AMAZON COM INC 10-Q

Item 1. Financial Statements AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, Twelve Months Ended September 30, 2020 2021 2020 2021 2020 2021 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 37,842 $ 40,667 $ 36,410 $ 42,377 $ 23,554 $ 30,202 OPERATING ACTIVITIES: Net income 6,331 3,156 14,109 19,041 17,377 26,263 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other 6,523 8,948 17,633 24,494 23,803 32,112 Stock-based compensation 2,288 3,180 6,646 9,077 8,486 11,639 Other operating expense (income), net 67 24 416 72 466 ( 415 ) Other expense (income), net ( 1,051 ) 340 ( 1,255 ) ( 2,374 ) ( 1,749 ) ( 3,701 ) Deferred income taxes 295 909 1,082 3,313 1,267 1,677 Changes in operating assets and liabilities: Inventories ( 3,899 ) ( 7,059 ) ( 3,178 ) ( 7,572 ) ( 4,694 ) ( 7,242 ) Accounts receivable, net and other ( 2,016 ) ( 4,890 ) ( 3,608 ) ( 11,607 ) ( 7,515 ) ( 16,168 ) Accounts payable 3,658 3,832 4,231 ( 4,387 ) 14,914 8,863 Accrued expenses and other ( 310 ) ( 1,465 ) ( 1,375 ) ( 7,210 ) 1,520 ( 84 ) Unearned revenue 78 338 932 1,394 1,417 1,727 Net cash provided by (used in) operating activities 11,964 7,313 35,633 24,241 55,292 54,671 INVESTING ACTIVITIES: Purchases of property and equipment ( 11,063 ) ( 15,748 ) ( 25,317 ) ( 42,118 ) ( 30,629 ) ( 56,941 ) Proceeds from property and equipment sales and incentives 1,255 997 3,467 3,192 4,838 4,822 Acquisitions, net of cash acquired, and other ( 1,735 ) ( 654 ) ( 1,945 ) ( 1,604 ) ( 2,722 ) ( 1,985 ) Sales and maturities of marketable securities 13,135 15,808 32,899 46,847 40,525 64,185 Purchases of marketable securities ( 17,468 ) ( 15,231 ) ( 51,678 ) ( 51,891 ) ( 58,122 ) ( 72,692 ) Net cash provided by (used in) investing activities ( 15,876 ) ( 14,828 ) ( 42,574 ) ( 45,574 ) ( 46,110 ) ( 62,611 ) FINANCING ACTIVITIES: Proceeds from short-term debt, and other 1,311 2,187 4,361 5,289 5,042 7,724 Repayments of short-term debt, and other ( 1,349 ) ( 1,917 ) ( 3,886 ) ( 5,094 ) ( 4,701 ) ( 7,385 ) Proceeds from long-term debt — 176 9,994 18,803 10,412 19,334 Repayments of long-term debt ( 1,198 ) ( 509 ) ( 1,439 ) ( 589 ) ( 2,490 ) ( 703 ) Principal repayments of finance leases ( 2,857 ) ( 2,693 ) ( 8,274 ) ( 8,903 ) ( 11,054 ) ( 11,271 ) Principal repayments of financing obligations ( 12 ) ( 20 ) ( 44 ) ( 115 ) ( 68 ) ( 124 ) Net cash provided by (used in) financing activities ( 4,105 ) ( 2,776 ) 712 9,391 ( 2,859 ) 7,575 Foreign currency effect on cash, cash equivalents, and restricted cash 377 ( 199 ) 21 ( 258 ) 325 340 Net increase (decrease) in cash, cash equivalents, and restricted cash ( 7,640 ) ( 10,490 ) ( 6,208 ) ( 12,200 ) 6,648 ( 25 ) CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD $ 30,202 $ 30,177 $ 30,202 $ 30,177 $ 30,202 $ 30,177 See accompanying notes to consolidated financial statements. 3 Table of Contents AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Net product sales $ 52,774 $ 54,876 $ 144,859 $ 170,371 Net service sales 43,371 55,936 115,650 162,039 Total net sales 96,145 110,812 260,509 332,410 Operating expenses: Cost of sales 57,106 62,930 154,023 189,509 Fulfillment 14,705 18,498 40,043 52,666 Technology and content 10,976 14,380 30,691 40,739 Marketing 5,434 8,010 14,605 21,741 General and administrative 1,668 2,153 4,700 6,298 Other operating expense (income), net 62 ( 11 ) 421 38 Total operating expenses 89,951 105,960 244,483 310,991 Operating income 6,194 4,852 16,026 21,419 Interest income 118 119 455 330 Interest expense ( 428 ) ( 493 ) ( 1,233 ) ( 1,327 ) Other income (expense), net 925 ( 163 ) 1,165 2,795 Total non-operating income (expense) 615 ( 537 ) 387 1,798 Income before income taxes 6,809 4,315 16,413 23,217 Provision for income taxes ( 569 ) ( 1,155 ) ( 2,298 ) ( 4,179 ) Equity-method investment activity, net of tax 91 ( 4 ) ( 6 ) 3 Net income $ 6,331 $ 3,156 $ 14,109 $ 19,041 Basic earnings per share $ 12.63 $ 6.23 $ 28.24 $ 37.69 Diluted earnings per share $ 12.37 $ 6.12 $ 27.72 $ 37.02 Weighted-average shares used in computation of earnings per share: Basic 501 507 500 505 Diluted 512 515 509 514 See accompanying notes to consolidated financial statements. 4 Table of Contents AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Net income $ 6,331 $ 3,156 $ 14,109 $ 19,041 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax of $( 15 ), $ 39 , $( 2 ) and $ 35 408 ( 537 ) ( 260 ) ( 752 ) Net change in unrealized gains (losses) on available-for-sale debt securities: Unrealized gains (losses), net of tax of $( 10 ), $ 3 , $( 73 ) and $ 31 35 ( 5 ) 239 ( 109 ) Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $ 5 , $ 5 , $ 7 and $ 13 ( 17 ) ( 8 ) ( 22 ) ( 34 ) Net unrealized gains (losses) on available-for-sale debt securities 18 ( 13 ) 217 ( 143 ) Total other comprehensive income (loss) 426 ( 550 ) ( 43 ) ( 895 ) Comprehensive income $ 6,757 $ 2,606 $ 14,066 $ 18,146 See accompanying notes to consolidated financial statements. 