What changed in this filing

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Item 1. Financial Statements

2021-04-30 compared with 2020-10-30 · 91 added, 119 removed, 418 unchanged (33% of the section changed)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30, Twelve Months Ended

September 30,

March 31, Twelve Months Ended

2020 2021 2020 2021

38 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

Net product sales $ 41,841 $ 57,491

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Three Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

Net income $ 2,535 $ 8,107

Other comprehensive income (loss):

Net change in foreign currency translation adjustments:

Foreign currency translation adjustments, net of tax of $ 21 and $ 13

( 874 ) ( 374 )

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:

Unrealized gains (losses), net of tax of $ 12 and $ 30

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

( 203 ) ( 98 )

Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $ 0 and $ 4

Net unrealized gains (losses) on available-for-sale debt securities ( 203 ) ( 112 )

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(in millions, except per share data)

December 31, 2019 September 30, 2020

December 31, 2020 March 31, 2021

Current assets:

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

Proceeds from and repayments of short-term debt, and other were reclassified from proceeds from and repayments of long-term debt, and other on our consolidated statements of cash flows.

“Proceeds from short-term debt, and other” were reclassified from “Proceeds from long-term debt and other” and “Repayments of short-term debt, and other” were reclassified from “Repayments of long-term debt and other” on our consolidated statements of cash flows.

Principles of Consolidation

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Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, and valuation and impairment of investments.

Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates have become more challenging, and actual results could differ materially from these estimates.

We review the useful lives of equipment on an ongoing basis, and effective January 1, 2020 we changed our estimate of the useful life for our servers from three to four years .

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 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.

Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates may become more challenging, and actual results could differ materially from these estimates.

Supplemental Cash Flow Information

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30, Twelve Months Ended

September 30,

March 31, Twelve Months Ended

2020 2021 2020 2021

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Three Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

Shares used in computation of basic earnings per share 498 504

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Shares used in computation of diluted earnings per share 506 513

Other Income (Expense), Net

Other income (expense), net, is as follows (in millions):

Three Months Ended

Marketable equity securities valuation gains (losses) $ ( 31 ) $ ( 76 )

Equity warrant valuation gains (losses) ( 152 ) 305

Upward adjustments relating to equity investments in private companies — 1,475

Foreign currency gains (losses) ( 222 ) ( 31 )

Other, net ( 1 ) 24

Total other income (expense), net ( 406 ) 1,697

Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value.

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

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

The inventory valuation allowance, representing a write-down of inventory, was $ 2.3 billion and $ 2.4 billion as of December 31, 2020 and March 31, 2021.

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 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.

As of December 31, 2020 and March 31, 2021, customer receivables, net, were $ 14.8 billion and $ 15.3 billion, vendor receivables, net, were $ 4.8 billion and $ 3.6 billion, and seller receivables, net, were $ 381 million and $ 502 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 $ 968 million as of December 31, 2019 and September 30, 2020.

The allowance for doubtful accounts was $ 1.1 billion and $ 920 million as of December 31, 2020 and March 31, 2021.

Digital Video and Music Content

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.

The total capitalized costs of video, which is primarily released content, and music as of December 31, 2020 and March 31, 2021 were $ 6.8 billion and $ 7.8 billion.

Total video and music expense was $ 2.4 billion and $ 3.0 billion in Q1 2020 and Q1 2021.

Unearned Revenue

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Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships.

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

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.

Our total unearned revenue as of December 31, 2020 was $ 11.6 billion, of which $ 4.2 billion was recognized as revenue during the three months ended March 31, 2021.

Included in “Other long-term liabilities” on our consolidated balance sheets was $ 1.9 billion of unearned revenue as of December 31, 2020 and March 31, 2021.

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 consolidated financial statements.

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

For contracts with original terms that exceed one year, those commitments not yet recognized were $ 52.9 billion as of March 31, 2021.

The weighted-average remaining life of our long-term contracts is 3.3 years.

