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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________
FORM 10-Q
____________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to             .
Commission File No. 000-22513
____________________________________
AMAZON.COM, INC.
(Exact name of registrant as specified in its charter)
 ____________________________________
Delaware
 
91-1646860
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
410 Terry Avenue North, Seattle, Washington 98109-5210
(206) 266-1000
(Address and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
AMZN
Nasdaq Global Select Market
____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
498,776,032 shares of common stock, par value $0.01 per share, outstanding as of April 22, 2020
 


Table of Contents

AMAZON.COM, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2020
INDEX
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2

Table of Contents

PART I. FINANCIAL INFORMATION

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,
 
2019
 
2020
 
2019
 
2020
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD
$
32,173

 
$
36,410

 
$
17,616

 
$
23,507

OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net income
3,561

 
2,535

 
12,005

 
10,563

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
4,854

 
5,362

 
16,524

 
22,297

Stock-based compensation
1,274

 
1,757

 
5,509

 
7,347

Other operating expense (income), net
(13
)
 
67

 
205

 
244

Other expense (income), net
(135
)
 
565

 
268

 
451

Deferred income taxes
415

 
322

 
714

 
704

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Inventories
719

 
1,392

 
(2,815
)
 
(2,605
)
Accounts receivable, net and other
(401
)
 
1,262

 
(6,043
)
 
(6,018
)
Accounts payable
(6,384
)
 
(8,044
)
 
7,095

 
6,532

Accrued expenses and other
(2,932
)
 
(2,761
)
 
(235
)
 
(1,213
)
Unearned revenue
888

 
607

 
1,133

 
1,430

Net cash provided by (used in) operating activities
1,846

 
3,064

 
34,360

 
39,732

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Purchases of property and equipment
(3,290
)
 
(6,795
)
 
(13,619
)
 
(20,365
)
Proceeds from property and equipment sales and incentives
569

 
1,367

 
2,303

 
4,970

Acquisitions, net of cash acquired, and other
(1,169
)
 
(91
)
 
(3,342
)
 
(1,384
)
Sales and maturities of marketable securities
2,643

 
11,626

 
8,205

 
31,664

Purchases of marketable securities
(6,876
)
 
(15,001
)
 
(13,506
)
 
(39,938
)
Net cash provided by (used in) investing activities
(8,123
)
 
(8,894
)
 
(19,959
)
 
(25,053
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Proceeds from long-term debt and other
190

 
693

 
833

 
2,776

Repayments of long-term debt and other
(351
)
 
(667
)
 
(817
)
 
(3,000
)
Principal repayments of finance leases
(2,214
)
 
(2,600
)
 
(7,649
)
 
(10,013
)
Principal repayments of financing obligations
(2
)
 
(17
)
 
(266
)
 
(43
)
Net cash provided by (used in) financing activities
(2,377
)
 
(2,591
)
 
(7,899
)
 
(10,280
)
Foreign currency effect on cash, cash equivalents, and restricted cash
(12
)
 
(484
)
 
(611
)
 
(401
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(8,666
)
 
(8,905
)
 
5,891

 
3,998

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD
$
23,507

 
$
27,505

 
$
23,507

 
$
27,505

SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
 
 
 
Cash paid for interest on long-term debt
$
286

 
$
290

 
$
858

 
$
879

Cash paid for operating leases
709

 
1,029

 
709

 
3,680

Cash paid for interest on finance leases
165

 
168

 
471

 
650

Cash paid for interest on financing obligations
2

 
22

 
142

 
59

Cash paid for income taxes, net of refunds
168

 
305

 
840

 
1,017

Assets acquired under operating leases
875

 
2,408

 
875

 
9,403

Property and equipment acquired under finance leases
2,628

 
2,166

 
10,972

 
13,262

Property and equipment acquired under build-to-suit arrangements
436

 
379

 
3,336

 
1,304

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,
 
2019
 
2020
Net product sales
$
34,283

 
$
41,841

Net service sales
25,417

 
33,611

Total net sales
59,700

 
75,452

Operating expenses:
 
 
 
Cost of sales
33,920

 
44,257

Fulfillment
8,601

 
11,531

Technology and content
7,927

 
9,325

Marketing
3,664

 
4,828

General and administrative
1,173

 
1,452

Other operating expense (income), net
(5
)
 
