What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-07-31 · 95 added, 81 removed, 442 unchanged (28% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

June 30, Twelve Months Ended

September 30, Nine Months Ended

September 30, Twelve Months Ended

September 30,

2019 2020 2019 2020 2019 2020

38 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

29 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

1 unchanged sentence

Other comprehensive income (loss):

Net change in foreign currency translation adjustments:

Foreign currency translation adjustments, net of tax of $ 1 , $( 15 ), $( 6 ) and $( 2 )

( 368 ) 408 ( 369 ) ( 260 )

Reclassification adjustment for foreign currency translation included in “Other operating expense (income), net,” net of tax of $ 29 , $ 0 , $ 29 and $ 0

( 108 ) — ( 108 ) —

Net foreign currency translation adjustments ( 476 ) 408 ( 477 ) ( 260 )

Net change in unrealized gains (losses) on available-for-sale debt securities:

1 unchanged sentence

Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $ 0 , $ 5 , $ 0 and $ 7

( 2 ) ( 17 ) ( 2 ) ( 22 )

Net unrealized gains (losses) on available-for-sale debt securities 7 18 83 217

5 unchanged sentences

(in millions, except per share data)

December 31, 2019 June 30, 2020

December 31, 2019 September 30, 2020

Current assets:

43 unchanged sentences

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2019 Annual Report on Form 10-K.

Prior Period Rec lassifications

Prior Period Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

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The longer useful life is due to continuous improvements in our hardware, software, and data center designs.

The effect of this change in estimate for Q2 2020, based on servers that were included in “Property and equipment, net” as of March 31, 2020 and those acquired during the quarter ended June 30, 2020, was a reduction in depreciation and amortization expense of $ 696 million and an increase in net income of $ 534 million, or $ 1.07 per basic share and $ 1.05 per diluted share.

The effect of this change in estimate for the six months ended June 30, 2020, based on servers that were included in “Property and equipment, net” as of December 31, 2019 and those acquired during the six months ended June 30, 2020, was a reduction in depreciation and amortization expense of $ 1.5 billion and an increase in net income of $ 1.1 billion, or $ 2.27 per basic share and $ 2.24 per diluted share.

The effect of this change in estimate for Q3 2020, based on servers that were included in “Property and equipment, net” as of June 30, 2020 and those acquired during the quarter ended September 30, 2020, was a reduction in depreciation and amortization expense of $ 634 million and an increase in net income of $ 479 million, or $ 0.95 per basic share and $ 0.93 per diluted share.

The effect of this change in estimate for the nine months ended September 30, 2020, based on servers that were included in “Property and equipment, net” as of December 31, 2019 and those acquired during the nine months ended September 30, 2020, was a reduction in depreciation and amortization expense of $ 2.1 billion and an increase in net income of $ 1.6 billion, or $ 3.23 per basic share and $ 3.18 per diluted share.

Supplemental Cash Flow Information

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

June 30, Twelve Months Ended

September 30, Nine Months Ended

September 30, Twelve Months Ended

September 30,

2019 2020 2019 2020 2019 2020

14 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

4 unchanged sentences

This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category.

The inventory valuation allowance, representing a write-down of inventory, was $1.6 billion and $ 1.7 billion as of December 31, 2019 and June 30, 2020.

The inventory valuation allowance, representing a write-down of inventory, was $ 1.6 billion and $ 1.9 billion as of December 31, 2019 and September 30, 2020.

Accounts Receivable, Net and Other

Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to customers, vendors, and sellers.

As of December 31, 2019 and June 30, 2020, customer receivables, net, were $ 12.6 billion and $ 12.2 billion, vendor receivables, net, were $ 4.2 billion and $ 3.1 billion, and seller receivables, net, were $ 863 million and $ 543 million.

As of December 31, 2019 and September 30, 2020, customer receivables, net, were $ 12.6 billion and $ 13.1 billion, vendor receivables, net, were $ 4.2 billion and $ 3.3 billion, and seller receivables, net, were $ 863 million and $ 446 million.

Seller receivables are amounts due from sellers related to our seller lending program, which provides funding to sellers primarily to procure inventory.

We estimate losses on receivables based on expected losses, including our historical experience of actual losses.

The allowance for doubtful accounts was $ 718 million and $ 1.1 billion as of December 31, 2019 and June 30, 2020.

The allowance for doubtful accounts was $ 718 million and $ 968 million as of December 31, 2019 and September 30, 2020.