5 Table of Contents AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31, 2020 September 30, 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 42,122 $ 29,944 Marketable securities 42,274 49,044 Inventories 23,795 30,933 Accounts receivable, net and other 24,542 28,610 Total current assets 132,733 138,531 Property and equipment, net 113,114 147,152 Operating leases 37,553 52,151 Goodwill 15,017 15,345 Other assets 22,778 29,227 Total assets $ 321,195 $ 382,406 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 72,539 $ 71,474 Accrued expenses and other 44,138 41,546 Unearned revenue 9,708 10,974 Total current liabilities 126,385 123,994 Long-term lease liabilities 52,573 63,848 Long-term debt 31,816 50,055 Other long-term liabilities 17,017 23,945 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, $ 0.01 par value: Authorized shares — 500 Issued and outstanding shares — none — — Common stock, $ 0.01 par value: Authorized shares — 5,000 Issued shares — 527 and 530 Outstanding shares — 503 and 507 5 5 Treasury stock, at cost ( 1,837 ) ( 1,837 ) Additional paid-in capital 42,865 51,879 Accumulated other comprehensive income (loss) ( 180 ) ( 1,075 ) Retained earnings 52,551 71,592 Total stockholders’ equity 93,404 120,564 Total liabilities and stockholders’ equity $ 321,195 $ 382,406 See accompanying notes to consolidated financial statements. 6 Table of Contents AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 — ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES Unaudited Interim Financial Information We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows, operating results, and balance sheets for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2021 due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2020 Annual Report on Form 10-K. Principles of Consolidation The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in India and certain entities that support our seller lending financing activities. Intercompany balances and transactions between consolidated entities are eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, and valuation and impairment of investments. Actual results could differ materially from these estimates. Supplemental Cash Flow Information The following table shows supplemental cash flow information (in millions): Three Months Ended September 30, Nine Months Ended September 30, Twelve Months Ended September 30, 2020 2021 2020 2021 2020 2021 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on debt $ 285 $ 276 $ 715 $ 731 $ 869 $ 933 Cash paid for operating leases 1,159 1,812 3,275 5,029 4,215 6,230 Cash paid for interest on finance leases 155 121 484 407 650 535 Cash paid for interest on financing obligations 28 48 71 116 90 147 Cash paid for income taxes, net of refunds 502 750 1,293 3,354 1,481 3,774 Assets acquired under operating leases 6,115 10,447 11,870 19,561 14,346 23,908 Property and equipment acquired under finance leases 3,571 1,744 8,892 5,453 13,075 8,149 Property and equipment acquired under build-to-suit arrangements 366 1,721 1,228 3,702 1,480 4,742 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. 7 Table of Contents The following table shows the calculation of diluted shares (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Shares used in computation of basic earnings per share 501 507 500 505 Total dilutive effect of outstanding stock awards 11 8 9 9 Shares used in computation of diluted earnings per share 512 515 509 514 Other Income (Expense), Net Other income (expense), net, is as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Marketable equity securities valuation gains (losses) $ 200 $ ( 129 ) $ 404 $ ( 48 ) Equity warrant valuation gains (losses) 300 ( 50 ) 566 1,194 Upward adjustments relating to equity investments in private companies 320 155 320 1,661 Foreign currency gains (losses) 112 ( 107 ) ( 97 ) ( 28 ) Other, net ( 7 ) ( 32 ) ( 28 ) 16 Total other income (expense), net 925 ( 163 ) 1,165 2,795 Inventories Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. The inventory valuation allowance, representing a write-down of inventory, was $ 2.3 billion and $ 2.4 billion as of December 31, 2020 and September 30, 2021. Accounts Receivable, Net and Other Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to customers, vendors, and sellers. As of December 31, 2020 and September 30, 2021, customer receivables, net, were $ 14.8 billion and $ 17.7 billion, vendor receivables, net, were $ 4.8 