70

Total operating expenses
55,280

 
71,463

Operating income
4,420

 
3,989

Interest income
183

 
202

Interest expense
(366
)
 
(402
)
Other income (expense), net
164

 
(406
)
Total non-operating income (expense)
(19
)
 
(606
)
Income before income taxes
4,401

 
3,383

Provision for income taxes
(836
)
 
(744
)
Equity-method investment activity, net of tax
(4
)
 
(104
)
Net income
$
3,561

 
$
2,535

Basic earnings per share
$
7.24

 
$
5.09

Diluted earnings per share
$
7.09

 
$
5.01

Weighted-average shares used in computation of earnings per share:
 
 
 
Basic
491

 
498

Diluted
502

 
506

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,
 
2019
 
2020
Net income
$
3,561

 
$
2,535

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments, net of tax of $(1) and $21
(8
)
 
(874
)
Net change in unrealized gains (losses) on available-for-sale debt securities:
 
 
 
Unrealized gains (losses), net of tax of $0 and $12
32

 
(203
)
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $0 and $0
1

 

Net unrealized gains (losses) on available-for-sale debt securities
33

 
(203
)
Total other comprehensive income (loss)
25

 
(1,077
)
Comprehensive income
$
3,586

 
$
1,458

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, 2019
 
March 31, 2020
 

 
(unaudited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
36,092

 
$
27,201

Marketable securities
18,929

 
22,091

Inventories
20,497

 
18,857

Accounts receivable, net and other
20,816

 
17,836

Total current assets
96,334

 
85,985

Property and equipment, net
72,705

 
77,779

Operating leases
25,141

 
26,279

Goodwill
14,754

 
14,739

Other assets
16,314

 
16,456

Total assets
$
225,248

 
$
221,238

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
47,183

 
$
40,056

Accrued expenses and other
32,439

 
30,791

Unearned revenue
8,190

 
8,864

Total current liabilities
87,812

 
79,711

Long-term lease liabilities
39,791

 
40,300

Long-term debt
23,414

 
23,437

Other long-term liabilities
12,171

 
12,518

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 — 521 and 522
 
 
 
Outstanding shares — 498 and 499
5

 
5

Treasury stock, at cost
(1,837
)
 
(1,837
)
Additional paid-in capital
33,658

 
35,412

Accumulated other comprehensive income (loss)
(986
)
 
(2,063
)
Retained earnings
31,220

 
33,755

Total stockholders’ equity
62,060

 
65,272

Total liabilities and stockholders’ equity
$
225,248

 
$
221,238

See accompanying notes to consolidated financial statements.


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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1 — ACCOUNTING POLICIES
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 2020 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 2019 Annual Report on Form 10-K.
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 impairment of investments. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates are becoming more challenging, and actual results could differ materially from those 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 Q1 2020, based on servers that were included in “Property and equipment, net” as of December 31, 2019 and those acquired during the quarter ended March 31, 2020, was a reduction in depreciation and amortization expense of $786 million and an increase in net income of $602 million, or $1.21 per basic share and $1.19 per diluted share.
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,
 
2019
 
2020
Shares used in computation of basic earnings per share
491

 
498

Total dilutive effect of outstanding stock awards
11

 
8

Shares used in computation of diluted earnings per share
502

 
506



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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 $1.6 billion as of December 31, 2019 and March 31, 2020.
Accounts Receivable, Net and Other
Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to customers, vendors, and sellers. As of December 31, 2019 and March 31, 2020, customer receivables, net, were $12.6 billion and $11.3 billion, vendor receivables, net, were $4.2 billion and $2.7 billion, and seller receivables, net, were $863 million and $801 million. Seller receivables are amounts due from sellers related to our seller lending program, which provides funding to sellers primarily to procure inventory.
We estimate losses on receivables based on expected losses, including our historical experience of actual losses. The allowance for doubtful accounts was $718 million and $1.1 billion as of December 31, 2019 and March 31, 2020.
Digital Video and Music Content
The total capitalized costs of video, which is primarily released content, and music as of December 31, 2019 and March 31, 2020 were $5.8 billion and $6.1 billion. Total video and music expense was $1.7 billion and $2.4 billion in Q1 2019 and Q1 2020.
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, 2019 was $10.2 billion, of which $3.4 billion was recognized as revenue during the three months ended March 31, 2020. Included in “Other long-term liabilities” on our consolidated balance sheets was $2.0 billion and $1.8 billion of unearned revenue as of December 31, 2019 and March 31, 2020.
Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that have not yet been recognized in our financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were $34.1 billion as of March 31, 2020. 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, 2019 and March 31, 2020, our cash, cash equivalents, restricted cash, and marketable securities primarily consisted of cash, AAA-rated money market funds, U.S. and foreign government and agency securities, and other investment grade securities. 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 cash, cash equivalents, restricted cash, or marketable securities categorized as Level 3 assets as of December 31, 2019 and March 31, 2020.

