What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 88 added, 71 removed, 233 unchanged (41% of the section changed)

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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.

As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of June 30, 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.

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Three Months Ended

March 31, Twelve Months Ended

June 30, Six Months Ended

June 30, Twelve Months Ended

2020 2021 2020 2021 2020 2021

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Financing activities 7,408 15,643 4,817 12,167 (714) 6,246

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $84.4 billion and $73.3 billion as of December 31, 2020 and March 31, 2021.

Amounts held in foreign currencies were $23.5 billion and $19.8 billion as of December 31, 2020 and March 31, 2021, and were primarily Euros, British Pounds, and Japanese Yen.

Cash provided by (used in) operating activities was $3.1 billion and $4.2 billion for Q1 2020 and Q1 2021.

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $84.4 billion and $89.9 billion as of December 31, 2020 and June 30, 2021.

Amounts held in foreign currencies were $23.5 billion and $18.5 billion as of December 31, 2020 and June 30, 2021, and were primarily British Pounds, Japanese Yen, Canadian Dollars, and Euros.

Cash provided by (used in) operating activities was $20.6 billion and $12.7 billion for Q2 2020 and Q2 2021, and $23.7 billion and $16.9 billion for the six months ended June 30, 2020 and 2021.

Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations.

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Because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly.

The increase in operating cash flow for the trailing twelve months ended March 31, 2021, compared to the comparable prior year period, was primarily due to the increase in net income, excluding non-cash expenses, and changes in working capital.

The increase in operating cash flow for the trailing twelve months ended June 30, 2021, compared to the comparable prior year period, was primarily due to the increase in net income, excluding non-cash expenses, and changes in working capital.

Working capital at any specific point in time is subject to many variables, including variability in demand, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.

Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold improvements, incentives received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities.

Cash provided by (used in) investing activities was $(8.9) billion and $(8.7) billion for Q1 2020 and Q1 2021, with the variability caused primarily by our decision to purchase or lease property and equipment and purchases, sales, and maturities of marketable securities.

Cash capital expenditures were $5.4 billion and $11.2 billion during Q1 2020 and Q1 2021, which primarily reflect investments in additional capacity to support our fulfillment operations and in support of continued business growth in technology infrastructure (the majority of which is to support AWS), which investments we expect to continue over time.

We made cash payments, net of acquired cash, related to acquisition and other investment activity of $91 million and $630 million during Q1 2020 and Q1 2021.

Cash provided by (used in) financing activities was $(2.6) billion and $(3.5) billion for Q1 2020 and Q1 2021.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $693 million and $2.0 billion for Q1 2020 and Q1 2021.

Cash outflows from financing activities resulted from payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $3.3 billion and $5.5 billion in Q1 2020 and Q1 2021.

Property and equipment acquired under finance leases was $2.2 billion and $2.1 billion during Q1 2020 and Q1 2021, reflecting investments in support of continued business growth primarily due to investments in technology infrastructure for AWS.

We had no borrowings outstanding under the Credit Agreement, $725 million of borrowings outstanding under the Commercial Paper Program, and $429 million of borrowings outstanding under our Credit Facility as of March 31, 2021.

Cash provided by (used in) investing activities was $(17.8) billion and $(22.1) billion for Q2 2020 and Q2 2021, and $(26.7) billion and $(30.7) billion for the six months ended June 30, 2020 and 2021, with the variability caused primarily by our decision to purchase or lease property and equipment and purchases, sales, and maturities of marketable securities.

Cash capital expenditures were $6.6 billion and $13.0 billion during Q2 2020 and Q2 2021, and $12.0 billion and $24.2 billion for the six months ended June 30, 2020 and 2021, which primarily reflect investments in additional capacity to support our fulfillment operations and in support of continued business growth in technology infrastructure (the majority of which is to support AWS), which investments we expect to continue over time.

We made cash payments, net of acquired cash, related to acquisition and other investment activity of $118 million and $320 million during Q2 2020 and Q2 2021, and $210 million and $950 million for the six months ended June 30, 2020 and 2021.

Cash provided by (used in) financing activities was $7.4 billion and $15.6 billion for Q2 2020 and Q2 2021, and $4.8 billion and $12.2 billion for the six months ended June 30, 2020 and 2021.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $12.4 billion and $19.7 billion for Q2 2020 and Q2 2021, and $13.0 billion and $21.7 billion for the six months ended June 30, 2020 and 2021.

