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Anthropic, PBC
Notes to Consolidated Financial Statements
(Continued)

Variable Interest Entities

The  Company  evaluates  its  ownership,  contractual,  and  other  interests  in  entities  to  determine  if  it  has  a 
variable  interest  in  an  entity. These  evaluations  are  complex,  involve  judgment,  and  use  estimates  and 
assumptions  based  on  available  historical  and  prospective  information,  among  other  factors.  If  the  Company 
determines that an entity for which it holds a contractual or ownership interest is a VIE and that the Company 
is  the  primary  beneficiary,  the  Company  consolidates  such  entity  in  its  consolidated  financial  statements.  An 
enterprise  having  a  controlling  financial  interest  in  a  VIE  must  consolidate  the  VIE  if  it  is  considered  the 
primary beneficiary, which is described as having both (1) the power to direct the activities of a VIE that most 
significantly impact the VIE’s economic performance and (2) the right to receive benefits or the obligation to 
absorb losses of the VIE that potentially could be significant to the VIE. The Company consolidates certain VIEs 
formed to finance and deploy compute and infrastructure capacity. Refer to Note 7 for further information.

Long-Term Benefit Trust

In 2023, the Company established the Long-Term Benefit Trust (“LTBT”). The LTBT is intended to operate as 
an  independent  body  of  financially  disinterested  trustees  with  expertise  in  AI  safety,  national  security,  public 
policy, and social enterprise. In connection with establishing the LTBT, the Company created a class of common 
stock  (the “Class T common stock”) that is held exclusively by the LTBT and gives the LTBT authority to elect 
and remove certain of the Company’s directors.

The LTBT is considered a consolidated VIE as it relies on the Company for financial support. The Company is 
the primary beneficiary of the VIE as it has the power to direct the activities that most significantly impact the 
LTBT’s economic performance, provides financial support to the LTBT, and would receive the LTBT’s financial 
assets (other than the Class T common stock) in the event that the LTBT terminates. The Company consolidated 
the VIE at inception and will perform on-going reassessments of the VIE based on any reconsideration events 
to  reevaluate  whether  a  change  to  the  consolidation  conclusion  is  required  each  reporting  period.  The 
consolidated balance sheets as of December 31, 2024 and 2025 and June 30, 2026 (unaudited) include assets of 
the LTBT, which can only be used to settle obligations and liabilities of the LTBT. As of December 31, 2024 and 
2025 and June 30, 2026 (unaudited), total assets and liabilities of the LTBT were not material. 

Fair Value Measurements and Financial Instruments

Fair  value  is  defined  as  the  price  that  would  be  received  to  sell  an  asset  or  paid  to  transfer  a  liability  in  an 
orderly  transaction  between  market  participants  at  the  measurement  date.  In  accordance  with  Accounting 
Standards  Codification  (“ASC”)  820, Fair  Value  Measurement  (“ASC  820”),  the  Company  uses  the  fair  value 
hierarchy,  which  prioritizes  the  inputs  used  to  measure  fair  value.  The  hierarchy,  as  defined  below,  gives  the 
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest 
priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in 
active markets, quoted prices in markets that are not active or inputs other than the quoted prices that are 
observable either directly or indirectly for the full term of the assets or liabilities.

Level 3: Unobservable inputs in which there is little or no market data and that are significant to the fair 
value of the assets or liabilities.

The  Company’s  financial  instruments  include  accounts  receivable,  short-term  investments,  prepaid  expenses 
and  other  current  assets,  other  assets,  accounts  payable,  accrued  expenses,  and  other  current  liabilities, 
convertible  notes  payable,  SAFE  liabilities,  and  certain  derivative  contracts.  The  estimated  fair  value  of  other 
financial instruments, including cash and restricted cash, are stated at their carrying value which approximates 
fair value due to the short time to the expected receipt or payment date. Additionally, the carrying amounts of 
accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and other 
current liabilities approximate fair value due to their short-term nature.

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