What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 84 added, 68 removed, 228 unchanged (40% of the section changed)

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Forward-looking statements reflect management’s current expectations and are inherently uncertain.

Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, inflation, labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, variability in demand, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity.

Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, inflation, regional labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, variability in demand, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity.

In addition, global economic conditions and additional or unforeseen effects from the COVID-19 pandemic amplify many of these risks.

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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, 2022, we would have recorded an additional cost of sales of approximately $390 million.

As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of June 30, 2022, we would have recorded an additional cost of sales of approximately $425 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

2021 2022 2021 2022 2021 2022

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Financing activities 15,643 4,626 12,167 6,616 6,246 740

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 $96.0 billion and $66.4 billion as of December 31, 2021 and March 31, 2022.

Amounts held in foreign currencies were $22.7 billion and $15.6 billion as of December 31, 2021 and March 31, 2022.

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 $96.0 billion and $60.7 billion as of December 31, 2021 and June 30, 2022.

Amounts held in foreign currencies were $22.7 billion and $12.4 billion as of December 31, 2021 and June 30, 2022.

Our foreign currency balances include British Pounds, Canadian Dollars, Euros, and Japanese Yen.

Cash provided by (used in) operating activities was $4.2 billion and $(2.8) billion for Q1 2021 and Q1 2022.

Cash provided by (used in) operating activities was $12.7 billion and $9.0 billion for Q2 2021 and Q2 2022, and $16.9 billion and $6.2 billion for the six months ended June 30, 2021 and 2022.

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 decrease in operating cash flow for the trailing twelve months ended March 31, 2022, compared to the comparable prior year period, was primarily due to changes in working capital, partially offset by changes in net income (loss), excluding non-cash expenses.

The decrease in operating cash flow for the trailing twelve months ended June 30, 2022, compared to the comparable prior year period, was primarily due to changes in working capital, as well as changes in net income (loss), excluding non-cash expenses.

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 $(8.7) billion and $906 million for Q1 2021 and Q1 2022, with the variability caused primarily by purchases, sales, and maturities of marketable securities.

Cash capital expenditures were $11.2 billion and $13.7 billion during Q1 2021 and Q1 2022, 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 $630 million and $6.3 billion during Q1 2021 and Q1 2022.

Cash provided by (used in) investing activities was $(22.1) billion and $(12.1) billion for Q2 2021 and Q2 2022, and $(30.7) billion and $(11.2) billion for the six months ended June 30, 2021 and 2022, with the variability caused primarily by purchases, sales, and maturities of marketable securities.

Cash capital expenditures were $13.0 billion and $14.1 billion during Q2 2021 and Q2 2022, and $24.2 billion and $27.8 billion for the six months ended June 30, 2021 and 2022, which primarily reflect investments in technology infrastructure (the majority of which is to support AWS business growth) and in additional capacity to support our fulfillment network.

We expect to continue these investments over time, with increased spending on technology infrastructure in 2022.

We made cash payments, net of acquired cash, related to acquisition and other investment activity of $320 million and $259 million during Q2 2021 and Q2 2022, and $950 million and $6.6 billion for the six months

ended June 30, 2021 and 2022.

We funded the acquisition of MGM Holdings Inc.

with cash on hand.

Cash provided by (used in) financing activities was $(3.5) billion and $2.0 billion for Q1 2021 and Q1 2022.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $2.0 billion and $13.7 billion for Q1 2021 and Q1 2022.

Cash outflows from financing activities resulted from repurchases of common stock,

payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $5.5 billion and $11.8 billion in Q1 2021 and Q1 2022.

Property and equipment acquired under finance leases was $2.1 billion and $166 million during Q1 2021 and Q1 2022.

We had no borrowings outstanding under the Credit Agreement, $10.8 billion of borrowings outstanding under the Commercial Paper Programs, and $803 million of borrowings outstanding under our Credit Facility as of March 31, 2022.

We expect to fund the acquisition of 1Life Healthcare, Inc.

(One Medical) with cash on hand.