Cash outflows from financing activities resulted from payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $4.9 billion and $4.0 billion in Q2 2020 and Q2 2021, and $8.2 billion and $9.6 billion for the six months ended June 30, 2020 and 2021.

Property and equipment acquired under finance leases was $3.2 billion and $1.6 billion during Q2 2020 and Q2 2021, and $5.3 billion and $3.7 billion for the six months ended June 30, 2020 and 2021, reflecting investments in support of continued business growth primarily due to investments in technology infrastructure for AWS.

We had no borrowings outstanding under the Credit Agreement, $725 million of borrowings outstanding under the Commercial Paper Program, and $503 million of borrowings outstanding under our Credit Facility as of June 30, 2021.

See Item 1 of Part I, “Financial Statements — Note 5 — Debt” for additional information.

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taxable income.

tax rules provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of qualified property, primarily equipment, through 2022.

Cash taxes paid (net of refunds) were $305 million and $801 million for Q1 2020 and Q1 2021.

tax rules provide for enhanced accelerated depreciation deductions by allowing the

election of full expensing of qualified property, primarily equipment, through 2022.

Cash taxes paid (net of refunds) were $486 million and $1.8 billion for Q2 2020 and Q2 2021, and $791 million and $2.6 billion for the six months ended June 30, 2020 and 2021.

We endeavor to manage our global taxes on a cash basis, rather than on a financial reporting basis.

In connection with the European Commission’s October 2017 decision against us on state aid, Luxembourg tax authorities computed an initial recovery amount, consistent with the European Commission’s decision, of approximately €250 million, that we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals.

As of December 31, 2020 and March 31, 2021, restricted cash, cash equivalents, and marketable securities were $257 million and $323 million.

As of December 31, 2020 and June 30, 2021, restricted cash, cash equivalents, and marketable securities were $257 million and $290 million.

See Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies” and “Financial Statements — Note 5 — Debt” for additional discussion of our principal contractual commitments, as well as our pledged assets.

Additionally, purchase obligations and open purchase orders, consisting of inventory and significant non-inventory commitments, were $32.6 billion as of March 31, 2021.

Additionally, purchase obligations and open purchase orders, consisting of inventory and significant non-inventory commitments, were $39.8 billion as of June 30, 2021.

These purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions.

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See Item 1A of Part II, “Risk Factors.” We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, obtain finance and operating lease arrangements, enter into financing obligations, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.

We expect to fund the acquisition of MGM Holdings Inc.

with cash on hand.

The COVID-19 pandemic and resulting global disruptions have caused significant market volatility.

These disruptions can contribute to defaults in our accounts receivable, affect asset valuations resulting in impairment charges, and affect the availability of lease and financing credit as well as other segments of the credit markets.

We have utilized a range of financing methods to fund our operations and capital expenditures and expect to continue to maintain financing flexibility in the current market conditions.

We have utilized a range of financing methods to fund our global operations and capital expenditures and expect to continue to maintain financing flexibility in the current market conditions.

However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.

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Effects of COVID-19

As reflected in the discussion below, the impact of the COVID-19 pandemic and actions taken in response to it had varying effects on our Q1 2021 results of operations.

Higher net sales in the North America and International segments reflect increased demand, particularly as people are staying at home, including for household staples and other essential and home products, partially offset by fulfillment network capacity and supply chain constraints.

Other effects in the North America and International segments include increased fulfillment costs and cost of sales as a percentage of net sales, primarily due to the impact of lower productivity and costs to maintain safe workplaces.

We incurred approximately $2.0 billion in COVID-19 related costs in Q1 2021.

As reflected in the discussion below, the impact of the COVID-19 pandemic and actions taken in response to it had varying effects on our Q2 2021 results of operations, although some effects, including customer demand, are mitigating or becoming more difficult to isolate or quantify.

Moreover, it is not possible to determine the duration and scope of the pandemic, the scale and rate of economic recovery from the pandemic, any ongoing effects on consumer demand and spending patterns, or other impacts of the pandemic, and whether these or other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations;

however, we expect our net sales growth rate to decelerate in Q3 2021 compared to the increases we experienced in 2020 and the first quarter of 2021.

In addition, we incurred approximately $1.5 billion in COVID-19 related costs in Q2 2021, primarily due to the impact of lower productivity and costs to maintain safe workplaces.

We expect COVID-19 related costs, as well as the effects of the pandemic on fulfillment network capacity and supply chain constraints, to continue into all or portions of Q3 2021.

