Amazon.com 2000 Annual Report Download - page 47

Investments
The Company has certain investments in debt and equity securities.
Investments are accounted for using the equity method of accounting if the investment gives the Company
the ability to exercise significant influence, but not control, over an investee. Significant influence 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 impact 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 ‘‘Investments in equity-method
investees’’ 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 significant influence, 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 classifies 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 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 and are included in ‘‘Other equity investments’’ in cases where the
Company does not have the intent and ability to liquidate such investments within one year from the balance
sheet date.
The Company also invests in certain marketable debt securities, which consist primarily of high-quality
short- to intermediate-term fixed income securities that are also classified 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 loss.’’
The specific identification method is used to determine the cost of securities sold.
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 significant 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 significant 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 flows 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 information available to the Company, such as the
Company’s knowledge of the industry and knowledge of specific information about the investee, the Company
determines the estimated fair value of the securities received. To the extent that equity securities received or
modified after March 16, 2000 are subject to forfeiture or vesting provisions and no significant performance
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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