billion and $ 4.0 billion, and seller receivables, net, were $ 381 million and $ 858 million. Seller receivables are amounts due from sellers related to our seller lending program, which provides funding to sellers primarily to procure inventory. We estimate losses on receivables based on expected losses, including our historical experience of actual losses. The allowance for doubtful accounts was $ 1.1 billion and $ 951 million as of December 31, 2020 and September 30, 2021. Digital Video and Music Content The total capitalized costs of video, which is primarily released content, and music as of December 31, 2020 and September 30, 2021 were $ 6.8 billion and $ 10.1 billion. Total video and music expense was $ 2.8 billion and $ 3.3 billion in Q3 2020 and Q3 2021, and $ 8.0 billion and $ 9.4 billion for the nine months ended September 30, 2020 and 2021. Unearned Revenue Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. Our total unearned revenue as of December 31, 2020 was $ 11.6 billion, of which $ 8.4 billion was recognized as revenue during the nine months ended September 30, 2021. Included in “Other long-term liabilities” on our consolidated balance sheets was $ 1.9 billion and $ 2.0 billion of unearned revenue as of December 31, 2020 and September 30, 2021. Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that have not yet been recognized in our consolidated financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were $ 66.3 billion as of September 30, 2021. The weighted-average remaining life of our long-term contracts is 3.7 years. However, the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term. 8 Table of Contents Note 2 — FINANCIAL INSTRUMENTS Cash, Cash Equivalents, Restricted Cash, and Marketable Securities As of December 31, 2020 and September 30, 2021, our cash, cash equivalents, restricted cash, and marketable securities primarily consisted of cash, AAA-rated money market funds, U.S. and foreign government and agency securities, other investment grade securities, and marketable equity securities. Cash equivalents and marketable securities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1 —Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 —Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 —Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for identical assets or liabilities. Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold significant amounts of marketable securities categorized as Level 3 assets as of December 31, 2020 and September 30, 2021. The following table summarizes, by major security type, our cash, cash equivalents, restricted cash, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions): December 31, 2020 September 30, 2021 Total Estimated Fair Value Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated Fair Value Cash $ 10,063 $ 10,083 $ — — $ 10,083 Level 1 securities: Money market funds 27,430 18,000 — — 18,000 Equity securities (1) 617 1,633 Level 2 securities: Foreign government and agency securities 5,131 178 1 — 179 U.S. government and agency securities 7,439 5,385 15 ( 7 ) 5,393 Corporate debt securities 29,988 36,775 152 ( 17 ) 36,910 Asset-backed securities 3,235 5,936 17 ( 5 ) 5,948 Other fixed income securities 710 714 4 ( 1 ) 717 Equity securities (1) 40 361 $ 84,653 $ 77,071 $ 189 $ ( 30 ) $ 79,224 Less: Restricted cash, cash equivalents, and marketable securities (2) ( 257 ) ( 236 ) Total cash, cash equivalents, and marketable securities $ 84,396 $ 78,988 ___________________ (1) The related unrealized gain (loss) recorded in “Other income (expense), net” was $ 150 million and $( 116 ) million in Q3 2020 and Q3 2021, and $ 351 million and $ 6 million for the nine months ended September 30, 2020 and 2021. (2) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities primarily as collateral for real estate, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit. We classify cash, cash equivalents, and marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 4 — Commitments and Contingencies.” 