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, 2021

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  ☒

504,323,736 shares of common stock, par value $0.01 per share, outstanding as of April 21, 2021

AMAZON.COM, INC.

FORM 10-Q

For the Quarterly Period Ended March 31, 2021

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Statements of Cash Flows	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Balance Sheets	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
Signatures		45

2

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,
	2020		2021		2020		2021
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD	$	36,410	$	42,377	$	23,507	$	27,505
OPERATING ACTIVITIES:
Net income	2,535		8,107		10,563		26,903
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other	5,362		7,508		22,297		27,397
Stock-based compensation	1,757		2,306		7,347		9,757
Other operating expense (income), net	67		30		244		(108)
Other expense (income), net	565		(1,456)		451		(4,603)
Deferred income taxes	322		1,703		704		827
Changes in operating assets and liabilities:
Inventories	1,392		(304)		(2,605)		(4,545)
Accounts receivable, net and other	1,262		(2,255)		(6,018)		(11,686)
Accounts payable	(8,044)		(8,266)		6,532		17,258
Accrued expenses and other	(2,761)		(4,060)		(1,213)		4,455
Unearned revenue	607		900		1,430		1,558
Net cash provided by (used in) operating activities	3,064		4,213		39,732		67,213
INVESTING ACTIVITIES:
Purchases of property and equipment	(6,795)		(12,082)		(20,365)		(45,427)
Proceeds from property and equipment sales and incentives	1,367		895		4,970		4,624
Acquisitions, net of cash acquired, and other	(91)		(630)		(1,384)		(2,864)
Sales and maturities of marketable securities	11,626		17,826		31,664		56,437
Purchases of marketable securities	(15,001)		(14,675)		(39,938)		(72,153)
Net cash provided by (used in) investing activities	(8,894)		(8,666)		(25,053)		(59,383)
FINANCING ACTIVITIES:
Proceeds from short-term debt, and other	617		1,926		1,934		8,105
Repayments of short-term debt, and other	(631)		(2,001)		(1,860)		(7,547)
Proceeds from long-term debt	76		111		842		10,560
Repayments of long-term debt	(36)		(39)		(1,140)		(1,556)
Principal repayments of finance leases	(2,600)		(3,406)		(10,013)		(11,448)
Principal repayments of financing obligations	(17)		(67)		(43)		(103)
Net cash provided by (used in) financing activities	(2,591)		(3,476)		(10,280)		(1,989)
Foreign currency effect on cash, cash equivalents, and restricted cash	(484)		(293)		(401)		809
Net increase (decrease) in cash, cash equivalents, and restricted cash	(8,905)		(8,222)		3,998		6,650
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	27,505	$	34,155	$	27,505	$	34,155

See accompanying notes to consolidated financial statements.

3

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

	Three Months Ended March 31,
	2020		2021
Net product sales	$	41,841	$	57,491
Net service sales	33,611		51,027
Total net sales	75,452		108,518
Operating expenses:
Cost of sales	44,257		62,403
Fulfillment	11,531		16,530
Technology and content	9,325		12,488
Marketing	4,828		6,207
General and administrative	1,452		1,987
Other operating expense (income), net	70		38
Total operating expenses	71,463		99,653
Operating income	3,989		8,865
Interest income	202		105
Interest expense	(402)		(399)
Other income (expense), net	(406)		1,697
Total non-operating income (expense)	(606)		1,403
Income before income taxes	3,383		10,268
Provision for income taxes	(744)		(2,156)
Equity-method investment activity, net of tax	(104)		(5)
Net income	$	2,535	$	8,107
Basic earnings per share	$	5.09	$	16.09
Diluted earnings per share	$	5.01	$	15.79
Weighted-average shares used in computation of earnings per share:
Basic	498		504
Diluted	506		513

See accompanying notes to consolidated financial statements.

4

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(unaudited)

	Three Months Ended March 31,
	2020		2021
Net income	$	2,535	$	8,107
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $21 and $13	(874)		(374)
Net change in unrealized gains (losses) on available-for-sale debt securities:
Unrealized gains (losses), net of tax of $12 and $30	(203)		(98)
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $0 and $4	—		(14)
Net unrealized gains (losses) on available-for-sale debt securities	(203)		(112)
Total other comprehensive income (loss)	(1,077)		(486)
Comprehensive income	$	1,458	$	7,621

See accompanying notes to consolidated financial statements.

