Amazon.com 2001 Annual Report Download - page 40

comprehensive loss” on our balance sheets as hedging offsets to currency gains and losses on the Euro-
denominated investments. As the hedge does not qualify for hedge accounting under the provisions of SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities,” commencing January 1, 2001, the
foreign currency change resulting from the portion of the 6.875% PEACS previously hedging the available-for-
sale securities is now being recorded on our statements of operations. For 2001, the remeasurement of the
6.875% PEACS resulted in a gain of $47 million consisting of a $10 million gain reclassified from “Accumulated
other comprehensive loss,” and a $37 million gain attributable to remeasurement of the 6.875% PEACS during
the period. We are unable to forecast or predict the loss or gain on our Euro-denominated debt that will result
from fluctuations in foreign exchange rates in future periods; any such amounts may have a significant effect on
our future reported results.
During 2001 and 2000, we recorded impairment losses, which totaled $44 million and $189 million,
respectively, relating to other-than-temporary declines in certain of our equity investments. These impairments
were recorded to reflect the investments at fair value as of the date of impairment. During 2001, our other-than-
temporary declines in fair value of investments were associated with our investments in Webvan Group, Inc,
Sotheby’s Holdings, Inc., WeddingChannel.com, Inc., Ashford.com, Inc., Audible, Inc., drugstore.com, inc., and
Angel II Investors, L.P. During 2000, our other-than-temporary declines in fair value of investments were
associated with Audible, NextCard, Inc., Webvan, Ashford.com, Greg Manning Auctions, Inc, and Sotheby’s. At
December 31, 2001 we have no further loss exposure relating to our investment in Webvan.
In February 2001, we terminated our commercial agreement with Kozmo.com and recorded a non-cash gain
of $22 million, representing the amount of unearned revenue associated with the contract. Since services had not
yet been performed under the contract, no amounts associated with this commercial agreement were recognized
in “Net sales” during any period. Furthermore, during 1999, we made a cash investment of $60 million to acquire
preferred stock of Kozmo.com and accounted for our investment under the equity method of accounting.
Pursuant to the equity method of accounting, we recorded our share of Kozmo.com losses, which, during 2000,
reduced our basis in the investment to zero. Accordingly, when Kozmo.com announced its intentions to cease
operations in April 2001, we did not have any further loss exposure relating to our investment. We will not
recover any portion of our investment in Kozmo.com.
During 2000, we recorded a gain of $40 million relating to the acquisition of Homegrocer.com by Webvan,
and a $6 million net gain relating to the bankruptcy of Living.com, Inc. that is 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, 2001, our recorded basis in equity securities was $41 million, including $13 million
classified as “Marketable securities,” $10 million classified as “Investments in equity-method investees,” and
$18 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
influence 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 our investee’s Board of Directors and the effect of
commercial arrangements, are considered in determining whether the equity method of accounting is appropriate.
Equity-method losses were $30 million, $305 million and $77 million for 2001, 2000 and 1999, respectively.
Equity-method losses declined during 2001 in comparison with 2000 because such losses reduced many of our
underlying investment balances until the recorded basis was reduced to zero. Our basis in equity-method
investments was $10 million, $52 million and $227 million at December 31, 2001, 2000 and 1999, respectively.
During 2001, we issued $5 million of our common stock in exchange for an ownership interest that results in
significant influence in Altura International, which operates Catalogcity.com. No cash investments were made in
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