COMMITMENTS AND CONTINGENCIES

Commitments

We have entered into non-cancellable operating, capital, and finance leases for equipment and office, fulfillment, sortation, delivery, data center, physical store, and renewable energy facilities. Rental expense under operating lease agreements was $367 million and $553 million for Q3 2016 and Q3 2017, and $1.0 billion and $1.4 billion for the nine months ended September 30, 2016 and 2017.

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



	Three Months Ended December 31,		Year Ended December 31,
	2017		2018		2019		2020		2021		Thereafter		Total
Debt principal and interest	$	1,182	$	902	$	2,212	$	2,087	$	1,833	$	33,849	$	42,065
Capital lease obligations, including interest (1)	1,543		5,406		4,024		1,813		514		671		13,971
Finance lease obligations, including interest (2)	98		391		406		410		421		3,890		5,616
Operating leases	925		2,321		2,254		2,112		1,922		12,535		22,069
Unconditional purchase obligations (3)	817		3,571		3,412		3,115		2,984		10,895		24,794
Other commitments (4) (5)	384		1,241		849		678		522		4,338		8,012
Total commitments	$	4,949	$	13,832	$	13,157	$	10,215	$	8,196	$	66,178	$	116,527

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(1)	Excluding interest, current capital lease obligations of $4.0 billion and $5.3 billion are recorded within “Accrued expenses and other” as of December 31, 2016, and September 30, 2017, and $5.1 billion and $7.6 billion are recorded within “Other long-term liabilities” as of December 31, 2016, and September 30, 2017.


(2)	Excluding interest, current finance lease obligations of $144 million and $239 million are recorded within “Accrued expenses and other” as of December 31, 2016, and September 30, 2017, and $2.4 billion and $4.3 billion are recorded within “Other long-term liabilities” as of December 31, 2016, and September 30, 2017.

(3)

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.


(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 $2.1 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, 2016, and September 30, 2017, we have pledged or otherwise restricted $715 million and $1.3 billion of our cash, cash equivalents, and marketable securities, and certain property and equipment as collateral for real estate leases, workers’ compensation obligations, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit.

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 I, “Financial Statements — Note 3 — Commitments and Contingencies — Legal Proceedings” of our Quarterly Reports on Form 10-Q for the periods ended March 31, 2017 and June 30, 2017, as supplemented by the following:

In March 2014, Kaavo, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent infringement in the United States District Court for the District of Delaware. The complaint alleges, among other things, that Amazon Web Services’ Elastic Beanstalk and CloudFormation infringe U.S. Patent No. 8,271,974, entitled “Cloud Computing Lifecycle Management For N-Tier Applications.” The complaint seeks injunctive relief, an unspecified amount of damages, costs, and interest. In July 2015, Kaavo Inc. filed another complaint against Amazon.com, Inc. and Amazon Web Services, Inc. in the United States District Court for the District of Delaware. The 2015 complaint alleges, among other things, that CloudFormation infringes U.S. Patent No. 9,043,751, entitled “Methods And Devices For Managing A Cloud Computing Environment.” The 2015 complaint seeks injunctive relief, an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, and interest. In September 2017, the 2015 case was stayed pending resolution of a review petition we filed with the United States Patent and Trademark Office. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

Beginning in September 2015, two cases have been filed alleging that Amazon violated the Fair Credit Reporting Act with regard to processes undertaken to perform criminal background checks on candidates for employment and employees. In September 2015, Hargrett v. Amazon.com LLC and Amazon.comdedc, LLC was filed in the U.S. District Court for the Middle District of Florida. In August 2017, Mathis v. Amazon.comdedc, LLC and Accurate Background, LLC was filed in the U.S. District Court for the Middle District of Florida. The plaintiffs variously purport to represent a nationwide class of certain candidates for employment and employees who were subject to a background check, and allege that Amazon failed either to provide proper disclosures before obtaining background checks or to provide appropriate notice before using background check information in employment decisions. The complaints seek an unspecified amount of statutory damages, punitive damages, costs, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

In October 2017, SRC Labs, LLC and Saint Regis Mohawk Tribe filed in the United States District Court for the Eastern District of Virginia a complaint for patent infringement against Amazon Web Services, Inc., Amazon.com, Inc., and VADATA, Inc. The complaint alleges, among other things, that EC2 F1 Instances infringe U.S. Patent Nos. 6,434,687, entitled “System and method for accelerating web site access and processing utilizing a computer system incorporating reconfigurable processors operating under a single operating system image”; 7,149,867, entitled “System and method of enhancing efficiency and utilization of memory bandwidth in reconfigurable hardware”; 7,225,324 and 7,620,800, both entitled “Multi-adaptive processing systems and techniques for enhancing parallelism and performance of computational functions”; and 9,153,311, entitled “System and method for retaining DRAM data when reprogramming reconfigurable devices with DRAM memory controllers.” The complaint seeks an unspecified amount of damages, enhanced damages, interest, and a compulsory on-going royalty. 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.