Professor Johnson Ratio Analysis question

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oejal32479

Business Finance

Professor Johnson

Description

Purpose of Assignment

The activity requires students to perform research and analysis on competing companies and the potential implications of international standards. This real-world analysis is key to understanding how a company's profitability, liquidity, and solvency can be useful for all users. Students also learn to analyze financial statements and use managerial tools to make decisions from an investor's and creditor's standpoint.

Assignment Steps

Select two competing companies, that are US publicly traded, and locate annual reports for these two companies by going DIRECTLY TO THE COMPANY WEBSITES TO DOWNLOAD THE ANNUAL REPORT OR 10-K. DO NOT USE SUMMARY SITES.

Research the two companies on the Internet and download the Annual Reports with the Income Statement, Statement of Shareholders' Equity, Balance Sheet, and Statement of Cash Flows.

IN EXCEL:

  • Make a 5-year trend analysis for each company:
  • Net sales.
  • Net income.
  • Compute for the two most recent years the:
  • Debt to assets ratio.
  • Compute for two most recent years the:
  • Profit margin.
  • Asset turnover.
  • Return on assets.

Develop a maximum 500-word APA Formatted Paper and include the following:

  • Evaluate the financial opportunity presented by the companies. If you were a creditor, which company would you be more likely to lend money to? Defend your decision.
  • Which company would you recommend as an investment? Discuss the items that were considered in your decision.
  • At which company would you prefer a management position and why?

Show your work in Excel®.

Complete calculations/computations using Excel®

Include the four financial statements along with your assignment or a working link, clearly indicated.

Format your assignment consistent with APA guidelines USING THE APA TEMPLATE PAPER I PROVIDED.

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Explanation & Answer

Attached.

Document and Entity Information - USD ($)

12 Months Ended
Dec. 31, 2018

Jan. 23, 2019

Document And Entity Information [Abstract]
Document Type
Amendment Flag
Document Period End Date
Document Fiscal Year Focus
Document Fiscal Period Focus
Entity Registrant Name
Entity Central Index Key
Current Fiscal Year End Date
Entity Well-known Seasoned Issuer
Entity Current Reporting Status
Entity Voluntary Filers
Entity Filer Category
Entity Emerging Growth Company
Entity Small Business
Entity Shell Company
Entity Public Float
Entity Common Stock, Shares Outstanding

10-K
false
Dec. 31,
2018
2,018
FY
AMAZON COM INC
1,018,724
--12-31
Yes
Yes
No
Large Accelerated Filer
false
FALSE
false
491,202,890

Jun. 30, 2018

##############

Consolidated Statements of Cash Flows - USD ($) $ in Millions
Statement of Cash Flows [Abstract]
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of property and equipment and other amortization, including capitalized content
costs
Stock-based compensation
Other operating expense, net
Other expense (income), net
Deferred income taxes
Changes in operating assets and liabilities:
Inventories
Accounts receivable, net and other
Accounts payable
Accrued expenses and other
Unearned revenue
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from property and equipment 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 long-term debt and other
Repayments of long-term debt and other
Principal repayments of capital lease obligations
Principal repayments of finance lease 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
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest on long-term debt
Cash paid for interest on capital and finance lease obligations
Cash paid for income taxes, net of refunds
Property and equipment acquired under capital leases
Property and equipment acquired under build-to-suit leases

12 Months Ended
Dec. 31, 2018
Dec. 31, 2017

Dec. 31, 2016

$ 21,856

$ 19,934

$ 16,175

10,073

3,033

2,371

15,341

11,478

8,116

5,418
274
219
441

4,215
202
(292)
(29)

2,975
160
(20)
(246)

(1,314)
(4,615)
3,263
472
1,151
30,723

(3,583)
(4,780)
7,100
283
738
18,365

(1,426)
(3,436)
5,030
1,724
1,955
17,203

(13,427)
2,104
(2,186)
8,240
(7,100)
(12,369)

(11,955)
1,897
(13,972)
9,677
(12,731)
(27,084)

(7,804)
1,067
(116)
4,577
(7,240)
(9,516)

768
(668)
(7,449)
(337)
(7,686)
(351)
10,317
32,173

16,228
(1,301)
(4,799)
(200)
9,928
713
1,922
21,856

618
(327)
(3,860)
(147)
(3,716)
(212)
3,759
19,934

854
575
1,184
10,615
$ 3,641

328
319
957
9,637
$ 3,541

290
206
412
5,704
$ 1,209

Consolidated Statements Of Operations - USD ($) shares in Millions, $ in Millions
Total net sales
Operating expenses:
Cost of sales
Fulfillment
Marketing Expense
Technology and content
General and administrative
Other operating expense, net
Total operating expenses
Operating income (loss)
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 (in shares)
Diluted (in shares)
Net product sales
Total net sales
Net service sales
Total net sales

12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
$ 232,887
$ 177,866
139,156
34,027
13,814
28,837
4,336
296
220,466
12,421
440
(1,417)
(183)
(1,160)
11,261
(1,197)
9
$ 10,073
$ 20.68
$ 20.14

111,934
25,249
10,069
22,620
3,674
214
173,760
4,106
202
(848)
346
(300)
3,806
(769)
(4)
$ 3,033
$ 6.32
$ 6.15

Dec. 31, 2016
$ 135,987
88,265
17,619
7,233
16,085
2,432
167
131,801
4,186
100
(484)
90
(294)
3,892
(1,425)
(96)
$ 2,371
$ 5.01
$ 4.90

487
500

480
493

474
484

$ 141,915

$ 118,573

$ 94,665

$ 90,972

$ 59,293

$ 41,322

Consolidated Statements of Comprehensive Income - USD ($) $ in Millions
Statement of Comprehensive Income [Abstract]
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $(49), $5, and $6
Net change in unrealized gains (losses) on available-for-sale debt securities:
Unrealized gains (losses), net of tax of $(12), $5, and $0
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax
of $0, $0, and $0
Net unrealized gains (losses) on available-for-sale debt securities
Total other comprehensive income (loss)
Comprehensive income

12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
$ 10,073

$ 3,033

(538)

533

(17)
8

(39)
7

(9)
(547)
$ 9,526

(32)
501
$ 3,534

Dec. 31, 2016
$ 2,371
(279)
9
8
17
(262)
$ 2,109

Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Millions
Statement of Comprehensive Income [Abstract]
Foreign currency translation adjustments, tax
Unrealized gains (losses), tax
Reclassification adjustment for losses (gains) included in other income (expense), net, tax