Cash provided by (used in) financing activities was $15.6 billion and $4.6 billion for Q2 2021 and Q2 2022, and $12.2 billion and $6.6 billion for the six months ended June 30, 2021 and 2022.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $19.7 billion and $17.7 billion for Q2 2021 and Q2 2022, and $21.7 billion and $31.4 billion for the six months ended June 30, 2021 and 2022.

Cash outflows from financing activities resulted from repurchases of common stock, payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $4.0 billion and $13.1 billion in Q2 2021 and Q2 2022, and $9.6 billion and $24.8 billion for the six months ended June 30, 2021 and 2022.

Property and equipment acquired under finance leases was $1.6 billion and $61 million during Q2 2021 and Q2 2022, and $3.7 billion and $227 million for the six months ended June 30, 2021 and 2022.

We had no borrowings outstanding under the Credit Agreement, $8.2 billion of borrowings outstanding under the Commercial Paper Programs, and $935 million of borrowings outstanding under our Credit Facility as of June 30, 2022.

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

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tax purposes, which delays the deductibility of these expenses.

Cash taxes paid (net of refunds) were $801 million and $453 million for Q1 2021 and Q1 2022.

As of December 31, 2021 and March 31, 2022, restricted cash, cash equivalents, and marketable securities were $260 million and $209 million.

Cash taxes paid (net of refunds) were $1.8 billion and $3.1 billion for Q2 2021 and Q2 2022, and $2.6 billion and $3.6 billion for the six months ended June 30, 2021 and 2022.

As of December 31, 2021 and June 30, 2022, restricted cash, cash equivalents, and marketable securities were $260 million and $222 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.

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In addition, the COVID-19 pandemic and the related societal impacts, such as lockdowns, caused a significant increase in growth rates across our North America and International segments throughout much of 2020 and 2021, and we are seeing a return to pre-pandemic demand patterns as consumers’ mobility increases.

The factors described above contributed to a deceleration in our net sales growth rate and increases in our operating costs during Q1 2022, particularly across our North America and International segments, due to increased wage rates and incentives, increased transportation costs, and fulfillment network inefficiencies resulting from constrained labor markets and global supply chain constraints.

The factors described above contributed to a deceleration in our net sales growth rate and increases in our operating costs during Q2 2022, particularly across our North America and International segments, primarily due to a return to more normal, seasonal demand volumes in relation to our fulfillment network fixed costs as well as increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies resulting from regional labor market and global supply chain constraints.

We expect some or all of these factors to continue to impact our operations into Q3 2022.

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Three Months Ended

June 30, Six Months Ended

2021 2022 2021 2022

North America $ 67,550 $ 74,430 $ 131,916 $ 143,674

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Consolidated $ 113,080 $ 121,234 $ 221,598 $ 237,678

Year-over-year Percentage Growth:

Year-over-year Percentage Growth (Decline):

North America 22 % 10 % 30 % 9 %

International 36 (12) 47 (9)

AWS 37 33 35 35

Consolidated 27 7 35 7

Year-over-year Percentage Growth, excluding the effect of foreign exchange rates:

Year-over-year Percentage Growth (Decline), excluding the effect of foreign exchange rates:

North America 21 % 10 % 29 % 9 %

International 26 (1) 37 0

AWS 37 33 35 35

Consolidated 24 10 32 10

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International 27 22 28 24

AWS 13 16 13 16

Consolidated 100 % 100 % 100 % 100 %

Sales increased 7% in Q1 2022 compared to the comparable prior year period.

Changes in foreign currency exchange rates impacted net sales by $(1.8) billion for Q1 2022.

Sales increased 7% in Q2 2022, and 7% for the six months ended June 30, 2022 compared to the comparable prior year periods.

Changes in foreign currency exchange rates impacted net sales by $(3.6) billion for Q2 2022 and by $(5.4) billion for the six months ended June 30, 2022.

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

North America sales increased 8% in Q1 2022 compared to the comparable prior year period.

The sales growth reflects increased unit sales by third-party sellers and advertising sales.

Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our shipping offers, partially offset by fulfillment network inefficiencies and supply chain constraints.

International sales decreased 6% in Q1 2022 compared to the comparable prior year period, primarily due to the impact of foreign currency exchange rates, and also due to decreased unit sales, partially offset by increased subscription services and advertising sales.