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Cash, Cash Equivalents, Restricted Cash, and Marketable Securities

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.

As of December 31, 2020 and March 31, 2021, 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 September 30, 2020.

We did not hold significant amounts of marketable securities categorized as Level 3 assets as of December 31, 2020 and March 31, 2021.

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 September 30, 2020

December 31, 2020 March 31, 2021

Fair Value Cost or

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___________________

(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) The related unrealized gain (loss) recorded in “Other income (expense), net” was $( 31 ) million and $ 3 million in Q1 2020 and Q1 2021.

(2) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities primarily as collateral for real estate, 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 4 — Commitments and Contingencies.”

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

The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of March 31, 2021 (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 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.

As of December 31, 2020 and March 31, 2021, these warrants had a fair value of $ 3.0 billion and $ 2.8 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 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.

As of December 31, 2020 and March 31, 2021, equity investments not accounted for under the equity-method and without readily determinable fair values, had a carrying value of $ 2.7 billion and $ 4.3 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 September 30, 2020

December 31, 2020 March 31, 2021

Cash and cash equivalents $ 42,122 $ 33,834

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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 $ 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.

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 $ 68.1 billion and $ 69.3 billion as of December 31, 2020 and March 31, 2021.

Accumulated amortization associated with finance leases was $ 36.5 billion and $ 38.3 billion as of December 31, 2020 and March 31, 2021.

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

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

2019 2020 2019 2020

Three Months Ended March 31,

Operating lease cost $ 1,068 $ 1,556

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Total lease cost $ 3,390 $ 4,492

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

December 31, 2019 September 30, 2020

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

December 31, 2020 March 31, 2021

Weighted-average remaining lease term – operating leases 10.7 years 10.7 years

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Total long-term lease liabilities $ 34,513 $ 18,060 $ 52,573

September 30, 2020

March 31, 2021

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 September 30, 2020 (in millions):

Three 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 March 31, 2021 (in millions):

Nine Months Ended December 31, Year Ended December 31,

2021 2022 2023 2024 2025 Thereafter Total

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Financing obligations, including interest 169 245 250 253 257 4,067 5,241

Leases not yet commenced 950 2,149 2,325 2,490 2,513 27,980 38,407

Unconditional purchase obligations (1) 2,407 3,847 4,612 4,359 4,134 13,576 32,935

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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, liabilities associated with digital media content agreements with initial terms greater than one year, and asset retirement obligations.

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

(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 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.

As of December 31, 2020 and March 31, 2021, we have pledged or otherwise restricted $ 875 million and $ 932 million of our cash, cash equivalents, and marketable securities, and certain property and equipment primarily as collateral for real estate, 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.

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Other Contingencies

We are subject to claims related to various indirect taxes (such as sales, value added, consumption, service, and similar taxes), including in jurisdictions in which we already collect and remit such taxes.

If the relevant taxing authorities were successfully to pursue these claims, we could be subject to significant additional tax liabilities.

We are subject to claims and denials of refunds and credits related to various indirect taxes (such as sales, value added, consumption, service, and similar taxes), including in jurisdictions in which we already collect and remit such taxes.

If the relevant taxing authorities were successfully to pursue these claims or denials, we could be subject to significant additional tax costs.

For example, in June 2017, the State of South Carolina issued an assessment for uncollected sales and use taxes for the period from January 2016 to March 2016, including interest and penalties.

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We believe the assessment is without merit and intend to defend ourselves vigorously in this matter.

If other tax authorities were successfully to seek additional adjustments of a similar nature, we could be subject to significant additional tax liabilities.

If other tax authorities were successfully to seek additional adjustments of a similar nature, we could be subject to significant additional tax costs.

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 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 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.

As of March 31, 2021, we had $ 32.2 billion of unsecured senior notes outstanding (the “Notes”).