12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
$6
0
$0

$5
5
$0

Dec. 31, 2016
$ (49)
(12)
$0

Consolidated Balance Sheets - USD ($) $ in Millions
Current assets:
Cash and cash equivalents
Marketable securities
Inventories
Accounts receivable, net and other
Total current assets
Property and equipment, net
Goodwill
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued expenses and other
Unearned revenue
Total current 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 - 507 and 514 Outstanding
shares - 484 and 491
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity

Dec. 31, 2018

Dec. 31, 2017

$ 31,750
9,500
17,174
16,677
75,101
61,797
14,548
11,202
162,648

$ 20,522
10,464
16,047
13,164
60,197
48,866
13,350
8,897
131,310

38,192
23,663
6,536
68,391
23,495
27,213

34,616
18,170
5,097
57,883
24,743
20,975

0

0

5

5

(1,837)
26,791
(1,035)
19,625
43,549
$ 162,648

(1,837)
21,389
(484)
8,636
27,709
$ 131,310

Consolidated Balance Sheets (Parenthetical) - $ / shares
Statement of Financial Position [Abstract]
Preferred stock, par value (in usd per share)
Preferred stock, authorized shares
Preferred stock, issued shares
Preferred stock, outstanding shares
Common stock, par value (in usd per share)
Common stock, authorized shares
Common stock, issued shares
Common stock, outstanding shares

Dec. 31, 2018

Dec. 31, 2017

$ 0.01
500,000,000
0
0
$ 0.01
5,000,000,000
514,000,000
491,000,000

$ 0.01
500,000,000
0
0
$ 0.01
5,000,000,000
507,000,000
484,000,000

Consolidated Statements of Stockholders' Equity - USD ($) shares in Millions, $ in Millions
Beginning Balance (in shares) at Dec. 31, 2015
Beginning Balance at Dec. 31, 2015
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income
Other comprehensive income (loss)
Exercise of common stock options
Exercise of common stock options
Excess tax benefits from stock-based compensation
Stock-based compensation and issuance of employee benefit plan stock
Ending Balance (in shares) at Dec. 31, 2016
Ending Balance at Dec. 31, 2016
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of a change in accounting principle
Net income
Other comprehensive income (loss)
Exercise of common stock options
Exercise of common stock options
Stock-based compensation and issuance of employee benefit plan stock
Ending Balance (in shares) at Dec. 31, 2017
Ending Balance at Dec. 31, 2017
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of a change in accounting principle
Net income
Other comprehensive income (loss)
Exercise of common stock options
Exercise of common stock options
Stock-based compensation and issuance of employee benefit plan stock
Ending Balance (in shares) at Dec. 31, 2018
Ending Balance at Dec. 31, 2018

Total
$ 13,384

Common Stock
471
$5

Treasury Stock
$ (1,837)

Additional Paid-In Capital
$ 13,394

2,371
(262)
6
1
829
2,962
19,285

1
829
2,962
477
$5

(1,837)

17,186

687
3,033
501
7
1
4,202
27,709

1
4,202
484
$5

(1,837)

21,389

912
10,073
(547)
7
0
5,402
$ 43,549

0
5,402
491
$5

$ (1,837)

$ 26,791

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

$ (723)

$ 2,545
2,371

(262)

(985)

4,916
687
3,033

501

(484)

8,636

(4)

916
10,073

(547)

$ (1,035)

$ 19,625

Description of Business and Accounting Policies
Accounting Policies [Abstract]
Description of Business and Accounting Policies

12 Months Ended
Dec. 31, 2018
DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES Description of Business We seek to be
Earth’s most customer-centric company. In each of our segments, we serve our primary customer
sets, consisting of consumers, sellers, developers, enterprises, and content creators. We serve
consumers through our online and physical stores and focus on selection, price, and convenience.
We offer programs that enable sellers to sell their products in our stores and fulfill orders through
us, and programs that allow authors, musicians, filmmakers, skill and app developers, and others to
publish and sell content. We serve developers and enterprises of all sizes through our AWS
segment, which offers a broad set of global compute, storage, database, and other service
offerings. We also manufacture and sell electronic devices. In addition, we provide services, such as
advertising. We have organized our operations into three segments: North America, International,
and AWS. See “Note 10 — Segment Information.” Prior Period Reclassifications Certain prior period
amounts have been reclassified to conform to the current period presentation, including the
addition of restricted cash to cash and cash equivalents on our consolidated statements of cash
flows as a result of the adoption of new accounting guidance. Principles of Consolidation The
consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned
subsidiaries, and those entities in which we have a variable interest and of which we are the
primary beneficiary, including certain entities in India and China and that support our seller lending
financing activities (collectively, the “Company”). Intercompany balances and transactions between
consolidated entities are eliminated. The financial results of Whole Foods Market, Inc. (“Whole
Foods Market”) have been included in our consolidated financial statements from the date of
acquisition on August 28, 2017. Use of Estimates The preparation of financial statements in
conformity with GAAP requires estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the
consolidated financial statements and accompanying notes. Estimates are used for, but not limited
to, income taxes, commitments and contingencies, valuation of acquired intangibles and goodwill,
stock-based compensation forfeiture rates, vendor funding, and inventory valuation. Actual results
could differ materially from those estimates. Earnings per Share Basic earnings per share is
calculated using our weighted-average outstanding common shares. Diluted earnings per share is

Cash, Cash Equivalents, and Marketable Securities
Investments, Debt and Equity Securities [Abstract]
Cash, Cash Equivalents, and Marketable Securities

12 Months Ended
Dec. 31, 2018
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND MARKETABLE SECURITIES As of December 31,
2017 and 2018 , our cash, cash equivalents, restricted cash, and marketable securities primarily
consisted of cash, AAA-rated money market funds, U.S. and foreign government and agency
securities, and other investment grade securities. Cash equivalents and marketable securities are
recorded at fair value. The following table summarizes, by major security type, our cash, cash
equivalents, restricted cash, and marketable securities that are measured at fair value on a
recurring basis and are categorized using the fair value hierarchy (in millions): December 31, 2017
Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated Fair Value
Cash $ 9,982 $ — $ — $ 9,982 Level 1 securities: Money market funds 11,343 — — 11,343 Equity
securities 23 30 — 53 Level 2 securities: Foreign government and agency securities 620 — — 620
U.S. government and agency securities 4,841 1 (19 ) 4,823 Corporate debt securities 4,265 1 (9 )
4,257 Asset-backed securities 910 — (5 ) 905 Other fixed income securities 340 — (2 ) 338 $ 32,324
$ 32 $ (35 ) $ 32,321 Less: Restricted cash, cash equivalents, and marketable securities (1) (1,335 )
Total cash, cash equivalents, and marketable securities $ 30,986 December 31, 2018 Cost or
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated Fair Value Cash $
10,406 $ — $ — $ 10,406 Level 1 securities: Money market funds 12,515 — — 12,515 Equity
securities 29 143 (2 ) 170 Level 2 securities: Foreign government and agency securities 815 — —
815 U.S. government and agency securities 11,686 1 (20 ) 11,667 Corporate debt securities 5,008 1
(19 ) 4,990 Asset-backed securities 896 — (4 ) 892 Other fixed income securities 190 — (2 ) 188
Equity securities 28 5 — 33 $ 41,573 $ 150 $ (47 ) $ 41,676 Less: Restricted cash, cash equivalents,
and marketable securities (1) (426 ) Total cash, cash equivalents, and marketable securities $
41,250 ___________________ (1) We are required to pledge or otherwise restrict a portion of our
cash, cash equivalents, and marketable securities as collateral for real estate leases, amounts due
to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit. We
classify cash, cash equivalents, and marketable securities with use restrictions of less than twelve
months as “Accounts receivable, net and other” and of twelve months or longer as non-current
“Other assets” on our consolidated balance sheets. See “Note 7 — Commitments and
Contingencies.” The following table summarizes gross gains and gross losses realized on sales of

