned revenue associated with the termination
of our commercial agreement with Kozmo.com, which was included in “Other gains (losses), net” on our
statements of operations. Since services had not yet been performed under the contract, no amounts associated
with the Kozmo.com commercial agreement were previously recognized in “Net sales” on our statements of
operations during any period.
During 2000, living.com declared bankruptcy and terminated its commercial agreement with us. As a result,
we recorded a net gain of $6 million, comprised of a $14 million impairment loss representing our remaining
investment balance in living.com and a $20 million gain relating to the unamortized portion of unearned revenue
associated with the living.com commercial agreement as we were no longer obligated to perform services. The
gain and the loss are recorded net and included in “Other gains (losses), net” on our statements of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations and
changes in the market values of our investments.
Information relating to quantitative and qualitative disclosure about market risk is set forth below and in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources.”
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and
our long-term debt. All of our cash equivalent and marketable fixed income securities are designated as
available-for-sale and, accordingly, are presented at fair value on our balance sheets. We generally invest our
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