Comparative Analysis Problem

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Income Taxes

Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings. Undistributed earnings of foreign subsidiaries that are indefinitely invested outside of the U.S were $2.5 billion as of December 31, 2013. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable.

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 a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative earnings experience and expectations of future taxable income and capital gains by taxing jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. We allocate our valuation allowance to current and long-term deferred tax assets on a pro-rata basis.

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 that 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 and estimating our tax positions and 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.

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 as of December 31, 2013, or December 31, 2012.

Cash and Cash Equivalents

We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents.

Inventories

Inventories, consisting of products available for sale, are primarily accounted for using the FIFO method, and are valued at the lower of cost or market 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.

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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.

Accounts Receivable, Net and Other

Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to vendor and customer receivables. As of December 31, 2013 and 2012, vendor receivables, net, were $1.3 billion and $1.1 billion, and customer receivables, net, were $1.7 billion and $1.5 billion.

Allowance for Doubtful Accounts

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. The allowance for doubtful accounts was $153 million, $116 million, and $82 million as of December 31, 2013, 2012, and 2011. Additions to the allowance were $172 million, $136 million, and $87 million, and deductions to the allowance were $135 million, $102 million, and $82 million as of December 31, 2013, 2012, and 2011.

Internal-use Software and Website Development

Costs incurred to develop software for internal use and our websites are capitalized and amortized over the estimated useful life of the software. Costs related to design or maintenance of internal-use software and website development are expensed as incurred. For the years ended 2013, 2012, and 2011, we capitalized $581 million (including $87 million of stock- based compensation), $454 million (including $74 million of stock-based compensation), and $307 million (including $51 million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of previously capitalized amounts was $451 million, $327 million, and $236 million for 2013, 2012, and 2011.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation. Property includes buildings and land that we own, along with property we have acquired under build-to-suit, financing, and capital lease arrangements. Equipment includes assets such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal-use software and website development. 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, two years for assets such as internal-use software, three years for our servers, five years for networking equipment, five years for furniture and fixtures, and ten years for heavy 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. 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 financing 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.

Goodwill

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test goodwill for impairment 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

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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 conduct our annual impairment test as of October 1 of each year, and have determined there to be no impairment for any of the periods presented. There were no triggering events identified from the date of our assessment through December 31, 2013 that would require an update to our annual impairment test. See “Note 4—Acquisitions, Goodwill, and Acquired Intangible Assets.”

Other Assets

Included in “Other assets” on our consolidated balance sheets are amounts primarily related to acquired intangible assets, net of amortization; digital video content, net of 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 intellectual property rights, net of amortization.

Content Costs

We obtain digital video content through licensing agreements that have a wide range of licensing provisions and generally have terms from one to five years with fixed payment schedules. When the license fee for a specific movie or television title is determinable or reasonably estimable and available for streaming, we recognize an asset representing the fee per title and a corresponding liability for the amounts owed. We relieve the liability as payments are made and we amortize the asset as cost of sales on a straight-line basis over each title’s contractual window of availability, which typically ranges from six months 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.

Investments

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

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

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

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

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

We periodically evaluate whether declines in fair values of our investments below their book value are other-than- temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as 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 and intentions for holding the investment.

Long-Lived Assets

Long-lived assets, 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. Assets held for sale were not significant as of December 31, 2013 or 2012.

Accrued Expenses and Other

Included in “Accrued expenses and other” as of December 31, 2013 and 2012 were liabilities of $1.4 billion and $1.1 billion for unredeemed gift cards. We reduce the liability for a gift card when redeemed by a customer. If a gift card is not redeemed, we recognize revenue when it expires or when the likelihood of its redemption becomes remote, generally two years from the date of issuance.

Unearned Revenue

Unearned revenue is recorded when payments are received in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to Amazon Prime memberships and AWS.

Foreign Currency

We have internationally-focused websites for the United Kingdom, Germany, France, Japan, Canada, China, Italy, Spain, Brazil, India, Mexico, and Australia. Net sales generated from these websites, 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 websites is the same as the local currency. Assets and liabilities of these subsidiaries are translated into U.S. Dollars at period-end exchange rates, and revenues and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in “Accumulated other comprehensive loss,” a separate component of stockholders’ equity, and in the “Foreign-currency effect on cash and cash equivalents,” on our consolidated statements of cash flows. Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in “Other income (expense), net” on our consolidated statements of operations. In connection with the settlement and remeasurement of intercompany balances, we recorded gains (losses) of $(84) million, $(95) million, and $70 million in 2013, 2012, and 2011.

