AMAZON COM INC, 10-Q filed on 7/27/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Jul. 18, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Entity Registrant Name AMAZON COM INC  
Entity Central Index Key 0001018724  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   487,741,189
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Cash Flows [Abstract]            
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 17,616 $ 16,301 $ 21,856 $ 19,934 $ 13,851 $ 12,977
OPERATING ACTIVITIES:            
Net income 2,534 197 4,163 921 6,275 1,922
Adjustments to reconcile net income to net cash from operating activities:            
Depreciation of property and equipment, including internal-use software and website development, and other amortization, including capitalized content costs 3,630 2,633 7,301 5,068 13,711 9,448
Stock-based compensation 1,468 1,158 2,651 1,952 4,914 3,615
Other operating expense, net 85 60 141 102 240 164
Other expense (income), net 110 (120) (75) (160) (207) (162)
Deferred income taxes (139) 376 3 354 (380) (8)
Changes in operating assets and liabilities:            
Inventories (1,090) (682) 1,130 265 (2,717) (1,874)
Accounts receivable, net and other (1,364) (1,221) (336) (257) (4,859) (2,925)
Accounts payable 2,703 2,088 (7,513) (4,777) 4,364 5,046
Accrued expenses and other (205) (252) (2,430) (1,657) (491) 1,039
Unearned revenue (283) (387) 623 419 943 1,537
Net cash provided by (used in) operating activities 7,449 3,850 5,658 2,230 21,793 17,802
INVESTING ACTIVITIES:            
Purchases of property and equipment, including internal-use software and website development (3,243) (3,113) (6,341) (5,261) (13,035) (9,763)
Proceeds from property and equipment incentives 294 612 665 899 1,663 1,556
Acquisitions, net of cash acquired, and other (866) (633) (879) (678) (14,173) (765)
Sales and maturities of marketable securities 1,660 2,070 4,337 3,980 10,034 6,530
Purchases of marketable securities (537) (4,210) (1,007) (5,564) (8,173) (10,731)
Net cash provided by (used in) investing activities (2,692) (5,274) (3,225) (6,624) (23,684) (13,173)
FINANCING ACTIVITIES:            
Proceeds from long-term debt and other 96 49 221 70 16,380 612
Repayments of long-term debt and other (149) (48) (351) (88) (1,564) (170)
Principal repayments of capital lease obligations (1,284) (1,228) (3,297) (2,060) (6,037) (4,003)
Principal repayments of finance lease obligations (57) (47) (129) (85) (244) (170)
Net cash provided by (used in) financing activities (1,394) (1,274) (3,556) (2,163) 8,535 (3,731)
Foreign currency effect on cash, cash equivalents, and restricted cash (443) 248 (197) 474 41 (24)
Net increase (decrease) in cash, cash equivalents, and restricted cash 2,920 (2,450) (1,320) (6,083) 6,685 874
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD 20,536 13,851 20,536 13,851 20,536 13,851
SUPPLEMENTAL CASH FLOW INFORMATION:            
Cash paid for interest on long-term debt 168 146 450 150 628 295
Cash paid for interest on capital and finance lease obligations 125 62 254 123 449 234
Cash paid for income taxes, net of refunds 300 447 813 693 1,077 879
Property and equipment acquired under capital leases 2,335 2,724 4,605 4,612 9,631 8,019
Property and equipment acquired under build-to-suit leases $ 795 $ 748 $ 1,536 $ 1,948 $ 3,128 $ 2,575
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Income Statement [Abstract]        
Net product sales $ 31,864 $ 24,745 $ 63,468 $ 48,479
Net service sales 21,022 13,210 40,460 25,190
Total net sales 52,886 37,955 103,928 73,669
Operating expenses:        
Cost of sales 30,632 23,451 61,367 45,891
Fulfillment 7,932 5,158 15,724 9,855
Marketing 2,901 2,229 5,600 4,150
Technology and content 7,247 5,549 14,006 10,363
General and administrative 1,111 874 2,177 1,669
Other operating expense, net 80 66 143 109
Total operating expenses 49,903 37,327 99,017 72,037
Operating income 2,983 628 4,911 1,632
Interest income 94 44 173 83
Interest expense (343) (143) (673) (282)
Other income (expense), net (129) 137 109 185
Total non-operating income (expense) (378) 38 (391) (14)
Income before income taxes 2,605 666 4,520 1,618
Provision for income taxes (74) (467) (361) (695)
Equity-method investment activity, net of tax 3 (2) 4 (2)
Net income $ 2,534 $ 197 $ 4,163 $ 921
Basic earnings per share $ 5.21 $ 0.41 $ 8.58 $ 1.93
Diluted earnings per share $ 5.07 $ 0.40 $ 8.34 $ 1.87
Weighted-average shares used in computation of earnings per share:        
Basic (in shares) 486 479 485 478
Diluted (in shares) 500 492 499 491
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income $ 2,534 $ 197 $ 4,163 $ 921
Other comprehensive income (loss):        
Foreign currency translation adjustments, net of tax of $(2), $(1), $(15), and $17 (466) 194 (411) 381
Net change in unrealized gains (losses) on available-for-sale debt securities:        
Unrealized gains (losses), net of tax of $3, $0, $2, and $9 1 (6) (40) (8)
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $0, $0, $0, and $0 1 2 1 5
Net unrealized gains (losses) on available-for-sale debt securities 2 (4) (39) (3)
Total other comprehensive income (loss) (464) 190 (450) 378
Comprehensive income $ 2,070 $ 387 $ 3,713 $ 1,299
v3.10.0.1
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]        
Foreign currency translation adjustments, tax $ (1) $ (2) $ 17 $ (15)
Unrealized gains (losses), tax 0 3 9 2
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” tax $ 0 $ 0 $ 0 $ 0
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 19,823 $ 20,522
Marketable securities 7,227 10,464
Inventories 14,824 16,047
Accounts receivable, net and other 12,607 13,164
Total current assets 54,481 60,197
Property and equipment, net 54,768 48,866
Goodwill 13,944 13,350
Other assets 10,907 8,897
Total assets 134,100 131,310
Current liabilities:    
Accounts payable 27,657 34,616
Accrued expenses and other 17,140 18,170
Unearned revenue 6,004 5,097
Total current liabilities 50,801 57,883
Long-term debt 24,638 24,743
Other long-term liabilities 23,666 20,975
Commitments and contingencies (Note 3)
Stockholders’ equity:    
Preferred stock, $0.01 par value: Authorized shares - 500 Issued and outstanding shares - none 0 0
Common stock, $0.01 par value: Authorized shares - 5,000 Issued shares - 507 and 511 Outstanding shares - 484 and 487 5 5
Treasury stock, at cost (1,837) (1,837)
Additional paid-in capital 24,028 21,389
Accumulated other comprehensive loss (934) (484)
Retained earnings 13,733 8,636
Total stockholders’ equity 34,995 27,709
Total liabilities and stockholders’ equity $ 134,100 $ 131,310
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred stock, par value (in usd per share) $ 0.01 $ 0.01
Preferred stock, authorized shares 500,000,000 500,000,000
Preferred stock, issued shares 0 0
Preferred stock, outstanding shares 0 0
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, authorized shares 5,000,000,000 5,000,000,000
Common stock, issued shares 511,000,000 507,000,000
Common stock, outstanding shares 487,000,000 484,000,000
v3.10.0.1
Accounting Policies
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Accounting Policies
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 balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2018 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 2017 Annual Report on Form 10-K.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation, including the addition of restricted cash to cash and cash equivalents on the consolidated statements of cash flows as a result of the adoption of new accounting guidance.
Principles of Consolidation
The consolidated financial statements include the accounts of Amazon.com, Inc., 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 China and that support our seller lending financing activities (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated. The financial results of Whole Foods Market, Inc. (“Whole Foods Market”) have been included in our consolidated financial statements from the date of acquisition on August 28, 2017.
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, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, and inventory valuation. Actual results could differ materially from those estimates.
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 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2018
 