5

AMAZON.COM, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

	December 31, 2020		March 31, 2021
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	42,122	$	33,834
Marketable securities	42,274		39,436
Inventories	23,795		23,849
Accounts receivable, net and other	24,542		24,289
Total current assets	132,733		121,408
Property and equipment, net	113,114		121,461
Operating leases	37,553		39,328
Goodwill	15,017		15,220
Other assets	22,778		25,660
Total assets	$	321,195	$	323,077
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	72,539	$	63,926
Accrued expenses and other	44,138		40,939
Unearned revenue	9,708		10,539
Total current liabilities	126,385		115,404
Long-term lease liabilities	52,573		53,067
Long-term debt	31,816		31,868
Other long-term liabilities	17,017		19,418
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 500
Issued and outstanding shares — none	—		—
Common stock, $0.01 par value:
Authorized shares — 5,000
Issued shares — 527 and 528
Outstanding shares — 503 and 504	5		5
Treasury stock, at cost	(1,837)		(1,837)
Additional paid-in capital	42,865		45,160
Accumulated other comprehensive income (loss)	(180)		(666)
Retained earnings	52,551		60,658
Total stockholders’ equity	93,404		103,320
Total liabilities and stockholders’ equity	$	321,195	$	323,077

See accompanying notes to consolidated financial statements.

6

AMAZON.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 — ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES

Unaudited Interim Financial Information

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

Prior Period Reclassifications

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

Principles of Consolidation

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

Use of Estimates

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

Supplemental Cash Flow Information

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

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

7

Earnings Per Share

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

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

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

Other Income (Expense), Net

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

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

Inventories

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

Accounts Receivable, Net and Other

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

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

Digital Video and Music Content

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

Unearned Revenue

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

8

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

Note 2 — FINANCIAL INSTRUMENTS

Cash, Cash Equivalents, Restricted Cash, and Marketable Securities

As of December 31, 2020 and March 31, 2021, our cash, cash equivalents, restricted cash, and marketable securities primarily consisted of cash, AAA-rated money market funds, U.S. and foreign government and agency securities, and other investment grade securities. Cash equivalents and marketable securities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for identical assets or liabilities. Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold significant amounts of marketable securities categorized as Level 3 assets as of December 31, 2020 and March 31, 2021.

9

The following table summarizes, by major security type, our cash, cash equivalents, restricted cash, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions):

	December 31, 2020		March 31, 2021
	Total Estimated Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Total Estimated Fair Value
Cash	$	10,063	$	10,070	$	—	—		$	10,070
Level 1 securities:
Money market funds	27,430		22,902		—		—		22,902
Equity securities (1)	617								683
Level 2 securities:
Foreign government and agency securities	5,131		2,355		1		(1)		2,355
U.S. government and agency securities	7,439		5,712		25		(10)		5,727
Corporate debt securities	29,988		27,243		206		(19)		27,430
Asset-backed securities	3,235		3,456		22		(4)		3,474
Other fixed income securities	710		946		7		(1)		952
Equity securities (1)	40								—
	$	84,653	$	72,684	$	261	$	(35)	$	73,593
Less: Restricted cash, cash equivalents, and marketable securities (2)	(257)								(323)
Total cash, cash equivalents, and marketable securities	$	84,396							$	73,270

___________________

(1)The related unrealized gain (loss) recorded in “Other income (expense), net” was $(31) million and $3 million in Q1 2020 and Q1 2021.

(2)We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities primarily as collateral for real estate, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit. We classify cash, cash equivalents, and marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 4 — Commitments and Contingencies.”

The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of March 31, 2021 (in millions):

	Amortized Cost		Estimated Fair Value
Due within one year	$	41,195	$	41,210
Due after one year through five years	17,607		17,791
Due after five years through ten years	1,068		1,074
Due after ten years	2,744		2,765
Total	$	62,614	$	62,840

Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.

Equity Warrants and Non-Marketable Equity Investments

We hold equity warrants giving us the right to acquire stock of other companies. As of December 31, 2020 and March 31, 2021, these warrants had a fair value of $3.0 billion and $2.8 billion, and are recorded within “Other assets” on our consolidated balance sheets with gains and losses recognized in “Other income (expense), net” on our consolidated statements of operations. These warrants are primarily classified as Level 2 assets.

As of December 31, 2020 and March 31, 2021, equity investments not accounted for under the equity-method and without readily determinable fair values, had a carrying value of $2.7 billion and $4.3 billion, and are recorded within “Other assets” on our consolidated balance sheets with adjustments recognized in “Other income (expense), net” on our consolidated statements of operations.

