Amazon.com 2000 Annual Report Download - page 36

For a more complete discussion of our long-term debt and other commitments see Notes 8 and 9 to
Consolidated Financial Statements incorporated by reference to Item 8 of Part II ‘‘Financial Statements and
Supplementary Data’’.
We believe that current cash and cash equivalents and marketable securities balances will be sufficient to
meet our anticipated operating cash needs for at least the next 12 months. We expect that our cash and cash
equivalents and marketable securities balance will be approximately $650 million at March 31, 2001 and
approximately $900 million at December 31, 2001. However, any projections of future cash needs and cash
flows are subject to substantial uncertainty. See Item 1 of Part I, ‘‘Business—Additional Factors that May
Affect Future Results.’’ We continually evaluate opportunities to sell additional equity or debt securities, or
obtain credit facilities from lenders, for strategic reasons or to further strengthen our financial position. The sale
of additional equity or convertible debt securities could result in additional dilution to the Company’s
stockholders. In addition, we will, from time to time, consider the acquisition of or investment in
complementary businesses, products, services and technologies, and the repurchase and retirement of debt,
which might impact our liquidity requirements or cause us to issue additional equity or debt securities. There
can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
Strategic Partnerships
In the fall of 1999, we began entering into commercial agreements with select strategic partners that
involved the sale of their products and services on co-branded sections of our Web site as well as other
promotional services, such as advertising placements and customer referrals. As compensation for the services
we provide under these agreements, we receive cash, equity securities of these strategic partners, or a
combination of the two. In some cases, we have also made separate investments in these partners by making
cash payment in exchange for their equity securities. During 2000, we received cash payments or recorded cash
receivables of $98 million as unearned revenue, of which $85 million was cash received from our strategic
partners. We also recorded as unearned revenue equity securities received in a number of these partners, net of
cash paid by us, with an estimated fair value of $107 million as of the date the securities were received.
Service revenue recognized during 2000 was $167 million, which consisted of consideration, either received
during the period or amortized from previously unearned revenue, in the form of $88 million of cash,
$73 million of equity securities of public companies and $6 million of equity securities of private companies.
For equity securities of public companies, we generally determine fair value based on the quoted market
price at the time we enter into the underlying commercial agreement, and adjust such market price
appropriately if significant restrictions on marketability exist. Because an observable market price does not
exist for equity securities of private companies, our estimates of fair value of such securities are more
subjective than for the securities of public companies. For significant 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 then also estimating discounted cash flows 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 knowledge of specific information about the investee, we determine the
estimated fair value of the securities received.
The fair value of these securities, less the net amount of cash we paid for them, is then recorded as
unearned revenue. Our recorded unearned revenue resulting from these transactions and any additional proceeds
received under the arrangements is recognized as revenue over the terms (generally, one to three years) of the
commercial agreements with our strategic partners. We do not adjust unearned revenue to give effect to either
increase or decrease in value of the equity securities subsequent to their initial measurement (to the extent that
such securities are either not subject to vesting or forfeiture or, if subject to vesting or forfeiture were not
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