2017
 
2018
Shares used in computation of basic earnings per share
479

 
486

 
478

 
485

Total dilutive effect of outstanding stock awards
13

 
14

 
13

 
14

Shares used in computation of diluted earnings per share
492

 
500

 
491

 
499


Revenue
Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, promotional discounts, and rebates. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes. In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. We generally determine stand-alone selling prices based on the prices charged to customers or using expected cost plus a margin.
A description of our principal revenue generating activities is as follows:
Retail sales - We offer consumer products through our online and physical stores. Revenue is recognized when control of the goods is transferred to the customer, which generally occurs upon our delivery to the carrier or the customer.
Third-party seller services - We offer programs that enable sellers to sell their products on our websites and their own branded websites, and fulfill orders through us. We are not the seller of record in these transactions. The commissions and any related fulfillment and shipping fees we earn from these arrangements are recognized as the services are rendered.
Subscription services - Our subscription sales include fees associated with Amazon Prime memberships and access to content including audiobooks, e-books, digital video, digital music, and other non-AWS subscription services. Prime memberships provide our customers with access to an evolving suite of benefits that represent a single stand-ready obligation. Subscriptions are paid for at the time of or in advance of delivering the services. Revenue from such arrangements is recognized over the subscription period.
AWS - Our AWS sales arrangements include global sales of compute, storage, database, and other service offerings. Revenue is allocated to the services provided based on stand-alone selling prices and is recognized as the services are rendered. Sales commissions we pay in connection with contracts that exceed one year are capitalized and amortized over the contract term.
Other - Other revenue primarily includes sales of advertising services and is recognized as the services are rendered.
Return Allowances
Return allowances, which reduce revenue and cost of sales, are estimated using historical experience. Liabilities for return allowances are included in “Accrued expenses and other” and were $468 million and $355 million as of December 31, 2017 and June 30, 2018. Included in “Inventories” on our consolidated balance sheets are assets totaling $406 million and $287 million as of December 31, 2017 and June 30, 2018, for the rights to recover products from customers associated with our liabilities for return allowances.
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, digital media content costs, including video and music, packaging supplies, sortation and delivery centers and related equipment costs, and inbound and outbound shipping costs, including where we are the transportation service provider. Shipping costs to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers. Payment processing and related transaction costs, including those associated with seller transactions, are classified in “Fulfillment” on our consolidated statements of operations.
Vendor Agreements
We have agreements with our vendors to receive funds primarily for cooperative marketing efforts, promotions, incentives, and volume rebates. We generally consider these amounts received from vendors to be a reduction of the prices we pay for their goods, including property and equipment, or services, and are recorded as a reduction of the cost of inventory, cost of services, or cost of property and equipment. Volume rebates typically depend on reaching minimum purchase thresholds. We evaluate the likelihood of reaching purchase thresholds using past experience and current year forecasts. When volume rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards the purchase threshold.
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, 2017 and June 30, 2018, customer receivables, net, were $6.4 billion and $6.9 billion, vendor receivables, net, were $2.6 billion and $2.2 billion, and seller receivables, net, were $692 million and $640 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 known troubled accounts and historical experience of losses incurred. Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement. The allowance for doubtful accounts was $348 million and $403 million as of December 31, 2017 and June 30, 2018.
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 Amazon Prime memberships and AWS services. Our total unearned revenue as of December 31, 2017 was $6.1 billion, of which $3.9 billion was recognized as revenue during the six months ended June 30, 2018, including adjustments related to the new revenue recognition guidance. Included in “Other long-term liabilities” on our consolidated balance sheets was $1.0 billion and $1.2 billion of unearned revenue as of December 31, 2017 and June 30, 2018.
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, the amount of revenue not yet recognized was $16.0 billion as of June 30, 2018. The weighted average remaining life of our long-term contracts is 3.5 years. However, the timing of revenue recognition is largely driven by customer activity, some of which can extend beyond the original contractual term.
Accrued Expenses and Other
Included in “Accrued expenses and other” on our consolidated balance sheets are amounts primarily related to unredeemed gift cards, customer liabilities, leases and asset retirement obligations, current debt, acquired digital media content, and other operating expenses.
As of December 31, 2017 and June 30, 2018, our liabilities for unredeemed gift cards were $3.0 billion and $1.8 billion. We reduce the liability for a gift card when redeemed by a customer. The portion of gift cards that we do not expect to be redeemed is recognized based on customer usage patterns.
Accounting Pronouncements Recently Adopted
In May 2014, the FASB issued an Accounting Standards Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted this ASU on January 1, 2018 for all revenue contracts with our customers using the modified retrospective approach and increased retained earnings by approximately $650 million. The adjustment primarily relates to the unredeemed portion of our gift cards, which are now recognized over the expected customer usage period rather than waiting until gift cards expire or when the likelihood of redemption becomes remote. We changed the recognition and classification of Amazon Prime memberships, which are now accounted for as a single performance obligation and recognized ratably over the membership period as service sales. Previously, Prime memberships were considered to be arrangements with multiple deliverables and were allocated among product sales and service sales. Other changes relate primarily to the presentation of revenue. Certain advertising services are now classified as revenue rather than a reduction in cost of sales, and sales of apps, in-app content, and certain digital media content are presented on a net basis.
The impact of applying this ASU for the six months ended June 30, 2018 primarily resulted in a decrease in product sales and an increase in service sales driven by a reclassification of Prime membership fees of approximately $1.7 billion, which are now accounted for as a single performance obligation and recognized over the membership period. Service sales also increased by approximately $1.2 billion for the six months ended June 30, 2018 due to the reclassification of certain advertising services that were previously classified as a reduction of cost of sales.
In January 2016, the FASB issued an ASU that updates certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Under this ASU, certain equity investments are measured at fair value with changes recognized in net income. We adopted this ASU in Q1 2018 with no material impact to our consolidated financial statements.
In October 2016, the FASB issued an ASU amending the accounting for income taxes. The new guidance requires the recognition of the income tax consequences of an intercompany asset transfer, other than transfers of inventory, when the transfer occurs. For intercompany transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. We adopted this ASU in Q1 2018 with an increase of approximately $250 million to retained earnings and deferred tax assets net of valuation allowances.
In November 2016, the FASB issued an ASU amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. We adopted this ASU in Q1 2018 on a retrospective basis with the following impacts to our consolidated statements of cash flows (in millions):
Three Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
3,829

