Refer to the notes to the financial statements. The first note, "Summary of Significant Ac- counting Policies," provides information about the company's depreciation and amortization methods. You will also need to refer to the other notes to the financial statements and to the fi- nancial statements themselves in order to answer the following questions. IMPORTANT: Indicate the page number in which the information was found. THE BASICS Property, plant and equipment 1. What depreciation method does the company use? Page Page 2. What is the amount of depreciation expense for the current year? (Hint: Look at the operating activities section of the cash flow statement of the indirect method was used.) Current year Last year Intangible assets 3. Does the company have any intangible assets? If so, what are they? Page 4. Does the company report any goodwill? What is the amount? Page. FURTHER ANALYSIS 5. Calculate the following: Show your computations, You will find prior years total assets in the Five-Year Summary of Selected Financial Data. (a) Average useful life of plant assets - Average cost of plant assets Depreciation expense (b) Average age of plant assets Accumulated Depreciation Depreciation Expense (c) Asset turnover - Sales Average total assets Current year last year two years ago 2020 AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31. 2019 2015 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 21.856 5 32,173 S 36,410 11.588 21,331 10,073 15.341 5,418 274 219 441 21.789 6,864 164 (249) 25 251 9.208 01) (2.582) (554) 796 (1,314) (4,615) 3,263 472 1.151 30,723 (3,278) (7,681) 8,193 (1,383) 1.711 38,514 (2.849) (8.169) 17.480 5,754 1.265 66,064 OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other Stock-based compensation Other operating expense (income), net Other expense (income), net Deferred income taxes Changes in operating assets and liabilities: Inventories Accounts receivable, nct and other Accounts payable Accried expenses and other Uneamed revenue Net cash provided by (used in) operating activities INVESTING ACTIVITIES: Purchases of property and equipment Proceeds from property and equipment sales and incentives Acquisitions, net of cash acquired, and other Sales and maturities of marketable securities Purchases of marketable securities Net cash provided by (used in) investing activities FINANCING ACTIVITIES: Proceeds from short-term debt, and other Repayments of short-term debt, and other Proceeds from long-term debt Repayments of long-term debt Principal repayments of finance leases Principal repayments of financing obligations Net cash provided by (used in) financing activities Foreign currency effect on cash, cash equivalents, and restricted cash Net increase (decrease) in cash, cash equivalents, and restricted cash CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD (13,427) 2,104 (2.186) 8,240 (7.100) (12,369) (16,861) 4.172 (2,461) 22,681 (31,812) (24,281) (40,140) 5,096 (2.325) 50,237 (72.479) (59,611) 886 (813) 182 (155) (7.449) (337) (7.686) (351) 10,317 32,173 $ 1.402 (1.518) 871 (1,166) (9.628) (27) (10,066) 70 4,237 36,410 $ 6,796 (6,177) 10,525 (1,553) (10,642) (53) (1.104) 618 5,967 42,377 s See accompanying notes to consolidated financial statements. AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) s Year Ended December 31. 2018 2019 141,915 S 160.408 S 90.972 120.114 232.887 280.522 2020 215.915 170.149 386,064 Net product sales Net service sales Total net sales Operating expenses Cost of sales Fulfillment 139,156 34,027 28,837 13.814 4,336 296 Technology and content Marketing General and administrative Other operating expense (income), net Total operating expenses Operating income Interest income Interest expense Other income (expense), net Total non-operating income (expense) Income before income taxes Provision for income taxes Equity-method investment activity, net of tax Net income Basic earnings per share Diluted earnings per share Weighted average shares used in computation of earnings per share: Basic Diluted 220,466 12,421 440 (1,417) (183) (1.160) 11.261 (1.197) 165,536 40.232 35.931 18.878 5.203 201 265,981 14,541 832 (1.600) 203 (565) 13.976 (2,374) 233.307 38,517 42.740 22.008 6,668 (75) 363.165. 22,899 355 (1.647) 2.371 1.279 24,178 (2,863) 16 21,331 42.64 41.83 s S S 10,073 S 20.68 $ 20.14 S 11,588 S 23.46 $ 23.01S 487 500 494 504 500 510 See accompanying notes to consolidated financial statements, AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) Year Ended December 31. 2018 2019 S 10.073 $ 11.588 $ 2020 21,331 78 (538) 561 (108) (30) (538) 561 Net income Other comprehensive income (loss): Net change in foreign currency translation adjustments: Foreign currency translation adjustments, net of tax of S6, $(5), and $(36) Reclassification adjustment for foreign currency translation included in *Other operating expense (income), net," net of tax of S0, S29, and $0 Net foreign currency translation adjustments Net change in unrealized gains (losses) on available-for-sale debt securities: Unrealized gains (losses), net of tax of So, S(12), and S(83) (17) Reclassification adjustment for losses (gains) included in "Other income (expense), net," net of tax of So, So, and $8 8 Net unrealized gains (losses) on available-for-sale debt securities Total other comprehensive income (loss) (547) Comprehensive income S 9.526 S See accompanying notes to consolidated financial statements. 