Unit sales decreased in Q1 2022, compared to the higher levels we experienced in Q1 2021 due to widespread regional and national COVID-19 lockdowns in Q1 2021.

Q1 2022 sales were also impacted by fulfillment network inefficiencies and supply chain constraints.

Changes in foreign currency exchange rates impacted International net sales by $(1.8) billion for Q1 2022.

AWS sales increased 37% in Q1 2022 compared to the comparable prior year period.

North America sales increased 10% in Q2 2022, and 9% for the six months ended June 30, 2022 compared to the comparable prior year periods.

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

Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our shipping offers.

International sales decreased 12% in Q2 2022, and 9% for the six months ended June 30, 2022 compared to the comparable prior year periods, primarily due to the impact of foreign currency exchange rates, and also due to decreased unit sales, partially offset by increased subscription services and advertising sales.

Unit sales decreased compared to the higher levels we experienced in the comparable prior year periods due to widespread regional and national COVID-19 lockdowns in the 2021 periods.

Changes in foreign currency exchange rates impacted International net sales by $(3.5) billion for Q2 2022, and by $(5.3) billion for the six months ended June 30, 2022 .

AWS sales increased 33% in Q2 2022, and 35% for the six months ended June 30, 2022 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

2021 2022 2021 2022

Operating Income (Loss)

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Consolidated $ 7,702 $ 3,317 $ 16,567 $ 6,986

Operating income decreased from $8.9 billion in Q1 2021 to $3.7 billion in Q1 2022.

Operating income decreased from $7.7 billion in Q2 2021 to $3.3 billion in Q2 2022, and decreased from $16.6 billion for the six months ended June 30, 2021 to $7.0 billion for the six months ended June 30, 2022.

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

The North America operating loss in Q1 2022, as compared to the operating income in the comparable prior year period, is primarily due to increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, increased wage rates and incentives, increased transportation costs, and fulfillment network inefficiencies, and growth in certain operating expenses, partially offset by increased unit sales by third-party sellers and advertising sales.

Changes in foreign exchange rates positively impacted operating loss by $42 million for Q1 2022.

The International operating loss in Q1 2022, as compared to the operating income in the comparable prior year period, is primarily due to:

increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, increased wage rates and incentives, increased transportation costs, and fulfillment network inefficiencies;

The North America operating loss in Q2 2022 and for the six months ended June 30, 2022, as compared to the operating income in the comparable prior year periods, is primarily due to increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies, and growth in certain operating expenses, partially offset by increased unit sales, including sales by third-party sellers, and advertising sales.

Changes in foreign exchange rates positively impacted operating income (loss) by $61 million for Q2 2022, and by $103 million for the six months ended June 30, 2022.

The International operating loss in Q2 2022 and for the six months ended June 30, 2022, as compared to the operating income in the comparable prior year periods, is primarily due to:

increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies;

decreased unit sales;

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partially offset by increased advertising sales.

Changes in foreign exchange rates negatively impacted operating loss by $79 million for Q1 2022.

The increase in AWS operating income in absolute dollars in Q1 2022, compared to the comparable prior year period, is primarily due to increased customer usage and cost structure productivity, including a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment, partially offset by increased spending on technology infrastructure and payroll and related 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 positively impacted operating income by $163 million for Q1 2022.

Changes in foreign exchange rates negatively impacted operating income (loss) by $231 million for Q2 2022, and by $310 million for the six months ended June 30, 2022.

The increase in AWS operating income in absolute dollars in Q2 2022 and for the six months ended June 30, 2022, compared to the comparable prior year periods, is primarily due to increased customer usage and cost structure productivity, including a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment, partially offset by increased payroll and related expenses and spending on technology infrastructure, all of which were primarily driven by additional investments to support AWS business growth, and reduced prices for our customers.

Changes in foreign exchange rates positively impacted operating income by $335 million for Q2 2022, and by $498 million for the six months ended June 30, 2022.

Operating Expenses

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Three Months Ended

June 30, Six Months Ended

2021 2022 2021 2022

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 2022, compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales, increased investments in our fulfillment network, as well as increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies resulting from a constrained labor market and global supply chain constraints.