 
$
21

 
$
3,850

Investing activities
(5,051
)
 
(223
)
 
(5,274
)
Financing activities
(1,263
)
 
(11
)
 
(1,274
)
Net change in cash, cash equivalents, and restricted cash
$
(2,485
)
 
$
(213
)
 
$
(2,698
)
Six Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
2,239

 
$
(9
)
 
$
2,230

Investing activities
(6,667
)
 
43

 
(6,624
)
Financing activities
(2,177
)
 
14

 
(2,163
)
Net change in cash, cash equivalents, and restricted cash
$
(6,605
)
 
$
48

 
$
(6,557
)
Twelve Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
17,885

 
$
(83
)
 
$
17,802

Investing activities
(13,410
)
 
237

 
(13,173
)
Financing activities
(3,769
)
 
38

 
(3,731
)
Net change in cash, cash equivalents, and restricted cash
$
706

 
$
192

 
$
898


Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued an ASU amending the accounting for leases. The new guidance requires the recognition of lease assets and liabilities for operating leases with terms of more than 12 months, in addition to those currently recorded, on our consolidated balance sheets. Presentation of leases within the consolidated statements of operations and consolidated statements of cash flows will be generally consistent with the current lease accounting guidance. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We plan to adopt this ASU beginning in Q1 2019. We are continuing to evaluate the impact and expect the ASU will have a material impact on our consolidated financial statements, primarily to the consolidated balance sheets and related disclosures.
v3.10.0.1
Cash, Cash Equivalents, and Marketable Securities
6 Months Ended
Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Cash, Cash Equivalents, and Marketable Securities
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND MARKETABLE SECURITIES
As of December 31, 2017 and June 30, 2018, our cash, cash equivalents, restricted cash, and marketable securities primarily consisted of cash, U.S. and foreign government and agency securities, AAA-rated money market funds, 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 equity securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments 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 any cash, cash equivalents, restricted cash, or marketable securities categorized as Level 3 assets as of December 31, 2017 and June 30, 2018.
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, 2017
 
June 30, 2018
  
Total
Estimated
Fair Value
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Total
Estimated
Fair Value
Cash
$
9,982

 
$
8,107

 
$

 
$

 
$
8,107

Level 1 securities:
 
 
 
 
 
 
 
 
 
Money market funds
11,343

 
10,094

 

 

 
10,094

Equity securities
53

 
25

 
83

 

 
108

Level 2 securities:
 
 
 
 
 
 
 
 
 
Foreign government and agency securities
620

 
389

 

 

 
389

U.S. government and agency securities
4,823

 
5,465

 
1

 
(25
)
 
5,441

Corporate debt securities
4,257

 
2,638

 
1

 
(18
)
 
2,621

Asset-backed securities
905

 
756

 

 
(8
)
 
748

Other fixed income securities
338

 
225

 

 
(2
)
 
223

Equity securities

 
29

 
6

 

 
35

 
$
32,321

 
$
27,728

 
$
91


$
(53
)
 
$
27,766

Less: Restricted cash, cash equivalents, and marketable securities (1)
(1,335
)
 
 
 
 
 
 
 
(716
)
Total cash, cash equivalents, and marketable securities
$
30,986

 
 
 
 
 
 
 
$
27,050

___________________
(1)
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 3 — Commitments and Contingencies.”
The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed-income securities as of June 30, 2018 (in millions):
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year
$
16,023

