Amazon.com 2000 Annual Report Download - page 33

$45 million and $14 million, and interest expense of $131 million, $85 million and $27 million for 2000, 1999
and 1998, respectively. Interest income relates primarily to interest earned on fixed income securities and
correlates with the average balance of those investments. The increase in interest expense during 2000 and
1999 is primarily related to our February 2000 issuance of 690 million Euros of 6.875% Convertible
Subordinated Notes due 2010, also known as PEACS (the ‘‘PEACS’’), our February 1999 issuance of
$1.25 billion of 4.75% Convertible Subordinated Notes due 2009 (the ‘‘4.75% Convertible Subordinated
Notes’’), and our May 1998 issuance of approximately $326 million gross proceeds of 10% Senior Discount
Notes due 2008 (the ‘‘Senior Discount Notes’’).
Non-Cash Gains and Losses
Non-cash gains and losses were recorded during 2000 and amounted to a loss of $143 million, net. No
corresponding amounts related to 1999 or 1998. During 2000, we recorded non-cash impairment losses, which
totaled $189 million, relating to other-than-temporary declines in our equity investments in Audible, Inc.,
NextCard, Inc., Webvan Group, Inc., Ashford.com, Inc., Greg Manning Auctions, Inc, and Sotheby’s Holdings,
Inc. Additionally, we recorded a non-cash gain of $40 million in connection with the September 2000
acquisition of HomeGrocer.com, Inc. by an unrelated third-party, Webvan Group, Inc. This non-cash gain
represents the difference between our recorded basis in the common stock of HomeGrocer.com prior to the
acquisition and the fair value of equity securities received from the acquiring company, Webvan Group, Inc.
After the acquisition, we classified the resulting investment as available-for-sale as we no longer have the
ability to exercise significant influence over the investee. We also recorded a net gain when living.com, Inc.
declared bankruptcy and terminated its commercial agreement with us. Our net gain of $6 million was
comprised of a $14 million 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 of December 31, 2000, our basis in equity securities was $128 million, including $36 million
classified as ‘‘Marketable securities,’’ $52 million classified as ‘‘Investments in equity-method investees,’’ and
$40 million classified as ‘‘Other equity investments.’’
Equity in Losses of Equity-Method Investees
Equity in losses of equity-method investees represents our share of losses of companies in which we have
investments that give us the ability to exercise significant influence, but not control, over an investee. This is
generally defined as an ownership interest of 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 impact of
commercial arrangements, are considered in determining whether the equity method of accounting is
appropriate. Our share of equity-method losses was $305 million, $77 million and $3 million for 2000, 1999
and 1998, respectively. Equity-method losses reduce our underlying investment balances until the recorded
basis is reduced to zero. As of December 31, 2000, our basis in equity-method investments was $52 million.
Accordingly, we expect equity-method losses to decline substantially during 2001 in comparison with 2000.
Income Taxes
We provided for an immaterial amount of current and deferred U.S. federal, state or foreign income taxes
for the current and all prior periods presented. We provided a full valuation allowance on our deferred tax
asset, consisting primarily of net operating losses, because of uncertainty regarding its realization.
Operational Restructuring
Subsequent to December 31, 2000, we approved a plan for an operational restructuring in which we will
reduce our employee staff by approximately 1,300 positions, or 15% of our workforce. Additionally, we will
consolidate our Seattle, Washington corporate office locations, close our McDonough, Georgia fulfillment
center, operate our Seattle, Washington fulfillment center on a seasonal basis, close our customer service
centers in Seattle, Washington and The Hague, Netherlands, and migrate a large portion of our technology
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