Digital Video and Music Content

The total capitalized costs of video, which is primarily released content, and music as of December 31, 2019 and June 30, 2020 were $ 5.8 billion and $ 6.1 billion.

Total video and music expense was $ 1.8 billion and $ 2.8 billion in Q2 2019 and Q2 2020, and $ 3.5 billion and $ 5.2 billion for the six months ended June 30, 2019 and 2020.

The total capitalized costs of video, which is primarily released content, and music as of December 31, 2019 and September 30, 2020 were $ 5.8 billion and $ 6.3 billion.

Total video and music expense was $ 1.9 billion and $ 2.8 billion in Q3 2019 and Q3 2020, and $ 5.5 billion and $ 8.0 billion for the nine months ended September 30, 2019 and 2020.

Unearned Revenue

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Our total unearned revenue as of December 31, 2019 was $ 10.2 billion, of which $ 7.1 billion was recognized as

revenue during the six months ended June 30, 2020.

Included in “Other long-term liabilities” on our consolidated balance sheets was $ 2.0 billion of unearned revenue as of December 31, 2019 and June 30, 2020.

Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that have not yet been recognized in our financial statements.

For contracts with original terms that exceed one year, those commitments not yet recognized were $ 41.0 billion as of June 30, 2020.

revenue during the nine months ended September 30, 2020.

Included in “Other long-term liabilities” on our consolidated balance sheets was $ 2.0 billion and $ 1.9 billion of unearned revenue as of December 31, 2019 and September 30, 2020.

For contracts with original terms that exceed one year, those commitments not yet recognized were $ 44.8 billion as of September 30, 2020.

The weighted average remaining life of our long-term contracts is 3.4 years.

2 unchanged sentences

Cash, Cash Equivalents, Restricted Cash, and Marketable Securities

As of December 31, 2019 and June 30, 2020, our cash, cash equivalents, restricted cash, and marketable securities primarily consisted of cash, AAA-rated money market funds, U.S.

As of December 31, 2019 and September 30, 2020, 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.

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Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

We did not hold significant amounts of cash, cash equivalents, restricted cash, or marketable securities categorized as Level 3 assets as of December 31, 2019 and June 30, 2020.

We did not hold significant amounts of cash, cash equivalents, restricted cash, or marketable securities categorized as Level 3 assets as of December 31, 2019 and September 30, 2020.

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, 2019 June 30, 2020

December 31, 2019 September 30, 2020

Fair Value Cost or

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___________________

(1) The related unrealized gain (loss) recorded in “Other income (expense), net” was $ 14 million and $ 235 million in Q2 2019 and Q2 2020, and $ 82 million and $ 204 million for the six months ended June 30, 2019 and 2020.

(1) The related unrealized gain (loss) recorded in “Other income (expense), net” was $( 55 ) million and $ 150 million in Q3 2019 and Q3 2020, and $ 27 million and $ 351 million for the nine months ended September 30, 2019 and 2020.

(2) 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.

1 unchanged sentence

See “Note 4 — Commitments and Contingencies.”

The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of June 30, 2020 (in millions):

The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of September 30, 2020 (in millions):

Cost Estimated

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We hold equity warrants giving us the right to acquire stock of other companies.

As of December 31, 2019 and June 30, 2020, these warrants had a fair value of $ 669 million and $ 1.0 billion, and are recorded within “Other assets” on our consolidated balance sheets with gains and losses recognized in “Other income (expense), net” on our consolidated statements of operations.

As of December 31, 2019 and September 30, 2020, these warrants had a fair value of $ 669 million and $ 1.4 billion, and are recorded within “Other assets” on our consolidated balance sheets with gains and losses recognized in “Other income (expense), net” on our consolidated statements of operations.

These warrants are primarily classified as Level 2 assets.

As of December 31, 2019 and June 30, 2020, equity investments not accounted for under the equity-method and without readily determinable fair values, had a carrying value of $ 1.5 billion, and are recorded within “Other assets” on our consolidated balance sheets with adjustments recognized in “Other income (expense), net” on our consolidated statements of operations.

As of December 31, 2019 and September 30, 2020, equity investments not accounted for under the equity-method and without readily determinable fair values, had a carrying value of $ 1.5 billion and $ 2.6 billion, and are recorded within “Other assets” on our consolidated balance sheets with adjustments recognized in “Other income (expense), net” on our consolidated statements of operations.

Consolidated Statements of Cash Flows Reconciliation

The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows (in millions):

December 31, 2019 June 30, 2020

December 31, 2019 September 30, 2020

Cash and cash equivalents $ 36,092 $ 29,930

3 unchanged sentences

Note 3 — LEASES

Gross assets acquired under finance leases, inclusive of those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $ 57.4 billion and $ 60.8 billion as of December 31, 2019 and June 30, 2020.