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Note 2—CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

As of December 31, 2013 and 2012, our cash, cash equivalents, and marketable securities primarily consisted of cash, U.S. and foreign government and agency securities, AAA-rated money market funds, 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, 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, 2013

Cost or

Amortized Cost

Gross Unrealized

Gains

Gross Unrealized

Losses

Total Estimated Fair Value

Cash $ 3,008 $ — $ — $ 3,008 Level 1 securities:

Money market funds 5,914 — — 5,914 Equity securities 3 1 — 4

Level 2 securities: Foreign government and agency securities 757 2 (1) 758 U.S. government and agency securities 2,224 1 (3) 2,222 Corporate debt securities 739 3 (1) 741 Asset-backed securities 65 — — 65 Other fixed income securities 36 — — 36

$ 12,746 $ 7 $ (5) $ 12,748 Less: Restricted cash, cash equivalents, and marketable securities (1) (301) Total cash, cash equivalents, and marketable securities $ 12,447

December 31, 2012

Cost or

Amortized Cost

Gross Unrealized

Gains

Gross Unrealized

Losses

Total Estimated Fair Value

Cash $ 2,595 $ — $ — $ 2,595 Level 1 securities:

Money market funds 5,561 — — 5,561 Equity securities 2 — — 2

Level 2 securities: Foreign government and agency securities 763 9 — 772 U.S. government and agency securities 1,809 3 (2) 1,810 Corporate debt securities 719 6 — 725 Asset-backed securities 49 — — 49 Other fixed income securities 33 — — 33

$ 11,531 $ 18 $ (2) $ 11,547 Less: Restricted cash, cash equivalents, and marketable securities (1) (99) Total cash, cash equivalents, and marketable securities $ 11,448 ___________________ (1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as

collateral for standby and trade letters of credit, guarantees, debt, and real estate lease agreements. We classify cash 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 8—Commitments and Contingencies.”

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The following table summarizes gross gains and gross losses realized on sales of available-for-sale marketable securities (in millions):

Year Ended December 31, 2013 2012 2011

Realized gains $ 6 $ 20 $ 15 Realized losses (7) 10 11

The following table summarizes the contractual maturities of our cash equivalent and marketable fixed income securities as of December 31, 2013 (in millions):

Amortized Cost

Estimated Fair Value

Due within one year $ 7,226 $ 7,227 Due after one year through five years 2,115 2,118 Due after five years through ten years 133 132 Due after ten years 261 259

$ 9,735 $ 9,736

Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.

Note 3—PROPERTY AND EQUIPMENT

Property and equipment, at cost, consisted of the following (in millions):

December 31, 2013 2012

Gross property and equipment (1): Land and buildings $ 4,584 $ 2,966 Equipment and internal-use software (2) 9,274 6,228 Other corporate assets 231 174 Construction in progress 720 214

Gross property and equipment 14,809 9,582 Total accumulated depreciation (1) 3,860 2,522

Total property and equipment, net $ 10,949 $ 7,060 ___________________

(1) Excludes the original cost and accumulated depreciation of fully-depreciated assets. (2) Includes internal-use software of $1.1 billion and $866 million as of December 31, 2013 and 2012.

In December 2012, we acquired our corporate headquarters for $1.2 billion consisting of land and 11 buildings that were previously accounted for as financing leases. The acquired building assets will be depreciated over their estimated useful lives of 40 years. We also acquired three city blocks of land for the expansion of our corporate headquarters for approximately $210 million.

Depreciation expense on property and equipment was $2.5 billion, $1.7 billion, and $1.0 billion, which includes amortization of property and equipment acquired under capital lease obligations of $826 million, $510 million, and $335 million for 2013, 2012, and 2011. Gross assets remaining under capital leases were $4.2 billion and $2.3 billion as of December 31, 2013 and 2012. Accumulated depreciation associated with capital leases was $1.9 billion and $1.1 billion as of December 31, 2013 and 2012. Cash paid for interest on capital leases was $41 million, $51 million, and $44 million for 2013, 2012, and 2011.

