COMMITMENTS AND CONTINGENCIES

Commitments

We have entered into non-cancellable operating, capital, and finance leases for equipment and office, fulfillment, sortation, delivery, data center, and renewable energy facilities. Rental expense under operating lease agreements was $336 million and $439 million for Q2 2016 and Q2 2017, and $657 million and $850 million for the six months ended June 30, 2016 and 2017.

The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations, as of June 30, 2017 (in millions):



	Six Months Ended December 31,		Year Ended December 31,
	2017		2018		2019		2020		2021		Thereafter		Total
Debt principal and interest	$	1,195	$	327	$	1,571	$	467	$	1,247	$	7,911	$	12,718
Capital lease obligations, including interest (1)	2,677		4,492		3,119		1,122		397		392		12,199
Finance lease obligations, including interest (2)	132		287		294		298		306		2,474		3,791
Operating leases	778		1,463		1,391		1,257		1,099		4,650		10,638
Unconditional purchase obligations (3)	267		634		436		190		76		20		1,623
Other commitments (4) (5)	769		1,190		818		664		511		4,254		8,206
Total commitments	$	5,818	$	8,393	$	7,629	$	3,998	$	3,636	$	19,701	$	49,175

___________________


(1)	Excluding interest, current capital lease obligations of $4.0 billion and $4.9 billion are recorded within “Accrued expenses and other” as of December 31, 2016, and June 30, 2017, and $5.1 billion and $6.9 billion are recorded within “Other long-term liabilities” as of December 31, 2016, and June 30, 2017.


(2)	Excluding interest, current finance lease obligations of $144 million and $173 million are recorded within “Accrued expenses and other” as of December 31, 2016, and June 30, 2017, and $2.4 billion and $2.9 billion are recorded within “Other long-term liabilities” as of December 31, 2016, and June 30, 2017.

(3)

Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.


(4)	Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements and equipment lease arrangements that have not been placed in service and digital media content liabilities associated with long-term digital media content assets with initial terms greater than one year.


(5)	Excludes $1.9 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

In June 2017, we entered into an agreement to acquire all of the outstanding shares of Whole Foods Market, Inc. for approximately $13.7 billion, including Whole Foods Market’s net debt. We expect to fund this acquisition with debt financing together with cash on hand. We expect the acquisition to close in 2017, subject to customary closing conditions.

Pledged Assets

As of December 31, 2016, and June 30, 2017, we have pledged or otherwise restricted $715 million and $754 million of our cash, cash equivalents, and marketable securities, and certain property and equipment as collateral for standby and trade letters of credit, guarantees, debt relating to certain international operations, real estate leases, and amounts due to third-party sellers in certain jurisdictions.

Other Contingencies

In 2016, we determined that we processed and delivered orders of consumer products for certain individuals and entities located outside Iran covered by the Iran Threat Reduction and Syria Human Rights Act or other United States sanctions and export control laws. The consumer products included books, music, other media, apparel, home and kitchen, health and beauty, jewelry, office, consumer electronics, software, lawn and patio, grocery, and automotive products. Our review is ongoing and we have voluntarily reported these orders to the United States Treasury Department’s Office of Foreign Assets Control and the United States Department of Commerce’s Bureau of Industry and Security. We intend to cooperate fully with OFAC and BIS with respect to their review, which may result in the imposition of penalties. For additional information, see Item 5 of Part II, “Other Information — Disclosure Pursuant to Section 13(r) of the Exchange Act.”

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. 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. We believe the assessment is without merit. If South Carolina or other states were successfully to seek additional adjustments of a similar nature, we could be subject to significant additional tax liabilities. We intend to defend ourselves vigorously in this matter.

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 2016 Annual Report on Form 10-K and in Item 1 of Part 1, “Financial Statements — Note 3 — Commitments and Contingencies — Legal Proceedings” of our Quarterly Report on Form 10-Q for the period ended March 31, 2017, as supplemented by the following:

In November 2015, Eolas Technologies, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that the use of “interactive features” on www.amazon.com, including “search suggestions and search results,” infringes U.S. Patent No. 9,195,507, entitled “Distributed Hypermedia Method and System for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects Within A Hypermedia Document.” The complaint sought a judgment of infringement together with costs and attorneys’ fees. In February 2016, Eolas filed an amended complaint seeking, among other things, an unspecified amount of damages. In February 2017, Eolas alleged in its damages report that in the event of a finding of liability Amazon could be subject to $130-$250 million in damages. In April 2017, the case was transferred to the United States District Court for the Northern District of California. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In May 2017, the University of Tennessee Research Foundation and Saint Matthew Research, LLC filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent infringement in the United States District Court for the Eastern District of Tennessee. The complaint alleges, among other things, that certain Amazon Web Services products or services (including among others Amazon Redshift, Amazon High Performance Computing, Amazon CloudWatch, Amazon Auto Scaling, Amazon Elastic Load Balancing, Amazon RDS, and Amazon Machine Learning) infringe U.S. Patent Nos. 7,454,411 and 8,099,733, entitled “Parallel Data Processing Architecture;” 6,741,983 and 7,882,106, entitled “Method of Indexed Storage and Retrieval of Multidimensional Information;” and 7,272,612, entitled “Method of Partitioning Data Records.” The complaint seeks an unspecified amount of damages, enhanced damages, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

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. In addition, for some matters for which a loss is probable or reasonably possible, an estimate of the amount of loss or range of losses is not possible 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.