Accumulated amortization associated with finance leases was $ 30.0 billion and $ 32.1 billion as of December 31, 2019 and June 30, 2020.

Gross assets acquired under finance leases, inclusive of those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $ 57.4 billion and $ 64.9 billion as of December 31, 2019 and September 30, 2020.

Accumulated amortization associated with finance leases was $ 30.0 billion and $ 34.2 billion as of December 31, 2019 and September 30, 2020.

Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2019 2020 2019 2020

7 unchanged sentences

Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:

December 31, 2019 June 30, 2020

December 31, 2019 September 30, 2020

Weighted-average remaining lease term – operating leases 11.5 years 11.1 years

10 unchanged sentences

Total long-term lease liabilities $ 22,696 $ 17,095 $ 39,791

June 30, 2020

September 30, 2020

Operating Leases Finance Leases Total

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We have entered into non-cancellable operating and finance leases and financing obligations for equipment and office, fulfillment, sortation, delivery, data center, physical store, and renewable energy facilities.

The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations and are generally cancellable, as of June 30, 2020 (in millions):

Six Months Ended December 31, Year Ended December 31,

The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations and are generally cancellable, as of September 30, 2020 (in millions):

Three Months Ended December 31, Year Ended December 31,

2020 2021 2022 2023 2024 Thereafter Total

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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 and lease arrangements prior to the lease commencement date and liabilities associated with digital media content agreements with initial terms greater than one year.

(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements and lease arrangements prior to the lease commencement date, liabilities associated with digital media content agreements with initial terms greater than one year, and asset retirement obligations.

(3) Excludes approximately $ 3.0 billion of accrued 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, 2019 and June 30, 2020, we have pledged or otherwise restricted $ 994 million and $ 957 million of our cash, cash equivalents, and marketable securities, and certain property and equipment as collateral for real estate leases, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit.

As of December 31, 2019 and September 30, 2020, we have pledged or otherwise restricted $ 994 million and $ 921 million of our cash, cash equivalents, and marketable securities, and certain property and equipment as collateral for real estate leases, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit.

Additionally, we have pledged our cash and seller receivables for debt related to our Credit Facility.

9 unchanged sentences

Legal Proceedings

The Company is involved from time to time in claims, proceedings, and litigation, including the matters described in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies — Legal Proceedings” of our 2019 Annual Report on Form 10-K and in Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies — Legal Proceedings” of our Quarterly Report on Form 10-Q for the period ended March 31, 2020 as supplemented by the following:

Beginning in March 2020, a number of class-action complaints were filed alleging, among other things, price fixing arrangements between Amazon.com, Inc.

and third-party sellers in Amazon’s stores, monopolization and attempted monopolization of an alleged market in online retail or other submarkets, and consumer protection and unjust enrichment claims.

In March 2020, Frame-Wilson v.

Amazon.com, Inc.

was filed in the United States District Court for the Western District of Washington.

Beginning in April 2020, class action complaints were filed in the Superior Court of Quebec – Division of Montreal, the Ontario Superior Court of Justice, and the Federal Court of Canada against Amazon.com, Inc.

and related entities.

The complaints allege several distinct purported classes, including consumers who purchased a product through Amazon’s stores and consumers who purchased a product offered by Amazon through another e-commerce retailer.

The complaints seek billions of dollars of alleged actual damages, treble damages, punitive damages, and injunctive relief.

We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

The Company is involved from time to time in claims, proceedings, and litigation, including the matters described in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies — Legal Proceedings” of our 2019 Annual Report on Form 10-K and in Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies — Legal Proceedings” of our Quarterly Reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020.

In addition, we are regularly subject to claims, litigation, and other proceedings, including potential regulatory proceedings, involving patent and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy and data protection, consumer protection, commercial disputes, goods and services offered by us and by third parties, and other matters.

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Note 5 — DEBT

As of June 30, 2020, we had $ 33.2 billion of unsecured senior notes outstanding (the “Notes”), including $ 10.0 billion issued in June 2020 for general corporate purposes.

We also have other long-term debt and borrowings under our credit facility of $ 1.6 billion and $ 1.2 billion as of December 31, 2019 and June 30, 2020.

As of September 30, 2020, we had $ 32.2 billion of unsecured senior notes outstanding (the “Notes”), including $ 10.0 billion issued in June 2020 for general corporate purposes.