Property and Equipment
Property, Plant and Equipment [Abstract]
Property and Equipment

12 Months Ended
Dec. 31, 2018
PROPERTY AND EQUIPMENT Property and equipment, at cost, consisted of the following (in
millions): December 31, 2017 2018 Gross property and equipment (1): Land and buildings $ 23,896
$ 31,741 Equipment 42,244 54,591 Other assets 2,438 2,577 Construction in progress 4,078 6,861
Gross property and equipment 72,656 95,770 Total accumulated depreciation and amortization (1)
23,790 33,973 Total property and equipment, net $ 48,866 $ 61,797 ___________________ (1) We
revised our prior year presentation of gross property and equipment and total accumulated
depreciation and amortization to include all property and equipment in service, including
equipment which is fully-depreciated, to conform to the current year presentation. Total property
and equipment, net remains unchanged for the prior year. Depreciation expense on property and
equipment was $6.4 billion , $8.8 billion , and $12.1 billion which includes amortization of property
and equipment acquired under capital leases of $3.8 billion , $5.4 billion , and $7.3 billion for 2016 ,
2017 , and 2018 . Gross assets recorded under capital leases were $26.4 billion and $36.1 billion as
of December 31, 2017 and 2018 . Accumulated amortization associated with capital leases was
$13.4 billion and $19.8 billion as of December 31, 2017 and 2018 . We capitalize construction in
progress and record a corresponding long-term liability for build-to-suit lease agreements where
we are considered the owner, for accounting purposes, during the construction period. For
buildings under build-to-suit lease arrangements where we have taken occupancy, which do not
qualify for sales recognition under the sale-leaseback accounting guidance, we determined that we
continue to be the deemed owner of these buildings. This is principally due to our significant
investment in tenant improvements. As a result, the buildings are being depreciated over the
shorter of their useful lives or the related leases’ terms. Additionally, certain build-to-suit lease
arrangements and finance leases provide purchase options. Upon occupancy, the long-term
construction obligations are considered long-term finance lease obligations with amounts payable
during the next 12 months recorded as “Accrued expenses and other.” Gross assets remaining
under finance leases were $5.4 billion and $7.5 billion as of December 31, 2017 and 2018 .
Accumulated amortization associated with finance leases was $635 million and $1.1 billion as of
December 31, 2017 and 2018 . As disclosed in “Note 1 — Description of Business and Accounting
Policies,” our accounting for build-to-suit and finance leases will change on January 1, 2019.

Acquisitions, Goodwill, and Acquired Intangible Assets
Business Combinations [Abstract]
Acquisitions, Goodwill, and Acquired Intangible Assets

12 Months Ended
Dec. 31, 2018
ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS 2016 Acquisition Activity During
2016 , we acquired certain companies for an aggregate purchase price of $103 million . The primary
reason for these acquisitions, none of which were individually material to our consolidated financial
statements, was to acquire technologies and know-how to enable Amazon to serve customers
more effectively. 2017 Acquisition Activity On May 12, 2017 , we acquired Souq Group Ltd.
(“Souq”), an e-commerce company, for approximately $583 million , net of cash acquired, and on
August 28, 2017, we acquired Whole Foods Market, a grocery store chain, for approximately $13.2
billion , net of cash acquired. Both acquisitions are intended to expand our retail presence. During
2017 , we also acquired certain other companies for an aggregate purchase price of $204 million .
The primary reason for our other 2017 acquisitions was to acquire technologies and know-how to
enable Amazon to serve customers more effectively. 2018 Acquisition Activity On April 12, 2018 ,
we acquired Ring Inc. (“Ring”) for cash consideration of approximately $839 million , net of cash
acquired, and on September 11, 2018 , we acquired PillPack, Inc. (“PillPack”) for cash consideration
of approximately $753 million , net of cash acquired, to expand our product and service offerings.
During 2018 , we also acquired certain other companies for an aggregate purchase price of $57
million . The primary reason for our other 2018 acquisitions was to acquire technologies and knowhow to enable Amazon to serve customers more effectively. Acquisition-related costs were
expensed as incurred and were not significant. Pro forma results of operations have not been
presented because the effects of these acquisitions, individually and in the aggregate, were not
material to our consolidated results of operations. Purchase Price Allocation The aggregate
purchase price of these acquisitions was allocated as follows (in millions): December 31, 2016 2017
2018 Purchase Price Cash paid, net of cash acquired $ 81 $ 13,859 $ 1,618 Indemnification
holdback 22 104 31 $ 103 $ 13,963 $ 1,649 Allocation Goodwill $ 60 $ 9,501 $ 1,228 Intangible
assets (1): Marketing-related 2 1,987 186 Contract-based 1 440 13 Technology-based 53 166 285
Customer-related 1 54 193 57 2,647 677 Property and equipment 3 3,810 11 Deferred tax assets 17
117 174 Other assets acquired 10 1,858 282 Long-term debt (5 ) (1,165 ) (176 ) Deferred tax
liabilities (18 ) (961 ) (159 ) Other liabilities assumed (21 ) (1,844 ) (388 ) $ 103 $ 13,963 $ 1,649
___________________ (1) Intangible assets acquired in 2016 , 2017 , and 2018 have estimated

