Amazon.com 2001 Annual Report Download - page 82

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 133, 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 the consolidated 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.
During 2001 and 2000, the Company recorded impairment losses, which totaled $44 million and
$189 million, respectively, relating to other-than-temporary declines in certain equity investments. These
impairments were recorded to reflect the investments at fair value as of the date of impairment. During 2001, the
other-than-temporary declines in fair value of investments were associated with 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, the 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.
On February 5, 2001, the Company terminated its 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, the Company made a cash
investment of $60 million to acquire preferred stock of Kozmo.com and accounted for its investment under the
equity method of accounting. Pursuant to the equity method of accounting, the Company recorded its share of
Kozmo.com losses, which, during 2000, reduced the Company’s basis in its investment to zero. Accordingly,
when Kozmo.com announced its intentions to cease operations on April 12, 2001, the Company did not have any
further loss exposure relating to its investment. The Company will not recover any portion of its investment in
Kozmo.com.
During 2000, the Company 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 that is comprised of a $14 million
loss representing the Company’s 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.
Note 14—INCOME TAXES
The Company has provided for current and deferred U.S. federal, state and foreign income taxes for the current
and all prior periods presented. Current and deferred income taxes were provided with respect to jurisdictions where
subsidiaries of the Company produce taxable income. As of December 31, 2001, the Company has a net deferred
tax asset of $2 million, which consists primarily of state net operating loss carryforwards. The Company has
provided a valuation allowance for the remainder of its deferred tax asset, consisting primarily of net operating loss
carry forwards, because of uncertainty regarding its realization. The increase in the valuation allowance on the
deferred tax asset was $492 million and $226 million for 2001 and 2000, respectively.
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