We will continue to prioritize employee and customer safety and comply with evolving federal, state, and local standards as well as to implement standards or processes that we determine to be in the best interests of our employees, customers, and communities.

We expect the effects of fulfillment network capacity and supply chain constraints, elevated collection risk in our accounts receivable, and the negative impact on fulfillment costs and cost of sales as a percentage of net sales to continue into all or portions of Q2 2021.

However, it is not possible to determine the duration and scope of the pandemic, including any recurrence, the actions taken in response to the pandemic, the scale and rate of economic recovery from the pandemic, any ongoing effects on consumer demand and spending patterns, or other impacts of the pandemic, and whether these or other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations.

Net sales include product and service sales.

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Three Months Ended

June 30, Six Months Ended

2020 2021 2020 2021

North America $ 55,436 $ 67,550 $ 101,563 $ 131,916

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International 38 36 28 47

AWS 29 37 31 35

Consolidated 40 27 34 35

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International 41 26 31 37

AWS 29 37 31 35

Consolidated 41 24 34 32

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International 26 27 25 28

AWS 12 13 13 13

Consolidated 100 % 100 % 100 % 100 %

Sales increased 44% in Q1 2021 compared to the comparable prior year period.

Changes in foreign currency exchange rates impacted net sales by $2.1 billion for Q1 2021.

Sales increased 27% in Q2 2021 and 35% for the six months ended June 30, 2021 compared to the comparable prior year periods.

Changes in foreign currency exchange rates impacted net sales by $2.5 billion for Q2 2021 and by $4.5 billion for the six months ended June 30, 2021.

For a discussion of the effect of foreign exchange rates on sales growth, see “Effect of Foreign Exchange Rates” below.

North America sales increased 40% in Q1 2021, compared to the comparable prior year period.

North America sales increased 22% in Q2 2021 and 30% for the six months ended June 30, 2021 compared to the comparable prior year periods.

The sales growth primarily reflects increased unit sales, including sales by third-party sellers.

Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, and increased demand, including for household staples and other essential and home products, partially offset by fulfillment network capacity and supply chain constraints.

International sales increased 60% in Q1 2021, compared to the comparable prior year period.

Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, and increased demand, partially offset by fulfillment network capacity and supply chain constraints.

W e expect our North America sales growth rate to decelerate in Q3 2021 compared to the increases we experienced in 2020 and the first quarter of 2021.

International sales increased 36% in Q2 2021 and 47% for the six months ended June 30, 2021 compared to the comparable prior year periods.

The sales growth primarily reflects increased unit sales, including sales by third-party sellers.

Changes in foreign currency exchange rates impacted International net sales by $1.9 billion for Q1 2021.

AWS sales increased 32% in Q1 2021, compared to the comparable prior year period.

W e expect our International sales growth rate to decelerate in Q3 2021 compared to the increases we experienced in 2020 and the first quarter of 2021.

Changes in foreign currency exchange rates impacted International net sales by $2.1 billion for Q2 2021, and by $4.0 billion for the six months ended June 30, 2021.

AWS sales increased 37% in Q2 2021 and 35% for the six months ended June 30, 2021 compared to the comparable prior year periods.

The sales growth primarily reflects increased customer usage, partially offset by pricing changes.

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Three Months Ended

June 30, Six Months Ended

2020 2021 2020 2021

Operating Income (Loss):

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Consolidated $ 5,843 $ 7,702 $ 9,832 $ 16,567

Operating income increased from $4.0 billion in Q1 2020 to $8.9 billion in Q1 2021.

Operating income increased from $5.8 billion in Q2 2020 to $7.7 billion in Q2 2021, and increased from $9.8 billion for the six months ended June 30, 2020, to $16.6 billion for the six months ended June 30, 2021.

We believe that operating income (loss) is a more meaningful measure than gross profit and gross margin due to the diversity of our product catego ries and services.

The increase in North America operating income in absolute dollars in Q1 2021 compared to the comparable prior year period, is primarily due to increased unit sales, including sales by third-party sellers, and advertising sales and slower growth in certain operating expenses, partially offset by increased shipping and fulfillment costs due in part to COVID-19.

We expect North America operating income to continue to be negatively impacted through at least Q2 2021 by COVID-19 related costs.

Changes in foreign exchange rates impacted operating income by $8 million for Q1 2021.