 
$
16,016

Due after one year through five years
2,895

 
2,864

Due after five years through ten years
216

 
212

Due after ten years
433

 
424

Total
$
19,567

 
$
19,516


Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.
We also hold equity warrant assets giving us the right to acquire stock of other companies. As of December 31, 2017 and June 30, 2018, these warrants had a fair value of $441 million and $577 million, and are recorded within “Other assets” on our consolidated balance sheets. The related gain (loss) recorded in “Other income (expense), net” was $54 million and $40 million in Q2 2017 and Q2 2018, and $69 million and $86 million for the six months ended June 30, 2017 and 2018. These assets are primarily classified as Level 2 assets.
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, 2017
 
June 30, 2018
Cash and cash equivalents
$
20,522

 
$
19,823

Restricted cash included in accounts receivable, net and other
1,329

 
707

Restricted cash included in other assets
5

 
6

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows
$
21,856

 
$
20,536

v3.10.0.1
Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
Commitments
We have entered into non-cancellable operating, capital, and finance leases for equipment and office, fulfillment, sortation, delivery, data center, physical store, and renewable energy facilities. Rental expense under operating lease agreements was $439 million and $815 million for Q2 2017 and Q2 2018, and $850 million and $1.6 billion for the six months ended June 30, 2017 and 2018.
The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations and are generally cancellable, as of June 30, 2018 (in millions): 
 
Six Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Debt principal and interest
$
480

 
$
2,162

 
$
2,086

 
$
1,833

 
$
2,049

 
$
31,769

 
$
40,379

Capital lease obligations, including interest (1)
3,503

 
6,191

 
4,022

 
1,212

 
520

 
673

 
16,121

Finance lease obligations, including interest (2)
246

 
512

 
523

 
532

 
542

 
4,326

 
6,681

Operating leases
1,503

 
2,727

 
2,609

 
2,286

 
2,221

 
12,325

 
23,671

Unconditional purchase obligations (3)
1,258

 
3,661

 
3,285

 
3,127

 
2,993

 
7,957

 
22,281

Other commitments (4) (5)
1,223

 
1,546

 
1,058

 
1,190

 
647

 
7,521

 
13,185

Total commitments
$
8,213

 
$
16,799

 
$
13,583

 
$
10,180

 
$
8,972

 
$
64,571

 
$
122,318

___________________
(1)
Excluding interest, current capital lease obligations of $5.8 billion and $6.6 billion are recorded within “Accrued expenses and other” as of December 31, 2017 and June 30, 2018, and $8.4 billion and $9.0 billion are recorded within “Other long-term liabilities” as of December 31, 2017 and June 30, 2018.
(2)
Excluding interest, current finance lease obligations of $282 million and $320 million are recorded within “Accrued expenses and other” as of December 31, 2017 and June 30, 2018, and $4.7 billion and $5.2 billion are recorded within “Other long-term liabilities” as of December 31, 2017 and June 30, 2018.
(3)
Includes unconditional purchase obligations related to certain products offered in our Whole Foods Market stores and long-term agreements to acquire and license digital media content that are not reflected on the consolidated balance sheets. For those digital media content agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.
(4)
Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements and equipment lease arrangements that have not been placed in service and digital media content liabilities associated with long-term digital media content assets with initial terms greater than one year.
(5)
Excludes approximately $3.3 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

Pledged Assets
As of December 31, 2017 and June 30, 2018, we have pledged or otherwise restricted $1.4 billion and $803 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.
Other Contingencies
In 2016, we determined that we processed and delivered orders of consumer products for certain individuals and entities located outside Iran covered by the Iran Threat Reduction and Syria Human Rights Act or other United States sanctions and export control laws. The consumer products included books, music, other media, apparel, home and kitchen, health and beauty, jewelry, office, consumer electronics, software, lawn and patio, grocery, and automotive products. Our review is ongoing and we have voluntarily reported these orders to the United States Treasury Department’s Office of Foreign Assets Control and the United States Department of Commerce’s Bureau of Industry and Security. We intend to cooperate fully with OFAC and BIS with respect to their review, which may result in the imposition of penalties. For additional information, see Item 5 of Part II, “Other Information — Disclosure Pursuant to Section 13(r) of the Exchange Act.”
We are subject to claims related to various indirect taxes (such as sales, value added, consumption, service, and similar taxes), including in jurisdictions in which we already collect and remit such taxes. If the relevant taxing authorities were successfully to pursue these claims, we could be subject to significant additional tax liabilities. For example, in June 2017, the State of South Carolina issued an assessment for uncollected sales and use taxes for the period from January 2016 to March 2016, including interest and penalties. South Carolina is alleging that we should have collected sales and use taxes on transactions by our third-party sellers. We believe the assessment is without merit. If South Carolina or other states were successfully to seek additional adjustments of a similar nature, we could be subject to significant additional tax liabilities. We intend to defend ourselves vigorously in this matter.
Legal Proceedings
The Company is involved from time to time in claims, proceedings, and litigation, including the matters described in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies — Legal Proceedings” of our 2017 Annual Report on Form 10-K and in Item 1 of Part I, “Financial Statements — Note 3 — Commitments and Contingencies — Legal Proceedings” of our Quarterly Report on Form 10-Q for the period ended March 31, 2018 as supplemented by the following:
In March 2014, Kaavo, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent infringement in the United States District Court for the District of Delaware. The complaint alleges, among other things, that Amazon Web Services’ Elastic Beanstalk and CloudFormation infringe U.S. Patent No. 8,271,974, entitled “Cloud Computing Lifecycle Management For N-Tier Applications.” The complaint seeks injunctive relief, an unspecified amount of damages, costs, and interest. In July 2015, Kaavo Inc. filed another complaint against Amazon.com, Inc. and Amazon Web Services, Inc. in the United States District Court for the District of Delaware. The 2015 complaint alleges, among other things, that CloudFormation infringes U.S. Patent No. 9,043,751, entitled “Methods And Devices For Managing A Cloud Computing Environment.” The 2015 complaint seeks injunctive relief, an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, and interest. In September 2017, the 2015 case was stayed pending resolution of a review petition we filed with the United States Patent and Trademark Office. In June 2018, the court granted our motion for summary judgment in the 2014 case. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.
In May 2018, Rensselaer Polytechnic Institute and CF Dynamic Advances LLC filed a complaint against Amazon.com, Inc. in the United States District Court for the Northern District of New York. The complaint alleges, among other things, that “Alexa Voice Software and Alexa enabled devices” infringe U.S. Patent No. 7,177,798, entitled “Natural Language Interface Using Constrained Intermediate Dictionary of Results.” The complaint seeks an injunction, an unspecified amount of damages, enhanced damages, an ongoing royalty, pre- and post-judgment interest, attorneys’ fees, and costs. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In June 2018, VoIP-Pal.com, Inc. filed a complaint against Amazon Technologies, Inc. and Amazon.com, Inc. in the United States District Court for the District of Nevada. The complaint alleges, among other things, that the Alexa calling and messaging system, the Alexa app, and Echo, Tap, and Fire devices with Alexa support infringe U.S. Patent Nos. 9,537,762; 9,813,330; 9,826,002; and 9,948,549, all entitled “Producing Routing Messages For Voice Over IP Communications.” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. In addition, for the matters disclosed above 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.
See also “Note 7 — Income Taxes.”
v3.10.0.1
Acquisitions, Goodwill, and Acquired Intangible Assets
6 Months Ended
Jun. 30, 2018
Business Combinations [Abstract]  
Acquisitions, Goodwill, and Acquired Intangible Assets
ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
2018 Acquisition Activity
On April 12, 2018, we acquired Ring Inc. (“Ring”) for cash consideration of approximately $853 million, net of cash acquired, to expand our product and service offerings. During the six months ended June 30, 2018, we also acquired certain other companies for an aggregate purchase price of $39 million. The primary reason for our other 2018 acquisitions was to acquire technologies and know-how to enable Amazon to serve customers more effectively.
Acquisition-related costs were expensed as incurred and were not significant. Due to the limited amount of time since the Ring acquisition, the valuation of certain assets and liabilities is preliminary and subject to change. The aggregate purchase price of Ring and the other 2018 acquisitions was allocated as follows (in millions):
Purchase Price
 