9 Table of Contents The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of September 30, 2021 (in millions): Amortized Cost Estimated Fair Value Due within one year $ 38,618 $ 38,628 Due after one year through five years 22,603 22,735 Due after five years through ten years 1,809 1,814 Due after ten years 3,958 3,970 Total $ 66,988 $ 67,147 Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions. Equity Warrants and Non-Marketable Equity Investments We hold equity warrants giving us the right to acquire stock of other companies. As of December 31, 2020 and September 30, 2021, these warrants had a fair value of $ 3.0 billion and $ 3.4 billion, and are recorded within “Other assets” on our consolidated balance sheets with gains and losses recognized in “Other income (expense), net” on our consolidated statements of operations. These warrants are primarily classified as Level 2 assets. As of December 31, 2020 and September 30, 2021, equity investments not accounted for under the equity-method and without readily determinable fair values, including preferred stock of Rivian Automotive, Inc. representing an approximately 20 % ownership interest, had a carrying value of $ 2.7 billion and $ 3.8 billion, and are recorded within “Other assets” on our consolidated balance sheets with adjustments recognized in “Other income (expense), net” on our consolidated statements of operations. Consolidated Statements of Cash Flows Reconciliation The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows (in millions): December 31, 2020 September 30, 2021 Cash and cash equivalents $ 42,122 $ 29,944 Restricted cash included in accounts receivable, net and other 233 218 Restricted cash included in other assets 22 15 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 42,377 $ 30,177 Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment, delivery, office, physical store, data center, and sortation facilities as well as server and networking equipment, vehicles, and aircraft. Gross assets acquired under finance leases, inclusive of those where title transfers at the end of the lease, are recorded in “ Property and equipment, net ” and were $ 68.1 billion and $ 71.3 billion as of December 31, 2020 and September 30, 2021. Accumulated amortization associated with finance leases was $ 36.5 billion and $ 41.7 billion as of December 31, 2020 and September 30, 2021. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Operating lease cost $ 1,334 $ 1,911 $ 3,551 $ 5,129 Finance lease cost: Amortization of lease assets 2,200 2,497 6,123 7,442 Interest on lease liabilities 154 114 474 365 Finance lease cost 2,354 2,611 6,597 7,807 Variable lease cost 308 372 866 1,135 Total lease cost $ 3,996 $ 4,894 $ 11,014 $ 14,071 10 Table of Contents Other information about lease amounts recognized in our consolidated financial statements is as follows: December 31, 2020 September 30, 2021 Weighted-average remaining lease term – operating leases 10.7 years 11.3 years Weighted-average remaining lease term – finance leases 6.2 years 7.4 years Weighted-average discount rate – operating leases 2.5 % 2.3 % Weighted-average discount rate – finance leases 2.1 % 2.1 % Our lease liabilities were as follows (in millions): December 31, 2020 Operating Leases Finance Leases Total Gross lease liabilities $ 44,833 $ 30,437 $ 75,270 Less: imputed interest ( 5,734 ) ( 2,003 ) ( 7,737 ) Present value of lease liabilities 39,099 28,434 67,533 Less: current portion of lease liabilities ( 4,586 ) ( 10,374 ) ( 14,960 ) Total long-term lease liabilities $ 34,513 $ 18,060 $ 52,573 September 30, 2021 Operating Leases Finance Leases Total Gross lease liabilities $ 61,591 $ 26,618 $ 88,209 Less: imputed interest ( 7,637 ) ( 2,099 ) ( 9,736 ) Present value of lease liabilities 53,954 24,519 78,473 Less: current portion of lease liabilities ( 5,913 ) ( 8,712 ) ( 14,625 ) Total long-term lease liabilities $ 48,041 $ 15,807 $ 63,848 11 Table of Contents Note 4 — COMMITMENTS AND CONTINGENCIES Commitments The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations and are generally cancellable, as of September 30, 2021 (in millions): Three Months Ended December 31, Year Ended December 31, 2021 2022 2023 2024 2025 Thereafter Total Long-term debt principal and interest $ 1,418 $ 2,872 $ 4,636 $ 7,014 $ 3,400 $ 56,612 $ 75,952 Operating lease liabilities 1,761 7,026 6,608 6,074 5,576 34,546 61,591 Finance lease liabilities, including interest 2,087 8,331 4,620 2,105 1,202 8,273 26,618 Financing obligations, including interest (1) 98 393 399 397 387 6,427 8,101 Leases not yet commenced 266 1,448 1,878 2,094 2,096 23,973 31,755 Unconditional purchase obligations (2) 423 5,819 5,525 5,009 4,188 13,626 34,590 Other commitments (3)(4) 1,785 3,235 1,524 1,164 957 11,629 20,294 Total commitments $ 7,838 $ 29,124 $ 25,190 $ 23,857 $ 17,806 $ 155,086 $ 258,901 ___________________ (1) Includes non-cancellable financing obligations for fulfillment, sortation, and data center facilities. Excluding interest, current financing obligations of $ 111 million and $ 185 million are recorded within “Accrued expenses and other” and $ 3.4 billion and $ 5.8 billion are recorded within “Other long-term liabilities” as of December 31, 2020 and September 30, 2021. The weighted-average remaining term of the financing obligations was 19.0 and 19.1 years and the weighted-average imputed interest