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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
 
March 31, 2020
  
Total
Estimated
Fair Value
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Total
Estimated
Fair Value
Cash
$
9,776

 
$
8,363

 
$

 
$

 
$
8,363

Level 1 securities:
 
 
 
 
 
 
 
 
 
Money market funds
18,850

 
16,260

 

 

 
16,260

Equity securities (1)
202

 
 
 
 
 
 
 
174

Level 2 securities:
 
 
 
 
 
 
 
 
 
Foreign government and agency securities
4,794

 
3,467

 

 
(1
)
 
3,466

U.S. government and agency securities
7,080

 
4,295

 
51

 
(1
)
 
4,345

Corporate debt securities
11,881

 
13,957

 
41

 
(205
)
 
13,793

Asset-backed securities
2,360

 
2,868

 
3

 
(51
)
 
2,820

Other fixed income securities
394

 
375

 
2

 
(1
)
 
376

Equity securities (1)
5

 
 
 
 
 
 
 
2

 
$
55,342

 
$
49,585

 
$
97

 
$
(259
)
 
$
49,599

Less: Restricted cash, cash equivalents, and marketable securities (2)
(321
)
 
 
 
 
 
 
 
(307
)
Total cash, cash equivalents, and marketable securities
$
55,021

 
 
 
 
 
 
 
$
49,292

___________________
(1)
The related unrealized gain (loss) recorded in “Other income (expense), net” was $68 million and $(31) million in Q1 2019 and Q1 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. 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, 2020 (in millions):
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year
$
26,936

 
$
26,935

Due after one year through five years
11,645

 
11,498

Due after five years through ten years
533

 
527

Due after ten years
2,108

 
2,100

Total
$
41,222

 
$
41,060


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, 2019 and March 31, 2020, these warrants had a fair value of $669 million and $528 million, and are recorded within “Other assets” on our consolidated balance sheets. These assets are primarily classified as Level 2 assets.
As of December 31, 2019 and March 31, 2020, equity investments not accounted for under the equity-method and without readily determinable fair values, had a carrying value of $1.5 billion, and are recorded within “Other assets” on our consolidated balance sheets with adjustments recognized in “Other income (expense), net” on our consolidated statements of operations.

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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
 
March 31, 2020
Cash and cash equivalents
$
36,092

 
$
27,201

Restricted cash included in accounts receivable, net and other
276

 
282

Restricted cash included in other assets
42

 
22

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows
$
36,410

 
$
27,505


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 $58.0 billion as of December 31, 2019 and March 31, 2020. Accumulated amortization associated with finance leases was $30.0 billion and $30.5 billion as of December 31, 2019 and March 31, 2020.
Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions):
 
Three Months Ended March 31,
 
2019
 
2020
Operating lease cost
$
836

 
$
1,068

Finance lease cost:
 
 
 
Amortization of lease assets
2,307

 
1,894

Interest on lease liabilities
156

 
164

Finance lease cost
2,463

 
2,058

Variable lease cost
250

 
264

Total lease cost
$
3,549

 
$
3,390


Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:
 
December 31, 2019
 
March 31, 2020
Weighted-average remaining lease term – operating leases
11.5 years

 
11.4 years

Weighted-average remaining lease term – finance leases
5.5 years

 
5.6 years

Weighted-average discount rate – operating leases
3.1
%
 
3.0
%
Weighted-average discount rate – finance leases
2.7
%
 
2.6
%


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Our lease liabilities were as follows (in millions):
 
December 31, 2019
 
Operating Leases
 
Finance Leases
 
Total
Gross lease liabilities
$
31,963

 
$
28,875

 
$
60,838

Less: imputed interest
(6,128
)
 
(1,896
)
 
(8,024
)
Present value of lease liabilities
25,835

 
26,979

 
52,814

Less: current portion of lease liabilities
(3,139
)
 
(9,884
)
 
