AMAZON COM INC 10-Q

Item 1. Financial Statements AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited) Three Months Ended March 31, Twelve Months Ended March 31, 2020 2021 2020 2021 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 36,410 $ 42,377 $ 23,507 $ 27,505 OPERATING ACTIVITIES: Net income 2,535 8,107 10,563 26,903 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other 5,362 7,508 22,297 27,397 Stock-based compensation 1,757 2,306 7,347 9,757 Other operating expense (income), net 67 30 244 ( 108 ) Other expense (income), net 565 ( 1,456 ) 451 ( 4,603 ) Deferred income taxes 322 1,703 704 827 Changes in operating assets and liabilities: Inventories 1,392 ( 304 ) ( 2,605 ) ( 4,545 ) Accounts receivable, net and other 1,262 ( 2,255 ) ( 6,018 ) ( 11,686 ) Accounts payable ( 8,044 ) ( 8,266 ) 6,532 17,258 Accrued expenses and other ( 2,761 ) ( 4,060 ) ( 1,213 ) 4,455 Unearned revenue 607 900 1,430 1,558 Net cash provided by (used in) operating activities 3,064 4,213 39,732 67,213 INVESTING ACTIVITIES: Purchases of property and equipment ( 6,795 ) ( 12,082 ) ( 20,365 ) ( 45,427 ) Proceeds from property and equipment sales and incentives 1,367 895 4,970 4,624 Acquisitions, net of cash acquired, and other ( 91 ) ( 630 ) ( 1,384 ) ( 2,864 ) Sales and maturities of marketable securities 11,626 17,826 31,664 56,437 Purchases of marketable securities ( 15,001 ) ( 14,675 ) ( 39,938 ) ( 72,153 ) Net cash provided by (used in) investing activities ( 8,894 ) ( 8,666 ) ( 25,053 ) ( 59,383 ) FINANCING ACTIVITIES: Proceeds from short-term debt, and other 617 1,926 1,934 8,105 Repayments of short-term debt, and other ( 631 ) ( 2,001 ) ( 1,860 ) ( 7,547 ) Proceeds from long-term debt 76 111 842 10,560 Repayments of long-term debt ( 36 ) ( 39 ) ( 1,140 ) ( 1,556 ) Principal repayments of finance leases ( 2,600 ) ( 3,406 ) ( 10,013 ) ( 11,448 ) Principal repayments of financing obligations ( 17 ) ( 67 ) ( 43 ) ( 103 ) Net cash provided by (used in) financing activities ( 2,591 ) ( 3,476 ) ( 10,280 ) ( 1,989 ) Foreign currency effect on cash, cash equivalents, and restricted cash ( 484 ) ( 293 ) ( 401 ) 809 Net increase (decrease) in cash, cash equivalents, and restricted cash ( 8,905 ) ( 8,222 ) 3,998 6,650 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD $ 27,505 $ 34,155 $ 27,505 $ 34,155 See accompanying notes to consolidated financial statements. 3 Table of Contents AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) (unaudited) Three Months Ended March 31, 2020 2021 Net product sales $ 41,841 $ 57,491 Net service sales 33,611 51,027 Total net sales 75,452 108,518 Operating expenses: Cost of sales 44,257 62,403 Fulfillment 11,531 16,530 Technology and content 9,325 12,488 Marketing 4,828 6,207 General and administrative 1,452 1,987 Other operating expense (income), net 70 38 Total operating expenses 71,463 99,653 Operating income 3,989 8,865 Interest income 202 105 Interest expense ( 402 ) ( 399 ) Other income (expense), net ( 406 ) 1,697 Total non-operating income (expense) ( 606 ) 1,403 Income before income taxes 3,383 10,268 Provision for income taxes ( 744 ) ( 2,156 ) Equity-method investment activity, net of tax ( 104 ) ( 5 ) Net income $ 2,535 $ 8,107 Basic earnings per share $ 5.09 $ 16.09 Diluted earnings per share $ 5.01 $ 15.79 Weighted-average shares used in computation of earnings per share: Basic 498 504 Diluted 506 513 See accompanying notes to consolidated financial statements. 4 Table of Contents AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) (unaudited) Three Months Ended March 31, 2020 2021 Net income $ 2,535 $ 8,107 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax of $ 21 and $ 13 ( 874 ) ( 374 ) Net change in unrealized gains (losses) on available-for-sale debt securities: Unrealized gains (losses), net of tax of $ 12 and $ 30 ( 203 ) ( 98 ) Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $ 0 and $ 4 — ( 14 ) Net unrealized gains (losses) on available-for-sale debt securities ( 203 ) ( 112 ) Total other comprehensive income (loss) ( 1,077 ) ( 486 ) Comprehensive income $ 1,458 $ 7,621 See accompanying notes to consolidated financial statements. 5 Table of Contents AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31, 2020 March 31, 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 42,122 $ 33,834 Marketable securities 42,274 39,436 Inventories 23,795 23,849 Accounts receivable, net and other 24,542 24,289 Total current assets 132,733 121,408 Property and equipment, net 113,114 121,461 Operating leases 37,553 39,328 Goodwill 15,017 15,220 Other assets 22,778 25,660 Total assets $ 321,195 $ 323,077 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 72,539 $ 63,926 Accrued expenses and other 44,138 40,939 Unearned revenue 9,708 10,539 Total current liabilities 126,385 115,404 Long-term lease liabilities 52,573 53,067 Long-term debt 31,816 31,868 Other long-term liabilities 17,017 19,418 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, $ 0.01 par value: Authorized shares — 500 Issued and outstanding shares — none — — Common stock, $ 0.01 par value: Authorized shares — 5,000 Issued shares — 527 and 528 Outstanding shares — 503 and 504 5 5 Treasury stock, at cost ( 1,837 ) ( 1,837 ) Additional paid-in capital 42,865 45,160 Accumulated other comprehensive income (loss) ( 180 ) ( 666 ) Retained earnings 52,551 60,658 Total stockholders’ equity 93,404 103,320 Total liabilities and stockholders’ equity $ 321,195 $ 323,077 See accompanying notes to consolidated financial statements. 