Cash paid, net of cash acquired
$
865

Indemnification holdback
27

 
$
892

 
 
Allocation
 
Goodwill
$
607

Intangible assets (1):
 
Marketing-related
141

Technology-based
165

Customer-related
140

 
446

Property and equipment
3

Deferred tax assets
106

Other assets acquired
254

Long-term debt
(97
)
Deferred tax liabilities
(106
)
Other liabilities assumed
(321
)
 
$
892

___________________
(1)
Acquired intangible assets have estimated useful lives of between two and seven years, with a weighted-average amortization period of six years.
We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income approach. These assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line basis over their estimated useful lives.
Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our consolidated results of operations.
Goodwill
The goodwill of the acquired companies is primarily related to expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition. The goodwill of acquired companies is generally not deductible for tax purposes. The following summarizes our goodwill activity in the first six months of 2018 by segment (in millions):
 
North
America
 
International
 
AWS
 
Consolidated
Goodwill - December 31, 2017
$
11,165

 
$
1,108

 
$
1,077

 
$
13,350

New acquisitions (1)
409

 
183

 
15

 
607

Other adjustments (2)
(3
)
 
(3
)
 
(7
)
 
(13
)
Goodwill - June 30, 2018
$
11,571

 
$
1,288

 
$
1,085

 
$
13,944

 ___________________
(1)
Primarily includes the acquisition of Ring in the North America and International segments.
(2)
Primarily includes changes in foreign exchange rates.
v3.10.0.1
Long-Term Debt
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Long-Term Debt
DEBT
As of June 30, 2018, we had $24.3 billion of unsecured senior notes outstanding (the “Notes”). As of December 31, 2017 and June 30, 2018, the net unamortized discount and debt issuance costs on the Notes was $99 million and $101 million. We also have other long-term debt with a carrying amount, including the current portion and borrowings under our credit facility, of $692 million and $520 million as of December 31, 2017 and June 30, 2018. The face value of our total long-term debt obligations is as follows (in millions):
 
December 31, 2017
 
June 30, 2018
2.600% Notes due on December 5, 2019 (2)
1,000

 
1,000

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
592

 
489

Other long-term debt
100

 
31

Total debt
24,942

 
24,770

Less current portion of long-term debt
(100
)
 
(31
)
Face value of long-term debt
$
24,842

 
$
24,739


_____________________________
(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 2019, 2021, 2024, 2034, and 2044 Notes were 2.73%, 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 $25.7 billion and $24.2 billion as of December 31, 2017 and June 30, 2018, 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 $600 million and may from time to time increase in the future subject to lender approval (the “Credit Facility”). The Credit Facility is available for a term of three years, bears interest at the London interbank offered rate (“LIBOR”) plus 1.65%, and has a commitment fee of 0.50% on the undrawn portion. There were $592 million and $489 million of borrowings outstanding under the Credit Facility as of December 31, 2017 and June 30, 2018, with weighted-average interest rates of 2.7% and 2.9% as of December 31, 2017 and June 30, 2018. As of December 31, 2017 and June 30, 2018, we have pledged $686 million and $576 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, 2017 and June 30, 2018.
The other debt, including the current portion, had a weighted-average interest rate of 5.8% and 4.3% as of December 31, 2017 and June 30, 2018. We used the net proceeds from the issuance of this debt primarily to fund certain business operations. The estimated fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2017 and June 30, 2018.
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 June 30, 2018.
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, 2017 and June 30, 2018.
v3.10.0.1
Stockholders' Equity
6 Months Ended
Jun. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stockholders' Equity
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 six months ended June 30, 2017 or 2018.
Stock Award Activity
Common shares outstanding plus shares underlying outstanding stock awards totaled 504 million and 506 million as of December 31, 2017 and June 30, 2018. 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 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2018
 