(13,023
)
Total long-term lease liabilities
$
22,696

 
$
17,095

 
$
39,791

 
March 31, 2020
 
Operating Leases
 
Finance Leases
 
Total
Gross lease liabilities
$
33,654

 
$
28,147

 
$
61,801

Less: imputed interest
(6,570
)
 
(1,828
)
 
(8,398
)
Present value of lease liabilities
27,084

 
26,319

 
53,403

Less: current portion of lease liabilities
(3,279
)
 
(9,824
)
 
(13,103
)
Total long-term lease liabilities
$
23,805

 
$
16,495

 
$
40,300


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, 2020 (in millions): 
 
Nine Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
Debt principal and interest
$
1,881

 
$
2,016

 
$
2,605

 
$
2,294

 
$
4,100

 
$
26,020

 
$
38,916

Operating lease liabilities
2,922

 
3,913

 
3,499

 
3,156

 
2,855

 
17,309

 
33,654

Finance lease liabilities, including interest
7,461

 
8,217

 
4,652

 
1,564

 
1,046

 
5,207

 
28,147

Financing obligations, including interest
108

 
145

 
148

 
150

 
152

 
2,451

 
3,154

Unconditional purchase obligations (1)
2,960

 
3,801

 
3,352

 
3,125

 
3,002

 
2,370

 
18,610

Other commitments (2) (3)
3,179

 
2,639

 
2,107

 
1,812

 
1,761

 
16,658

 
28,156

Total commitments
$
18,511

 
$
20,731

 
$
16,363

 
$
12,101

 
$
12,916

 
$
70,015

 
$
150,637

___________________
(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 and lease arrangements prior to the lease commencement date and digital media content liabilities associated with long-term digital media content assets with initial terms greater than one year.
(3)
Excludes approximately $3.8 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

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Pledged Assets
As of December 31, 2019 and March 31, 2020, we have pledged or otherwise restricted $994 million and $984 million of our cash, cash equivalents, and marketable securities, and certain property and equipment as collateral for real estate leases, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit. Additionally, we have pledged our cash and seller receivables for debt related to our Credit Facility. See “Note 5 — Debt.”
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. In March 2020, BIS notified us that it had completed and closed its review with the issuance of a Warning Letter. We intend to cooperate fully with OFAC with respect to its 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. 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 liabilities.
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 as supplemented by the following:
Beginning in March 2020, a number of class-action complaints were filed in the United States District Court for the Western District of Washington, the Superior Court of Quebec - Division of Montreal, and the Federal Court of Canada against Amazon.com, Inc. and related entities. The complaints allege, among other things, a price fixing arrangement between Amazon.com, Inc. and third-party sellers in Amazon’s stores, monopolization and attempted monopolization of an alleged online retail market or submarkets, and consumer protection and unjust enrichment claims. The complaints allege several distinct purported classes, including consumers who purchased a product through Amazon’s stores and consumers who purchased a product offered by Amazon through another e-commerce retailer. The complaints seek billions of dollars of alleged actual damages, treble damages, punitive damages, and injunctive relief. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.
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.”

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Note 5 — DEBT
As of March 31, 2020, we had $23.2 billion of unsecured senior notes outstanding (the “Notes”). As of December 31, 2019 and March 31, 2020, the net unamortized discount and debt issuance costs on the Notes was $101 million. We also have other long-term debt with a carrying amount, including the current portion and borrowings under our credit facility, of $1.6 billion as of December 31, 2019 and March 31, 2020. The face value of our total long-term debt obligations is as follows (in millions):
 
December 31, 2019
 
March 31, 2020
1.900% Notes due on August 21, 2020 (3)
1,000

 
1,000

3.300% Notes due on December 5, 2021 (2)
1,000

 
1,000

2.500% Notes due on November 29, 2022 (1)
1,250

 
1,250

2.400% Notes due on February 22, 2023 (3)
1,000

 
1,000

2.800% Notes due on August 22, 2024 (3)
2,000

 
2,000

3.800% Notes due on December 5, 2024 (2)
1,250

 
1,250

5.200% Notes due on December 3, 2025 (4)
1,000

 
1,000

3.150% Notes due on August 22, 2027 (3)
3,500

 
3,500

4.800% Notes due on December 5, 2034 (2)
1,250

 
1,250

3.875% Notes due on August 22, 2037 (3)
2,750

 
2,750

4.950% Notes due on December 5, 2044 (2)
1,500

 
1,500

4.050% Notes due on August 22, 2047 (3)
3,500

 
3,500

4.250% Notes due on August 22, 2057 (3)
2,250

 
2,250

Credit Facility
740

 
740

Other long-term debt
830

 
859

Total debt
24,820

 
24,849

Less current portion of long-term debt
(1,307
)
 