rate was 3.8 % and 3.4 % as of December 31, 2020 and September 30, 2021. (2) 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. (3) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that are under construction, asset retirement obligations, and liabilities associated with digital media content agreements with initial terms greater than one year. (4) Excludes approximately $ 2.9 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any. In addition, in May 2021, we entered into an agreement to acquire MGM Holdings Inc. (“MGM”) for approximately $ 8.5 billion, including MGM’s debt, subject to customary closing conditions. We expect to fund this acquisition with cash on hand. Other Contingencies We are disputing claims and denials of refunds or credits related to various indirect taxes (such as sales, value added, consumption, service, and similar taxes), including in jurisdictions in which we already collect and remit these taxes. If the relevant taxing authorities were to prevail, we could be subject to significant additional tax costs. For example, in June 2017, the State of South Carolina issued an assessment for uncollected sales and use taxes for the period from January 2016 to March 2016, including interest and penalties. South Carolina is alleging that we should have collected sales and use taxes on transactions by our third-party sellers. In September 2019, the South Carolina Administrative Law Court ruled in favor of the Department of Revenue and we have appealed the decision to the state Court of Appeals. We believe the assessment is without merit and intend to defend ourselves vigorously in this matter. 12 Table of Contents Legal Proceedings The Company is involved from time to time in claims, proceedings, and litigation, including the matters described in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies — Legal Proceedings” of our 2020 Annual Report on Form 10-K and in Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies — Legal Proceedings” of our Quarterly Report on Form 10-Q for the period ended June 30, 2021, as supplemented by the following: Following an investigation that included an initial Statement of Objections, in September 2021 the Italian Competition Authority issued a subsequent Statement of Objections against Amazon Services Europe S.à r.l., Amazon Europe Core S.à r.l., Amazon EU S.à r.l., Amazon Italia Services S.r.l., and Amazon Italia Logistica S.r.l. alleging that certain of our marketplace and logistics practices in Italy infringe EU competition rules. The subsequent Statement of Objections seeks to impose unspecified fines and remedial actions that could materially impact our operations in Italy. We disagree with the allegations and intend to defend ourselves vigorously in this matter. In addition, we are regularly subject to claims, litigation, and other proceedings, including potential regulatory proceedings, involving patent and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy and data protection, consumer protection, commercial disputes, goods and services offered by us and by third parties, and other matters. The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. We evaluate, on a regular basis, developments in our legal proceedings and other contingencies that could affect the amount of liability, including amounts in excess of any previous accruals and reasonably possible losses disclosed, and make adjustments and changes to our accruals and disclosures as appropriate. For the matters we disclose that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. Until the final resolution of such matters, if any of our estimates and assumptions change or prove to have been incorrect, we may experience losses in excess of the amounts recorded, which could have a material effect on our business, consolidated financial position, results of operations, or cash flows. See also “Note 7 — Income Taxes.” Note 5 — DEBT As of September 30, 2021, we had $ 50.7 billion of unsecured senior notes outstanding (the “Notes”). We issued $ 18.5 billion of Notes in May 2021, of which $ 1.0 billion was issued for green or social projects, such as projects related to clean transportation, renewable energy, sustainable buildings, affordable housing, or socioeconomic advancement and empowerment, and the remainder for general corporate purposes. We also had other long-term debt and borrowings under our credit facility of $ 924 million and $ 626 million as of December 31, 2020 and September 30, 2021. Our total long-term debt obligations are as follows (in millions): Maturities (1) Stated Interest Rates Effective Interest Rates December 31, 2020 September 30, 2021 2012 Notes issuance of $ 3.0 billion 2022 2.50 % 2.66 % 1,250 1,250 2014 Notes issuance of $ 6.0 billion 2021 - 2044 3.30 % - 4.95 % 3.43 % - 5.11 % 5,000 5,000 2017 Notes issuance of $ 17.0 billion 2023 - 2057 2.40 % - 5.20 % 2.56 % - 4.33 % 16,000 16,000 2020 Notes issuance of $ 10.0 billion 2023 - 2060 0.40 % - 2.70 % 0.56 % - 2.77 % 10,000 10,000 2021 Notes issuance of $ 18.5 billion 2023 - 2061 0.25 % - 3.25 % 0.35 % - 3.31 % — 18,500 Credit Facility 338 626 Other long-term debt 586 — Total face value of long-term debt 33,174 51,376 Unamortized discount and issuance costs, net ( 203 ) ( 321 ) Less current portion of long-term debt ( 1,155 ) ( 1,000 ) Long-term debt $ 31,816 $ 50,055 ___________________ (1) The weighted-average remaining lives of the 2012, 2014, 2017, 2020, and 2021 Notes were 1.2 , 11.1 , 15.5 , 18.0 , and 14.6 years as of September 30, 2021. The combined weighted-average remaining life of the Notes was 14.8 years as of September 30, 2021. 13 Table of Contents Interest on the Notes is payable semi-annually in arrears. We may redeem the Notes at any time in whole, or from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. The estimated fair value of the Notes was approximately $ 37.7 billion and $ 54.3 billion as of December 31, 2020 and September 30, 2021, which is based on quoted prices for our debt as of those dates. We have a $ 740 million secured revolving credit facility with a lender that is secured by certain seller receivables, which we may from time to time increase in the future subject to lender approval (the “Credit Facility”). The Credit Facility is available until October 2022, bears interest at the London interbank offered rate (“LIBOR”) plus 1.40 %, and has a commitment fee of 0.50 % on the undrawn portion. There were $ 338 million and $ 626 million of borrowings outstanding under the Credit Facility as of December 31, 2020 and September 30, 2021, which had a weighted-average interest rate of 3.0 % and 2.8 %, respectively. As of December 31, 2020 and September 30, 2021, we have pledged $ 398 million and $ 719 million of our cash and seller receivables as collateral for debt related to our Credit Facility. The estimated fair value of the Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2020 and September 30, 2021. We have U.S. Dollar and Euro commercial paper programs (the “Commercial Paper Programs”) under which we may from time to time issue unsecured commercial paper up to a total of $ 10.0 billion (including up to € 3.0 billion) at the date of issue, with individual maturities that may vary but will not exceed 397 days from the date of issue. There were $ 725 million of borrowings outstanding under the Commercial Paper Programs as of December 31, 2020 and September 30, 2021, which were included in “Accrued expenses and other” on our consolidated balance sheets and had a weighted-average effective interest rate, including issuance costs, of 0.11 % and 0.07 %, respectively. We use the net proceeds from the issuance of commercial paper for general corporate purposes. We also have a $ 7.0 billion unsecured revolving credit facility with a syndicate of lenders with a term that extends to June 2023 (the “Credit Agreement”). It may be extended for up to three additional one-year terms if approved by the lenders. The interest rate applicable to outstanding balances under the amended and restated Credit Agreement is LIBOR plus 0.50 %, with a commitment fee of 0.04 % on the undrawn portion of the credit facility. There were no borrowings outstanding under the Credit Agreement as of December 31, 2020 and September 30, 2021. We also utilize other short-term credit facilities for working capital purposes. These amounts are included in “Accrued expenses and other” on our consolidated balance sheets. In addition, we had $ 6.9 billion of unused letters of credit as of September 30, 2021. Note 6 — STOCKHOLDERS’ EQUITY Stock Repurchase Activity In February 2016, the Board of Directors authorized a program to repurchase up to $ 5.0 billion of our common stock, with no fixed expiration. There were no repurchases of common stock during the nine months ended September 30, 2020 or 2021. Stock Award Activity Common shares outstanding plus shares underlying outstanding stock awards totaled 518 million and 523 million as of December 31, 2020 and September 30, 2021. These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited. Stock-based compensation expense is as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Cost of sales $ 75 $ 126 $ 193 $ 361 Fulfillment 316 473 993 1,381 Technology and content 1,267 1,627 3,649 4,742 Marketing 446 657 1,233 1,804 General and administrative 184 297 578 789 Total stock-based compensation expense $ 2,288 $ 3,180 $ 6,646 $ 9,077 14 Table of Contents The following table summarizes our restricted stock unit activity for the nine months ended September 30, 2021 (in millions): Number of Units Weighted-Average Grant-Date Fair Value Outstanding as of December 31, 2020 15.2 $ 2,004 Units granted 5.7 3,334 Units vested ( 3.7 ) 1,624 Units forfeited ( 1.6 ) 2,232 Outstanding as of September 30, 2021 15.6 2,552 Scheduled vesting for outstanding restricted stock units as of September 30, 2021, is as follows (in millions): Three Months Ended December 31, Year Ended December 31, 2021 2022 2023 2024 2025 Thereafter Total Scheduled vesting — restricted stock units 1.8 5.5 5.2 2.1 0.7 0.3 15.6 As of September 30, 2021, there was $ 18.2 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis with approximately half of the compensation expected to be expensed in the next twelve months, and has a remaining weighted-average recognition period of 1.1 years. The estimated forfeiture rate as of December 31, 2020 and September 30, 2021 was 27 %. Changes in our estimates and assumptions relating to forfeitures may cause us to realize material changes in stock-based compensation expense in the future. Changes in Stockholders’ Equity The following table shows changes in stockholders’ equity (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Total beginning stockholders’ equity $ 73,728 $ 114,803 $ 62,060 $ 93,404 Beginning and ending common stock 5 5 5 5 Beginning and ending treasury stock ( 1,837 ) ( 1,837 ) ( 1,837 ) ( 1,837 ) Beginning additional paid-in capital 38,017 48,724 33,658 42,865 Stock-based compensation and issuance of employee benefit plan stock 2,290 3,155 6,649 9,014 Ending additional paid-in capital 40,307 51,879 40,307 51,879 Beginning accumulated other comprehensive income (loss) ( 1,455 ) ( 525 ) ( 986 ) ( 180 ) Other comprehensive income (loss) 426 ( 550 ) ( 43 ) ( 895 ) Ending accumulated other comprehensive income (loss) ( 1,029 ) ( 1,075 ) ( 1,029 ) ( 1,075 ) Beginning retained earnings 38,998 68,436 31,220 52,551 Net income 6,331 3,156 14,109 19,041 Ending retained earnings 45,329 71,592 45,329 71,592 Total ending stockholders’ equity $ 82,775 $ 120,564 $ 82,775 $ 120,564 Note 7 — INCOME TAXES Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. 15 Table of Contents Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, acquisitions, investments, developments in tax controversies, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. In addition, we record valuation allowances against deferred tax assets when there is uncertainty about our ability to generate future income in relevant jurisdictions, and the effects of the COVID-19 pandemic on our business make estimates of future income more challenging. Since Q2 2017, we have recorded a valuation allowance against our net deferred tax assets in Luxembourg. There is still significant uncertainty whether our income in Luxembourg is sustainable in the future and we will maintain the valuation allowance until sufficient positive evidence exists to support a release of the valuation allowance. For 2021, we estimate that our effective tax rate will be favorably affected by the impact of excess tax benefits from stock-based compensation and the U.S. federal research and development credit and adversely affected by state income taxes. Our income tax provisions for the nine months ended September 30, 2020 and 2021 were $ 2.3 billion and $ 4.2 billion, which included $ 1.5 billion and $ 1.7 billion of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation and audit-related developments. Cash paid for income taxes, net of refunds was $ 502 million and $ 750 million in Q3 2020 and Q3 2021, and $ 1.3 billion and $ 3.4 billion for the nine months ended September 30, 2020 and 2021. As of December 31, 2020 and September 30, 2021, tax contingencies were approximately $ 2.8 billion and $ 2.9 billion. Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies. The timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax controversies in one or more jurisdictions. These assessments or settlements could result in changes to our contingencies related to positions on prior years’ tax filings. We are under examination, or may be subject to examination, by the Internal Revenue Service for the calendar year 2013 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods. In October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid. On October 4, 2017, the European Commission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules on state aid. Based on that decision, the European Commission announced an estimated recovery amount of approximately € 250 million, plus interest, for the period May 2006 through June 