The increase in cost of sales in absolute dollars in Q2 2022, and for the six months ended June 30, 2022, compared to the comparable prior year periods, is primarily due to increased product and shipping costs resulting from increased sales, increased investments in our fulfillment network, as well as increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies resulting from regional labor market and global supply chain constraints.

Changes in foreign exchange rates reduced cost of sales by $2.5 billion for Q2 2022, and by $3.8 billion for the six months ended June 30, 2022.

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 $17.2 billion and $19.6 billion in Q1 2021 and Q1 2022.

Shipping costs, which include sortation and delivery centers and transportation costs, were $17.7 billion and $19.3 billion in Q2 2021 and Q2 2022, and $34.9 billion and $38.9 billion for the six months ended June 30, 2021 and 2022.

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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Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International fulfillment centers, physical stores, and customer service centers and payment processing costs.

While AWS payment processing

and related transaction costs are included in “Fulfillment,” AWS costs are primarily classified as “Technology and content.” Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third party sellers utilize Fulfillment by Amazon services, timing of fulfillment network and physical store expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our customer self-service features.

While AWS payment processing and related transaction costs are included in “Fulfillment,” AWS costs are primarily classified as “Technology and content.” Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third party sellers utilize Fulfillment by Amazon services, timing of fulfillment network and physical store expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our customer self-service features.

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 2022, compared to the comparable prior year period, is primarily due to variable costs corresponding with increased product and service sales volume and inventory levels, increased wage rates and incentives and fulfillment network inefficiencies resulting from a constrained labor market and global supply chain constraints, and increased investments in our fulfillment network.

The increase in fulfillment costs in absolute dollars in Q2 2022 and for the six months ended June 30, 2022, compared to the comparable prior year periods, is primarily due to increased investments in our fulfillment network and variable costs corresponding with increased product and service sales volume and inventory levels, increased wage rates and incentives and fulfillment network inefficiencies resulting from regional labor market and global supply chain constraints.

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 2022, compared to the comparable prior year period, is primarily due to an increase in spending on technology infrastructure, partially offset by a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment, 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 2022 and for the six months ended June 30, 2022, 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, partially offset by a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment.

See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2021 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 sales and marketing costs in absolute dollars in Q1 2022, compared to the comparable prior year period, is primarily due to higher marketing spend and increased payroll and related expenses for personnel engaged in marketing and selling activities.

The increase in sales and marketing costs in absolute dollars in Q2 2022 and for the six months ended June 30, 2022, compared to the comparable prior year periods, is primarily due to increased payroll and related expenses for personnel engaged in marketing and selling activities and higher marketing spend.

While costs associated with Amazon Prime membership benefits and other shipping offers are not included in sales and 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 2022, compared to the comparable prior year period, is primarily due to increases in payroll and related expenses and professional fees.

The increase in general and administrative costs in absolute dollars in Q2 2022 and for the six months ended June 30, 2022, compared to the comparable prior year periods, is primarily due to increases in payroll and related expenses and professional fees.

Other Operating Expense (Income), Net

Other operating expense (income), net was $38 million and $249 million for Q1 2021 and Q1 2022, and was primarily related to asset impairments for physical store closures in Q1 2022 and the amortization of intangible assets.

Other operating expense (income), net was $11 million and $90 million for Q2 2021 and Q2 2022, and $49 million and $339 million for the six months ended June 30, 2021 and 2022, and was primarily related to impairments of property and equipment and operating leases in 2022 and the amortization of intangible assets.

Interest Income and Expense

Our interest income was $105 million and $108 million during Q1 2021 and Q1 2022.

Our interest income was $106 million and $159 million during Q2 2021 and Q2 2022, and $211 million and $267 million for the six months ended June 30, 2021 and 2022.

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 $399 million and $472 million during Q1 2021 and Q1 2022, and was primarily related to debt and finance leases.

Interest expense was $435 million and $584 million during Q2 2021 and Q2 2022, and $834 million and $1.1 billion for the six months ended June 30, 2021 and 2022, and was primarily related to debt and finance leases.

