Amazon.com 2000 Annual Report Download - page 18

We also had net unrealized losses of $2 million on available-for-sale securities included in accumulated
other comprehensive loss as of December 31, 2000, and have recorded $305 million of equity-method losses
for 2000. In recent quarters, companies in the Internet and e-commerce industries have experienced significant
difficulties, including difficulties in raising capital to fund expansion or to continue operations. Because the
companies in which we have investments are part of the Internet and e-commerce industries, we may conclude
in future quarters that the fair values of other of these investments have experienced an other-than-temporary
decline. In addition, if our strategic partners experience such difficulties, we may not receive the consideration
owed to us and the value of our investment may become worthless. As agreements with strategic partners
expire or otherwise terminate, we may be unable to renew or replace these agreements on terms that are as
favorable to us.
During 2000, we amended several of our agreements with certain of our strategic partners that reduced
future cash proceeds to be received by us, shortened the term of our commercial agreements, or both. Although
these amendments did not impact the amount of unearned revenue 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.
Our Business Could Suffer if We Are Unsuccessful in Making and Integrating Strategic Alliances
We may enter into strategic alliances with other companies through commercial agreements, joint
ventures, investments or business combinations. These transactions create risks such as:
•difficulty assimilating the operations, technology and personnel of combined companies,
•disruption of our ongoing business, including loss of management focus on existing businesses,
•problems retaining key technical and managerial personnel,
•additional operating losses and expenses of acquired businesses,
•impairment of relationships with existing employees, customers and business partners, and
•fluctuations in value and losses that may arise from our equity investments.
We Face Significant Inventory Risk Arising Out of Changes in Consumer Demand and Product Cycles
We are exposed to significant inventory risks as a result of seasonality, new product launches, rapid
changes in product cycles and changes in consumer tastes with respect to our products. In order to be
successful, we must accurately predict these trends and avoid overstocking or understocking products. Demand
for products, however, can change significantly between the time inventory is ordered and the date of sale. In
addition, when we begin selling a new product, it is particularly difficult to forecast product demand accurately.
A failure to optimize inventory will harm our shipping margins by requiring us to make split shipments from
one or more locations, complementary upgrades, and additional long-zone shipments necessary to ensure timely
delivery. As a result of our agreement with Toysrus.com, Toysrus.com will identify, buy, manage and bear the
financial risk of inventory for the co-branded toy and video games store, as well as for the forthcoming baby
products store. As a result, if Toysrus.com fails to forecast product demand or optimize inventory, we would
receive reduced service fees under the agreement and our business and reputation could be harmed.
The acquisition of certain types of inventory, or inventory from certain sources, may require significant
lead-time and prepayment, and such inventory may not be returnable. We carry a broad selection and
significant inventory levels of certain products, such as consumer electronics, and we may be unable to sell
products in sufficient quantities or during the relevant selling seasons.
Any one of the factors set forth above may require us to mark down or write off inventory.
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