83 273 (4) (28) 79 49 11,637 S 245 806 22.137 AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31 2019 2020 ASSETS Current assets: Cash and cash equivalents Marketable securities $ 2. Inventories Accounts receivable, net and other Total current assets 36,092 S 18.929 20,497 20.816 96,334 72,705 25,141 14,754 16,314 225.248 S 42,122 42.274 23,795 24.542 132.733 113,114 37,553 15.017 22,778 321,195 Property and equipment, net Operating leases Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY 47,183 $ 32,439 8,190 87.812 39.791 23.414 12,171 72.539 44,138 9,708 126,385 52,573 31,816 17.017 s Current liabilities Accounts payable $ Accrued expenses and other Uncamned revenue Total current liabilities Long-term lease liabilities 4 Long-term debt Other long-term liabilities Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, S0.01 par value: Authorized shares - 500 Issued and outstanding shares - none Common stock, S0.01 par value: Authorized shares -- 5,000 Issued shares-521 and 527 Outstanding shares - 498 and 503 Treasury stock, at cost Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total stockholders' equity Total liabilities and stockholders' equity S See accompanying notes to consolidated financial statements 5 (1.837) 33,658 (986) 31.220 62,060 225,248 S 5 (1.837) 42,865 (180) 52.551 93.404 321,195 AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions) D Total Stockholders Equity c Common Stock Acumulated Additional Other Treasury Paid in Comprehensive Retained Amount Capital Income (Low) Earnings 5S (1,837) $ 21,389 S (484) S 8,636 $ 27,709 916 10.073 912 10,073 (547) (547) 5,402 5,402 26,791 19,625 43,549 (1,035) 7 11,588 Shares Stock Balance as of January 1, 2018 484 S Cumulative effect of change in accounting principles related to revenue recognition, income taxes, and financial instruments Net income Other comprehensive income (loss) Exercise of common stock options 7 Stock-based compensation and issuance of employee benefit plan stock Balance as of December 31, 2018 491 5 (1.837) Cumulative effect of change in accounting principle related to leases Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock 6,867 Balance as of December 31, 2019 498 5 (1.837) 33.658 Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock 9,207 Balance as of December 31, 2020 503 S 5 $ (1.837) S 42,865 $ See accompanying notes to consolidated financial statements. 7 11,588 49 | 1 49 (986) 31.220 21.331 6.867 62,060 21,331 806 1 806 11 9,207 (180) S 52.551 S 93,404 Software Development Costs software, and our websites. Software development costs capitalized were not saticant for the years presented. All other co We incur software development costs related to products to be sold, leased, or marketed to external users, intcmaluse including those related to design or maintenance, are expensed as incurred Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation and amortization. Incentives that we receive from along with property we have acquired under build-to-suit lease arrangements when we have control over the building during the operty and equipment vendors are recorded as a reduction to our cos. Property includes buildings and land that we own, heavy equipment, and other fulfillment equipment. Depreciation and amortization is recorded on a straightline basis over the estimated useful lives of the assets (generally the lesser or 40 years or the remaining life of the underlying building three year prior to January 1, 2020 and four years subsequent to January 1, 2020 for our servers, five years for networking equipment, ten Years for heavy equipment, and three to ten years for other fulfillment equipment). Depreciation and amortization expense is classified within the corresponding operating expense categories on our consolidated statements of operations. Lesses We categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that allow us to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in "Property and equipment, bet." All other leases are categorized as operating leases. Our leases generally have terms that range from one to ten years for equipment and one to twenty years for property Certain lease contracts include obligations to pay for other services, such as operations and maintenance. For leases of property, we account for these other services as a component of the lease. For substantially all other leases, the services are accounted for separately and we allocate payments to the lease and other services components based on estimated stand-alone prices Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives using a discount rate based on similarly secured borrowings available to us. Lease assets are recognised based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified from other assets" upon lease commencement. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life of the lease term When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider the option in determining the classification and measurement of the lease. Our leases may include variable payments based on measures that include changes in price indices, market interest rates, or the level of sales at a physical store, which are expensed as incurred. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease Finance lease assets are amortized within operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or, in the instance where title does not transfer at the end of the lease term, the lease term The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease. Such assets are amortized over the lease period into operating expense, and the recorded liabilities are accrcted to the future value of the estimated retirement costs Financing Obligations We record assets and liabilities for estimated construction costs under build-to-suit leise arrangements when we have control over the building during the construction period. If we continue to control the building after the construction period, the arrangement is classified as a financing obligation instead of a lease. The building is depreciated over the shorter of its useful life or the term of the obligation If we do not control the building after the construction period ends, the assets and liabilities for construction costs are derecognized, and we classify the lease as either operating or finance 48 Gland Indefinite-Lived Intangible Assets We evaluate goodwill and indefinite-lised intangible assets for impairment annually or more frequently when an vet sent to evaluate whether it 16 more likely than not that the fair value of a reporting witor indefe-Ined mange W or curcumstances change that indicate the carrying value may not be recoverible. We may clect to a qualitate so that carrying value and if so, we perform a quantitative test. We compare the carrying value of each reporting and endeved intangible asset to its estimated fair value and if the fair value is determined to be less than the carrying value guze an impairment loss for the difference. We cate the fair value of the reporting using discounted cash as expected category expansion, pricing market segment share, and general economic conditions Hows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily We completed the required annual impairment test of goodwill for all reporting units and indefinite-lived intangible sets as of April 1, 2020 resulting in no impairments. The fair value of our reporting units substantially exceeded their og value. There were no events that caused to update ournal pentest. See "Not Acquisition Goodwill, and Acquired Intangible Assets Other Assets Included in "Other assets" on our consolidated balance sheets are amounts primarily related to video and music content set of accumulated amortization, acquired intangible assets, net of accumulated amortization, certain equity investments, equity arrant assets: long-term deferred tax assets and lease prepayments made prior to lease commencement Digital Video and Music Content We obtain video content, inclusive of episodic television and movies, and music content for customers through licensing agreements that have a wide range of licensing provisiots including both fixed and variable payment schedules. When the license fee for a specific video or music title is determinable or reasonably estimable and the content is available to us, we recognize an asset and a corresponding liability for the amounts owed. We reduce the liability as payments are made and we mortize the asset to "Cost of sales" on an accelerated basis, based on estimated usage or viewing patterns, or on a straight-line basis. If the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded and licensing costs are expensed as incurred. We also develop original video content for which the production costs are capitalized and amortized to Cost of sales" predominantly on an accelerated basis that follows the viewing patterns associated with the content. The weighted average remaining life of our capitalized video content is 2.5 years Our produced and licensed video content is primarily monetized together as a unit, referred to as a film group, in each major geography where we offer Amazon Prime memberships. These film groups are evaluated for impaiment whenever an event occurs or circumstances change indicating the fair value is less than the carrying value. The total capitalized costs of video, which is primarily released content, and music as of December 31, 2019 and 2020 were 5.8 billion and 56.8 billion. Total video and music expense was $7.8 billion and S110 billion for the year ended December 31, 2019 and 2020. Total video and music expense includes licensing and production costs associated with content offered within Amazon Prime memberships and costs associated with digital subscriptions and sold or rented content. Investments We generally invest our excess cash in AAA-rated money market funds and investment grade short to intermediate-term fixed income securities. Such investments are included in "Cash and cash equivalents" or "Marketable securities on the accompanying consolidated balance sheets Marketable debt securities are classified as available for sale and reported at fair value with unrealined gains and losses included in "Accumulated other comprehensive income (loss). Each reporting period, we evaluate whether declines in fair value below carrying value are due to expected credit losses, as well as our ability and intent to hold the investment antila forecasted recovery occurs. Expected credit losses are recorded as an allowance through Other income (expense), net on our consolidated statements of operations Equity investments in private companies for which we do not have the ability to exercise significant influence are accounted for at cost, with adjustments for observable changes in prices or impairments, and are classified as "Other assets" on our consolidated balance sheets with adjustments recognized in Other income (expense), net on our consolidated statements of operations. Each reporting period, we perform a qualitative assessment to evaluate whether the investment is impaired. Our assessment includes a review of recent operating results and trends, recent sales acquisitions of the investee securities, and other publicly available data. If the investment is impaired, we write it down to its estimated fair value. As of December 31, 2019 and 2020, these investments had a carrying value of 1.5 billion and $2.7 billion. 