2014, and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to recovery. Luxembourg computed an initial recovery amount, consistent with the European Commission’s decision, which we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals. In December 2017, Luxembourg appealed the European Commission’s decision. In May 2018, we appealed. On May 12, 2021, the European Union General Court annulled the European Commission’s state aid decision. In July 2021, the European Commission appealed the decision to the European Court of Justice. We will continue to defend ourselves vigorously in this matter. We are also subject to taxation in various states and other foreign jurisdictions including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities in respect of these particular jurisdictions primarily for 2009 and thereafter. Note 8 — SEGMENT INFORMATION We have organized our operations into three segments: North America, International, and AWS. We allocate to segment results the operating expenses “Fulfillment,” “Technology and content,” “Marketing,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. The majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. There are no internal revenue transactions between our reportable segments. These segments reflect the way our chief operating decision maker evaluates the Company’s business performance and manages its operations. 16 Table of Contents North America The North America segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused online and physical stores. This segment includes export sales from these online stores. International The International segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused online stores. This segment includes export sales from these internationally-focused online stores (including export sales from these online stores to customers in the U.S., Mexico, and Canada), but excludes export sales from our North America-focused online stores. AWS The AWS segment consists of amounts earned from global sales of compute, storage, database, and other services for start-ups, enterprises, government agencies, and academic institutions. Information on reportable segments and reconciliation to consolidated net income is as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 North America Net sales $ 59,373 $ 65,557 $ 160,936 $ 197,473 Operating expenses 57,121 64,677 155,232 189,996 Operating income $ 2,252 $ 880 $ 5,704 $ 7,477 International Net sales $ 25,171 $ 29,145 $ 66,945 $ 90,515 Operating expenses 24,764 30,056 66,590 89,812 Operating income (loss) $ 407 $ ( 911 ) $ 355 $ 703 AWS Net sales $ 11,601 $ 16,110 $ 32,628 $ 44,422 Operating expenses 8,066 11,227 22,661 31,183 Operating income $ 3,535 $ 4,883 $ 9,967 $ 13,239 Consolidated Net sales $ 96,145 $ 110,812 $ 260,509 $ 332,410 Operating expenses 89,951 105,960 244,483 310,991 Operating income 6,194 4,852 16,026 21,419 Total non-operating income (expense) 615 ( 537 ) 387 1,798 Provision for income taxes ( 569 ) ( 1,155 ) ( 2,298 ) ( 4,179 ) Equity-method investment activity, net of tax 91 ( 4 ) ( 6 ) 3 Net income $ 6,331 $ 3,156 $ 14,109 $ 19,041 17 Table of Contents Net sales by groups of similar products and services, which also have similar economic characteristics, is as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Net Sales: Online stores (1) $ 48,350 $ 49,942 $ 130,899 $ 156,000 Physical stores (2) 3,788 4,269 12,201 12,387 Third-party seller services (3) 20,436 24,252 53,121 73,046 Subscription services (4) 6,572 8,148 18,146 23,645 AWS 11,601 16,110 32,628 44,422 Other (5) 5,398 8,091 13,514 22,910 Consolidated $ 96,145 $ 110,812 $ 260,509 $ 332,410 ____________________________ (1) Includes product sales and digital media content where we record revenue gross. We leverage our retail infrastructure to offer a wide selection of consumable and durable goods that includes media products available in both a physical and digital format, such as books, videos, games, music, and software. These product sales include digital products sold on a transactional basis. Digital product subscriptions that provide unlimited viewing or usage rights are included in “Subscription services.” (2) Includes product sales where our customers physically select items in a store. Sales to customers who order goods online for delivery or pickup at our physical stores are included in “Online stores.” (3) Includes commissions and any related fulfillment and shipping fees, and other third-party seller services. (4) Includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS subscription services. (5) Primarily includes sales of advertising services, as well as sales related to our other service offerings. 18 Table of Contents