10

Consolidated Statements of Cash Flows Reconciliation

The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows (in millions):

	December 31, 2020		March 31, 2021
Cash and cash equivalents	$	42,122	$	33,834
Restricted cash included in accounts receivable, net and other	233		299
Restricted cash included in other assets	22		22
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	42,377	$	34,155

Note 3 — LEASES

Gross assets acquired under finance leases, inclusive of those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $68.1 billion and $69.3 billion as of December 31, 2020 and March 31, 2021. Accumulated amortization associated with finance leases was $36.5 billion and $38.3 billion as of December 31, 2020 and March 31, 2021.

Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions):

	Three Months Ended March 31,
	2020		2021
Operating lease cost	$	1,068	$	1,556
Finance lease cost:
Amortization of lease assets	1,894		2,456
Interest on lease liabilities	164		132
Finance lease cost	2,058		2,588
Variable lease cost	264		348
Total lease cost	$	3,390	$	4,492

Other information about lease amounts recognized in our consolidated financial statements is as follows:

	December 31, 2020		March 31, 2021
Weighted-average remaining lease term – operating leases	10.7 years		10.7 years
Weighted-average remaining lease term – finance leases	6.2 years		6.7 years
Weighted-average discount rate – operating leases	2.5	%	2.4	%
Weighted-average discount rate – finance leases	2.1	%	2.1	%

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Our lease liabilities were as follows (in millions):

	December 31, 2020
	Operating Leases		Finance Leases		Total
Gross lease liabilities	$	44,833	$	30,437	$	75,270
Less: imputed interest	(5,734)		(2,003)		(7,737)
Present value of lease liabilities	39,099		28,434		67,533
Less: current portion of lease liabilities	(4,586)		(10,374)		(14,960)
Total long-term lease liabilities	$	34,513	$	18,060	$	52,573

	March 31, 2021
	Operating Leases		Finance Leases		Total
Gross lease liabilities	$	46,762	$	28,687	$	75,449
Less: imputed interest	(5,784)		(1,895)		(7,679)
Present value of lease liabilities	40,978		26,792		67,770
Less: current portion of lease liabilities	(4,841)		(9,862)		(14,703)
Total long-term lease liabilities	$	36,137	$	16,930	$	53,067

Note 4 — COMMITMENTS AND CONTINGENCIES

Commitments

We have entered into non-cancellable operating and finance leases and financing obligations for equipment and office, fulfillment, sortation, delivery, data center, physical store, and renewable energy facilities.

The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations and are generally cancellable, as of March 31, 2021 (in millions): 

	Nine Months Ended December 31,		Year Ended December 31,
	2021		2022		2023		2024		2025		Thereafter		Total
Long-term debt principal and interest	$	1,876	$	2,606	$	3,331	$	4,272	$	3,058	$	35,680	$	50,823
Operating lease liabilities	4,284		5,507		5,043		4,620		4,202		23,106		46,762
Finance lease liabilities, including interest	7,520		7,700		3,952		1,555		1,066		6,894		28,687
Financing obligations, including interest	169		245		250		253		257		4,067		5,241
Leases not yet commenced	950		2,149		2,325		2,490		2,513		27,980		38,407
Unconditional purchase obligations (1)	2,407		3,847		4,612		4,359		4,134		13,576		32,935
Other commitments (2)(3)	3,265		2,665		1,163		927		807		9,881		18,708
Total commitments	$	20,471	$	24,719	$	20,676	$	18,476	$	16,037	$	121,184	$	221,563

___________________

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

(2)Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that are under construction, asset retirement obligations, and liabilities associated with digital media content agreements with initial terms greater than one year.

(3)Excludes approximately $3.0 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

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Pledged Assets

As of December 31, 2020 and March 31, 2021, we have pledged or otherwise restricted $875 million and $932 million of our cash, cash equivalents, and marketable securities, and certain property and equipment primarily as collateral for real estate, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit. Additionally, we have pledged our cash and seller receivables for debt related to our Credit Facility. See “Note 5 — Debt.”