The International operating income in Q1 2021 as compared to the operating loss in the comparable prior year period, is primarily due to increased unit sales, including sales by third-party sellers, and advertising sales, and slower growth in certain operating expenses, partially offset by increased shipp ing and fulfillment costs due in part to COVID-19.

We expect International operating income to continue to be negatively impacted through at least Q2 2021 by COVID-19 related costs.

Changes in foreign exchange rates impacted operating income by $270 million for Q1 2021.

The increase in AWS operating income in absolute dollars in Q1 2021 compared to the comparable prior year period is primarily due to increased customer usage and cost structure productivity, partially offset by increased spending on technology infrastructure, payroll and related expenses, and software licensing expenses, all of which were primarily driven by additional investments to support the business growth, and reduced prices for our customers.

Changes in foreign exchange rates impacted operating income by $(171) million for Q1 2021.

The increase in North America operating income in absolute dollars in Q2 2021 and for the six months ended June 30, 2021, compared to the comparable prior year periods, is primarily due to increased unit sales, including sales by third-party sellers, and advertising sales and lower COVID-19 related costs, partially offset by increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, and growth in certain operating expenses.

We expect the impact of COVID-19 related costs in our North America segment to continue to decrease, compared to the comparable prior year periods, through at least Q3 2021.

Changes in foreign exchange rates impacted operating income by $34 million for Q2 2021, and by $42 million for the six months ended June 30, 2021.

The increase in International operating income in absolute dollars in Q2 2021 and for the six months ended June 30, 2021 , compared to the comparable prior year periods, is primarily due to increased unit sales, including sales by third-party sellers, and advertising sales and lower COVID-19 related costs, partially offset by increased shipp ing and fulfillment costs, due in part to increased investments in our fulfillment network, and growth in certain operating expenses.

We expect the impact of COVID-19 related costs in our International segment to continue to decrease, compared to the comparable prior year periods, through at least Q3 2021.

Changes in foreign exchange rates impacted operating income by $199 million for Q2 2021, and by $469 million for the six months ended June 30, 2021.

The increase in AWS operating income in absolute dollars in Q2 2021 and for the six months ended June 30, 2021, compared to the comparable prior year periods, is primarily due to increased customer usage and cost structure productivity, partially offset by increased spending on technology infrastructure, payroll and related expenses, and software licensing expenses, all of which were primarily driven by additional investments to support the business growth, and reduced prices for our customers.

Changes in foreign exchange rates impacted operating income by $(226) million for Q2 2021, and by $(397) million for the six months ended June 30, 2021.

Operating Expenses

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Three Months Ended

June 30, Six Months Ended

2020 2021 2020 2021

Operating expenses:

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Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music.

The increase in cost of sales in absolute dollars in Q1 2021 compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales.

We expect cost of sales as a percentage of net sales to continue to be negatively impacted through at least Q2 2021 by COVID-19 related costs.

The increase in cost of sales in absolute dollars in Q2 2021 and for the six months ended June 30, 2021, compared to the comparable prior year periods, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by lower COVID-19 related costs.

We expect the impact of COVID-19 related costs to continue to decrease, compared to the comparable prior year periods, through at least Q3 2021.

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.

Shipping costs, which include sortation and delivery centers and transportation costs, were $10.9 billion and $17.2 billion in Q1 2020 and Q1 2021.

Shipping costs, which include sortation and delivery centers and transportation costs, were $13.7 billion and $17.7 billion in Q2 2020 and Q2 2021, and $24.6 billion and $34.9 billion for the six months ended June 30, 2020 and 2021.

We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, including faster delivery, and we offer additional services.

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Additionally, sales by our sellers have higher payment processing and related transaction costs as a percentage of net sales compared to our retail sales because payment processing costs are based on the gross purchase price of underlying transactions.

The increase in fulfillment costs in absolute dollars in Q1 2021, compared to the comparable prior year period, is primarily due to variable costs corresponding with increased product and service sales volume and inventory levels, costs from expanding our fulfillment network, and the COVID-19 related impact of lower productivity and costs to maintain safe workplaces.

We expect fulfillment costs as a percentage of net sales to continue to be negatively impacted through at least Q2 2021 by COVID-19 related costs.

The increase in fulfillment costs in absolute dollars in Q2 2021 and for the six months ended June 30, 2021, compared to the comparable prior year periods, is primarily due to variable costs corresponding with increased product and service sales volume and inventory levels and costs from expanding our fulfillment network, partially offset by lower COVID-19 related costs in Q2 2021.

We expect the impact of COVID-19 related costs to continue to decrease, compared to the comparable prior year periods, through at least Q3 2021.