(1,311
)
Face value of long-term debt
$
23,513

 
$
23,538


_____________________________
(1)
Issued in November 2012, effective interest rate of the 2022 Notes was 2.66%.
(2)
Issued in December 2014, effective interest rates of the 2021, 2024, 2034, and 2044 Notes were 3.43%, 3.90%, 4.92%, and 5.11%.
(3)
Issued in August 2017, effective interest rates of the 2020, 2023, 2024, 2027, 2037, 2047, and 2057 Notes were 2.16%, 2.56%, 2.95%, 3.25%, 3.94%, 4.13%, and 4.33%.
(4)
Consists of $872 million of 2025 Notes issued in December 2017 in exchange for notes assumed in connection with the acquisition of Whole Foods Market and $128 million of 2025 Notes issued by Whole Foods Market that did not participate in our December 2017 exchange offer. The effective interest rate of the 2025 Notes was 3.02%.
Interest on the Notes issued in 2012 is payable semi-annually in arrears in May and November. Interest on the Notes issued in 2014 is payable semi-annually in arrears in June and December. Interest on the Notes issued in 2017 is payable semi-annually in arrears in February and August. Interest on the 2025 Notes is payable semi-annually in arrears in June and December. 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 proceeds from the November 2012 and the December 2014 Notes were used for general corporate purposes. The proceeds from the August 2017 Notes were used to fund the consideration for the acquisition of Whole Foods Market, to repay notes due in 2017, and for general corporate purposes. The estimated fair value of the Notes was approximately $26.2 billion and $27.5 billion as of December 31, 2019 and March 31, 2020, which is based on quoted prices for our debt as of those dates.
In October 2016, we entered into a $500 million secured revolving credit facility with a lender that is secured by certain seller receivables, which we subsequently increased to $740 million and may from time to time increase in the future subject to lender approval (the “Credit Facility”). The Credit Facility is available until October 2022, bears interest at the London interbank offered rate (“LIBOR”) plus 1.40%, and has a commitment fee of 0.50% on the undrawn portion. There were $740 million of borrowings outstanding under the Credit Facility as of December 31, 2019 and March 31, 2020, which had a weighted-average interest rate of 3.4% and 3.3% as of December 31, 2019 and March 31, 2020. As of December 31, 2019 and

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March 31, 2020, we have pledged $852 million and $848 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 March 31, 2020.
Other long-term debt, including the current portion, had a weighted-average interest rate of 4.1% and 3.9% as of December 31, 2019 and March 31, 2020. We used the net proceeds from the issuance of this debt primarily to fund certain business operations. The estimated fair value of other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2019 and March 31, 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. There were no borrowings outstanding under the Commercial Paper Program as of December 31, 2019 and March 31, 2020. In April 2020, we issued $1.1 billion under the Commercial Paper Program.
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. As amended and restated, the Credit Agreement has a term of three years, but 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 March 31, 2020.
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, 2019 or 2020.
Stock Award Activity
Common shares outstanding plus shares underlying outstanding stock awards totaled 512 million and 513 million as of December 31, 2019 and March 31, 2020. 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,
 
2019
 
2020
Cost of sales
$
24

 
$
41

Fulfillment
234

 
260

Technology and content
675

 
961

Marketing
209

 
332

General and administrative
132

 
163

Total stock-based compensation expense
$
1,274

 
$
1,757


The following table summarizes our restricted stock unit activity for the three months ended March 31, 2020 (in millions):
 
Number of Units
 
Weighted-Average
Grant-Date
Fair Value
Outstanding as of December 31, 2019
14.3

 
$
1,458

Units granted
0.9

 
1,900

Units vested
(1.0
)
 
893

Units forfeited
(0.4
)
 
1,406

Outstanding as of March 31, 2020
13.8

 
1,530



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Scheduled vesting for outstanding restricted stock units as of March 31, 2020, is as follows (in millions):
 
Nine Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
Scheduled vesting—restricted stock units
4.8