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

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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 financing leases provide purchase options. Upon occupancy, the long-term construction obligations are considered long-term financing lease obligations with amounts payable during the next 12 months recorded as “Accrued expenses and other.” Gross assets remaining under financing leases were $578 million and $9 million as of December 31, 2013 and 2012. Accumulated depreciation associated with financing leases was $22 million and $5 million as of December 31, 2013 and 2012.

Note 4—ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS

2013 Acquisition Activity

In 2013, we acquired several companies in cash transactions for an aggregate purchase price of $195 million, resulting in goodwill of $103 million and acquired intangible assets of $83 million. The primary reasons for these acquisitions were to expand our customer base and sales channels and to obtain certain technologies to be used in product development. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches. These assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives. 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.

2012 Acquisition Activity

In May 2012, we acquired Kiva Systems, Inc. (“Kiva”) for a purchase price of $678 million. The primary reason for this acquisition was to improve fulfillment center productivity. Acquisition-related costs were expensed as incurred and were not significant. The aggregate purchase price of this acquisition was allocated as follows (in millions):

Purchase Price Cash paid, net of cash acquired $ 613 Stock options assumed 65

$ 678 Allocation Goodwill $ 560 Intangible assets (1): Marketing-related 5 Contract-based 3 Technology-based 168 Customer-related 17

193 Property and equipment 9 Deferred tax assets 34 Other assets acquired 41 Deferred tax liabilities (81) Other liabilities assumed (78)

$ 678 ___________________

(1) Acquired intangible assets have estimated useful lives of between four and 10 years, with a weighted-average amortization period of five years.

The fair value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches. These assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives.

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Pro Forma Financial Information – 2012 Acquisition Activity (unaudited)

Kiva was consolidated into our financial statements starting on its acquisition date. The net sales and operating loss of Kiva recorded in our consolidated statement of operations from its acquisition date through December 31, 2012, were $61 million and $(62) million. The following pro forma financial information presents our results as if the Kiva acquisition had occurred at the beginning of 2011 (in millions):

Year Ended

December 31, 2012 2011

Net sales $ 61,118 $ 48,157 Net income (loss) (2) 499

2011 Acquisition Activity

In 2011, we acquired certain companies for an aggregate purchase price of $771 million. The primary reasons for these acquisitions, none of which was individually material to our consolidated financial statements, were to expand our customer base and sales channels, including our consumer channels and subscription entertainment services. Acquisition-related costs were expensed as incurred and were not significant. The aggregate purchase price of these acquisitions was allocated as follows (in millions):

Purchase Price Cash paid, net of cash acquired $ 637 Existing equity interest 89 Indemnification holdbacks 25 Stock options assumed 20

$ 771 Allocation Goodwill $ 615 Intangible assets (1): Marketing-related 130 Customer-related 94 Contract-based 6

230 Property and equipment 119 Deferred tax assets 49 Other assets acquired 68 Accounts payable (65) Debt (70) Deferred tax liabilities (75) Other liabilities assumed (100)

$ 771 ___________________

(1) Amortization periods range from two to 10 years, with a weighted-average amortization period of eight years.

In addition to cash consideration and the fair value of vested stock options, the aggregate purchase price included the estimated fair value of our previous, noncontrolling interest in one of the acquired companies. We remeasured this equity interest to fair value at the acquisition date and recognized a non-cash gain of $6 million in “Equity-method investment activity, net of tax,” in our 2011 consolidated statement of operations. The fair value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches. Purchased identifiable intangible assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives.

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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.

Goodwill

The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected improvements in fulfillment center productivity and sales growth from future product offerings and customers, together with certain intangible assets that do not qualify for separate recognition.

The following summarizes our goodwill activity in 2013 and 2012 by segment (in millions):

North America International Consolidated

Goodwill - January 1, 2012 $ 1,533 $ 422 $ 1,955 New acquisitions (1) 403 184 587 Other adjustments (2) 1 9 10 Goodwill - December 31, 2012 1,937 615 2,552 New acquisitions 99 4 103 Other adjustments (2) (3) 3 — Goodwill - December 31, 2013 $ 2,033 $ 622 $ 2,655

___________________ (1) Primarily consists of the goodwill of Kiva. (2) Primarily consists of changes in foreign exchange.