2017
 
2018
Cost of sales
$
12

 
$
19

 
$
21

 
$
34

Fulfillment
261

 
320

 
425

 
564

Marketing
133

 
190

 
228

 
351

Technology and content
633

 
788

 
1,073

 
1,419

General and administrative
119

 
151

 
205

 
284

Total stock-based compensation expense
$
1,158

 
$
1,468

 
$
1,952

 
$
2,652


The following table summarizes our restricted stock unit activity for the six months ended June 30, 2018 (in millions):
 
Number of Units
 
Weighted-Average
Grant-Date
Fair Value
Outstanding as of December 31, 2017
20.1

 
$
725

Units granted
3.7

 
1,437

Units vested
(3.6
)
 
552

Units forfeited
(1.2
)
 
808

Outstanding as of June 30, 2018
19.0

 
$
891


Scheduled vesting for outstanding restricted stock units as of June 30, 2018, is as follows (in millions):
 
Six Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Scheduled vesting—restricted stock units
3.5

 
7.1

 
5.6

 
2.1

 
0.4

 
0.3

 
19.0


As of June 30, 2018, there was $7.6 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, 2017 and June 30, 2018 was 28% and 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.
v3.10.0.1
Income Taxes
6 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
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 (including integrations) and 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, accounting, and other areas, including European Union state aid rules, 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.
The 2017 Tax Act was signed into law on December 22, 2017. The 2017 Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The 2017 Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property. We have not completed our determination of the accounting implications of the 2017 Tax Act on our tax accruals. However, we reasonably estimated the effects of the 2017 Tax Act and recorded provisional amounts in our financial statements as of December 31, 2017. We recorded a provisional tax benefit for the impact of the 2017 Tax Act of approximately $789 million. This amount was primarily comprised of the remeasurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% from 35%, after taking into account the mandatory one-time tax on the accumulated earnings of our foreign subsidiaries. The amount of this one-time tax is not material. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes in the period in which the adjustments are made.
For 2018, 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 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 provision for the six months ended June 30, 2017 was $695 million, which included $197 million of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation, partially offset by the estimated impact of audit-related developments. Our income tax provision for the six months ended June 30, 2018 was $361 million, which included $964 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 $447 million and $300 million in Q2 2017 and Q2 2018, and $693 million and $813 million for the six months ended June 30, 2017 and 2018.
As of December 31, 2017 and June 30, 2018, tax contingencies were approximately $2.3 billion and $3.3 billion. We expect the total amount of tax contingencies will grow in 2018. In addition, 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 12 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 tax filings 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 2005 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. As previously disclosed, we have received Notices of Proposed Adjustment (“NOPAs”) from the IRS for transactions undertaken in the 2005 and 2006 calendar years relating to transfer pricing with our foreign subsidiaries. The IRS is seeking to increase our U.S. taxable income by an amount that would result in additional federal tax of approximately $1.5 billion, subject to interest. On March 23, 2017, the U.S. Tax Court issued its decision regarding the issues raised in the IRS NOPAs. The Tax Court rejected the approach from the IRS NOPAs in determining transfer pricing adjustments in 2005 and 2006 for the transactions undertaken with our foreign subsidiaries and adopted, with adjustments, our suggested approach. In September 2017, the IRS appealed the decision to the U.S. Court of Appeals for the Ninth Circuit. We will continue to defend ourselves vigorously in this matter. If the Tax Court decision were reversed on appeal or if the IRS were to successfully assert transfer pricing adjustments of a similar nature to the NOPAs for transactions in subsequent years, we could be subject to significant additional tax liabilities.
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 Canada, 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 2008 and thereafter.
v3.10.0.1
Segment Information
6 Months Ended
Jun. 30, 2018
Segment Reporting [Abstract]  
Segment Information
SEGMENT INFORMATION
We have organized our operations into three segments: North America, International, and AWS. We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and content,” 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. The results of Whole Foods Market are included in our North America and International segments based on physical location. 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 websites and physical stores. This segment includes export sales from these websites.
International
The International segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused websites. This segment includes export sales from these internationally-focused websites (including export sales from these sites to customers in the U.S., Mexico, and Canada), but excludes export sales from our North America-focused websites.
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 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2018
 
2017
 
2018
North America
 
 
 
 
 
 
 
Net sales
$
22,370

 
$
32,169

 
$
43,362

 
$
62,894

Operating expenses
21,934

 
30,334

 
42,330

 
59,910

Operating income
$
436

 
$
1,835

 
$
1,032

 
$
2,984

 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
Net sales
$
11,485

 
$
14,612

 
$
22,546

 
$
29,487

Operating expenses
12,209

 
15,106

 
23,752

 
30,603

Operating income (loss)
$
(724
)
 
$
(494
)
 
$
(1,206
)
 
$
(1,116
)
 
 
 
 
 
 
 
 
AWS
 
 
 
 
 
 
 
Net sales
$
4,100

 
$
6,105

 
$
7,761

 
$
11,547

Operating expenses
3,184

 
4,463

 
5,955

 
8,504

Operating income
$
916

 
$
1,642

 
$
1,806

 
$
3,043

 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Net sales
$
37,955

 
$
52,886

 
$
73,669

 
$
103,928

Operating expenses
37,327

 
49,903

 
72,037

 
99,017

Operating income
628

 
2,983

 
1,632

 
4,911

Total non-operating income (expense)
38

 
(378
)
 
(14
)
 
(391
)
Provision for income taxes
(467
)
 
(74
)
 
(695
)
 
(361
)
Equity-method investment activity, net of tax
(2
)
 
3

 
(2
)
 
4

Net income
$
197

 
$
2,534

 
$
921

 
$
4,163



Net sales by groups of similar products and services, which also have similar economic characteristics, is as follows (in millions):
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2018
 
2017
 
2018
Net Sales:
 
 
 
Online stores (1)
$
23,754

 
$
27,165

 
$
46,580

 
$
54,105

Physical stores (2)

