Amazon.com 2002 Annual Report Download - page 33

public companies. For signiÑcant transactions involving equity securities in private companies, we obtain
and consider independent, third-party valuations where appropriate. Such valuations use a variety of
methodologies to estimate fair value, including comparing the security with securities of publicly traded
companies in similar lines of business, applying price multiples to estimated future operating results for the
private company, and utilizing estimated discounted cash Öows for that company. These valuations also
reduce the otherwise fair value by a factor that is intended to account for restrictions on control and
marketability where appropriate. Using these valuations and other information available to us, such as our
knowledge of the industry and the company itself, we determine the estimated fair value of the securities
received.
Accounting for Goodwill and Certain Other Intangibles
EÅective July 1, 2001, we adopted certain provisions of Statement of Financial Accounting Standards
(""SFAS'') No. 141, ""Business Combinations,'' and eÅective January 1, 2002, we adopted the full
provisions of SFAS No. 141 and SFAS No. 142, ""Goodwill and Other Intangible Assets.'' SFAS No. 141
requires business combinations initiated after June 30, 2001 to be accounted for using the purchase
method of accounting and broadens the criteria for recording intangible assets apart from goodwill. We
evaluated our goodwill and intangibles acquired prior to June 30, 2001 using the criteria of SFAS No. 141,
which resulted in $25 million of other intangibles (comprised entirely of assembled workforce intangibles)
being subsumed into goodwill at January 1, 2002. SFAS No. 142 requires that purchased goodwill and
certain indeÑnite-lived intangibles no longer be amortized, but instead be tested for impairment at least
annually. We evaluated our intangible assets and determined that all such assets have determinable lives.
SFAS No. 142 prescribes a two-phase process for impairment testing of goodwill. The Ñrst phase
screens for impairment, while the second phase (if necessary) measures the impairment. We completed
our Ñrst phase impairment analysis and found no instances of impairment of our recorded goodwill;
accordingly, the second testing phase was not necessary during 2002. No subsequent indicators of
impairment have been noted.
Restructuring Estimates
Restructuring-related liabilities include estimates for, among other things, anticipated disposition of
lease obligations. Key variables in determining such estimates include anticipated commencement timing
of sublease rentals, estimates of sublease rental payment amounts and tenant improvement costs and
estimates for brokerage and other related costs. We periodically evaluate and, if necessary, adjust our
estimates based on currently-available information.
Results of Operations
Net Sales
Net sales include the selling price of consumer products sold by us, less promotional discounts,
rebates and sales returns; outbound shipping charges billed to our customers; commissions and other
amounts earned from sales of new and used products on Amazon Marketplace; amounts earned (Ñxed
fees, sales commissions, per-unit activity fees, or some combination thereof) for sales of retail products
through our Merchants@ program, such as Toysrus.com and Target stores at www.amazon.com; the selling
price of consumer products sold by us through our Syndicated Stores program, such as www.borders.com;
amounts earned (Ñxed fees, sales commissions, per-unit activity fees, or some combination thereof) in
connection with our Merchant.com program, such as www.target.com; amounts earned from third parties
who utilize our technology services such as search, browse and personalization; and amounts earned for
miscellaneous marketing and promotional agreements.
Net sales were $3.93 billion, $3.12 billion and $2.76 billion for 2002, 2001 and 2000, respectively,
representing increases of 26% and 13% for 2002 and 2001, respectively. The increases in 2002 net sales
were primarily attributable to our International segment and our BMVD segment, which increased
$508 million and $185 million in 2002, respectively. The increases in 2001 net sales were primarily
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