Long-Term Debt
Debt Disclosure [Abstract]
Long-Term Debt

12 Months Ended
Dec. 31, 2018
DEBT As of December 31, 2018 , we had $24.3 billion of unsecured senior notes outstanding (the
“Notes”). As of December 31, 2017 and 2018 , the net unamortized discount and debt issuance
costs on the Notes was $99 million and $101 million . We also have other long-term debt with a
carrying amount, including the current portion and borrowings under our credit facility, of $692
million and $715 million as of December 31, 2017 and 2018 . The face value of our total long-term
debt obligations is as follows (in millions): December 31, 2017 2018 2.600% Notes due on
December 5, 2019 (2) 1,000 1,000 1.900% Notes due on August 21, 2020 (3) 1,000 1,000 3.300%
Notes due on December 5, 2021 (2) 1,000 1,000 2.500% Notes due on November 29, 2022 (1)
1,250 1,250 2.400% Notes due on February 22, 2023 (3) 1,000 1,000 2.800% Notes due on August
22, 2024 (3) 2,000 2,000 3.800% Notes due on December 5, 2024 (2) 1,250 1,250 5.200% Notes
due on December 3, 2025 (4) 1,000 1,000 3.150% Notes due on August 22, 2027 (3) 3,500 3,500
4.800% Notes due on December 5, 2034 (2) 1,250 1,250 3.875% Notes due on August 22, 2037 (3)
2,750 2,750 4.950% Notes due on December 5, 2044 (2) 1,500 1,500 4.050% Notes due on August
22, 2047 (3) 3,500 3,500 4.250% Notes due on August 22, 2057 (3) 2,250 2,250 Credit Facility 592
594 Other long-term debt 100 121 Total debt 24,942 24,965 Less current portion of long-term debt
(100 ) (1,371 ) Face value of long-term debt $ 24,842 $ 23,594 _____________________________
(1) Issued in November 2012, effective interest rate of the 2022 Notes was 2.66% . (2) Issued in
December 2014, effective interest rates of the 2019, 2021, 2024, 2034, and 2044 Notes were
2.73% , 3.43% , 3.90% , 4.92% , and 5.11% . (3) Issued in August 2017, effective interest rates of the
2020, 2023, 2024, 2027, 2037, 2047, and 2057 Notes were 2.16% , 2.56% , 2.95% , 3.25% , 3.94% ,
4.13% , and 4.33% . (4) Consists of $872 million of 2025 Notes issued in December 2017 in
exchange for notes assumed in connection with the acquisition of Whole Foods Market and $128
million of 2025 Notes issued by Whole Foods Market that did not participate in our December 2017
exchange offer. The effective interest rate of the 2025 Notes was 3.02% . Interest on the Notes
issued in 2012 is payable semi-annually in arrears in May and November . Interest on the Notes
issued in 2014 is payable semi-annually in arrears in June and December . Interest on the Notes
issued in 2017 is payable semi-annually in arrears in February and August. Interest on the 2025
Notes is payable semi-annually in arrears in June and December. We may redeem the Notes at any

Other Long-Term Liabilities
Other Liabilities Disclosure [Abstract]
Other Long-Term Liabilities

12 Months Ended
Dec. 31, 2018
OTHER LONG-TERM LIABILITIES Our other long-term liabilities are summarized as follows (in
millions): December 31, 2017 2018 Long-term capital lease obligations $ 8,438 $ 9,650 Long-term
finance lease obligations 4,745 6,642 Construction liabilities 1,350 2,516 Tax contingencies 1,004
896 Long-term deferred tax liabilities 990 1,490 Other 4,448 6,019 Total other long-term liabilities
$ 20,975 $ 27,213 Capital and Finance Leases Certain of our equipment, primarily related to
technology infrastructure, and buildings have been acquired under capital leases. Long-term capital
lease obligations are as follows (in millions): December 31, 2018 Gross capital lease obligations $
17,952 Less imputed interest (582 ) Present value of net minimum lease payments 17,370 Less
current portion of capital lease obligations (7,720 ) Total long-term capital lease obligations $ 9,650
We continue to be the deemed owner after occupancy of certain facilities that were constructed as
build-to-suit lease arrangements and previously reflected as “Construction liabilities.” As such,
these arrangements are accounted for as finance leases. Long-term finance lease obligations are as
follows (in millions): December 31, 2018 Gross finance lease obligations $ 8,376 Less imputed
interest (1,323 ) Present value of net minimum lease payments 7,053 Less current portion of
finance lease obligations (411 ) Total long-term finance lease obligations $ 6,642 As disclosed in
“Note 1 — Description of Business and Accounting Policies,” our accounting for build-to-suit and
finance leases will change on January 1, 2019. Construction Liabilities We capitalize construction in
progress and record a corresponding long-term liability for build-to-suit lease agreements where
we are considered the owner during the construction period for accounting purposes. These
liabilities primarily relate to our corporate buildings and fulfillment, sortation, delivery, and data
centers. As disclosed in “Note 1 — Description of Business and Accounting Policies,” our accounting
for build-to-suit and finance leases will change on January 1, 2019. Tax Contingencies We have
recorded reserves for tax contingencies, inclusive of accrued interest and penalties, for U.S. and
foreign income taxes. These reserves primarily relate to transfer pricing and state income taxes,
and are presented net of offsetting deferred tax assets related to net operating losses and tax
credits. See “Note 9 — Income Taxes” for discussion of tax contingencies.

Commitments and Contingencies
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies

12 Months Ended
Dec. 31, 2018
COMMITMENTS AND CONTINGENCIES Commitments We have entered into non-cancellable
operating, capital, and finance leases for equipment and office, fulfillment, sortation, delivery, data
center, physical store, and renewable energy facilities. Rental expense under operating lease
agreements was $1.4 billion , $2.2 billion , and $3.4 billion for 2016 , 2017 , and 2018 . The
following summarizes our principal contractual commitments, excluding open orders for purchases
that support normal operations and are generally cancellable, as of December 31, 2018 (in
millions): Year Ended December 31, 2019 2020 2021 2022 2023 Thereafter Total Debt principal and
interest $ 2,277 $ 2,161 $ 1,861 $ 2,078 $ 1,781 $ 30,013 $ 40,171 Capital lease obligations,
including interest (1) 7,807 5,742 2,725 704 473 501 17,952 Finance lease obligations, including
interest (2) 628 640 652 664 675 5,117 8,376 Operating leases 3,127 3,070 2,775 2,473 2,195
13,026 26,666 Unconditional purchase obligations (3) 3,523 4,103 3,291 3,098 2,974 5,204 22,193
Other commitments (4) (5) 2,618 1,455 1,056 843 808 8,875 15,655 Total commitments $ 19,980 $
17,171 $ 12,360 $ 9,860 $ 8,906 $ 62,736 $ 131,013 ___________________ (1) Excluding interest,
current capital lease obligations of $5.8 billion and $7.7 billion are recorded within “Accrued
expenses and other” as of December 31, 2017 and 2018 , and $8.4 billion and $9.6 billion are
recorded within “Other long-term liabilities” as of December 31, 2017 and 2018 . (2) Excluding
interest, current finance lease obligations of $282 million and $411 million are recorded within
“Accrued expenses and other” as of December 31, 2017 and 2018 , and $4.7 billion and $6.6 billion
are recorded within “Other long-term liabilities” as of December 31, 2017 and 2018 . (3) Includes
unconditional purchase obligations related to certain products offered in our Whole Foods Market
stores and long-term agreements to acquire and license digital media content that are not
reflected on the consolidated balance sheets. For those digital media content agreements with
variable terms, we do not estimate the total obligation beyond any minimum quantities and/or
pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at
the option of the content provider are included to the extent such commitments are fixed or a
minimum amount is specified. (4) Includes the estimated timing and amounts of payments for rent
and tenant improvements associated with build-to-suit lease arrangements and equipment lease
arrangements that have not been placed in service and digital media content liabilities associated