We also had other long-term debt and borrowings under our credit facility of $ 924 million and $ 977 million as of December 31, 2020 and March 31, 2021.

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

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

Maturities (1) Stated Interest Rates Effective Interest Rates December 31, 2020 March 31, 2021

2012 Notes issuance of $ 3.0 billion

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0.56 % - 2.77 %

10,000 10,000

Credit Facility 338 429

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(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.

(1) The weighted-average remaining lives of the 2012, 2014, 2017, and 2020 Notes were 1.7 , 11.6 , 16.0 , and 18.5 years as of March 31, 2021.

The combined weighted-average remaining life of the Notes was 15.5 years as of March 31, 2021.

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 $ 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 estimated fair value of the Notes was approximately $ 37.7 billion and $ 34.8 billion as of December 31, 2020 and March 31, 2021, which is based on quoted prices for our debt as of those dates.

We have a $ 740 million secured revolving credit facility with a lender that is secured by certain seller receivables, which we 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 $ 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.

There were $ 338 million and $ 429 million of borrowings outstanding under the Credit Facility as of December 31, 2020 and March 31, 2021, which both had a weighted-average interest rate of 3.0 %, respectively.

As of December 31, 2020 and March 31, 2021, we have pledged $ 398 million and $ 497 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, 2020 and March 31, 2021.

Other long-term debt, including the current portion, had a weighted-average interest rate of 2.9 % as of December 31, 2020 and March 31, 2021.

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 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.

In June 2020, we increased the size of the Commercial Paper Program to $ 10.0 billion.

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

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 %.

The estimated fair value of other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2020 and March 31, 2021.

We have 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 $ 10.0 billion at any time, with individual maturities that may vary but will not exceed 397 days from the date of issue.

There were $ 725 million of borrowings outstanding under the Commercial Paper Program as of December 31, 2020 and March 31, 2021, which were included in “Accrued expenses and other” on our consolidated balance sheets and had a weighted-average effective interest rate, including issuance costs, of 0.11 % and 0.09 %, respectively.

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

In April 2018, in connection with our Commercial Paper Program, we amended and restated our unsecured revolving credit facility (the “Credit Agreement”) with a syndicate of lenders to increase our borrowing capacity thereunder to $ 7.0 billion.

In June 2020, we further amended and restated the Credit Agreement to extend the term to June 2023, and it may be extended for up to three additional one-year terms if approved by the lenders.

The interest rate applicable to outstanding balances under the amended and restated Credit Agreement is LIBOR plus 0.50 %, with a commitment fee of 0.04 % on the

undrawn portion of the credit facility.

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

We also have a $ 7.0 billion unsecured revolving credit facility with a syndicate of lenders with a term that extends to June 2023 (the “Credit Agreement”).

It may be extended for up to three additional one-year terms if approved by the lenders.

The interest rate applicable to outstanding balances under the amended and restated Credit Agreement is LIBOR plus 0.50 %, with a commitment fee of 0.04 % on the undrawn portion of the credit facility.

There were no borrowings outstanding under the Credit Agreement as of December 31, 2020 and March 31, 2021.

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

These amounts are included in “Accrued expenses and other” on our consolidated balance sheets.

In addition, we had $ 4.3 billion of unused letters of credit as of March 31, 2021.

Note 6 — STOCKHOLDERS’ EQUITY

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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 nine months ended September 30, 2019 or 2020.

There were no repurchases of common stock during the three months ended March 31, 2020 or 2021.

Stock Award Activity

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

Common shares outstanding plus shares underlying outstanding stock awards totaled 518 million and 519 million as of December 31, 2020 and March 31, 2021.