We also have other long-term debt and borrowings under our credit facility of $ 1.6 billion and $ 1.0 billion as of December 31, 2019 and September 30, 2020.

Our total long-term debt obligations are as follows (in millions):

Maturities (1) Stated Interest Rates Effective Interest Rates December 31, 2019 June 30, 2020

Maturities (1) Stated Interest Rates Effective Interest Rates December 31, 2019 September 30, 2020

2012 Notes issuance of $ 3.0 billion

2022 2.50 % 2.66 % 1,250 1,250

2014 Notes issuance of $ 6.0 billion

2021 - 2044 3.30 % - 4.95 %

3.43 % - 5.11 %

2017 Notes issuance of $ 17.0 billion

2023 - 2057 2.40 % - 5.20 %

2.56 % - 4.33 %

17,000 16,000

2020 Notes issuance of $ 10.0 billion

2023 - 2060 0.40 % - 2.70 %

0.56 % - 2.77 %

Credit Facility 740 413

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___________________

(1) The weighted average remaining lives of the 2012, 2014, 2017, and 2020 Notes were 2.4 years, 12.3 years, 15.7 years, and 19.2 years as of June 30, 2020.

The combined weighted average remaining life of the Notes was 15.8 years as of June 30, 2020.

(1) The weighted average remaining lives of the 2012, 2014, 2017, and 2020 Notes were 2.2 , 12.1 , 16.5 , and 19.0 years as of September 30, 2020.

The combined weighted average remaining life of the Notes was 16.0 years as of September 30, 2020.

Interest on the Notes is payable semi-annually in arrears.

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We are not subject to any financial covenants under the Notes.

The estimated fair value of the Notes was approximately $ 26.2 billion and $ 38.2 billion as of December 31, 2019 and June 30, 2020, which is based on quoted prices for our debt as of those dates.

The estimated fair value of the Notes was approximately $ 26.2 billion and $ 37.3 billion as of December 31, 2019 and September 30, 2020, which is based on quoted prices for our debt as of those dates.

In October 2016, we entered into a $ 500 million secured revolving credit facility with a lender that is secured by certain seller receivables, which we subsequently increased to $ 740 million and may from time to time increase in the future subject to lender approval (the “Credit Facility”).

The Credit Facility is available until October 2022, bears interest at the London interbank offered rate (“LIBOR”) plus 1.40 %, and has a commitment fee of 0.50 % on the undrawn portion.

There were $ 740 million and $ 573 million of borrowings outstanding under the Credit Facility as of December 31, 2019 and June 30, 2020, which had a weighted-average interest rate of 3.4 % and 3.2 %, respectively.

As of December 31, 2019 and June 30, 2020, we have pledged $ 852 million and $ 672 million of our cash and seller receivables as collateral for debt related to our Credit Facility.

The estimated fair value of the Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2019 and June 30, 2020.

Other long-term debt, including the current portion, had a weighted-average interest rate of 4.1 % and 2.9 % as of December 31, 2019 and June 30, 2020.

There were $ 740 million and $ 413 million of borrowings outstanding under the Credit Facility as of December 31, 2019 and September 30, 2020, which had a weighted-average interest rate of 3.4 % and 3.1 %, respectively.

As of December 31, 2019 and September 30, 2020, we have pledged $ 852 million and $ 475 million of our cash and seller receivables as collateral for debt related to our Credit Facility.

The estimated fair value of the Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2019 and September 30, 2020.

Other long-term debt, including the current portion, had a weighted-average interest rate of 4.1 % and 2.9 % as of December 31, 2019 and September 30, 2020.

We used the net proceeds from the issuance of this debt primarily to fund certain business operations.

The estimated fair value of other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2019 and June 30, 2020.

The estimated fair value of other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2019 and September 30, 2020.

In April 2018, we established a commercial paper program (the “Commercial Paper Program”) under which we may from time to time issue unsecured commercial paper up to a total of $ 7.0 billion at any time, with individual maturities that may vary but will not exceed 397 days from the date of issue.

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There were no borrowings outstanding under the Commercial Paper Program as of December 31, 2019.

There were $ 730 million of borrowings outstanding under the Commercial Paper Program as of June 30, 2020, which are included in “Accrued expenses and other” on our consolidated balance sheets and have a weighted average effective interest rate, including issuance costs, of 0.20%.

There were $ 725 million of borrowings outstanding under the Commercial Paper Program as of September 30, 2020, which are included in “Accrued expenses and other” on our consolidated balance sheets and have a weighted average effective interest rate, including issuance costs, of 0.13 %.