6 Table of Contents AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 — ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES Unaudited Interim Financial Information We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows, operating results, and balance sheets for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2021 due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. 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 2020 Annual Report on Form 10-K. Prior Period Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. “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 The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in India and certain entities that support our seller lending financing activities. Intercompany balances and transactions between consolidated entities are eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, 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 may become more challenging, and actual results could differ materially from these estimates. Supplemental Cash Flow Information The following table shows supplemental cash flow information (in millions): Three Months Ended March 31, Twelve Months Ended March 31, 2020 2021 2020 2021 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on debt $ 290 $ 276 $ 879 $ 902 Cash paid for operating leases 1,029 1,640 3,680 5,086 Cash paid for interest on finance leases 168 157 650 601 Cash paid for interest on financing obligations 22 33 59 113 Cash paid for income taxes, net of refunds 305 801 1,017 2,209 Assets acquired under operating leases 2,408 3,536 9,403 17,345 Property and equipment acquired under finance leases 2,166 2,067 13,262 11,489 Property and equipment acquired under build-to-suit arrangements 379 887 1,304 2,775 7 Table of Contents Earnings Per Share Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect. The following table shows the calculation of diluted shares (in millions): Three Months Ended March 31, 2020 2021 Shares used in computation of basic earnings per share 498 504 Total dilutive effect of outstanding stock awards 8 9 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 March 31, 2020 2021 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 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 $ 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, 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 $ 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, 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 Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. 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. 8 Table of Contents 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 $ 52.9 billion as of March 31, 2021. The weighted-average remaining life of our long-term contracts is 3.3 years. However, the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term. Note 2 — FINANCIAL INSTRUMENTS Cash, Cash Equivalents, Restricted Cash, and Marketable Securities 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. Cash equivalents and marketable securities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1 —Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 —Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 —Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for identical assets or liabilities. Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold significant amounts of marketable securities categorized as Level 3 assets as of December 31, 2020 and March 31, 2021. 9 Table of Contents 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, 2020 March 31, 2021 Total Estimated Fair Value Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated Fair Value Cash $ 10,063 $ 10,070 $ — — $ 10,070 Level 1 securities: Money market funds 27,430 22,902 — — 22,902 Equity securities (1) 617 683 Level 2 securities: Foreign government and agency securities 5,131 2,355 1 ( 1 ) 2,355 U.S. government and agency securities 7,439 5,712 25 ( 10 ) 5,727 Corporate debt securities 29,988 27,243 206 ( 19 ) 27,430 Asset-backed securities 3,235 3,456 22 ( 4 ) 3,474 Other fixed income securities 710 946 7 ( 1 ) 952 Equity securities (1) 40 — $ 84,653 $ 72,684 $ 261 $ ( 35 ) $ 73,593 Less: Restricted cash, cash equivalents, and marketable securities (2) ( 257 ) ( 323 ) Total cash, cash equivalents, and marketable securities $ 84,396 $ 73,270 ___________________ (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 March 31, 2021 (in millions): Amortized Cost Estimated Fair Value Due within one year $ 41,195 $ 41,210 Due after one year through five years 17,607 17,791 Due after five years through ten years 1,068 1,074 Due after ten years 2,744 2,765 Total $ 62,614 $ 62,840 Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions. Equity Warrants and Non-Marketable Equity Investments We hold equity warrants giving us the right to acquire stock of other companies. 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, 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. 