Stockholders' Equity
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stockholders' Equity

12 Months Ended
Dec. 31, 2018
STOCKHOLDERS’ EQUITY Preferred Stock We have authorized 500 million shares of $0.01 par value
preferred stock. No preferred stock was outstanding for any year presented. Common Stock
Common shares outstanding plus shares underlying outstanding stock awards totaled 497 million ,
504 million , and 507 million , as of December 31, 2016 , 2017 , and 2018 . These totals include all
vested and unvested stock awards outstanding, including those awards we estimate will be
forfeited. Stock Repurchase Activity In February 2016, the Board of Directors authorized a program
to repurchase up to $5.0 billion of our common stock, with no fixed expiration. There were no
repurchases of common stock in 2016 , 2017 , or 2018 . Stock Award Plans Employees vest in
restricted stock unit awards and stock options over the corresponding service term, generally
between two and five years . Stock Award Activity Stock-based compensation expense is as follows
(in millions): Year Ended December 31, 2016 2017 2018 Cost of sales $ 16 $ 47 $ 73 Fulfillment 657
911 1,121 Marketing 323 511 769 Technology and content 1,664 2,305 2,888 General and
administrative 315 441 567 Total stock-based compensation expense (1) $ 2,975 $ 4,215 $ 5,418
___________________ (1) The related tax benefits were $907 million , $860 million , and $1.1
billion for 2016, 2017, and 2018. In 2017 and 2018, the tax benefit reflects the permanent
reduction in the U.S. statutory corporate tax rate from 35% to 21% . The following table
summarizes our restricted stock unit activity (in millions): Number of Units Weighted Average
Grant-Date Fair Value Outstanding as of January 1, 2016 18.9 $ 362 Units granted 9.3 660 Units
vested (6.1 ) 321 Units forfeited (2.3 ) 440 Outstanding as of December 31, 2016 19.8 506 Units
granted 8.9 946 Units vested (6.8 ) 400 Units forfeited (1.8 ) 649 Outstanding as of December 31,
2017 20.1 725 Units granted 5.0 1,522 Units vested (7.1 ) 578 Units forfeited (2.1 ) 862 Outstanding
as of December 31, 2018 15.9 $ 1,024 Scheduled vesting for outstanding restricted stock units as of
December 31, 2018 , is as follows (in millions): Year Ended 2019 2020 2021 2022 2023 Thereafter
Total Scheduled vesting — restricted stock units 6.9 5.6 2.4 0.8 0.1 0.1 15.9 As of December 31,
2018 , there was $6.6 billion of net unrecognized compensation cost related to unvested stockbased compensation arrangements. This compensation is recognized on an accelerated basis with
approximately half of the compensation expected to be expensed in the next twelve months, and
has a weighted-average recognition period of 1.1 years. The estimated forfeiture rate as of

Income Taxes
Income Tax Disclosure [Abstract]
Income Taxes

12 Months Ended
Dec. 31, 2018
INCOME TAXES In 2016 , 2017 , and 2018 , we recorded net tax provisions of $1.4 billion , $769
million , and $1.2 billion . We have tax benefits relating to excess stock-based compensation
deductions and accelerated depreciation deductions that are being utilized to reduce our U.S.
taxable income. Cash taxes paid, net of refunds, were $412 million , $957 million , and $1.2 billion
for 2016 , 2017 , and 2018 . The U.S. Tax Act was signed into law on December 22, 2017. The U.S.
Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the
statutory corporate tax rate from 35% to 21% , eliminating certain deductions, imposing a
mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax
regimes, and changing how foreign earnings are subject to U.S. tax. The U.S. Tax Act also enhanced
and extended the option to claim accelerated depreciation deductions by allowing full expensing of
qualified property, primarily equipment, through 2022. We reasonably estimated the effects of the
U.S. Tax Act and recorded provisional amounts in our financial statements as of December 31,
2017. We recorded a provisional tax benefit for the impact of the U.S. Tax Act of approximately
$789 million . This amount was primarily comprised of the remeasurement of federal net deferred
tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate to
21% from 35% , after taking into account the mandatory one-time tax on the accumulated earnings
of our foreign subsidiaries. The amount of this one-time tax was not material. In 2018, we
completed our determination of the accounting implications of the U.S. Tax Act. The components
of the provision for income taxes, net are as follows (in millions): Year Ended December 31, 2016
2017 2018 Current taxes: U.S. Federal $ 1,136 $ (137 ) $ (129 ) U.S. State 208 211 322 International
327 724 563 Current taxes 1,671 798 756 Deferred taxes: U.S. Federal 116 (202 ) 565 U.S. State (31
) (26 ) 5 International (331 ) 199 (129 ) Deferred taxes (246 ) (29 ) 441 Provision for income taxes,
net $ 1,425 $ 769 $ 1,197 U.S. and international components of income before income taxes are as
follows (in millions): Year Ended December 31, 2016 2017 2018 U.S. $ 4,551 $ 5,630 $ 11,157
International (659 ) (1,824 ) 104 Income before income taxes $ 3,892 $ 3,806 $ 11,261 The items
accounting for differences between income taxes computed at the federal statutory rate and the
provision recorded for income taxes are as follows (in millions): Year Ended December 31, 2016
2017 2018 Income taxes computed at the federal statutory rate (1) $ 1,362 $ 1,332 $ 2,365 Effect

