Accounting Policies and Supplemental Disclosures

3 Months Ended

Mar. 31, 2021

Accounting Policies and Supplemental Disclosures

ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES

Unaudited Interim Financial Information

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows, operating results, and balance sheets for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2021 due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2020 Annual Report on Form 10-K.

Prior Period Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. “Proceeds from short-term debt, and other” were reclassified from “Proceeds from long-term debt and other” and “Repayments of short-term debt, and other” were reclassified from “Repayments of long-term debt and other” on our consolidated statements of cash flows.

Principles of Consolidation

The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in India and certain entities that support our seller lending financing activities. Intercompany balances and transactions between consolidated entities are eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, and valuation and impairment of investments. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates may become more challenging, and actual results could differ materially from these estimates.

Supplemental Cash Flow Information

The following table shows supplemental cash flow information (in millions):


	Three Months Ended March 31,				Twelve Months Ended March 31,
	2020		2021			2020		2021
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest on debt	$	290	$	276		$	879	$	902
Cash paid for operating leases	1,029		1,640			3,680		5,086
Cash paid for interest on finance leases	168		157			650		601
Cash paid for interest on financing obligations	22		33			59		113
Cash paid for income taxes, net of refunds	305		801			1,017		2,209
Assets acquired under operating leases	2,408		3,536			9,403		17,345
Property and equipment acquired under finance leases	2,166		2,067			13,262		11,489
Property and equipment acquired under build-to-suit arrangements	379		887			1,304		2,775

Earnings Per Share

Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.

The following table shows the calculation of diluted shares (in millions):


	Three Months Ended March 31,
	2020	2021
Shares used in computation of basic earnings per share	498	504
Total dilutive effect of outstanding stock awards	8	9
Shares used in computation of diluted earnings per share	506	513

Other Income (Expense), Net

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


	Three Months Ended March 31,
	2020		2021
Marketable equity securities valuation gains (losses)	$	(31)	$	(76)
Equity warrant valuation gains (losses)	(152)		305
Upward adjustments relating to equity investments in private companies	—		1,475
Foreign currency gains (losses)	(222)		(31)
Other, net	(1)		24
Total other income (expense), net	(406)		1,697

Inventories

Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. The inventory valuation allowance, representing a write-down of inventory, was $2.3 billion and $2.4 billion as of December 31, 2020 and March 31, 2021.

Accounts Receivable, Net and Other

Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to customers, vendors, and sellers. As of December 31, 2020 and March 31, 2021, customer receivables, net, were $14.8 billion and $15.3 billion, vendor receivables, net, were $4.8 billion and $3.6 billion, and seller receivables, net, were $381 million and $502 million. Seller receivables are amounts due from sellers related to our seller lending program, which provides funding to sellers primarily to procure inventory.

We estimate losses on receivables based on expected losses, including our historical experience of actual losses. The allowance for doubtful accounts was $1.1 billion and $920 million as of December 31, 2020 and March 31, 2021.

Digital Video and Music Content

The total capitalized costs of video, which is primarily released content, and music as of December 31, 2020 and March 31, 2021 were $6.8 billion and $7.8 billion. Total video and music expense was $2.4 billion and $3.0 billion in Q1 2020 and Q1 2021.

Unearned Revenue

Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. Our total unearned revenue as of December 31, 2020 was $11.6 billion, of which $4.2 billion was recognized as revenue during the three months ended March 31, 2021. Included in “Other long-term liabilities” on our consolidated balance sheets was $1.9 billion of unearned revenue as of December 31, 2020 and March 31, 2021.

Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that have not yet been recognized in our consolidated financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were $52.9 billion as of March 31, 2021. The weighted-average remaining life of our long-term contracts is 3.3 years. However, the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term.