 
5.0

 
2.3

 
1.3

 
0.2

 
0.2

 
13.8


As of March 31, 2020, there was $8.3 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis with approximately half of the compensation expected to be expensed in the next twelve months, and has a weighted-average recognition period of 1.1 years. The estimated forfeiture rate as of December 31, 2019 and March 31, 2020 was 27%. Changes in our estimates and assumptions relating to forfeitures may cause us to realize material changes in stock-based compensation expense in the future.
Changes in Stockholders’ Equity
The following table shows the changes in stockholders’ equity (in millions):
 
Three Months Ended
March 31,
 
2019
 
2020
Total beginning stockholders’ equity
$
43,549

 
$
62,060

 
 
 
 
Beginning and ending common stock
5

 
5

 
 
 
 
Beginning and ending treasury stock
(1,837
)
 
(1,837
)
 
 
 
 
Beginning additional paid-in capital
26,791

 
33,658

Stock-based compensation and issuance of employee benefit plan stock
1,268

 
1,754

Ending additional paid-in capital
28,059

 
35,412

 
 
 
 
Beginning accumulated other comprehensive income (loss)
(1,035
)
 
(986
)
Other comprehensive income (loss)
25

 
(1,077
)
Ending accumulated other comprehensive income (loss)
(1,010
)
 
(2,063
)
 
 
 
 
Beginning retained earnings
19,625

 
31,220

Cumulative effect of changes in accounting principles (1)
7

 

Net income
3,561

 
2,535

Ending retained earnings
23,193

 
33,755

 
 
 
 
Total ending stockholders’ equity
$
48,410

 
$
65,272

___________________
(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
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, 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

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laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. 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.
For 2020, we estimate that our effective tax rate will be favorably affected by the impact of excess tax benefits from stock-based compensation and the U.S. federal research and development credit and adversely affected by state income taxes and losses incurred in certain foreign jurisdictions for which we may not realize a tax benefit. Losses for which we may not realize a related tax benefit, primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our tax expense, and therefore increase our effective tax rate. We record valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax benefit.
Our income tax provisions for the three months ended March 31, 2019 and 2020 were $836 million and $744 million, which included $261 million and $273 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 $168 million and $305 million in Q1 2019 and Q1 2020.
As of December 31, 2019 and March 31, 2020, tax contingencies were approximately $3.9 billion and $3.8 billion. Changes in state, federal, and foreign tax laws may increase 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. 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 2007 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, that 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 8SEGMENT 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.

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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 service offerings 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
March 31,
 
2019
 
2020
North America
 
 
 
Net sales
$
35,812

 
$
46,127

Operating expenses
33,525

 
44,815

Operating income
$
2,287

 
$
1,312

 
 
 
 
International
 
 
 
Net sales
$
16,192

 
$
19,106

Operating expenses
16,282

 
19,504

Operating income (loss)
$
(90
)
 
$
(398
)
 
 
 
 
AWS
 
 
 
Net sales
$
7,696

 
$
10,219

Operating expenses
5,473

 
7,144

Operating income
$
2,223

 
$
3,075

 
 
 
 
Consolidated
 
 
 
Net sales
$
59,700

 
$
75,452

Operating expenses
55,280

 
71,463

Operating income
4,420

 
3,989

Total non-operating income (expense)
(19
)
 
(606
)
Provision for income taxes
(836
)
 
(744
)
Equity-method investment activity, net of tax
(4
)
 
(104
)
Net income
$
3,561

 
$
2,535




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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,
 
2019
 
2020
Net Sales:
 
Online stores (1)
$
29,498

 
$
36,652

Physical stores (2)
4,307

 
4,640

Third-party seller services (3)
11,141

 
14,479

Subscription services (4)
4,342

 
5,556

AWS
7,696

 
10,219

Other (5)
2,716

 
3,906

Consolidated
$
59,700

 
$
75,452

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


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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, seasonality, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. In addition, the global economic climate and additional or unforeseen effects from the COVID-19 pandemic amplify many of these risks. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in greater detail in Item 1A of Part II, “Risk Factors.”
For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2019 Annual Report on Form 10-K.
Critical Accounting Judgments
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. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business and Accounting Policies,” of our 2019 Annual Report on Form 10-K and Item 1 of Part I, “Financial Statements — Note 1 — Accounting Policies,” of this Form 10-Q. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
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. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of March 31, 2020, we would have recorded an additional cost of sales of approximately $210 million.
In addition, we enter into supplier commitments for certain electronic device components and certain products. These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional costs.
Income Taxes
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, administrative practices, principles, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany

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transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, 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. In addition, a number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals, such as the U.S. tax reform legislation commonly known as the U.S. Tax Cuts and Jobs Act of 2017 (the “U.S. Tax Act”). Finally, foreign governments may enact tax laws in response to the U.S. Tax Act that could result in further changes to global taxation and materially affect our financial position and results of operations.
We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, investigation, or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals. Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical income tax provisions and accruals.