Other Income (Expense), Net

Other income (expense), net was $1.7 billion and $(8.6) billion during Q1 2021 and Q1 2022.

Other income (expense), net was $1.3 billion and $(5.5) billion during Q2 2021 and Q2 2022, and $3.0 billion and $(14.1) billion for the six months ended June 30, 2021 and 2022.

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

Included in other income (expense), net in Q1 2022 is a marketable equity securities valuation loss of $7.6 billion from our equity securities of Rivian Automotive, Inc.

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

Our income tax benefit for the three months ended March 31, 2022 was $1.4 billion, which included $2.1 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equity investment in Rivian.

Included in other income (expense), net is a marketable equity securities valuation loss of $3.9 billion in Q2 2022, and $11.5 billion for the six months ended June 30, 2022, from our equity investment in Rivian.

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

Our income tax benefit for the six months ended June 30, 2022 was $2.1 billion, which included $3.2 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equity investment in Rivian.

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, 2021 and 2022 (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, 2021 and 2022 (in millions):

Twelve Months Ended

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Free Cash Flow Less Equipment Finance Leases and Principal Repayments of All Other Finance Leases and Financing Obligations

Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations is free cash flow reduced by equipment acquired under finance leases, which is included in “Property and equipment acquired under finance leases,” principal repayments of all other finance lease liabilities, which is included in “Principal repayments of finance leases,” and “Principal repayments of financing obligations.” All other finance lease liabilities and financing obligations consists of property.

Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations is free cash flow reduced by equipment acquired under finance leases, which is included in “Property and equipment acquired under finance leases, net of remeasurements and modifications,” principal repayments of all other finance lease liabilities, which is included in “Principal repayments of finance leases,” and “Principal repayments of financing obligations.” All other finance lease liabilities and financing obligations consists of property.

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, 2021 and 2022 (in millions):

Twelve Months Ended

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___________________

(1) For the twelve months ended March 31, 2021 and 2022, this amount relates to equipment included in “Property and equipment acquired under finance leases” of $11,489 million and $5,160 million.

(2) For the twelve months ended March 31, 2021 and 2022, this amount relates to property included in “Principal repayments of finance leases” of $11,448 million and $10,534 million.

(1) For the twelve months ended June 30, 2021 and 2022, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $9,976 million and $3,579 million.

(2) For the twelve months ended June 30, 2021 and 2022, this amount relates to property included in “Principal repayments of finance leases” of $11,435 million and $9,789 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,

2021 2022 2021 2022

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 $ 113,080 $ (2,471) $ 110,609 $ 121,234 $ 3,599 $ 124,833 $ 221,598 $ (4,544) $ 217,054 $ 237,678 $ 5,440 $ 243,118

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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 28, 2022, 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 28, 2022, and are subject to substantial uncertainty.

Our results are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, as well as those outlined in Item 1A of Part II, “Risk Factors.” This guidance reflects our estimates as of April 28, 2022 regarding the impacts of the COVID-19 pandemic on our operations as well as the effect of other factors discussed above.

Second Quarter 2022 Guidance

• Net sales are expected to be between $116.0 billion and $121.0 billion, or to grow between 3% and 7% compared with second quarter 2021.

We provided guidance on July 28, 2022, 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 28, 2022, and are subject to substantial uncertainty.

Our results are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, regional labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, as well as those outlined in Item 1A of Part II, “Risk Factors.” This guidance reflects our estimates as of July 28, 2022 regarding the impacts of the COVID-19 pandemic on our operations as well as the effect of other factors discussed above.

Third Quarter 2022 Guidance

• Net sales are expected to be between $125.0 billion and $130.0 billion, or to grow between 13% and 17% compared with third quarter 2021.

This guidance anticipates an unfavorable impact of approximately 390 basis points from foreign exchange rates.

• Operating income (loss) is expected to be between $(1.0) billion and $3.0 billion, compared with $7.7 billion in second quarter 2021.

• This guidance assumes that Prime Day occurs in third quarter 2022.

• Operating income is expected to be between $0 and $3.5 billion, compared with $4.9 billion in third quarter 2021.

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

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What changed 10-Q

Item 2. Management’s Discussion and Analysis