Amazon.com 2002 Annual Report Download - page 62

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The net carrying amount of intangible assets at December 31, 2002 is scheduled to be fully amortized
by the end of 2004. Amortization expense for the net carrying amount of intangible assets at December 31,
2002 is estimated to be $3 million in 2003, and less than $1 million in 2004.
Investments
Investments are accounted for using the equity method of accounting if the investment gives the
Company the ability to exercise signiÑcant inÖuence, but not control, over an investee. SigniÑcant
inÖuence is generally deemed to exist if the Company has an ownership interest in the voting stock of the
investee of between 20% and 50%, although other factors, such as representation on the investee's Board of
Directors and the eÅect of commercial arrangements, are considered in determining whether the equity
method of accounting is appropriate. The Company records its equity in the income or losses of these
investees generally one month in arrears for private companies and three months in arrears for public
companies. The Company records its investments in equity-method investees on the consolidated balance
sheets as ""Other equity investments'' and its share of the investees' earnings or losses as ""Equity in losses
of equity-method investees, net'' on the consolidated statements of operations.
All other equity investments, which consist of investments for which the Company does not have the
ability to exercise signiÑcant inÖuence, are accounted for under the cost method. Under the cost method of
accounting, investments in private companies are carried at cost and are adjusted only for other-than-
temporary declines in fair value, distributions of earnings and additional investments. For public companies
that have readily determinable fair values, the Company classiÑes its equity investments as available-for-
sale and, accordingly, records these investments at their fair values with unrealized gains and losses
included in ""Accumulated other comprehensive income (loss).'' Such investments are included in
""Marketable securities'' on the accompanying consolidated balance sheets if the Company does not have
the intent to hold the investment for over one year from the balance sheet date. In cases where the
Company has the intent to hold such investments for over one year from the balance sheet date, such
investments are included in ""Other equity investments.''
The Company also invests in certain marketable debt securities, which consist primarily of high-
quality short- to intermediate-term Ñxed income securities that are classiÑed as available-for-sale securities.
Such investments are included in ""Marketable securities'' on the accompanying consolidated balance
sheets and are reported at fair value with unrealized gains and losses included in ""Accumulated other
comprehensive income (loss).'' The weighted average method is used to determine the cost of Euro-
denominated securities sold and the speciÑc identiÑcation method is used to determine the cost of all other
securities.
The initial cost of the Company's investments is determined based on the fair value of the investment
at the time of its acquisition. The Company has received equity securities as consideration for services to
be performed for the issuer under commercial agreements. In such cases, the Company has estimated the
fair value of the equity securities received. For securities of public companies, the Company generally
determines fair value based on the quoted market price at the time the Company enters into the
underlying agreement, and adjusts such market price appropriately if signiÑcant restrictions on
marketability exist. As an observable market price does not exist for equity securities of private companies,
estimates of fair value of such securities are more subjective than for securities of public companies. For
signiÑcant transactions involving equity securities in private companies, the Company obtains and considers
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 estimating discounted cash Öows for that company. These valuations also reduce the fair value to
account for restrictions on control and marketability where appropriate. Using these valuations and other
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