Amazon.com 2013 Annual Report Download - page 43

Download and view the complete annual report

Please find page 43 of the 2013 Amazon.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 86

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86

32
Foreign Exchange Risk
During 2013, net sales from our International segment accounted for 40% of our consolidated revenues. Net sales and
related expenses generated from our international websites, as well as those relating to www.amazon.ca (which is included in
our North America segment), are denominated in the functional currencies of the corresponding websites and primarily include
Euros, British Pounds, Japanese Yen, and Chinese Yuan. The functional currency of our subsidiaries that either operate or
support these websites is the same as the corresponding local currency. The results of operations of, and certain of our
intercompany balances associated with, our internationally-focused websites are exposed to foreign exchange rate fluctuations.
Upon consolidation, as exchange rates vary, net sales and other operating results may differ materially from expectations, and
we may record significant gains or losses on the remeasurement of intercompany balances. For example, as a result of
fluctuations in foreign exchange rates during 2013, International segment revenues decreased $1.3 billion in comparison with
the prior year.
We have foreign exchange risk related to foreign-denominated cash, cash equivalents, and marketable securities (“foreign
funds”). Based on the balance of foreign funds as of December 31, 2013, of $5.6 billion, an assumed 5%, 10%, and 20%
negative currency movement would result in fair value declines of $280 million, $560 million, and $1.1 billion. All investments
are classified as “available-for-sale.” Fluctuations in fair value are recorded in “Accumulated other comprehensive loss,” a
separate component of stockholders’ equity.
We have foreign exchange risk related to our intercompany balances denominated in various foreign currencies. Based on
the intercompany balances as of December 31, 2013, an assumed 5%, 10%, and 20% adverse change to foreign exchange
would result in losses of $55 million, $120 million, and $270 million, recorded to “Other income (expense), net.”
See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Results of Operations—Effect of Exchange Rates” for additional information on the effect on reported results of changes in
exchange rates.
Investment Risk
As of December 31, 2013, our recorded basis in equity investments was $127 million. These investments primarily relate
to equity and cost method investments in private companies. We review our investments for impairment when events and
circumstances indicate that the decline in fair value of such assets below the carrying value is other-than-temporary. Our
analysis includes review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other
publicly available data. The current global economic climate provides additional uncertainty. Valuations of private companies
are inherently more difficult due to the lack of readily available market data. As such, we believe that market sensitivities are
not practicable.