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Liquidity and Capital Resources
Cash flow information is as follows (in millions):
  
Three Months Ended
March 31,
 
Twelve Months Ended
March 31,
 
2019
 
2020
 
2019
 
2020
Cash provided by (used in):
 
 
 
 
 
 
 
Operating activities
$
1,846

 
$
3,064

 
$
34,360

 
$
39,732

Investing activities
(8,123
)
 
(8,894
)
 
(19,959
)
 
(25,053
)
Financing activities
(2,377
)
 
(2,591
)
 
(7,899
)
 
(10,280
)
Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $55.0 billion and $49.3 billion as of December 31, 2019 and March 31, 2020. Amounts held in foreign currencies were $15.3 billion and $11.4 billion as of December 31, 2019 and March 31, 2020, and were primarily Euros, British Pounds, and Japanese Yen.
Cash provided by (used in) operating activities was $1.8 billion and $3.1 billion for Q1 2019 and Q1 2020. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations. Cash received from our customers and other activities generally corresponds to our net sales. Because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly. The increase in operating cash flow for the trailing twelve months ended March 31, 2020, compared to the comparable prior year period, is primarily due to the increase in non-cash charges to net income such as depreciation, amortization, and stock-based compensation. Cash provided by (used in) operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.
Cash provided by (used in) investing activities corresponds with cash capital expenditures including leasehold improvements, incentives received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash provided by (used in) investing activities was $(8.1) billion and $(8.9) billion for Q1 2019 and Q1 2020, with the variability caused primarily by our decision to purchase or lease property and equipment and purchases, maturities, and sales of marketable securities. Cash capital expenditures were $2.7 billion and $5.4 billion during Q1 2019 and Q1 2020, which primarily reflect additional capacity to support our fulfillment operations and additional investments in support of continued business growth in technology infrastructure (the majority of which is to support AWS). We made cash payments, net of acquired cash, related to acquisition and other investment activity of $1.2 billion and $91 million during Q1 2019 and Q1 2020.
Cash provided by (used in) financing activities was $(2.4) billion and $(2.6) billion for Q1 2019 and Q1 2020. Cash outflows from financing activities result from principal repayments of finance leases and financing obligations and repayments of long-term debt and other and were $2.6 billion and $3.3 billion in Q1 2019 and Q1 2020. Property and equipment acquired under finance leases was $2.6 billion and $2.2 billion during Q1 2019 and Q1 2020, reflecting investments in support of continued business growth primarily due to investments in technology infrastructure for AWS, which investments we expect to continue over time.
We had no borrowings outstanding under the Commercial Paper Program or Credit Agreement and $740 million of borrowings outstanding under our Credit Facility as of March 31, 2020. In April 2020, we issued $1.1 billion under the Commercial Paper Program. See Item 1 of Part I, “Financial Statements — Note 5 — Debt” for additional information.
We recorded net tax provisions of $836 million and $744 million in Q1 2019 and Q1 2020. Certain foreign subsidiary earnings are subject to U.S. taxation under the U.S. Tax Act, which also repeals U.S. taxation on the subsequent repatriation of those earnings. We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.
Tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions are reducing our U.S. taxable income. The U.S. Tax Act enhanced and extended accelerated depreciation deductions by allowing full expensing of qualified property, primarily equipment, through 2022. Cash taxes paid (net of refunds) were $168 million and $305 million for Q1 2019 and Q1 2020. As of December 31, 2019, we had approximately $1.7 billion of federal tax credits potentially available to offset future tax liabilities. Our federal tax credits are primarily related to the U.S. federal research and development credit. As we utilize our federal tax credits we expect cash paid for taxes to increase. We endeavor to manage our global taxes on a cash basis, rather than on a financial reporting basis. In connection with the European Commission’s October