Segment Information
Segment Reporting [Abstract]
Segment Information

12 Months Ended
Dec. 31, 2018
SEGMENT INFORMATION We have organized our operations into three segments: North America,
International, and AWS. We allocate to segment results the operating expenses “Fulfillment,”
“Marketing,” “Technology and content,” and “General and administrative” based on usage, which
is generally reflected in the segment in which the costs are incurred. The majority of technology
infrastructure costs are allocated to the AWS segment based on usage. The majority of the
remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our
North America segment. There are no internal revenue transactions between our reportable
segments. These segments reflect the way our chief operating decision maker evaluates the
Company’s business performance and manages its operations. North America The North America
segment primarily consists of amounts earned from retail sales of consumer products (including
from sellers) and subscriptions through North America-focused online and physical stores. This
segment includes export sales from these online stores. International The International segment
primarily consists of amounts earned from retail sales of consumer products (including from sellers)
and subscriptions through internationally-focused online stores. This segment includes export sales
from these internationally-focused online stores (including export sales from these online stores to
customers in the U.S., Mexico, and Canada), but excludes export sales from our North Americafocused online stores. AWS The AWS segment consists of amounts earned from global sales of
compute, storage, database, and other service offerings for start-ups, enterprises, government
agencies, and academic institutions. Information on reportable segments and reconciliation to
consolidated net income (loss) is as follows (in millions): Year Ended December 31, 2016 2017 2018
North America Net sales $ 79,785 $ 106,110 $ 141,366 Operating expenses 77,424 103,273
134,099 Operating income $ 2,361 $ 2,837 $ 7,267 International Net sales $ 43,983 $ 54,297 $
65,866 Operating expenses 45,266 57,359 68,008 Operating income (loss) $ (1,283 ) $ (3,062 ) $
(2,142 ) AWS Net sales $ 12,219 $ 17,459 $ 25,655 Operating expenses 9,111 13,128 18,359
Operating income $ 3,108 $ 4,331 $ 7,296 Consolidated Net sales $ 135,987 $ 177,866 $ 232,887
Operating expenses 131,801 173,760 220,466 Operating income 4,186 4,106 12,421 Total nonoperating income (expense) (294 ) (300 ) (1,160 ) Provision for income taxes (1,425 ) (769 ) (1,197 )
Equity-method investment activity, net of tax (96 ) (4 ) 9 Net income $ 2,371 $ 3,033 $ 10,073 Net

Quarterly Results (Unaudited)
Quarterly Financial Information Disclosure [Abstract]
Quarterly Results (Unaudited)

12 Months Ended
Dec. 31, 2018
QUARTERLY RESULTS (UNAUDITED) The following tables contain selected unaudited statement of
operations information for each quarter of 2017 and 2018 . The following information reflects all
normal recurring adjustments necessary for a fair presentation of the information for the periods
presented. The operating results for any quarter are not necessarily indicative of results for any
future period. Our business is affected by seasonality, which historically has resulted in higher sales
volume during our fourth quarter. Unaudited quarterly results are as follows (in millions, except per
share data): Year Ended December 31, 2017 (1) First Second Third Fourth Net sales $ 35,714 $
37,955 $ 43,744 $ 60,453 Operating income 1,005 628 347 2,127 Income before income taxes 953
666 316 1,872 Provision for income taxes (229 ) (467 ) (58 ) (16 ) Net income 724 197 256 1,856
Basic earnings per share 1.52 0.41 0.53 3.85 Diluted earnings per share 1.48 0.40 0.52 3.75 Shares
used in computation of earnings per share: Basic 477 479 481 483 Diluted 490 492 494 496 Year
Ended December 31, 2018 (1) First Second Third Fourth Net sales $ 51,042 $ 52,886 $ 56,576 $
72,383 Operating income 1,927 2,983 3,724 3,786 Income before income taxes 1,916 2,605 3,390
3,350 Provision for income taxes (287 ) (74 ) (508 ) (327 ) Net income 1,629 2,534 2,883 3,027 Basic
earnings per share 3.36 5.21 5.91 6.18 Diluted earnings per share 3.27 5.07 5.75 6.04 Shares used
in computation of earnings per share: Basic 484 486 488 490 Diluted 498 500 501 501
___________________ (1) The sum of quarterly amounts, including per share amounts, may not
equal amounts reported for year-to-date periods. This is due to the effects of rounding and
changes in the number of weighted-average shares outstanding for each period. (2) We acquired
Whole Foods Market on August 28, 2017. The results of Whole Foods Market have been included in
our results of operation from the date of acquisition. See Item 8 of Part II, “Financial Statements
and Supplementary Data — Note 4 — Acquisitions, Goodwill, and Acquired Intangible Assets” for
additional information regarding this transaction.

Description of Business and Accounting Policies (Policies)
Accounting Policies [Abstract]
Segment Information
Prior Period Reclassifications

Principles of Consolidation

Use of Estimates

Earnings per Share

Revenue

Fulfillment

Marketing

Technology and Content

General and Administrative

Stock-Based Compensation

Other Operating Expense, Net

Other Income (Expense), Net

Income Taxes

Fair Value of Financial Instruments

Cash and Cash Equivalents

Inventories

Accounts Receivable, Net and Other

Software Development Costs

Property and Equipment, Net

Leases

Asset Retirement Obligations

Goodwill

Other Assets

Video and Music Content

Investments

Long-Lived Assets

Accrued Expenses and Other

Unearned Revenue

Foreign Currency

Accounting Pronouncements Recently Adopted and Accounting Pronouncements Not Yet Adopted

12 Months Ended
Dec. 31, 2018
We have organized our operations into three segments: North America, International, and AWS.
Prior Period Reclassifications Certain prior period amounts have been reclassified to conform to the
current period presentation, including the addition of restricted cash to cash and cash equivalents
on our consolidated statements of cash flows as a result of the adoption of new accounting
guidance.
Principles of Consolidation The consolidated financial statements include the accounts of
Amazon.com, Inc., its wholly-owned subsidiaries, and those entities in which we have a variable
interest and of which we are the primary beneficiary, including certain entities in India and China
and that support our seller lending financing activities (collectively, the “Company”). Intercompany
balances and transactions between consolidated entities are eliminated. The financial results of
Whole Foods Market, Inc. (“Whole Foods Market”) have been included in our consolidated financial
statements from the date of acquisition on August 28, 2017.
Use of Estimates The preparation of financial statements in conformity with GAAP requires
estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and
expenses, and related disclosures of contingent liabilities in the consolidated financial statements
and accompanying notes. Estimates are used for, but not limited to, income taxes, commitments
and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation
forfeiture rates, vendor funding, and inventory valuation. Actual results could differ materially from
those estimates.
Earnings per Share Basic earnings per share is calculated using our weighted-average outstanding
common shares. Diluted earnings per share is calculated using our weighted-average outstanding
common shares including the dilutive effect of stock awards as determined under the treasury
stock method. In periods when we have a net loss, stock awards are excluded from our calculation
of earnings per share as their inclusion would have an antidilutive effect.

