Amazon.com Inc. (AMZN)

Analysis of Goodwill and Intangible Assets

Goodwill and Intangible Assets Accounting Policy

Goodwill

Amazon.com evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. Amazon.com tests goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. Amazon.com estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on Amazon.com's best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.

Amazon.com conducts annual impairment test as of October 1 of each year, and has determined there to be no impairment for any of the periods presented. There were no triggering events identified from the date of Amazon.com's assessment through December 31, 2013 that would require an update to annual impairment test.

Source: Amazon.com Inc., Annual Report

Goodwill and Intangible Assets Disclosure

Amazon.com Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

 
    Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Marketing-related 429  422  408  277  249 
Contract-based 173  177  189  183  166 
Technology- and content-based 278  231  37  34  15 
Customer-related 368  332  343  251  215 
Acquired intangibles, gross 1,248  1,162  977  745  645 
Accumulated amortization (603) (437) (330) (182) (78)
Acquired intangibles, net 645  725  647  563  567 
Goodwill 2,655  2,552  1,955  1,349  1,234 
Goodwill and acquired intangible assets 3,300  3,277  2,602  1,912  1,801 

Source: Based on data from Amazon.com Inc. Annual Reports

Item Description The company
Acquired intangibles, net Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Amazon.com Inc.'s acquired intangibles, net increased from 2011 to 2012 but then declined significantly from 2012 to 2013.
Goodwill Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. Amazon.com Inc.'s goodwill increased from 2011 to 2012 and from 2012 to 2013.
Goodwill and acquired intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Amazon.com Inc.'s goodwill and acquired intangible assets increased from 2011 to 2012 and from 2012 to 2013.

Analyst Adjustments: Removal of Goodwill

Amazon.com Inc., adjustments to financial data

USD $ in millions

 
    Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
  Adjustment to Total Assets
Total assets (as reported) 40,159  32,555  25,278  18,797  13,813 
Less: Goodwill 2,655  2,552  1,955  1,349  1,234 
Total assets (adjusted) 37,504  30,003  23,323  17,448  12,579 
  Adjustment to Total Stockholders' Equity
Total stockholders' equity (as reported) 9,746  8,192  7,757  6,864  5,257 
Less: Goodwill 2,655  2,552  1,955  1,349  1,234 
Total stockholders' equity (adjusted) 7,091  5,640  5,802  5,515  4,023 

Adjusted Ratios: Removal of Goodwill (Summary)

Amazon.com Inc., adjusted ratios

 
    Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
  Total Asset Turnover
Reported total asset turnover 1.85 1.88 1.90 1.82 1.77
Adjusted total asset turnover 1.99 2.04 2.06 1.96 1.95
  Financial Leverage
Reported financial leverage 4.12 3.97 3.26 2.74 2.63
Adjusted financial leverage 5.29 5.32 4.02 3.16 3.13
  Return on Equity (ROE)
Reported ROE 2.81% -0.48% 8.13% 16.78% 17.16%
Adjusted ROE 3.86% -0.69% 10.88% 20.89% 22.42%
  Return on Assets (ROA)
Reported ROA 0.68% -0.12% 2.50% 6.13% 6.53%
Adjusted ROA 0.73% -0.13% 2.71% 6.60% 7.17%
Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Amazon.com Inc.'s adjusted total asset turnover deteriorated from 2011 to 2012 and from 2012 to 2013.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Amazon.com Inc.'s adjusted financial leverage increased from 2011 to 2012 but then slightly declined from 2012 to 2013.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Amazon.com Inc.'s adjusted ROE deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Amazon.com Inc.'s adjusted ROA deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.

Adjusted Total Asset Turnover

 
    Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
  As Reported
Net sales (USD $ in millions) 74,452  61,093  48,077  34,204  24,509 
Total assets (USD $ in millions) 40,159  32,555  25,278  18,797  13,813 
   
Total asset turnover1 1.85 1.88 1.90 1.82 1.77
  Adjusted for Goodwill
Net sales (USD $ in millions) 74,452  61,093  48,077  34,204  24,509 
Adjusted total assets (USD $ in millions) 37,504  30,003  23,323  17,448  12,579 
   
Adjusted total asset turnover2 1.99 2.04 2.06 1.96 1.95

2013 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= 74,452 ÷ 40,159 = 1.85

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 74,452 ÷ 37,504 = 1.99

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Amazon.com Inc.'s adjusted total asset turnover deteriorated from 2011 to 2012 and from 2012 to 2013.

Adjusted Financial Leverage

 
    Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
  As Reported
Total assets (USD $ in millions) 40,159  32,555  25,278  18,797  13,813 
Total stockholders' equity (USD $ in millions) 9,746  8,192  7,757  6,864  5,257 
   
Financial leverage1 4.12 3.97 3.26 2.74 2.63
  Adjusted for Goodwill
Adjusted total assets (USD $ in millions) 37,504  30,003  23,323  17,448  12,579 
Adjusted total stockholders' equity (USD $ in millions) 7,091  5,640  5,802  5,515  4,023 
   
Adjusted financial leverage2 5.29 5.32 4.02 3.16 3.13

2013 Calculations

1 Financial leverage = Total assets ÷ Total stockholders' equity
= 40,159 ÷ 9,746 = 4.12

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total stockholders' equity
= 37,504 ÷ 7,091 = 5.29

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Amazon.com Inc.'s adjusted financial leverage increased from 2011 to 2012 but then slightly declined from 2012 to 2013.

Adjusted Return On Equity (ROE)

 
    Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
  As Reported
Net income (loss) (USD $ in millions) 274  (39) 631  1,152  902 
Total stockholders' equity (USD $ in millions) 9,746  8,192  7,757  6,864  5,257 
   
ROE1 2.81% -0.48% 8.13% 16.78% 17.16%
  Adjusted for Goodwill
Net income (loss) (USD $ in millions) 274  (39) 631  1,152  902 
Adjusted total stockholders' equity (USD $ in millions) 7,091  5,640  5,802  5,515  4,023 
   
Adjusted ROE2 3.86% -0.69% 10.88% 20.89% 22.42%

2013 Calculations

1 ROE = 100 × Net income (loss) ÷ Total stockholders' equity
= 100 × 274 ÷ 9,746 = 2.81%

2 Adjusted ROE = 100 × Net income (loss) ÷ Adjusted total stockholders' equity
= 100 × 274 ÷ 7,091 = 3.86%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Amazon.com Inc.'s adjusted ROE deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.

Adjusted Return On Assets (ROA)

 
    Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
  As Reported
Net income (loss) (USD $ in millions) 274  (39) 631  1,152  902 
Total assets (USD $ in millions) 40,159  32,555  25,278  18,797  13,813 
   
ROA1 0.68% -0.12% 2.50% 6.13% 6.53%
  Adjusted for Goodwill
Net income (loss) (USD $ in millions) 274  (39) 631  1,152  902 
Adjusted total assets (USD $ in millions) 37,504  30,003  23,323  17,448  12,579 
   
Adjusted ROA2 0.73% -0.13% 2.71% 6.60% 7.17%

2013 Calculations

1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × 274 ÷ 40,159 = 0.68%

2 Adjusted ROA = 100 × Net income (loss) ÷ Adjusted total assets
= 100 × 274 ÷ 37,504 = 0.73%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Amazon.com Inc.'s adjusted ROA deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.