Intangible Assets

Acquired intangible assets, included within “Other assets” on our consolidated balance sheets, consist of the following (in millions):

December 31, 2013 2012

Weighted

Average Life Remaining

Acquired Intangibles,

Gross (1)

Accumulated Amortization

(1)

Acquired Intangibles,

Net

Acquired Intangibles,

Gross (1)

Accumulated Amortization

(1)

Acquired Intangibles,

Net

Marketing-related 6.3 $ 429 $ (156) $ 273 $ 422 $ (113) $ 309 Contract-based 3.0 173 (110) 63 177 (89) 88 Technology- and content-based 4.4 278 (74) 204 231 (30) 201 Customer-related 2.4 368 (263) 105 332 (205) 127

Acquired intangibles (2) 4.2 $ 1,248 $ (603) $ 645 $ 1,162 $ (437) $ 725

___________________ (1) Excludes the original cost and accumulated amortization of fully-amortized intangibles. (2) Intangible assets have estimated useful lives of between one and 10 years.

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Amortization expense for acquired intangibles was $168 million, $163 million, and $149 million in 2013, 2012, and 2011. Expected future amortization expense of acquired intangible assets as of December 31, 2013 is as follows (in millions):

Year Ended December 31, 2014 $ 157 2015 140 2016 121 2017 101 2018 54 Thereafter 72

$ 645

Note 5—EQUITY-METHOD INVESTMENTS

LivingSocial’s summarized condensed financial information, as provided to us by LivingSocial, is as follows (in millions):

Year Ended December 31, 2013 2012 2011

Statement of Operations: Revenue $ 399 $ 455 $ 238 Operating expense 461 666 613 Impairment charge 41 579 —

Operating loss from continuing operations (103) (790) (375) Net loss from continuing operations (1) (101) (532) (417) Loss from discontinued operations, net of tax (2) (82) (121) (82) Net loss $ (183) $ (653) $ (499)

___________________ (1) The difference between operating loss from continuing operations and net loss from continuing operations for 2012 is

primarily due to non-operating, non-cash gains on previously held equity positions in companies that LivingSocial acquired during Q1 2012.

(2) In November 2013, LivingSocial announced that it had reached an agreement to sell its Korean operations for $260 million. The transaction closed in January 2014. The statement of operations information above has been recast to present its Korean operations as discontinued operations.

December 31, 2013 2012

Balance Sheet: Current assets $ 81 $ 74 Non-current assets 152 216 Current liabilities 298 336 Non-current liabilities 36 14 Redeemable stock 315 205

Balance sheet financial information as of December 31, 2013 includes $146 million in assets and $122 million in liabilities that LivingSocial has classified as held for sale for its Korean operations.

As of December 31, 2013, the book value of our equity-method investment in LivingSocial has been reduced to zero due to our recognition of equity-method losses over time. In Q1 2013 we made a $56 million investment in LivingSocial that we have recorded as a cost method investment, bringing our total investment in LivingSocial to approximately 31% of voting stock. In Q4 2013, we recognized additional equity-method losses and reduced this cost method investment to $38 million as of December 31, 2013.

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Note 6—LONG-TERM DEBT

In November 2012, we issued $3.0 billion of unsecured senior notes in three tranches as described in the table below (collectively, the “Notes”). As of December 31, 2013 and 2012, the unamortized discount on the Notes was $23 million and $27 million. We also have other long-term debt with a carrying amount, including the current portion, of $967 million and $691 million as of December 31, 2013 and 2012. The face value of our total long-term debt obligations is as follows (in millions):

December 31, 2013 2012

0.65% Notes due on November 27, 2015 $ 750 $ 750 1.20% Notes due on November 29, 2017 1,000 1,000 2.50% Notes due on November 29, 2022 1,250 1,250 Other long-term debt 967 691

Total debt 3,967 3,691 Less current portion of long-term debt (753) (579)

Face value of long-term debt $ 3,214 $ 3,112

The effective interest rates of the 2015, 2017, and 2022 Notes were 0.84%, 1.38%, and 2.66%. Interest on the Notes is payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. We used the net proceeds from the issuance of the Notes for general corporate purposes. The estimated fair value of the Notes was approximately $2.9 billion and $3.0 billion as of December 31, 2013 and 2012, which is based on quoted prices for our publicly-traded debt as of that date.

The other debt, including the current portion, had a weighted average interest rate of 5.5% and 6.4% as of December 31, 2013 and 2012. We used the net proceeds from the issuance of the debt to primarily fund certain international operations. The estimated fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2013 and 2012.

As of December 31, 2013, future principal payments for debt were as follows (in millions):

Year Ended December 31, 2014 $ 753 2015 853 2016 36 2017 1,037 2018 38 Thereafter 1,250

$ 3,967

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Note 7—OTHER LONG-TERM LIABILITIES

Our other long-term liabilities are summarized as follows (in millions):

December 31, 2013 2012

Long-term capital lease obligations $ 1,435 $ 737 Long-term financing lease obligations 555 9 Construction liabilities 385 87 Tax contingencies 457 336 Long-term deferred tax liabilities 571 476 Other 839 632

$ 4,242 $ 2,277

Capital 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, 2013

Gross capital lease obligations $ 2,437 Less imputed interest (47) Present value of net minimum lease payments 2,390 Less current portion of capital lease obligations (955) Total long-term capital lease obligations $ 1,435

Financing Leases

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 financing leases. Long-term finance lease obligations are as follows (in millions):

December 31, 2013

Gross financing lease obligations $ 783 Less imputed interest (200) Present value of net minimum lease payments 583 Less current portion of financing lease obligations (28) Total long-term financing lease obligations $ 555

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.

Tax Contingencies

We have recorded tax reserves for tax contingencies, inclusive of accrued interest and penalties, of approximately $457 million as of December 31, 2013, and $336 million as of December 31, 2012, for U.S. and foreign income taxes. These contingencies primarily relate to transfer pricing, state income taxes, and research and development credits. See “Note 11— Income Taxes” for discussion of tax contingencies.

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Note 8—COMMITMENTS AND CONTINGENCIES

Commitments

We have entered into non-cancellable operating, capital, and financing leases for equipment and office, fulfillment center, and data center facilities. Rental expense under operating lease agreements was $759 million, $561 million, and $381 million for 2013, 2012, and 2011.

The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations, as of December 31, 2013 (in millions):

Year Ended December 31,

2014 2015 2016 2017 2018 Thereafter Total

Operating and capital commitments: Debt principal and interest $ 835 $ 906 $ 81 $ 1,081 $ 69 $ 1,375 $ 4,347 Capital leases, including interest 963 883 361 71 42 117 2,437 Financing lease obligations, including interest 49 48 52 52 53 529 783 Operating leases 752 654 604 539 470 2,116 5,135 Unconditional purchase obligations (1) 539 386 80 37 29 27 1,098 Other commitments (2) (3) 746 275 167 137 110 1,194 2,629

Total commitments $ 3,884 $ 3,152 $ 1,345 $ 1,917 $ 773 $ 5,358 $ 16,429 ___________________ (1) Includes unconditional purchase obligations related to agreements to acquire and license digital video content that

represent long-term liabilities or are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate what the total obligation may be 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.

(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that have not been placed in service.

(3) Excludes $407 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

Pledged Assets

As of December 31, 2013 and 2012, we have pledged or otherwise restricted $482 million and $99 million of our cash, marketable securities, and certain fixed assets as collateral for standby and trade letters of credit, guarantees, debt, and real estate leases.

Suppliers

During 2013, no vendor accounted for 10% or more of our purchases. We generally do not have long-term contracts or arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits.

Legal Proceedings

The Company is involved from time to time in claims, proceedings, and litigation, including the following:

In November 2007, an Austrian copyright collection society, Austro-Mechana, filed lawsuits against Amazon.com International Sales, Inc., Amazon EU Sarl, Amazon.de GmbH, Amazon.com GmbH, and Amazon Logistik in the Commercial Court of Vienna, Austria and in the District Court of Munich, Germany seeking to collect a tariff on blank digital media sold by our EU-based retail websites to customers located in Austria. In July 2008, the German court stayed the German case pending a final decision in the Austrian case. In July 2010, the Austrian court ruled in favor of Austro-Mechana and ordered us to report all sales of products to which the tariff potentially applies for a determination of damages. We contested Austro-Mechana’s claim and in September 2010 commenced an appeal in the Commercial Court of Vienna. We lost this appeal and in March 2011 commenced an appeal in the Supreme Court of Austria. In October 2011, the Austrian Supreme Court referred the case to the European Court of Justice (ECJ). In July 2013, the European Court of Justice ruled that EU law does not preclude application