Revenue Revenue is measured based on the amount of consideration that we expect to receive,
reduced by estimates for return allowances, promotional discounts, and rebates. Revenue also
excludes any amounts collected on behalf of third parties, including sales and indirect taxes. In
arrangements where we have multiple performance obligations, the transaction price is allocated
to each performance obligation using the relative stand-alone selling price. We generally determine
stand-alone selling prices based on the prices charged to customers or using expected cost plus a
margin. A description of our principal revenue generating activities is as follows: Retail sales - We
offer consumer products through our online and physical stores. Revenue is recognized when
control of the goods is transferred to the customer, which generally occurs upon our delivery to a
third-party carrier or, in the case of an Amazon delivery, to the customer. Third-party seller services
- We offer programs that enable sellers to sell their products in our stores, and fulfill orders
through us. We are not the seller of record in these transactions. The commissions and any related
fulfillment and shipping fees we earn from these arrangements are recognized when the services
are rendered, which generally occurs upon delivery of the related products to a third-party carrier
or, in the case of an Amazon delivery, to the customer. Subscription services - Our subscription
sales include fees associated with Amazon Prime memberships and access to content including
audiobooks, digital video, e-books, digital music, and other non-AWS subscription services. Prime
memberships provide our customers with access to an evolving suite of benefits that represent a
single stand-ready obligation. Subscriptions are paid for at the time of or in advance of delivering
the services. Revenue from such arrangements is recognized over the subscription period. AWS Our AWS arrangements include global sales of compute, storage, database, and other services.
Revenue is allocated to services using stand-alone selling prices and is primarily recognized when
the customer uses these services, based on the quantity of services rendered, such as compute or
storage capacity delivered on-demand. Certain services, including compute and database, are also
offered as a fixed quantity over a specified term, for which revenue is recognized ratably. Sales
commissions we pay in connection with contracts that exceed one year are capitalized and
amortized over the contract term. Other - Other revenue primarily includes sales of advertising
services,
which
are recognized
as ads are
delivered
based
onincurred
the number
of clicksand
or impressions.
Fulfillment
Fulfillment
costs primarily
consist
of those
costs
in operating
staffing our
North America and International segments’ fulfillment centers, customer service centers, and
physical stores, including costs attributable to buying, receiving, inspecting, and warehousing
inventories; picking, packaging, and preparing customer orders for shipment; payment processing
and related transaction costs, including costs associated with our guarantee for certain seller
transactions; responding to inquiries from customers; and supply chain management for our
manufactured electronic devices. Fulfillment costs also include amounts paid to third parties that
assist us in fulfillment and customer service operations.
Marketing Marketing costs primarily consist of targeted online advertising, payroll and related
expenses for personnel engaged in marketing and selling activities, and television advertising. We
pay commissions to third parties when their customer referrals result in sales. We also participate
in cooperative advertising arrangements with certain of our vendors, and other third parties.
Advertising and other promotional costs to market our products and services are expensed as
incurred

Technology and Content Technology and content costs include payroll and related expenses for
employees involved in the research and development of new and existing products and services,
development, design, and maintenance of our stores, curation and display of products and services
made available in our online stores, and infrastructure costs. Infrastructure costs include servers,
networking equipment, and data center related depreciation, rent, utilities, and other expenses
necessary to support AWS and other Amazon businesses. Collectively, these costs reflect the
investments we make in order to offer a wide variety of products and services to our customers.
Technology and content costs are generally expensed as incurred.
General and Administrative General and administrative expenses primarily consist of payroll and
related expenses; facilities and equipment expenses, such as depreciation expense and rent;
professional fees and litigation costs; and other general corporate costs for corporate functions,
including accounting, finance, tax, legal, and human resources, among others.
Stock-Based Compensation Compensation cost for all stock awards expected to vest is measured at
fair value on the date of grant and recognized over the service period. The fair value of restricted
stock units is determined based on the number of shares granted and the quoted price of our
common stock. Such value is recognized as expense over the service period, net of estimated
forfeitures, using the accelerated method. The estimated number of stock awards that will
ultimately vest requires judgment, and to the extent actual results or updated estimates differ from
our current estimates, such amounts will be recorded as a cumulative adjustment in the period
estimates are revised. We consider many factors when estimating expected forfeitures, including
historical forfeiture experience and employee level.
Other Operating Expense, Net Other operating expense, net, consists primarily of marketingrelated, contract-based, and customer-related intangible asset amortization expense, and expenses
related to legal settlements.
Other Income (Expense), Net Other income (expense), net, consists primarily of foreign currency
gains (losses) of $21 million , $247 million , and $(206) million in 2016 , 2017 , and 2018 and equity
warrant valuation gains (losses) of $67 million , $109 million , and $(131) million in 2016 , 2017 ,
and 2018

Income Taxes Income tax expense includes U.S. (federal and state) and foreign income taxes.
Certain foreign subsidiary earnings are subject to U.S. taxation under the U.S. Tax Act, which also
repeals U.S. taxation on the subsequent repatriation of those earnings. We intend to invest
substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries,
indefinitely outside of the U.S. in those jurisdictions in which we would incur significant, additional
costs upon repatriation of such amounts. Deferred income tax balances reflect the effects of
temporary differences between the carrying amounts of assets and liabilities and their tax bases
and are stated at enacted tax rates expected to be in effect when taxes are actually paid or
recovered. Deferred tax assets are evaluated for future realization and reduced by a valuation
allowance to the extent we believe they will not be realized. We consider many factors when
assessing the likelihood of future realization of our deferred tax assets, including our recent
cumulative loss experience and expectations of future earnings, capital gains and investment in
such jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other
relevant factors. We utilize a two-step approach to recognizing and measuring uncertain income
tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than not the position will
be sustained on audit, including resolution of related appeals or litigation processes. The second
step is to measure the tax benefit as the largest amount which is more than 50% likely of being
realized upon ultimate settlement. We consider many factors when evaluating our tax positions
and estimating our tax benefits, which may require periodic adjustments and which may not
accurately forecast actual outcomes. We include interest and penalties related to our tax
contingencies in income tax expense.