49 Equity investments are accounted for using the equity method of accounting if the investment gives the ability to on our consolidated balance sheets. Our share of the camnings or losses as reported by equity-method investees, amortization of exercise significant influence, but not control over an investee E-cthod moments are included within "Other ass basis differences, related gains or losses, and impairments, if any, are record in "Equity-method investment activity. Det of tax on our consolidated statements of operations. Each reporting period, we calate whether declines in fair value below Equity investments that have readily determinable fair values are included in Marketable securities on our consolidated balance sheets and measured at fair value with changes recognized in Other income expensel.net on our consolidated statements of operations carrying value are other-than-temporary and if so, we writers and destment to its estimated fair value. Long-Lived Assets Long-lived assets, other than goodwill and indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asses might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable For long-lived assets used in operations, including lease assets, impairment losses are only recorded if the asset's carrying amount is not recoverable through its undiscounted, probabilityweighted future cash flows. We measure the impairment loss bused on the difference between the carrying amount and estimated arvae. Long-lived assets are considered held for sale when certain criteris are met, including when management has committed to a plan to sell the asset, the asset is available for sale in its immediate condition, and the sale is probable within one year of the reporting date. Assets held for sale are reported at the lower of cost or fair value less costs to sell Assets held for sale were not significant as of December 31, 2019 and 2020, Accrued Expenses and Other Included in "Accrued expenses and other" on our consolidated balance sheets are liabilities primarily related to leases and asset retirement obligations, payroll and related expenses, tax-related liabilities, unredeemed gift cards, customer liabilities, current debt, acquired digital media content, and other operating expenses As of December 31, 2019 and 2020, our liabilities for payroll related expenses were $4.3 billion and $7.6 billion and our liabilities for unredeemed gift cards were $1.3 billion and $4.7 billion. We reduce the liability for a gift card when redeemed by a customer. The portion of gift cards that we do not expect to be redeemed is recognised based on customer usage patterns. Uneared Revye Uncamned revenue is recorded when payments are received or doe in advance of performing our service obligations and is recognized over the service period, Uneamed revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. Our total uneared revenue as of December 31, 2019 was $10.2 billion, of which $7.9 billion was recognized as revenue during the year coded December 31, 2020 and our total unearned revenue as of December 31, 2020 was $11.6 billion Included in "Other long-term fiabilities on our consolidated balance sheets was $20 billion and $1.9 billion of uneared revenue as of December 31, 2019 and 2020 Additionally, we have performance obligations, primarily telated to AWS, associated with commitments in customer contracts for future services that have not yet been recognized in our financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were SS0.0 billion as of December 31, 2020. The weighted average remaining life of our long-term contracts is 3.4 years. However, the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term. Other Long-Term Liabilities Included in other long-term liabilities on our consolidated balance sheets are liabilities primarily related to financing obligations, asset retirement obligations, deferred tax liabilities, uneared revenue, tax contingencies, and digital video and music content Foreign Currency We have internationally-focused stores for which the net sales generated as well as most of the related expenses directly incurred from those operations, are denominated in local functional currencies. The functional currency of our subsidiaries that either operate or support these stores is generally the same as the local currency. Assets and liabilities of these subsidiaries are translated into U.S. Dollars at period-end foreign exchange rates and revenues and expenses are translated at average rates 30 GW The goodwill of the acquired companies is primarily related to expected improvements in technology performance and pile assets that do not qualify for separate recognition. The goodwill of the acquired companies is generally not lity, as well as sales growth from future product and service offering and becomes together with certain le for tax purposes. The following summarizes our goodwill activity in 2019 and 2000 by segmentin millions North America AWS S Consolidated 1.270 $ 1.087 14,548 71 29 89 2 14 Goodwill - December 31, 2019 12,264 1.300 1,190 14,754 204 6 2 212 59 (18) 10 SI Goodwill - December 31, 2020 12.527 1.2025 15.017 Goodwill - January 1, 2019 wacquisitions Other adjustments (1) 12.1915 189 17 Now acquisitions Ober adjustments (1) 1.288 V Primarily includes changes in foreign exchange rates. Intangible Assets Acquired identifiable intangible assets are valued primarily by using discounted cash flows. These assets are included in "Other assets" on our consolidated balance sheets and consist of the following (in millions) December 31 2019 Aequired Tatangles Gross (1) Acuted Amarution) Agnie ward latanbin. Iste Alated Gews Art 1) Acquired Weighted Intangible. Average Life Remaining s 2,303 $ 1.680 (340) S (302) 1.963 5 2.289 1.37% 1.917 (445) S 1.844 (418) 1.499 20.0 11.0 Finite-lived intangible set (2) Marketing-related Contract-based Technology and content-based Customer related Total finite-lived intangible assets (555) 393 1.005 282 (477) (130) 52% 152 98 179 3.3 40 102 144 s S 5.270 $ 28 (1,249) $ 4.021 55.333$ 28 $ 1.143 (1.495) 5 3.838 $ 1.143 IPR&D and other (3) Total acquired intangibles 5.298 $ 1 249) 4,049 S 6,476 $ (1.495) S4,981 (1) Excludes the original cost and accumulated amortization of fully-amortired intangibles (2) Finite-lived intangible assets have estimated useful lives of between one and twenty-fhe years, and are being amortized to operating expenses on a straight-line basis (3) Intangible assets acquired in a business combination that are in process and used in research and development activities are considered indefinite-lived until the completion or abandonment of the research and development efforts. Once the research and development efforts are completed, we determine the useful life and begin amortiring the assets 2019 and 2020. Expected future amortization expense of acquired fine lived intangible assets as of December 31, 2020 Amortization expense for acquired finite-lived intangibles was $475 million $565 million, and 509 million in 2018 follows (in millions): Year Ended December 31, 2021 2022 2023 2024 2025 Thereafter 464 430 365 303 251 2.022 3.18 Note 6 - DEBT As of December 31, 2020, we had $32.2 billion of unsecured senior notes outstanding the "Note), including S100 billion issued in June 2020 for general corporate purposes. We also have other long-term debt and borrowings under our credit facility or S1.6 billion and 5924 million as of December 31, 2019 and 2020. Our sotal long-term debt obligations are as follows (in millions) 1.250 Standard Effecterest Maturi (1) Rates Rates 2022 2.50 2.66% 2021 - 2044 230% - 495% 3.43% - 5.11% 2023 - 2057 2.40% -5.20% 2.565.4339 2023 - 2060 0.40% - 2.70 0.56%6-2.779 16,000 2012 Notes issuance of $3.0 billion 2014 Notes issuance of $6.0 billion 2017 Notes issuance of $17.0 billion 2020 Notes issuance of $10.0 billion Credit Facility Other long-term debt Total face value of long-term debt Unamortized discount and issuance costs, net Less current portion of long-term debt Long-term debt December 31, 2019 December 31, 2030 1.250 5.000 5.000 17.000 10.000 740 338 830 586 24,820 33.174 (101) (1.305) 23,4145 (203) 1.155) 31,816 (1) The weighted average remaining lives of the 2012, 2014, 2017, and 2020 Notes were 19.11.8.16.2, and 187 years as of December 31, 2020. The combined weighted average remaining life of the Notes was 15 8 years as of December 31, 2020 Interest on the Notes is payable semi-annually in arrears. We may redeem the Notes at any time in hole, or from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. The estimated fair value of the Notes was approximately $26.2 billion and $37.7 billion as of December 31, 2019 and 2020, which is based on quoted prices for our debt as of those dates, In October 2016, we entered into a 5500 million secured revolving credit facility with a lender that is secured by certain seller receivables, which we subsequently increased to 5740 million and may from time to time increase in the future subject to lender approval (the "Credit Facility"). The Credit Facility is available until October 2022, bears interest at the London interbank offered rate (LIBOR") plus 1.40%, and has a commitment fee of 0.50% on the undrawn portion. There were $740 million and $338 million of borrowings outstanding under the Credit Facility as of December 31, 2019 and 2020, which had a weighted average interest rate of 3.4% and 3.0%, respectively. As of December 31, 2019 and 2020, we have pledged $852 million and $398 million of our cash and seller receivables as collateral for debt related to our Credit Facility. The estimated fair value of the Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2019 and 2020 Other long-term debt, including the current portion, had a weighted average interest rate of 4.1% and 29% as of December 31, 2019 and 2020. We used the net proceeds from the issuance of this debt primarily to fund certain business operations. The estimated fair value of other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2019 and 2020. 56