Investment Accounting Policy

Amazon.com generally invests excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Such investments are included in "Cash and cash equivalents," or "Marketable securities" on the accompanying consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in "Accumulated other comprehensive loss."

Equity investments are accounted for using the equity method of accounting if the investment gives Amazon.com the ability to exercise significant influence, but not control, over an investee. The total of Amazon.com's investments in equity-method investees, including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within "Other assets" on consolidated balance sheets. Amazon.com's share of the earnings or losses as reported by equity-method investees, amortization of the related intangible assets, and related gains or losses, if any, are classified as "Equity-method investment activity, net of tax" on consolidated statements of operations. Amazon.com's share of the net income or loss of equity-method investees includes operating and non-operating gains and charges, which can have a significant impact on reported equity-method investment activity and the carrying value of those investments. In the event that net losses of the investee reduce equity-method investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted for under the equity method, are at-risk even if Amazon.com has not committed to provide financial support to the investee. Amazon.com regularly evaluates these investments, which are not carried at fair value, for other-than-temporary impairment. Amazon.com also considers whether equity-method investments generate sufficient cash flows from their operating or financing activities to meet their obligations and repay their liabilities when they come due.

Amazon.com records purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in Amazon.com's ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between fair value and recorded cost reflected as a gain or loss in equity-method investment activity. In the event Amazon.com no longer has the ability to exercise significant influence over an equity-method investee, Amazon.com would discontinue accounting for the investment under the equity method.

Equity investments without readily determinable fair values for which Amazon.com does not have the ability to exercise significant influence are accounted for using the cost method of accounting and classified as "Other assets" on consolidated balance sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions, and additional investments.

Equity investments that have readily determinable fair values are classified as available-for-sale and are included in "Marketable securities" in Amazon.com's consolidated balance sheets and are recorded at fair value with unrealized gains and losses, net of tax, included in "Accumulated other comprehensive loss."

Amazon.com periodically evaluates whether declines in fair values of investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as Amazon.com's ability and intent to hold the investment until a forecasted recovery occurs. Additionally, Amazon.com assesses whether Amazon.com has plans to sell the security or it is more likely than not Amazon.com will be required to sell any investment before recovery of its amortized cost basis. Factors considered include quoted market prices; recent financial results and operating trends; implied values from any recent transactions or offers of investee securities; credit quality of debt instrument issuers; other publicly available information that may affect the value of Amazon.com's investments; duration and severity of the decline in value; and Amazon.com's strategy and intentions for holding the investment.

Source: Amazon.com Inc., Annual Report

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Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Amazon.com Inc., adjustment to Net Income (loss)

USD $ in millions

 
12 months ended Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Net income (loss) (as reported) 274  (39) 631  1,152  902 
Add: Net change in unrealized gains (losses) on available-for-sale securities (9) (3)
Net income (loss) (adjusted) 265  (38) 628  1,155  906 

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Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

Amazon.com Inc., adjusted ratios

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Net Profit Margin
Reported net profit margin 0.37% -0.06% 1.31% 3.37% 3.68%
Adjusted net profit margin 0.36% -0.06% 1.31% 3.38% 3.70%
Return on Equity (ROE)
Reported ROE 2.81% -0.48% 8.13% 16.78% 17.16%
Adjusted ROE 2.72% -0.46% 8.10% 16.83% 17.23%
Return on Assets (ROA)
Reported ROA 0.68% -0.12% 2.50% 6.13% 6.53%
Adjusted ROA 0.66% -0.12% 2.48% 6.14% 6.56%
Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Amazon.com Inc.'s adjusted net profit margin deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by 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 adjusted net income divided by total assets. Amazon.com Inc.'s adjusted ROA deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.

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Adjusted Net Profit Margin

 
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 
Net sales (USD $ in millions) 74,452  61,093  48,077  34,204  24,509 
Net profit margin1 0.37% -0.06% 1.31% 3.37% 3.68%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income (loss) (USD $ in millions) 265  (38) 628  1,155  906 
Net sales (USD $ in millions) 74,452  61,093  48,077  34,204  24,509 
Adjusted net profit margin2 0.36% -0.06% 1.31% 3.38% 3.70%

2013 Calculations

1 Net profit margin = 100 × Net income (loss) ÷ Net sales
= 100 × 274 ÷ 74,452 = 0.37%

2 Adjusted net profit margin = 100 × Adjusted net income (loss) ÷ Net sales
= 100 × 265 ÷ 74,452 = 0.36%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Amazon.com Inc.'s adjusted net profit margin deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.

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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: Mark to Market Available-for-sale Securities
Adjusted net income (loss) (USD $ in millions) 265  (38) 628  1,155  906 
Total stockholders' equity (USD $ in millions) 9,746  8,192  7,757  6,864  5,257 
Adjusted ROE2 2.72% -0.46% 8.10% 16.83% 17.23%

2013 Calculations

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

2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Total stockholders' equity
= 100 × 265 ÷ 9,746 = 2.72%

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

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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: Mark to Market Available-for-sale Securities
Adjusted net income (loss) (USD $ in millions) 265  (38) 628  1,155  906 
Total assets (USD $ in millions) 40,159  32,555  25,278  18,797  13,813 
Adjusted ROA2 0.66% -0.12% 2.48% 6.14% 6.56%

2013 Calculations

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

2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Total assets
= 100 × 265 ÷ 40,159 = 0.66%

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

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