Other Contingencies

We are subject to claims and denials of refunds and credits related to various indirect taxes (such as sales, value added, consumption, service, and similar taxes), including in jurisdictions in which we already collect and remit such taxes. If the relevant taxing authorities were successfully to pursue these claims or denials, we could be subject to significant additional tax costs. For example, in June 2017, the State of South Carolina issued an assessment for uncollected sales and use taxes for the period from January 2016 to March 2016, including interest and penalties. South Carolina is alleging that we should have collected sales and use taxes on transactions by our third-party sellers. In September 2019, the South Carolina Administrative Law Court ruled in favor of the Department of Revenue and we have appealed the decision to the state Court of Appeals. We believe the assessment is without merit and intend to defend ourselves vigorously in this matter. If other tax authorities were successfully to seek additional adjustments of a similar nature, we could be subject to significant additional tax costs.

Legal Proceedings

The Company is involved from time to time in claims, proceedings, and litigation, including the matters described in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies — Legal Proceedings” of our 2020 Annual Report on Form 10-K.

In addition, we are regularly subject to claims, litigation, and other proceedings, including potential regulatory proceedings, involving patent and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy and data protection, consumer protection, commercial disputes, goods and services offered by us and by third parties, and other matters.

The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. We evaluate, on a regular basis, developments in our legal proceedings and other contingencies that could affect the amount of liability, including amounts in excess of any previous accruals and reasonably possible losses disclosed, and make adjustments and changes to our accruals and disclosures as appropriate. For the matters we disclose that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. Until the final resolution of such matters, if any of our estimates and assumptions change or prove to have been incorrect, we may experience losses in excess of the amounts recorded, which could have a material effect on our business, consolidated financial position, results of operations, or cash flows.

See also “Note 7 — Income Taxes.”

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Note 5 — DEBT

As of March 31, 2021, we had $32.2 billion of unsecured senior notes outstanding (the “Notes”). We also had other long-term debt and borrowings under our credit facility of $924 million and $977 million as of December 31, 2020 and March 31, 2021. Our total long-term debt obligations are as follows (in millions):

	Maturities (1)	Stated Interest Rates	Effective Interest Rates	December 31, 2020		March 31, 2021
2012 Notes issuance of $3.0 billion	2022	2.50%	2.66%	1,250		1,250
2014 Notes issuance of $6.0 billion	2021 - 2044	3.30% - 4.95%	3.43% - 5.11%	5,000		5,000
2017 Notes issuance of $17.0 billion	2023 - 2057	2.40% - 5.20%	2.56% - 4.33%	16,000		16,000
2020 Notes issuance of $10.0 billion	2023 - 2060	0.40% - 2.70%	0.56% - 2.77%	10,000		10,000
Credit Facility				338		429
Other long-term debt				586		548
Total face value of long-term debt				33,174		33,227
Unamortized discount and issuance costs, net				(203)		(203)
Less current portion of long-term debt				(1,155)		(1,156)
Long-term debt				$	31,816	$	31,868

___________________

(1) The weighted-average remaining lives of the 2012, 2014, 2017, and 2020 Notes were 1.7, 11.6, 16.0, and 18.5 years as of March 31, 2021. The combined weighted-average remaining life of the Notes was 15.5 years as of March 31, 2021.

Interest on the Notes is payable semi-annually in arrears. We may redeem the Notes at any time in whole, or from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. The estimated fair value of the Notes was approximately $37.7 billion and $34.8 billion as of December 31, 2020 and March 31, 2021, which is based on quoted prices for our debt as of those dates.

We have a $740 million secured revolving credit facility with a lender that is secured by certain seller receivables, which we may from time to time increase in the future subject to lender approval (the “Credit Facility”). The Credit Facility is available until October 2022, bears interest at the London interbank offered rate (“LIBOR”) plus 1.40%, and has a commitment fee of 0.50% on the undrawn portion. There were $338 million and $429 million of borrowings outstanding under the Credit Facility as of December 31, 2020 and March 31, 2021, which both had a weighted-average interest rate of 3.0%, respectively. As of December 31, 2020 and March 31, 2021, we have pledged $398 million and $497 million of our cash and seller receivables as collateral for debt related to our Credit Facility. The estimated fair value of the Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2020 and March 31, 2021.

Other long-term debt, including the current portion, had a weighted-average interest rate of 2.9% as of December 31, 2020 and March 31, 2021. We used the net proceeds from the issuance of this debt primarily to fund certain business operations. The estimated fair value of other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2020 and March 31, 2021.

We have a commercial paper program (the “Commercial Paper Program”) under which we may from time to time issue unsecured commercial paper up to a total of $10.0 billion at any time, with individual maturities that may vary but will not exceed 397 days from the date of issue. There were $725 million of borrowings outstanding under the Commercial Paper Program as of December 31, 2020 and March 31, 2021, which were included in “Accrued expenses and other” on our consolidated balance sheets and had a weighted-average effective interest rate, including issuance costs, of 0.11% and 0.09%, respectively. We use the net proceeds from the issuance of commercial paper for general corporate purposes.