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2017 decision against us on state aid, Luxembourg tax authorities computed an initial recovery amount, consistent with the European Commission’s decision, of approximately €250 million, that we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals.
Our liquidity is also affected by restricted cash balances that are pledged as collateral for real estate leases, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit. To the extent we process payments for third-party sellers or offer certain types of stored value to our customers, some jurisdictions may restrict our use of those funds. These restrictions would result in the reclassification of a portion of our cash and cash equivalents from “Cash and cash equivalents” to restricted cash, which is classified within “Accounts receivable, net and other” and “Other assets” on our consolidated balance sheets. As of December 31, 2019 and March 31, 2020, restricted cash, cash equivalents, and marketable securities were $321 million and $307 million. See Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies” and “Financial Statements — Note 5 — Debt” for additional discussion of our principal contractual commitments, as well as our pledged assets. Additionally, purchase obligations and open purchase orders, consisting of inventory and significant non-inventory commitments, were $18.4 billion as of March 31, 2020. These purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions.
We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, as well as our borrowing arrangements, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. See Item 1A of Part II, “Risk Factors.” We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, obtain finance and operating lease arrangements, enter into financing obligations, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.
The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial markets. This disruption can contribute to potential defaults in our accounts receivable, affect asset valuations resulting in impairment charges, and affect the availability of lease and financing credit as well as other segments of the credit markets. We have utilized a range of financing methods to fund our operations and capital expenditures and expect to continue to maintain financing flexibility in the current market conditions. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.
The sale of additional equity or convertible debt securities would likely be dilutive to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to secure additional financing, or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all.

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Results of Operations
We have organized our operations into three segments: North America, International, and AWS. These segments reflect the way the Company evaluates its business performance and manages its operations. See Item 1 of Part I, “Financial Statements — Note 8 — Segment Information.”
Effects of COVID-19
The COVID-19 pandemic and resulting global disruptions have affected our businesses, as well as those of our customers, suppliers, and third-party sellers. To serve our customers while also providing for the safety of our employees and service providers, we have adapted numerous aspects of our logistics, transportation, supply chain, purchasing, and third party seller processes. Among other actions, we have prioritized stocking and delivering household staples, medical supplies, and other high-demand products. We continue to monitor the rapidly evolving situation and expect to continue to adapt our operations to address federal, state, and local standards as well as to implement standards or processes that we determine to be in the best interests of our employees, customers, and communities.
As reflected in the discussion below, the impact of the pandemic and actions taken in response to it had varying effects on our Q1 2020 results of operations, primarily in the last month of the quarter. Higher net sales in the North America and International segments reflect increased demand, particularly as more people are staying at home, for household staples and other essential products, partially offset by decreased demand for discretionary consumer products, delayed procurement and shipment of non-priority products, and supply chain interruptions. Other effects in the North America and International segments include increased fulfillment costs and cost of sales, primarily due to investments in employee hiring, pay, and benefits, as well as costs to maintain safe workplaces, and higher shipping costs, as well as content production delays. In addition, the allowance for doubtful accounts receivable increased, primarily in the AWS segment. We expect to continue to be affected by procurement and shipping delays, supply chain interruptions, higher product demand in certain categories, lower product demand in other categories, our ability to collect accounts receivable, and increased fulfillment costs and cost of sales as a percentage of net sales through at least Q2 2020, although it is not possible to determine the duration and spread of the pandemic or such actions, the ultimate impact on our results of operations for the second quarter or full year, or whether other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations.

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Net Sales
Net sales include product and service sales. Product sales represent revenue from the sale of products and related shipping fees and digital media content where we record revenue gross. Service sales primarily represent third-party seller fees, which includes commissions and any related fulfillment and shipping fees, AWS sales, Amazon Prime membership fees, advertising services, and certain digital content subscriptions. Net sales information is as follows (in millions):
  
Three Months Ended
March 31,
 
2019
 
2020
Net Sales:
 
 
 
North America
$
35,812

 
$
46,127

International
16,192

 
19,106

AWS
7,696

 
10,219

Consolidated
$
59,700

 
$
75,452

Year-over-year Percentage Growth:
 
 
 
North America
17
%
 
29
%
International
9

 
18

AWS
41

 
33

Consolidated
17

 
26

Year-over-year Percentage Growth, excluding the effect of foreign exchange rates:
 
 
 
North America
17
%
 
29
%
International
16

 
20

AWS
42

 
33

Consolidated
19

 
27