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. For our cash, cash equivalents, or marketable
securities, we measure the fair value of money market funds and equity securities based on quoted
prices in active markets for identical assets or liabilities. All other financial instruments 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 any cash, cash equivalents, or marketable securities categorized as Level 3
assets as of December 31, 2017 and 2018 . As part of entering into commercial agreements, we
often obtain equity warrant assets giving us the right to acquire stock of other companies. As of
December 31, 2017 and 2018 , these warrants had a fair value of $441 million and $440 million ,
and are recorded within “Other assets” on our consolidated balance sheets. The related gain (loss)
recorded in “Other income (expense), net” was $67 million , $109 million , and $(131) million in
2016 , 2017 , and 2018 . These assets 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. 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, 2017 and 2018 , customer receivables, net, were $6.4 billion and $9.4 billion ,
vendor receivables, net, were $2.6 billion and $3.2 billion , and seller receivables, net, were $692
million and $710 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 known troubled accounts and historical experience of losses
incurred. 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.

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. Incentives that we receive from property and equipment vendors are recorded as a
reduction in our costs. Property includes buildings and land that we own, along with property we
have acquired under build-to-suit, finance, and capital lease arrangements. Equipment includes
assets such as servers and networking equipment, heavy equipment, and other fulfillment
equipment. Depreciation 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
for our servers, five years for networking equipment, ten years for heavy equipment, and three to
seven years for other fulfillment equipment). Depreciation expense is classified within the
corresponding operating expense categories on our consolidated statements of operations.

Leases and Asset Retirement Obligations We categorize leases at their inception as either operating
or capital leases. On certain of our lease agreements, we may receive rent holidays and other
incentives provided by the landlord. We recognize lease costs on a straight-line basis without
regard to deferred payment terms, such as rent holidays, that defer the commencement date of
required payments. Additionally, incentives we receive are treated as a reduction of our costs over
the term of the agreement. Leasehold improvements are capitalized at cost and amortized over the
lesser of their expected useful life or the non-cancellable term of the lease. We establish assets and
liabilities for the estimated construction costs incurred under build-to-suit lease arrangements to
the extent we are involved in the construction of structural improvements or take construction risk
prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, we
assess whether these arrangements qualify for sales recognition under the sale-leaseback
accounting guidance. If we continue to be the deemed owner, the facilities are accounted for as
finance leases. 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 depreciated over
the lease period into operating expense, and the recorded liabilities are accreted to the future
value of the estimated retirement costs. As disclosed in “Accounting Pronouncements Not Yet
Adopted,” our accounting for build-to-suit and finance leases will change on January 1, 2019.

Leases and Asset Retirement Obligations We categorize leases at their inception as either operating
or capital leases. On certain of our lease agreements, we may receive rent holidays and other
incentives provided by the landlord. We recognize lease costs on a straight-line basis without
regard to deferred payment terms, such as rent holidays, that defer the commencement date of
required payments. Additionally, incentives we receive are treated as a reduction of our costs over
the term of the agreement. Leasehold improvements are capitalized at cost and amortized over the
lesser of their expected useful life or the non-cancellable term of the lease. We establish assets and
liabilities for the estimated construction costs incurred under build-to-suit lease arrangements to
the extent we are involved in the construction of structural improvements or take construction risk
prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, we
assess whether these arrangements qualify for sales recognition under the sale-leaseback
accounting guidance. If we continue to be the deemed owner, the facilities are accounted for as
finance leases. 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 depreciated over
the lease period into operating expense, and the recorded liabilities are accreted to the future
value of the estimated retirement costs. As disclosed in “Accounting Pronouncements Not Yet
Adopted,” our accounting for build-to-suit and finance leases will change on January 1, 2019.

Goodwill We evaluate goodwill for impairment annually or more frequently when an event occurs
or circumstances change that indicate the carrying value may not be recoverable. In testing
goodwill for impairment, we may elect to utilize a qualitative assessment to evaluate whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If our
qualitative assessment indicates that goodwill impairment is more likely than not, we perform a
two-step impairment test. We test goodwill for impairment under the two-step impairment test 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.
We estimate the fair value of the reporting units using discounted cash flows. Forecasts of future
cash flows are based on our best estimate of future net sales and operating expenses, based
primarily on expected category expansion, pricing, market segment share, and general economic
conditions. We completed the required annual testing of goodwill for impairment for all reporting
units as of April 1, 2018 , and determined that goodwill is no t impaired as the fair value of our
reporting units substantially exceeded their book value. There were no events that caused us to
update our annual impairment test.

Other Assets Included in “Other assets” on our consolidated balance sheets are amounts primarily
related to acquired intangible assets, net of accumulated amortization; video and music content,
net of accumulated amortization; long-term deferred tax assets; certain equity investments;
marketable securities restricted for longer than one year, the majority of which are attributable to
collateralization of bank guarantees and debt related to our international operations; and equity
warrant assets.
Video and Music Content We obtain video and music content for customers through licensing
agreements that have a wide range of licensing provisions, which include both fixed and variable
payment schedules. When the license fee for a specific movie, television, or music title is
determinable or reasonably estimable and the content is available for streaming, we recognize an
asset representing the fee and a corresponding liability for the amounts owed. We relieve the
liability as payments are made and we amortize the asset to “Cost of sales” on a straight-line basis
or on an accelerated basis, based on estimated usage patterns, which typically ranges from one to
five years. If we are unable to reasonably estimate the cost per title, no asset or liability is recorded
and licensing costs are expensed as incurred. We also develop original content. Capitalized
production costs associated with our original content are limited by the amount of revenue we
expect to earn, which results in a portion being expensed as incurred. These capitalized costs are
amortized to “Cost of sales” on an accelerated basis that follows the viewing pattern of customer
streams in the first months after availability.

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
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 us
the ability to exercise significant influence, but not control, over an investee. Equity-method
investments are included within “Other assets” on our consolidated balance sheets. Our share of
the earnings or losses as reported by equity-method investees, amortization of basis differences,
and related gains or losses, if any, are classified as “Equity - method investment activity, net of tax”
on our consolidated statements of operations. Equity investments without readily determinable
fair values and 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. 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 (expense), net” on
our consolidated statement of operations. We periodically evaluate whether declines in fair values
of our investments indicate impairment. For debt securities and equity method investments, we
also evaluate whether declines in fair value of our investments below their book value are otherthan-temporary. This evaluation consists of several qualitative and quantitative factors regarding
the severity and duration of the unrealized loss as well as our ability and intent to hold the
investment until a forecasted recovery occurs. Additionally, we assess whether we have plans to
sell the security or it is more likely than not we 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 our investments; duration and severity of the decline in value; and our
strategy
andAssets
intentions
for holding
investment.
Long-Lived
Long-lived
assets,the
other
than goodwill, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets 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, impairment losses are only recorded if the asset’s carrying amount is not recoverable
through its undiscounted, probability-weighted future cash flows. We measure the impairment loss
based on the difference between the carrying amount and estimated fair value. Long-lived assets
are considered held for sale when certain criteria 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.

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, unredeeme...


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