We seek to expand our fulfillment network to accommodate a greater selection and in-stock inventory levels and to meet anticipated shipment volumes from sales of our own products as well as sales by third parties for which we provide the fulfillment services.

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These costs are allocated to segments based on usage.

The increase in technology and content costs in absolute dollars in Q1 2021, compared to the comparable prior year period, is primarily due to an increase in spending on technology infrastructure and increased payroll and related costs associated with technical teams responsible for expanding our existing products and services and initiatives to introduce new products and service offerings.

The increase in technology and content costs in absolute dollars in Q2 2021 and for the six months ended June 30, 2021, compared to the comparable prior year periods, is primarily due to increased payroll and related costs associated with technical teams responsible for expanding our existing products and services and initiatives to introduce new products and service offerings, and an increase in spending on technology infrastructure.

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 for a discussion of how management views advances in technology and the importance of innovation.

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To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing costs.

The increase in marketing costs in absolute dollars in Q1 2021, compared to the comparable prior year period, is primarily due to increased payroll and related expenses for personnel engaged in marketing and selling activities and higher spending on marketing channels.

The increase in marketing costs in absolute dollars in Q2 2021 and for the six months ended June 30, 2021, compared to the comparable prior year periods, is primarily due to higher spending on marketing channels and increased payroll and related expenses for personnel engaged in marketing and selling activities.

While costs associated with Amazon Prime membership benefits and other shipping offers are not included in marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.

General and Administrative

The increase in general and administrative costs in absolute dollars in Q1 2021, compared to the comparable prior year period, is primarily due to increases in payroll and related expenses and professional service fees.

The increase in general and administrative costs in absolute dollars in Q2 2021 and for the six months ended June 30, 2021, compared to the comparable prior year periods, is primarily due to increases in payroll and related expenses and professional service fees.

Other Operating Expense (Income), Net

Other operating expense (income), net was $70 million and $38 million for Q1 2020 and Q1 2021, and was primarily related to the amortization of intangible assets.

Other operating expense (income), net was $290 million and $11 million for Q2 2020 and Q2 2021, and $360 million and $49 million for the six months ended June 30, 2020 and 2021, and was primarily related to a lease impairment in Q2 2020 and the amortization of intangible assets.

Interest Income and Expense

Our interest income was $202 million and $105 million during Q1 2020 and Q1 2021.

Our interest income was $135 million and $106 million during Q2 2020 and Q2 2021, and $337 million and $211 million for the six months ended June 30, 2020 and 2021.

We generally invest our excess cash in AAA-rated money market funds and investment grade short- to intermediate-term fixed income securities.

Our interest income corresponds with the average balance of invested funds based on the prevailing rates, which vary depending on the geographies and currencies in which they are invested.

Interest expense was $402 million and $399 million during Q1 2020 and Q1 2021, and was primarily related to debt and finance leases.

Interest expense was $403 million and $435 million during Q2 2020 and Q2 2021, and $805 million and $834 million for the six months ended June 30, 2020 and 2021, and was primarily related to debt and finance leases.

Other Income (Expense), Net

Other income (expense), net was $(406) million and $1.7 billion during Q1 2020 and Q1 2021.

Other income (expense), net was $646 million and $1.3 billion during Q2 2020 and Q2 2021 and $240 million and $3.0 billion for the six months ended June 30, 2020 and 2021.

The primary components of other income (expense), net are related to equity securities valuations and adjustments, equity warrant valuations, and foreign currency.

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.

Our income tax provisions for the six months ended June 30, 2020 and 2021 were $1.7 billion and $3.0 billion, which included $831 million and $1.4 billion of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation and, in 2021, audit-related developments.

See Item 1 of Part I, “Financial Statements — Note 7 — Income Taxes” for additional information.

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Free Cash Flow

Free cash flow is cash flow from operations reduced by “Purchases of property and equipment, net of proceeds from sales and incentives.” The following is a reconciliation of free cash flow to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended March 31, 2020 and 2021 (in millions):

Twelve Months Ended

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Free cash flow less principal repayments of finance leases and financing obligations is free cash flow reduced by “Principal repayments of finance leases” and “Principal repayments of financing obligations.” Principal repayments of finance leases and financing obligations approximates the actual payments of cash for our finance leases and financing obligations.