10 Table of Contents 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, 2020 March 31, 2021 Cash and cash equivalents $ 42,122 $ 33,834 Restricted cash included in accounts receivable, net and other 233 299 Restricted cash included in other assets 22 22 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 42,377 $ 34,155 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 $ 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 March 31, 2020 2021 Operating lease cost $ 1,068 $ 1,556 Finance lease cost: Amortization of lease assets 1,894 2,456 Interest on lease liabilities 164 132 Finance lease cost 2,058 2,588 Variable lease cost 264 348 Total lease cost $ 3,390 $ 4,492 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 Weighted-average remaining lease term – finance leases 6.2 years 6.7 years Weighted-average discount rate – operating leases 2.5 % 2.4 % Weighted-average discount rate – finance leases 2.1 % 2.1 % 11 Table of Contents Our lease liabilities were as follows (in millions): December 31, 2020 Operating Leases Finance Leases Total Gross lease liabilities $ 44,833 $ 30,437 $ 75,270 Less: imputed interest ( 5,734 ) ( 2,003 ) ( 7,737 ) Present value of lease liabilities 39,099 28,434 67,533 Less: current portion of lease liabilities ( 4,586 ) ( 10,374 ) ( 14,960 ) Total long-term lease liabilities $ 34,513 $ 18,060 $ 52,573 March 31, 2021 Operating Leases Finance Leases Total Gross lease liabilities $ 46,762 $ 28,687 $ 75,449 Less: imputed interest ( 5,784 ) ( 1,895 ) ( 7,679 ) Present value of lease liabilities 40,978 26,792 67,770 Less: current portion of lease liabilities ( 4,841 ) ( 9,862 ) ( 14,703 ) Total long-term lease liabilities $ 36,137 $ 16,930 $ 53,067 Note 4 — COMMITMENTS AND CONTINGENCIES Commitments 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 March 31, 2021 (in millions): Nine Months Ended December 31, Year Ended December 31, 2021 2022 2023 2024 2025 Thereafter Total Long-term debt principal and interest $ 1,876 $ 2,606 $ 3,331 $ 4,272 $ 3,058 $ 35,680 $ 50,823 Operating lease liabilities 4,284 5,507 5,043 4,620 4,202 23,106 46,762 Finance lease liabilities, including interest 7,520 7,700 3,952 1,555 1,066 6,894 28,687 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 Other commitments (2)(3) 3,265 2,665 1,163 927 807 9,881 18,708 Total commitments $ 20,471 $ 24,719 $ 20,676 $ 18,476 $ 16,037 $ 121,184 $ 221,563 ___________________ (1) Includes unconditional purchase obligations related to certain products offered in our Whole Foods Market stores and long-term agreements to acquire and license digital media content that are not reflected on the consolidated balance sheets. For those digital media content agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified. (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. 12 Table of Contents Pledged Assets 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. See “Note 5 — Debt.” Other Contingencies 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. South Carolina is alleging that we should have collected sales and use taxes on transactions by our third-party sellers. In September 2019, the South Carolina Administrative Law Court ruled in favor of the Department of Revenue and we have appealed the decision to the state Court of Appeals. 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 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 2020 Annual Report on Form 10-K. 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. The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. We evaluate, on a regular basis, developments in our legal proceedings and other contingencies that could affect the amount of liability, including amounts in excess of any previous accruals and reasonably possible losses disclosed, and make adjustments and changes to our accruals and disclosures as appropriate. For the matters we disclose that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. Until the final resolution of such matters, if any of our estimates and assumptions change or prove to have been incorrect, we may experience losses in excess of the amounts recorded, which could have a material effect on our business, consolidated financial position, results of operations, or cash flows. See also “Note 7 — Income Taxes.” 13 Table of Contents Note 5 — DEBT 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, 2020 March 31, 2021 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 % 5,000 5,000 2017 Notes issuance of $ 17.0 billion 2023 - 2057 2.40 % - 5.20 % 2.56 % - 4.33 % 16,000 16,000 2020 Notes issuance of $ 10.0 billion 2023 - 2060 0.40 % - 2.70 % 0.56 % - 2.77 % 10,000 10,000 Credit Facility 338 429 Other long-term debt 586 548 Total face value of long-term debt 33,174 33,227 Unamortized discount and issuance costs, net ( 203 ) ( 203 ) Less current portion of long-term debt ( 1,155 ) ( 1,156 ) Long-term debt $ 31,816 $ 31,868 ___________________ (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. 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. 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 $ 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, 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. 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. 14 Table of Contents Note 6 — STOCKHOLDERS’ EQUITY Stock Repurchase Activity In February 2016, the Board of Directors authorized a program to repurchase up to $ 5.0 billion of our common stock, with no fixed expiration. There were no repurchases of common stock during the three months ended March 31, 2020 or 2021. Stock Award Activity 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. Stock-based compensation expense is as follows (in millions): Three Months Ended March 31, 2020 2021 Cost of sales $ 41 $ 90 Fulfillment 260 342 Technology and content 961 1,228 Marketing 332 456 General and administrative 163 190 Total stock-based compensation expense $ 1,757 $ 2,306 The following table summarizes our restricted stock unit activity for the three months ended March 31, 2021 (in millions): Number of Units Weighted-Average Grant-Date Fair Value Outstanding as of December 31, 2020 15.2 $ 2,004 Units granted 0.6 3,147 Units vested ( 0.8 ) 1,270 Units forfeited ( 0.5 ) 1,895 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 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, 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. 15 Table of Contents Changes in Stockholders’ Equity The following table shows the changes in stockholders’ equity (in millions): Three Months Ended March 31, 2020 2021 Total beginning stockholders’ equity $ 62,060 $ 93,404 Beginning and ending common stock 5 5 Beginning and ending treasury stock ( 1,837 ) ( 1,837 ) Beginning additional paid-in capital 33,658 42,865 Stock-based compensation and issuance of employee benefit plan stock 1,754 2,295 Ending additional paid-in capital 35,412 45,160 Beginning accumulated other comprehensive income (loss) ( 986 ) ( 180 ) Other comprehensive income (loss) ( 1,077 ) ( 486 ) Ending accumulated other comprehensive income (loss) ( 2,063 ) ( 666 ) Beginning retained earnings 31,220 52,551 Net income 2,535 8,107 Ending retained earnings 33,755 60,658 Total ending stockholders’ equity $ 65,272 $ 103,320 Note 7 — INCOME TAXES Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. 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, 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. 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. 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 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 16 Table of Contents 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 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. 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. On October 4, 2017, the European Commission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules on state aid. 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, 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. In May 2018, we appealed. We believe the European Commission’s decision to be without merit and will continue to defend ourselves vigorously in this matter. We are also subject to taxation in various states and other foreign jurisdictions including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities in respect of these particular jurisdictions primarily for 2009 and thereafter. Note 8 — SEGMENT INFORMATION We have organized our operations into three segments: North America, International, and AWS. We allocate to segment results the operating expenses “Fulfillment,” “Technology and content,” “Marketing,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. The majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. There are no internal revenue transactions between our reportable segments. These segments reflect the way our chief operating decision maker evaluates the Company’s business performance and manages its operations. North America The North America segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused online and physical stores. This segment includes export sales from these online stores. International The International segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused online stores. This segment includes export sales from these internationally-focused online stores (including export sales from these online stores to customers in the U.S., Mexico, and Canada), but excludes export sales from our North America-focused online stores. AWS 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. 17 Table of Contents Information on reportable segments and reconciliation to consolidated net income is as follows (in millions): Three Months Ended March 31, 2020 2021 North America Net sales $ 46,127 $ 64,366 Operating expenses 44,815 60,916 Operating income $ 1,312 $ 3,450 International Net sales $ 19,106 $ 30,649 Operating expenses 19,504 29,397 Operating income (loss) $ ( 398 ) $ 1,252 AWS Net sales $ 10,219 $ 13,503 Operating expenses 7,144 9,340 Operating income $ 3,075 $ 4,163 Consolidated Net sales $ 75,452 $ 108,518 Operating expenses 71,463 99,653 Operating income 3,989 8,865 Total non-operating income (expense) ( 606 ) 1,403 Provision for income taxes ( 744 ) ( 2,156 ) Equity-method investment activity, net of tax ( 104 ) ( 5 ) Net income $ 2,535 $ 8,107 Net sales by groups of similar products and services, which also have similar economic characteristics, is as follows (in millions): Three Months Ended March 31, 2020 2021 Net Sales: Online stores (1) $ 36,652 $ 52,901 Physical stores (2) 4,640 3,920 Third-party seller services (3) 14,479 23,709 Subscription services (4) 5,556 7,580 AWS 10,219 13,503 Other (5) 3,906 6,905 Consolidated $ 75,452 $ 108,518 ____________________________ (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, videos, games, music, and software. These product sales include digital products sold on a transactional basis. Digital product subscriptions that provide unlimited viewing or usage rights are included in “Subscription services.” (2) Includes product sales where our customers physically select items in a store. 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 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. 18 Table of Contents