We also have a $7.0 billion unsecured revolving credit facility with a syndicate of lenders with a term that extends to June 2023 (the “Credit Agreement”). It may be extended for up to three additional one-year terms if approved by the lenders. The interest rate applicable to outstanding balances under the amended and restated Credit Agreement is LIBOR plus 0.50%, with a commitment fee of 0.04% on the undrawn portion of the credit facility. There were no borrowings outstanding under the Credit Agreement as of December 31, 2020 and March 31, 2021.

We also utilize other short-term credit facilities for working capital purposes. These amounts are included in “Accrued expenses and other” on our consolidated balance sheets. In addition, we had $4.3 billion of unused letters of credit as of March 31, 2021.

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Note 6 — STOCKHOLDERS’ EQUITY

Stock Repurchase Activity

In February 2016, the Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock, with no fixed expiration. There were no repurchases of common stock during the three months ended March 31, 2020 or 2021.

Stock Award Activity

Common shares outstanding plus shares underlying outstanding stock awards totaled 518 million and 519 million as of December 31, 2020 and March 31, 2021. These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited. Stock-based compensation expense is as follows (in millions):

	Three Months Ended March 31,
	2020		2021
Cost of sales	$	41	$	90
Fulfillment	260		342
Technology and content	961		1,228
Marketing	332		456
General and administrative	163		190
Total stock-based compensation expense	$	1,757	$	2,306

The following table summarizes our restricted stock unit activity for the three months ended March 31, 2021 (in millions):

	Number of Units	Weighted-Average Grant-Date Fair Value
Outstanding as of December 31, 2020	15.2	$	2,004
Units granted	0.6	3,147
Units vested	(0.8)	1,270
Units forfeited	(0.5)	1,895
Outstanding as of March 31, 2021	14.5	2,096

Scheduled vesting for outstanding restricted stock units as of March 31, 2021, is as follows (in millions):

	Nine Months Ended December 31,	Year Ended December 31,
	2021	2022	2023	2024	2025	Thereafter	Total
Scheduled vesting — restricted stock units	4.8	5.3	2.8	1.4	0.1	0.1	14.5

As of March 31, 2021, there was $12.4 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis with approximately half of the compensation expected to be expensed in the next twelve months, and has a remaining weighted-average recognition period of 1.1 years. The estimated forfeiture rate as of December 31, 2020 and March 31, 2021 was 27%. Changes in our estimates and assumptions relating to forfeitures may cause us to realize material changes in stock-based compensation expense in the future.

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Changes in Stockholders’ Equity

The following table shows the changes in stockholders’ equity (in millions):

	Three Months Ended March 31,
	2020		2021
Total beginning stockholders’ equity	$	62,060	$	93,404
Beginning and ending common stock	5		5
Beginning and ending treasury stock	(1,837)		(1,837)
Beginning additional paid-in capital	33,658		42,865
Stock-based compensation and issuance of employee benefit plan stock	1,754		2,295
Ending additional paid-in capital	35,412		45,160
Beginning accumulated other comprehensive income (loss)	(986)		(180)
Other comprehensive income (loss)	(1,077)		(486)
Ending accumulated other comprehensive income (loss)	(2,063)		(666)
Beginning retained earnings	31,220		52,551
Net income	2,535		8,107
Ending retained earnings	33,755		60,658
Total ending stockholders’ equity	$	65,272	$	103,320

Note 7 — INCOME TAXES

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, acquisitions, investments, developments in tax controversies, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. In addition, we record valuation allowances against deferred tax assets when there is uncertainty about our ability to generate future income in relevant jurisdictions, and the effects of the COVID-19 pandemic on our business make estimates of future income more challenging. Since Q2 2017, we have recorded a valuation allowance against our net deferred tax assets in Luxembourg. There is still significant uncertainty whether our income in Luxembourg is sustainable in the future and we will maintain the valuation allowance until sufficient positive evidence exists to support a release of the valuation allowance.

For 2021, we estimate that our effective tax rate will be favorably affected by the impact of excess tax benefits from stock-based compensation and the U.S. federal research and development credit and adversely affected by state income taxes.