The following is a reconciliation of free cash flow less principal repayments of finance leases and financing obligations to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended March 31, 2020 and 2021 (in millions):

Twelve Months Ended

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In this measure, equipment acquired under finance leases is reflected as if these assets had been purchased with cash, which is not the case as these assets have been leased.

The following is a reconciliation of free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended March 31, 2020 and 2021 (in millions):

Twelve Months Ended

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___________________

(1) For the twelve months ended March 31, 2020 and 2021, this amount relates to equipment included in “Property and equipment acquired under finance leases” of $13,262 million and $11,489 million.

(2) For the twelve months ended March 31, 2020 and 2021, this amount relates to property included in “Principal repayments of finance leases” of $10,013 million and $11,448 million.

(1) For the twelve months ended June 30, 2020 and 2021, this amount relates to equipment included in “Property and equipment acquired under finance leases” of $13,110 million and $9,976 million.

(2) For the twelve months ended June 30, 2020 and 2021, this amount relates to property included in “Principal repayments of finance leases” of $10,504 million and $11,435 million.

All of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement and do not represent the residual cash flow available for discretionary expenditures.

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Dollar is as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2021 2020 2021

Reported Exchange

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Effect (1) At Prior

Reported Exchange

Effect (1) At Prior

Rates (2) As Reported Exchange

Effect (1) At Prior

Net sales $ 88,912 $ 582 $ 89,494 $ 113,080 $ (2,471) $ 110,609 $ 164,364 $ 969 $ 165,333 $ 221,598 $ (4,544) $ 217,054

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(2) Represents the outcome that would have resulted had foreign exchange rates in the reported period been the same as those in effect in the comparable prior year period for operating results.

We provided guidance on April 29, 2021, in our earnings release furnished on Form 8-K as set forth below.

These forward-looking statements reflect Amazon.com’s expectations as of April 29, 2021, and are subject to substantial uncertainty.

Our results are inherently unpredictable and may be materially affected by many factors, such as 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, as well as thos e outlined in Item 1A of Part II, “Risk Factors.” This guidance reflects our estimates as of April 29, 2021 regarding the impact of the COVID-19 pandemic on our operations, including those discussed above, and is highly dependent on numerous factors that we may not be able to predict or control, including:

We provided guidance on July 29, 2021, in our earnings release furnished on Form 8-K as set forth below.

These forward-looking statements reflect Amazon.com’s expectations as of July 29, 2021, and are subject to substantial uncertainty.

Our results are inherently unpredictable and may be materially affected by many factors, such as 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, as well as thos e outlined in Item 1A of Part II, “Risk Factors.” This guidance reflects our estimates as of July 29, 2021 regarding the impact of the COVID-19 pandemic on our operations, including those discussed above, and is highly dependent on numerous factors that we may not be able to predict or control, including:

the duration and scope of the pandemic, including any recurrence;

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and consumer demand and spending patterns, as well as the effects on suppliers, creditors, and third-party sellers, all of which are uncertain.

This guidance also assumes the impacts on consumer demand and spending patterns, including impacts due to concerns over the current economic outlook, will be in line with those experienced during the second quarter of 2021 to date, and the additional assumptions set forth below.

However, it is not possible to determine the ultimate impact on our operations for the second quarter of 2021, or whether other currently unanticipated direct or indirect consequences of the pandemic are reasonably likely to materially affect our operations.

Second Quarter 2021 Guidance

• Net sales are expected to be between $110.0 billion and $116.0 billion, or to grow between 24% and 30% compared with second quarter 2020.

This guidance also assumes the impacts on consumer demand and spending patterns, including impacts due to concerns over the current economic outlook, will be in line with those experienced during the third quarter of 2021 to date, and the additional assumptions set forth below.

However, it is not possible to determine the ultimate impact on our operations for the third quarter of 2021, or whether other currently unanticipated direct or indirect consequences of the pandemic are reasonably likely to materially affect our operations.

Third Quarter 2021 Guidance

• Net sales are expected to be between $106.0 billion and $112.0 billion, or to grow between 10% and 16% compared with third quarter 2020.

This guidance anticipates a favorable impact of approximately 70 basis points from foreign exchange rates.

• Operating income is expected to be between $4.5 billion and $8.0 billion, compared with $5.8 billion in second quarter 2020.

• Operating income is expected to be between $2.5 billion and $6.0 billion, compared with $6.2 billion in third quarter 2020.

This guidance assumes approximately $1.0 billion of costs related to COVID-19.

• This guidance assumes that Prime Day occurs in second quarter 2021.

• This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis