Amazon.com 2000 Annual Report Download - page 37

modified after March 16, 2000, pursuant to Emerging Issues Task Force Issue No. 00-8 ‘‘Accounting by a
Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services,’’).
Therefore, the value of equity securities recorded as unearned revenue could decline in value significantly after
the initial measurement is made. We have in the past experienced, and may experience in the future, losses
with respect to investments in strategic partners that are not equity method investees as a result of either
liquidation of such investments at a loss or provision for an other-than-temporary decline in the fair value of
these investments. See ‘‘Non-cash Gains and Losses.’’ 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.
During 2000, we recorded $305 million of equity-method losses, which reduced our investment in equity-
method investees. Offsetting this reduction are new investments we have made since December 31, 1999. We
also made cash payments during 2000 for investments in equity-method investees and other investments of
$63 million, which included cash payments by us of $62 million to purchase securities primarily of strategic
partners, and non-cash consideration we received from our partners consisting of their equity securities with an
estimated fair value of $107 million. Additionally, three of the Company’s equity-method investees
(HomeGrocer.com, Inc., acquired by Webvan Group, Inc.; Pets.com, Inc.; and drugstore.com, inc.),
successfully completed public offerings of their common stock during 2000 and 1999. As a result of these
public offerings, and in accordance with Staff Accounting Bulletin No. 51, Accounting by the Parent in
Consolidation for Sale of Stock by Subsidiary, the Company recorded unrealized gains, net of unrealized losses,
as additional paid-in capital totaling $77 million and $14 million in 2000 and 1999, respectively. Furthermore,
the Company’s ownership percentage in each investee was diluted, creating an ‘‘implied sale’’ of a portion of
our investments. The net unrealized gains represent the difference between the Company’s carrying basis and
the fair value of the portion of each investment deemed to have been sold by the investees. As of December 31,
2000, our recorded basis was $11 million, $38 million, and $0 for our investments in Webvan (acquiror of
Homegrocer.com), drugstore.com, and Pets.com, respectively.
We reclassified certain of our equity investments amounting to $60 million from ‘‘Other equity
investments’’ to ‘‘Marketable securities’’ as we no longer had the intent to hold these investments for over one
year from the date of reclassification. Additionally, we reclassified $14 million of equity investments from
‘‘Investments in equity-method investees’’ to ‘‘Other equity investments’’ upon the acquisition of an investee
by a third party, which resulted in the loss of significant influence over the investee. As of December 31, 2000,
the fair value of all equity securities classified in ‘‘Marketable securities’’ on the accompanying consolidated
balance sheet was $36 million. No equity securities were classified in ‘‘Marketable securities’’ as of
December 31, 1999.
‘‘Unearned revenue’’ increased from $55 million at December 31, 1999 to $131 million at December 31,
2000. This is due to our receipt of consideration in the form of cash payments of $98 million and equity
securities of $107 million from strategic partners and others. The revenue is termed ‘‘unearned’’ because it is
received in advance of our performance of certain services we have agreed to provide in the future. Offsetting
these increases in unearned revenue, we have recognized $108 million of revenue during 2000 that was
previously categorized as being ‘‘unearned.’’ We have also recognized previously unearned revenue of
$20 million associated with the termination of our commercial agreement with living.com, which was offset by
a $14 million loss from our investment in living.com and reported as a net amount of $6 million included in
‘‘Non-cash gains and losses, net’’ on the accompanying consolidated statements of operations.
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