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

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Three Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

Cost of sales $ 41 $ 90

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Total stock-based compensation expense $ 1,757 $ 2,306

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

The following table summarizes our restricted stock unit activity for the three months ended March 31, 2021 (in millions):

Number of Units Weighted-Average

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Units forfeited ( 0.5 ) 1,895

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,

Outstanding as of March 31, 2021 14.5 2,096

Scheduled vesting for outstanding restricted stock units as of March 31, 2021, is as follows (in millions):

Nine Months Ended December 31, Year Ended December 31,

2021 2022 2023 2024 2025 Thereafter Total

Scheduled vesting — restricted stock units 4.8 5.3 2.8 1.4 0.1 0.1 14.5

As of September 30, 2020, there was 13.9 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements.

As of March 31, 2021, there was $ 12.4 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 1.1 years.

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

The estimated forfeiture rate as of December 31, 2020 and March 31, 2021 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

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

Total beginning stockholders’ equity $ 62,060 $ 93,404

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Beginning retained earnings 31,220 52,551

Cumulative effect of changes in accounting principles (1) — — 7 —

Net income 2,535 8,107

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Total ending stockholders’ equity $ 65,272 $ 103,320

___________________

(1) We recorded cumulative effect adjustments related to the new lease standard in Q1 2019 and the new measurement of credit losses standard in Q1 2020.

Note 7 — INCOME TAXES

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Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

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.

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, developments in tax controversies, 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.

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

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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.

Since Q2 2017, we have recorded a valuation allowance against our net deferred tax assets in Luxembourg.

There is still significant uncertainty whether our income in Luxembourg is sustainable in the future and we will maintain the valuation allowance until sufficient positive evidence exists to support a release of the valuation allowance.

For 2021, 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.

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.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued.

It is reasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax examinations in one or more jurisdictions.

Our income tax provisions for the three months ended March 31, 2020 and 2021 were $ 744 million and $ 2.2 billion, which included $ 273 million and $ 349 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 $ 305 million and $ 801 million in Q1 2020 and Q1 2021.

As of December 31, 2020 and March 31, 2021, tax contingencies were approximately $ 2.8 billion and $ 3.0 billion.

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

contingencies.

The timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued.

It is reasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax controversies in one or more jurisdictions.

These assessments or settlements could result in changes to our contingencies related to positions on prior years’ tax filings.

We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for the calendar year 2013 and thereafter.

We are under examination, or may be subject to examination, by the Internal Revenue Service for the calendar year 2013 and thereafter.

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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Based on that decision, the European Commission announced an estimated recovery amount of approximately € 250 million, plus interest, for the period May 2006 through June 2014, and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to recovery.

Luxembourg computed an initial recovery amount, consistent with the European Commission’s decision, that we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals.

Luxembourg computed an initial recovery amount, consistent with the European Commission’s decision, which we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals.

In December 2017, Luxembourg appealed the European Commission’s decision.

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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 America-focused online stores.

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.

The AWS segment consists of amounts earned from global sales of compute, storage, database, and other services for start-ups, enterprises, government agencies, and academic institutions.

Information on reportable segments and reconciliation to consolidated net income is as follows (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

North America

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Three Months Ended

September 30, Nine Months Ended

September 30,

2019 2020 2019 2020

Online stores (1) $ 36,652 $ 52,901

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(1) Includes product sales and digital media content where we record revenue gross.

We leverage our retail infrastructure to offer a wide selection of consumable and durable goods that includes media products available in both a physical and digital format, such as books, music, videos, games, and software.

These product sales include digital products sold on a transactional basis.

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(2) Includes product sales where our customers physically select items in a store.

Sales from customers who order goods online for delivery or pickup at our physical stores are included in “Online stores.”

Sales to customers who order goods online for delivery or pickup at our physical stores are included in “Online stores.”

(3) Includes commissions and any related fulfillment and shipping fees, and other third-party seller services.

(4) Includes annual and monthly fees associated with Amazon Prime memberships, as well as audiobook, digital video, digital music, e-book, and other non-AWS subscription services.

(4) Includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS subscription services.

(5) Primarily includes sales of advertising services, as well as sales related to our other service offerings.

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