We use the net proceeds from the issuance of commercial paper for general corporate purposes.

3 unchanged sentences

undrawn portion of the credit facility.

There were no borrowings outstanding under the Credit Agreement as of December 31, 2019 and June 30, 2020.

There were no borrowings outstanding under the Credit Agreement as of December 31, 2019 and September 30, 2020.

We also utilize other short-term credit facilities for working capital purposes.

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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 during the six months ended June 30, 2019 or 2020.

There were no repurchases of common stock during the nine months ended September 30, 2019 or 2020.

Stock Award Activity

Common shares outstanding plus shares underlying outstanding stock awards totaled 512 million and 517 million as of December 31, 2019 and June 30, 2020.

Common shares outstanding plus shares underlying outstanding stock awards totaled 512 million and 518 million as of December 31, 2019 and September 30, 2020.

These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

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Total stock-based compensation expense $ 1,779 $ 2,288 $ 5,024 $ 6,646

The following table summarizes our restricted stock unit activity for the six months ended June 30, 2020 (in millions):

The following table summarizes our restricted stock unit activity for the nine months ended September 30, 2020 (in millions):

Number of Units Weighted-Average

3 unchanged sentences

Units forfeited ( 1.0 ) 1,571

Outstanding as of June 30, 2020 16.2 1,721

Scheduled vesting for outstanding restricted stock units as of June 30, 2020, is as follows (in millions):

Six Months Ended December 31, Year Ended December 31,

Outstanding as of September 30, 2020 16.4 1,879

Scheduled vesting for outstanding restricted stock units as of September 30, 2020, is as follows (in millions):

Three Months Ended December 31, Year Ended December 31,

2020 2021 2022 2023 2024 Thereafter Total

Scheduled vesting—restricted stock units 1.8 5.7 5.4 2.4 0.9 0.2 16.4

As of June 30, 2020, there was $ 13.1 billion of net unrecognized compensation cost related to unvested stock-based 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 December 31, 2019 and June 30, 2020 was 27 %.

As of September 30, 2020, there was 13.9 billion of net unrecognized compensation cost related to unvested stock-based 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 remaining weighted-average recognition period of 1.2 years.

The estimated forfeiture rate as of December 31, 2019 and September 30, 2020 was 27 %.

Changes in our estimates and assumptions relating to forfeitures may cause us to realize material changes in stock-based compensation expense in the future.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

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Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, acquisitions, investments, audit-related developments, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized.

Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss.

Our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss.

For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

In addition, we record valuation allowances against deferred tax assets when there is uncertainty about our ability to generate future income in relevant jurisdictions, and the effects of the COVID-19 pandemic on our business make estimates of future income more challenging.

For 2020, we estimate that our effective tax rate will be favorably affected by the impact of excess tax benefits from stock-based compensation and the U.S.

federal research and development credit and adversely affected by state income taxes and losses incurred in certain foreign jurisdictions for which we may not realize a tax benefit.

Losses for which we may not realize a related tax benefit, primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our tax expense, and therefore increase our effective tax rate.

We record valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax benefit.

Our income tax provisions for the six months ended June 30, 2019 and 2020 were $ 1.1 billion and $ 1.7 billion, which included $ 706 million and $ 831 million of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation.

Cash paid for income taxes, net of refunds was $ 283 million and $ 486 million in Q2 2019 and Q2 2020, and $ 451 million and $ 791 million for the six months ended June 30, 2019 and 2020.

As of December 31, 2019 and June 30, 2020, tax contingencies were approximately $ 3.9 billion and $ 3.7 billion.

federal research and development credit and adversely affected by state income taxes.

Our income tax provisions for the nine months ended September 30, 2019 and 2020 were $ 1.6 billion and $ 2.3 billion, which included $ 1.0 billion and $ 1.5 billion of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation.

Cash paid for income taxes, net of refunds was $ 241 million and $ 502 million in Q3 2019 and Q3 2020, and $ 692 million and $ 1.3 billion for the nine months ended September 30, 2019 and 2020.

As of December 31, 2019 and September 30, 2020, tax contingencies were approximately $ 3.9 billion and $ 3.0 billion.

The decrease in tax contingencies in 2020 was primarily a result of developments in our ongoing global tax controversies.

Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies.

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These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods.

During Q3 2020, we resolved the audits of tax years 2007 through 2012 with the IRS for amounts that were materially consistent with our accrual.

In October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

19 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements