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2020 36,410 21,331 25,251 9,208 (71) (2,582) (554) 441 AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2018 2019 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 21,856 $ 32,173 $ OPERATING ACTIVITIES: Net income 10,073 11,588 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 15,341 21,789 Stock-based compensation 5,418 6,864 Other operating expense (income), net 274 164 Other expense (income), net 219 (249) Deferred income taxes 796 Changes in operating assets and liabilities: Inventories (1,314) (3,278) Accounts receivable, net and other (4,615) (7,681) Accounts payable 3,263 8,193 Accrued expenses and other 472 (1,383) Unearned revenue 1,151 1,711 Net cash provided by (used in) operating activities 30,723 38,514 INVESTING ACTIVITIES: Purchases of property and equipment (13,427) (16,861) Proceeds from property and equipment sales and incentives 2,104 4,172 Acquisitions, net of cash acquired, and other (2,186) (2,461) Sales and maturities of marketable securities 8,240 22,681 Purchases of marketable securities (7,100) (31,812) Net cash provided by (used in) investing activities (12,369) (24,281) FINANCING ACTIVITIES: Proceeds from short-term debt, and other 1,402 Repayments of short-term debt, and other (813) (1,518) Proceeds from long-term debt 182 871 Repayments of long-term debt (155) (1,166) Principal repayments of finance leases (7,449) (9,628) Principal repayments of financing obligations (337) (27) Net cash provided by (used in) financing activities (7,686) (10,066) Foreign currency effect on cash, cash equivalents, and restricted cash (351) 70 Net increase (decrease) in cash, cash equivalents, and restricted cash 10,317 4,237 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD 32.173 $ 36,410 $ See accompanying notes to consolidated financial statements. (2,849) (8,169) 17,480 5,754 1,265 66,064 (40,140) 5,096 (2.325) 50,237 (72,479) (59,611) 886 6,796 (6,177) 10,525 (1,553) (10,642) (53) (1,104) 618 5,967 42,377 $ AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) $ Year Ended December 31, 2018 2019 141,915 $ 160,408 $ 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 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 139,156 34,027 28,837 13,814 4,336 296 220,466 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) (14) 11,588 $ 23.46 $ 233,307 58,517 42,740 22,008 6,668 (75) 363,165 22,899 555 (1,647) 2,371 1,279 24,178 (2,863) 16 $ 10,073 $ 20.68 $ $ 21,331 42.64 41.83 $ 20.14 $ 23.01$ 487 500 494 504 500 510 See accompanying notes to consolidated financial statements. AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31, 2019 2020 $ 36,092 $ 18,929 20,497 20,816 96,334 72,705 25,141 14,754 16,314 225,248 $ 42,122 42,274 23,795 24,542 132,733 113,114 37,553 15,017 22,778 321,195 $ S ASSETS Current assets: Cash and cash equivalents Marketable securities Inventories Accounts receivable, net and other Total current assets Property and equipment, net Operating leases Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other Unearned revenue Total current liabilities Long-term lease liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares - 500 Issued and outstanding shares - none Common stock, $0.01 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 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 - 1 5 5 (1,837) 33,658 (986) 31,220 62,060 225,248 $ (1,837) 42,865 (180) 52,551 93,404 321,195 $ Fair Value of 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. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1 Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for identical assets or liabilities. Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold significant amounts of marketable securities categorized as Level 3 assets as of December 31, 2019 and 2020. We hold equity warrants giving us the right to acquire stock of other companies. As of December 31, 2019 and 2020, these warrants had a fair value of $669 million and $3.0 billion, and are recorded within "Other assets on our consolidated balance sheets with gains and losses recognized in "Other income (expense), net" on our consolidated statements of operations. These warrants are primarily classified as Level 2 assets. Cash and Cash Equivalents We classify all highly liquid instruments with an original maturity of three months or less as cash equivalents. Inventories Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. The inventory valuation allowance, representing a write-down of inventory, was $1.6 billion and $2.3 billion as of December 31, 2019 and 2020. We provide Fulfillment by Amazon services in connection with certain of our sellers' programs. Third-party sellers maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and therefore these products are not included in our inventories. We also purchase electronic device components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate supply, we enter into agreements with contract manufacturers and suppliers for certain electronic device components. A portion of our reported purchase commitments arising from these agreements consists of firm, non-cancellable commitments. These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional costs. We also have firm, non-cancellable commitments for certain products offered in our Whole Foods Market stores. Accounts Receivable, Net and Other Included in "Accounts receivable, net and other on our consolidated balance sheets are amounts primarily related to customers, vendors, and sellers. As of December 31, 2019 and 2020, customer receivables, net, were $12.6 billion and $14.8 billion, vendor receivables, net, were $4.2 billion and $4.8 billion, and seller receivables, net, were $863 million and $381 million. Seller receivables are amounts due from sellers related to our seller lending program, which provides funding to sellers primarily to procure inventory. We estimate losses on receivables based on expected losses, including our historical experience of actual losses. Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement. The allowance for doubtful accounts was $495 million, 8718 million, and $1.1 billion as of December 31, 2018, 2019, and 2020. Additions to the allowance were $878 million, $1.0 billion, and $1.4 billion, and deductions to the allowance were $731 million, 793 million, and $1.0 billion in 2018, 2019, and 2020. Software Development Costs We incur software development costs related to products to be sold, leased, or marketed to external users, internal-use software, and our websites. Software development costs capitalized were not significant for the years presented. All other costs, 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 property and equipment vendors are recorded as a reduction to our costs. Property includes buildings and land that we own, along with property we have acquired under build-to-suit lease arrangements when we have control over the building during the construction period and finance lease arrangements. Equipment includes assets such as servers and networking equipment, heavy equipment, and other fulfillment equipment. Depreciation and amortization is recorded on a straight-line basis over the estimated useful lives of the assets (generally the lesser of 40 years or the remaining life of the underlying building, three years 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. Leases 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, net." 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 recognized 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 or 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 accreted to the future value of the estimated retirement costs. Financing Obligations We record assets and liabilities for estimated construction costs under build-to-suit lease 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. $ Consolidated Statements of Cash Flows Reconciliation The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows (in millions): December 31, 2019 December 31, 2020 Cash and cash equivalents 36,092 $ 42,122 Restricted cash included in accounts receivable, net and other 233 Restricted cash included in other assets Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows 36,410 S 42,377 Note 3 PROPERTY AND EQUIPMENT Property and equipment, at cost, consisted of the following (in millions): 276 42 22 $ December 31, 2019 2020 S Gross property and equipment (1): Land and buildings Equipment Other assets Construction in progress Gross property and equipment Total accumulated depreciation and amortization (1) Total property and equipment, net 39,223 $ 71,310 3,111 6,036 119,680 46,975 72,705 S 57,324 97,224 3,772 15,228 173,548 60,434 113,114 S (1) Includes the original cost and accumulated depreciation of fully-depreciated assets. Depreciation and amortization expense on property and equipment was $12.1 billion, $15.1 billion, and $16.2 billion which includes amortization of property and equipment acquired under finance leases of $7.3 billion, $10.1 billion, and $8.5 billion for 2018, 2019, and 2020. Note 4 LEASES Gross assets acquired under finance leases, inclusive of those where title transfers at the end of the lease, are recorded in "Property and equipment, net and were $57.4 billion and $68.1 billion as of December 31, 2019 and 2020. Accumulated amortization associated with finance leases was $30.0 billion and $36.5 billion as of December 31, 2019 and 2020. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): Year Ended December 31, 2019 2020 3,669 $ 5,019 Operating lease cost Finance lease cost: Amortization of lease assets Interest on lease liabilities Finance lease cost Variable lease cost Total lease cost 10,094 695 10,789 966 15,424 S 8,452 617 9,069 1,238 15,326 $ Calculate Amazon's current ratio (current assets/ current liabilities) at 12/31/2019 and 12/31/2020 (round your following computation to two decimal places (5.6793 = 5.68). Then select the correct answer below. a. Current ratio at 12/31/2019 1.10 times Current ratio at 12/31/2020 1.05 times Amazon's liquidity has decreased between the last two balance sheet dates. O b. Current ratio at 12/31/2019 1.10 times Current ratio at 12/31/2020 1.05 times Amazon's liquidity has increased between the last two balance sheet dates. Oc. Current ratio at 12/31/2019 2.57 times Current ratio at 12/31/2020 2.54 times Amazon's liquidity has decreased between the last two balance sheet dates. O d. Current ratio at 12/31/2019 1.38 times Current ratio at 12/31/2020 1.41 times Amazon's liquidity has increased between the last two balance sheet dates. Which of Amazon's accounts increased when the company made a credit sale? O a. Cash. O b. Accounts receivable. O c. Inventories O d. Accounts payable. When Amazon collects an accounts receivable from a customer: a. accounts payable decreases. O b.total assets increase. O c. retained earnings increase. O d. net income does not change. Amazon's income statement: a. is a picture of the company's financial position at a particular date. O b.shows the changes in the company's stockholders' equity for the reporting period. O c. shows how much cash revenues exceeded cash expenses for the reporting period. O d. shows the company's results of operations for the reporting period. Amazon's total net earned revenue from both cash and credit sales for its most recent year end was in millions): O a. $215,915. O b. $170,149 O c. $386,064 O d. $232,887 How much did Amazon's earned operating revenues exceed its incurred operating expenses during the most recent reporting period (in millions)? O a. $12,421 O b. $22,899 OC. $21,331 O d. $152,757 Amazon's inventory on hand: O a. increased $3,298 (in millions) over the last two balance sheet dates. O b.decreased $3,298 (in millions) over the last two balance sheet dates. O C. increased $67,671 (in millions) over the last two balance sheet dates. O d. decreased $26,380 (in millions) over the last two balance sheet dates. Amazon's cost of inventory sold during the recent reporting period was (in millions): O a. $3,298 O b. $23,795 O c. $233,307 O d. $215,915 Assuming rising prices, Amazon's inventory method results in less net income than if LIFO was used. True False Calculate Amazon's inventory turnover ratio (Cost of sales / Inventories) for the last two balance sheet dates. Round to two decimal places (5.6728 = 5.67). Then select the correct answer below. a. Amazon's inventory turnover ratio decreased from 8.08 times in 2019 to 9.80 times in 2020. Amazon sold inventory more slowly in 2020 than in 2019 O b. Amazon's inventory turnover ratio decreased from 9.80 times in 2019 to 8.08 times in 2020. Amazon sold inventory more slowly in 2020 than in 2019. OC. Amazon's inventory turnover ratio increased from 8.08 times in 2019 to 9.80 times in 2020. Amazon sold inventory more quickly in 2020 than in 2019. O d. Amazon's inventory turnover ratio cannot be determined. Amazon's gross margin (total net sales - cost of sales): a. increased over the last three reporting periods. O b. decreased over the last three reporting periods. O c. increased from 2018 to 2019 and decreased from 2019 to 2020. O d. decreased from 2018 to 2019 and increased from 2019 to 2020