 
4,312

 

 
8,575

Third-party seller services (3)
6,991

 
9,702

 
13,429

 
18,966

Subscription services (4)
2,165

 
3,408

 
4,104

 
6,510

AWS
4,100

 
6,105

 
7,761

 
11,547

Other (5)
945

 
2,194

 
1,795

 
4,225

Consolidated
$
37,955

 
$
52,886

 
$
73,669

 
$
103,928

____________________________
(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.
(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 membership, as well as audiobook, e-book, digital video, digital music, and other non-AWS subscription services.
(5)
Primarily includes sales of advertising services, as well as sales related to our other service offerings.
v3.10.0.1
Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Unaudited Interim Financial Information
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 balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2018 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 2017 Annual Report on Form 10-K.
Prior Period Reclassifications
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation, including the addition of restricted cash to cash and cash equivalents on the consolidated statements of cash flows as a result of the adoption of new accounting guidance.
Principles of Consolidation
Principles of Consolidation
The consolidated financial statements include the accounts of Amazon.com, Inc., 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 China and that support our seller lending financing activities (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated. The financial results of Whole Foods Market, Inc. (“Whole Foods Market”) have been included in our consolidated financial statements from the date of acquisition on August 28, 2017.
Use of Estimates
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, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, and inventory valuation. Actual results could differ materially from those estimates.
Earnings per 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.
Revenue Recognition, Policy [Policy Text Block]
Revenue
Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, promotional discounts, and rebates. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes. In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. We generally determine stand-alone selling prices based on the prices charged to customers or using expected cost plus a margin.
A description of our principal revenue generating activities is as follows:
Retail sales - We offer consumer products through our online and physical stores. Revenue is recognized when control of the goods is transferred to the customer, which generally occurs upon our delivery to the carrier or the customer.
Third-party seller services - We offer programs that enable sellers to sell their products on our websites and their own branded websites, and fulfill orders through us. We are not the seller of record in these transactions. The commissions and any related fulfillment and shipping fees we earn from these arrangements are recognized as the services are rendered.
Subscription services - Our subscription sales include fees associated with Amazon Prime memberships and access to content including audiobooks, e-books, digital video, digital music, and other non-AWS subscription services. Prime memberships provide our customers with access to an evolving suite of benefits that represent a single stand-ready obligation. Subscriptions are paid for at the time of or in advance of delivering the services. Revenue from such arrangements is recognized over the subscription period.
AWS - Our AWS sales arrangements include global sales of compute, storage, database, and other service offerings. Revenue is allocated to the services provided based on stand-alone selling prices and is recognized as the services are rendered. Sales commissions we pay in connection with contracts that exceed one year are capitalized and amortized over the contract term.
Other - Other revenue primarily includes sales of advertising services and is recognized as the services are rendered.
Revenue Recognition, Allowances [Policy Text Block]
Return Allowances
Return allowances, which reduce revenue and cost of sales, are estimated using historical experience. Liabilities for return allowances are included in “Accrued expenses and other” and were $468 million and $355 million as of December 31, 2017 and June 30, 2018. Included in “Inventories” on our consolidated balance sheets are assets totaling $406 million and $287 million as of December 31, 2017 and June 30, 2018, for the rights to recover products from customers associated with our liabilities for return allowances.
Cost of Sales, Policy [Policy Text Block]
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, digital media content costs, including video and music, packaging supplies, sortation and delivery centers and related equipment costs, and inbound and outbound shipping costs, including where we are the transportation service provider. Shipping costs to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers. Payment processing and related transaction costs, including those associated with seller transactions, are classified in “Fulfillment” on our consolidated statements of operations.
Cost of Sales, Vendor Allowances, Policy [Policy Text Block]
Vendor Agreements
We have agreements with our vendors to receive funds primarily for cooperative marketing efforts, promotions, incentives, and volume rebates. We generally consider these amounts received from vendors to be a reduction of the prices we pay for their goods, including property and equipment, or services, and are recorded as a reduction of the cost of inventory, cost of services, or cost of property and equipment. Volume rebates typically depend on reaching minimum purchase thresholds. We evaluate the likelihood of reaching purchase thresholds using past experience and current year forecasts. When volume rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards the purchase threshold.
Receivables, Policy [Policy Text Block]
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, 2017 and June 30, 2018, customer receivables, net, were $6.4 billion and $6.9 billion, vendor receivables, net, were $2.6 billion and $2.2 billion, and seller receivables, net, were $692 million and $640 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 known troubled accounts and historical experience of losses incurred. Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement.
Revenue Recognition, Deferred Revenue [Policy Text Block]
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 Amazon Prime memberships and AWS services. Our total unearned revenue as of December 31, 2017 was $6.1 billion, of which $3.9 billion was recognized as revenue during the six months ended June 30, 2018, including adjustments related to the new revenue recognition guidance. Included in “Other long-term liabilities” on our consolidated balance sheets was $1.0 billion and $1.2 billion of unearned revenue as of December 31, 2017 and June 30, 2018.
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, the amount of revenue not yet recognized was $16.0 billion as of June 30, 2018. The weighted average remaining life of our long-term contracts is 3.5 years. However, the timing of revenue recognition is largely driven by customer activity, some of which can extend beyond the original contractual term.
Accrued Expenses And Other, Policy [Policy Text Block]
Accrued Expenses and Other
Included in “Accrued expenses and other” on our consolidated balance sheets are amounts primarily related to unredeemed gift cards, customer liabilities, leases and asset retirement obligations, current debt, acquired digital media content, and other operating expenses.
As of December 31, 2017 and June 30, 2018, our liabilities for unredeemed gift cards were $3.0 billion and $1.8 billion. We reduce the liability for a gift card when redeemed by a customer. The portion of gift cards that we do not expect to be redeemed is recognized based on customer usage patterns.
Accounting Pronouncements Recently Adopted and Accounting Pronouncements Not Yet Adopted
Accounting Pronouncements Recently Adopted
In May 2014, the FASB issued an Accounting Standards Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted this ASU on January 1, 2018 for all revenue contracts with our customers using the modified retrospective approach and increased retained earnings by approximately $650 million. The adjustment primarily relates to the unredeemed portion of our gift cards, which are now recognized over the expected customer usage period rather than waiting until gift cards expire or when the likelihood of redemption becomes remote. We changed the recognition and classification of Amazon Prime memberships, which are now accounted for as a single performance obligation and recognized ratably over the membership period as service sales. Previously, Prime memberships were considered to be arrangements with multiple deliverables and were allocated among product sales and service sales. Other changes relate primarily to the presentation of revenue. Certain advertising services are now classified as revenue rather than a reduction in cost of sales, and sales of apps, in-app content, and certain digital media content are presented on a net basis.
The impact of applying this ASU for the six months ended June 30, 2018 primarily resulted in a decrease in product sales and an increase in service sales driven by a reclassification of Prime membership fees of approximately $1.7 billion, which are now accounted for as a single performance obligation and recognized over the membership period. Service sales also increased by approximately $1.2 billion for the six months ended June 30, 2018 due to the reclassification of certain advertising services that were previously classified as a reduction of cost of sales.
In January 2016, the FASB issued an ASU that updates certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Under this ASU, certain equity investments are measured at fair value with changes recognized in net income. We adopted this ASU in Q1 2018 with no material impact to our consolidated financial statements.
In October 2016, the FASB issued an ASU amending the accounting for income taxes. The new guidance requires the recognition of the income tax consequences of an intercompany asset transfer, other than transfers of inventory, when the transfer occurs. For intercompany transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. We adopted this ASU in Q1 2018 with an increase of approximately $250 million to retained earnings and deferred tax assets net of valuation allowances.
In November 2016, the FASB issued an ASU amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. We adopted this ASU in Q1 2018 on a retrospective basis with the following impacts to our consolidated statements of cash flows (in millions):
Three Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
3,829

 
$
21

 
$
3,850

Investing activities
(5,051
)
 
(223
)
 
(5,274
)
Financing activities
(1,263
)
 
(11
)
 
(1,274
)
Net change in cash, cash equivalents, and restricted cash
$
(2,485
)
 
$
(213
)
 
$
(2,698
)
Six Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
2,239

 
$
(9
)
 
$
2,230

Investing activities
(6,667
)
 
43

 
(6,624
)
Financing activities
(2,177
)
 
14

 
(2,163
)
Net change in cash, cash equivalents, and restricted cash
$
(6,605
)
 
$
48

 
$
(6,557
)
Twelve Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
17,885

 
$
(83
)
 
$
17,802

Investing activities
(13,410
)
 
237

 
(13,173
)
Financing activities
(3,769
)
 
38

 
(3,731
)
Net change in cash, cash equivalents, and restricted cash
$
706

 
$
192

 
$
898


Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued an ASU amending the accounting for leases. The new guidance requires the recognition of lease assets and liabilities for operating leases with terms of more than 12 months, in addition to those currently recorded, on our consolidated balance sheets. Presentation of leases within the consolidated statements of operations and consolidated statements of cash flows will be generally consistent with the current lease accounting guidance. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We plan to adopt this ASU beginning in Q1 2019. We are continuing to evaluate the impact and expect the ASU will have a material impact on our consolidated financial statements, primarily to the consolidated balance sheets and related disclosures.
v3.10.0.1
Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Calculation of Diluted Shares
The following table shows the calculation of diluted shares (in millions):
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2018
 
2017
 
2018
Shares used in computation of basic earnings per share
479

 
486

 
478

 
485

Total dilutive effect of outstanding stock awards
13

 
14

 
13

 
14

Shares used in computation of diluted earnings per share
492

 
500

 
491

 
499

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]
We adopted this ASU in Q1 2018 on a retrospective basis with the following impacts to our consolidated statements of cash flows (in millions):
Three Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
3,829

 
$
21

 
$
3,850

Investing activities
(5,051
)
 
(223
)
 
(5,274
)
Financing activities
(1,263
)
 
(11
)
 
(1,274
)
Net change in cash, cash equivalents, and restricted cash
$
(2,485
)
 
$
(213
)
 
$
(2,698
)
Six Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
2,239

 
$
(9
)
 
$
2,230

Investing activities
(6,667
)
 
43

 
(6,624
)
Financing activities
(2,177
)
 
14

 
(2,163
)
Net change in cash, cash equivalents, and restricted cash
$
(6,605
)
 
$
48

 
$
(6,557
)
Twelve Months Ended June 30, 2017
Previously Reported
 
Adjustments
 
As Revised
Operating activities
$
17,885

 
$
(83
)
 
$
17,802

Investing activities
(13,410
)
 
237

 
(13,173
)
Financing activities
(3,769
)
 
38

 
(3,731
)
Net change in cash, cash equivalents, and restricted cash
$
706

 
$
192

 
$
898

v3.10.0.1
Cash, Cash Equivalents, and Marketable Securities (Tables)
6 Months Ended
Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Fair Value by Major Security Type
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, 2017
 
June 30, 2018
  
Total
Estimated
Fair Value
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Total
Estimated
Fair Value
Cash
$
9,982

 
$
8,107

 
$

 
$

 
$
8,107

Level 1 securities:
 
 
 
 
 
 
 
 
 
Money market funds
11,343

 
10,094

 

 

 
10,094

Equity securities
53

 
25

 
83

 

 
108

Level 2 securities:
 
 
 
 
 
 
 
 
 
Foreign government and agency securities
620

 
389

 

 

 
389

U.S. government and agency securities
4,823

 
5,465

 
1

 
(25
)
 
5,441

Corporate debt securities
4,257

 
2,638

 
1

 
(18
)
 
2,621

Asset-backed securities
905

 
756

 

 
(8
)
 
748

Other fixed income securities
338

 
225

 

 
(2
)
 
223

Equity securities

 
29