Our income tax provisions for the three months ended March 31, 2020 and 2021 were $744 million and $2.2 billion, which included $273 million and $349 million of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation.

Cash paid for income taxes, net of refunds was $305 million and $801 million in Q1 2020 and Q1 2021.

As of December 31, 2020 and March 31, 2021, tax contingencies were approximately $2.8 billion and $3.0 billion. Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax

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contingencies. The timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax controversies in one or more jurisdictions. These assessments or settlements could result in changes to our contingencies related to positions on prior years’ tax filings.

We are under examination, or may be subject to examination, by the Internal Revenue Service for the calendar year 2013 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods.

In October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid. On October 4, 2017, the European Commission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules on state aid. Based on that decision, the European Commission announced an estimated recovery amount of approximately €250 million, plus interest, for the period May 2006 through June 2014, and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to recovery. Luxembourg computed an initial recovery amount, consistent with the European Commission’s decision, which we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals. In December 2017, Luxembourg appealed the European Commission’s decision. In May 2018, we appealed. We believe the European Commission’s decision to be without merit and will continue to defend ourselves vigorously in this matter. We are also subject to taxation in various states and other foreign jurisdictions including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities in respect of these particular jurisdictions primarily for 2009 and thereafter.

Note 8 — SEGMENT INFORMATION

We have organized our operations into three segments: North America, International, and AWS. We allocate to segment results the operating expenses “Fulfillment,” “Technology and content,” “Marketing,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. The majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. There are no internal revenue transactions between our reportable segments. These segments reflect the way our chief operating decision maker evaluates the Company’s business performance and manages its operations.

North America

The North America segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused online and physical stores. This segment includes export sales from these online stores.

International

The International segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused online stores. This segment includes export sales from these internationally-focused online stores (including export sales from these online stores to customers in the U.S., Mexico, and Canada), but excludes export sales from our North America-focused online stores.

AWS

The AWS segment consists of amounts earned from global sales of compute, storage, database, and other services for start-ups, enterprises, government agencies, and academic institutions.

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Information on reportable segments and reconciliation to consolidated net income is as follows (in millions):

	Three Months Ended March 31,
	2020		2021
North America
Net sales	$	46,127	$	64,366
Operating expenses	44,815		60,916
Operating income	$	1,312	$	3,450
International
Net sales	$	19,106	$	30,649
Operating expenses	19,504		29,397
Operating income (loss)	$	(398)	$	1,252
AWS
Net sales	$	10,219	$	13,503
Operating expenses	7,144		9,340
Operating income	$	3,075	$	4,163
Consolidated
Net sales	$	75,452	$	108,518
Operating expenses	71,463		99,653
Operating income	3,989		8,865
Total non-operating income (expense)	(606)		1,403
Provision for income taxes	(744)		(2,156)
Equity-method investment activity, net of tax	(104)		(5)
Net income	$	2,535	$	8,107

Net sales by groups of similar products and services, which also have similar economic characteristics, is as follows (in millions):    

	Three Months Ended March 31,
	2020		2021
Net Sales:
Online stores (1)	$	36,652	$	52,901
Physical stores (2)	4,640		3,920
Third-party seller services (3)	14,479		23,709
Subscription services (4)	5,556		7,580
AWS	10,219		13,503
Other (5)	3,906		6,905
Consolidated	$	75,452	$	108,518

____________________________

(1)Includes product sales and digital media content where we record revenue gross. We leverage our retail infrastructure to offer a wide selection of consumable and durable goods that includes media products available in both a physical and digital format, such as books, videos, games, music, and software. These product sales include digital products sold on a transactional basis. Digital product subscriptions that provide unlimited viewing or usage rights are included in “Subscription services.”

(2)Includes product sales where our customers physically select items in a store. Sales to customers who order goods online for delivery or pickup at our physical stores are included in “Online stores.”

(3)Includes commissions and any related fulfillment and shipping fees, and other third-party seller services.

(4)Includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS subscription services.

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

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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, variability in demand, 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 2020 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, Accounting Policies, and Supplemental Disclosures” of our 2020 Annual Report on Form 10-K and Item 1 of Part I, “Financial Statements — Note 1 — Accounting Policies and Supplemental Disclosures,” 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, 2021, we would have recorded an additional cost of sales of approximately $275 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. In addition, our actual and forecasted earnings are subject to

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change due to economic, political, and other conditions, such as the COVID-19 pandemic, and significant judgment is required in determining our ability to use our deferred tax assets.

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 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 have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals.

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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