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, 2021 2022 2021 2022 2021 2022 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 40,667 $ 37,700 $ 42,377 $ 36,477 $ 30,202 $ 30,177 OPERATING ACTIVITIES: Net income (loss) 3,156 2,872 19,041 ( 3,000 ) 26,263 11,323 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other 8,948 10,204 24,494 28,776 32,112 38,578 Stock-based compensation 3,180 5,556 9,077 14,015 11,639 17,695 Other operating expense (income), net 24 123 72 460 ( 415 ) 525 Other expense (income), net 340 ( 1,272 ) ( 2,374 ) 13,521 ( 3,701 ) 1,589 Deferred income taxes 909 ( 825 ) 3,313 ( 4,781 ) 1,677 ( 8,404 ) Changes in operating assets and liabilities: Inventories ( 7,059 ) 732 ( 7,572 ) ( 5,772 ) ( 7,242 ) ( 7,687 ) Accounts receivable, net and other ( 4,890 ) ( 4,794 ) ( 11,607 ) ( 13,109 ) ( 16,168 ) ( 19,665 ) Accounts payable 3,832 ( 1,226 ) ( 4,387 ) ( 6,907 ) 8,863 1,082 Accrued expenses and other ( 1,465 ) ( 20 ) ( 7,210 ) ( 7,335 ) ( 84 ) 1,998 Unearned revenue 338 54 1,394 1,711 1,727 2,631 Net cash provided by (used in) operating activities 7,313 11,404 24,241 17,579 54,671 39,665 INVESTING ACTIVITIES: Purchases of property and equipment ( 15,748 ) ( 16,378 ) ( 42,118 ) ( 47,053 ) ( 56,941 ) ( 65,988 ) Proceeds from property and equipment sales and incentives 997 1,337 3,192 4,172 4,822 6,637 Acquisitions, net of cash acquired, and other ( 654 ) ( 885 ) ( 1,604 ) ( 7,485 ) ( 1,985 ) ( 7,866 ) Sales and maturities of marketable securities 15,808 557 46,847 25,918 64,185 38,455 Purchases of marketable securities ( 15,231 ) ( 239 ) ( 51,891 ) ( 2,332 ) ( 72,692 ) ( 10,598 ) Net cash provided by (used in) investing activities ( 14,828 ) ( 15,608 ) ( 45,574 ) ( 26,780 ) ( 62,611 ) ( 39,360 ) FINANCING ACTIVITIES: Common stock repurchased — — — ( 6,000 ) — ( 6,000 ) Proceeds from short-term debt, and other 2,187 12,338 5,289 30,946 7,724 33,613 Repayments of short-term debt, and other ( 1,917 ) ( 7,916 ) ( 5,094 ) ( 21,757 ) ( 7,385 ) ( 24,416 ) Proceeds from long-term debt 176 107 18,803 12,931 19,334 13,131 Repayments of long-term debt ( 509 ) — ( 589 ) ( 1 ) ( 703 ) ( 1,002 ) Principal repayments of finance leases ( 2,693 ) ( 1,465 ) ( 8,903 ) ( 6,301 ) ( 11,271 ) ( 8,561 ) Principal repayments of financing obligations ( 20 ) ( 48 ) ( 115 ) ( 186 ) ( 124 ) ( 233 ) Net cash provided by (used in) financing activities ( 2,776 ) 3,016 9,391 9,632 7,575 6,532 Foreign currency effect on cash, cash equivalents, and restricted cash ( 199 ) ( 1,334 ) ( 258 ) ( 1,730 ) 340 ( 1,836 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 10,490 ) ( 2,522 ) ( 12,200 ) ( 1,299 ) ( 25 ) 5,001 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD $ 30,177 $ 35,178 $ 30,177 $ 35,178 $ 30,177 $ 35,178 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, 2021 2022 2021 2022 Net product sales $ 54,876 $ 59,340 $ 170,371 $ 172,370 Net service sales 55,936 67,761 162,039 192,409 Total net sales 110,812 127,101 332,410 364,779 Operating expenses: Cost of sales 62,930 70,268 189,509 203,191 Fulfillment 18,498 20,583 52,666 61,196 Technology and content 14,380 19,485 40,739 52,399 Sales and marketing 8,010 11,014 21,741 29,420 General and administrative 2,153 3,061 6,298 8,558 Other operating expense (income), net ( 11 ) 165 38 504 Total operating expenses 105,960 124,576 310,991 355,268 Operating income 4,852 2,525 21,419 9,511 Interest income 119 277 330 544 Interest expense ( 493 ) ( 617 ) ( 1,327 ) ( 1,673 ) Other income (expense), net ( 163 ) 759 2,795 ( 13,356 ) Total non-operating income (expense) ( 537 ) 419 1,798 ( 14,485 ) Income (loss) before income taxes 4,315 2,944 23,217 ( 4,974 ) Benefit (provision) for income taxes ( 1,155 ) ( 69 ) ( 4,179 ) 1,990 Equity-method investment activity, net of tax ( 4 ) ( 3 ) 3 ( 16 ) Net income (loss) $ 3,156 $ 2,872 $ 19,041 $ ( 3,000 ) Basic earnings per share $ 0.31 $ 0.28 $ 1.88 $ ( 0.29 ) Diluted earnings per share $ 0.31 $ 0.28 $ 1.85 $ ( 0.29 ) Weighted-average shares used in computation of earnings per share: Basic 10,132 10,191 10,103 10,178 Diluted 10,309 10,331 10,287 10,178 See accompanying notes to consolidated financial statements. 4 Table of Contents AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2022 2021 2022 Net income (loss) $ 3,156 $ 2,872 $ 19,041 $ ( 3,000 ) Other comprehensive income (loss): Foreign currency translation adjustments, net of tax of $ 39 , $ 76 , $ 35 , and $ 136 ( 537 ) ( 2,142 ) ( 752 ) ( 4,661 ) Net change in unrealized gains (losses) on available-for-sale debt securities: Unrealized gains (losses), net of tax of $ 3 , $( 4 ), $ 31 , and $( 3 ) ( 5 ) ( 195 ) ( 109 ) ( 1,095 ) Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $ 5 , $ 0 , $ 13 , and $ 0 ( 8 ) 4 ( 34 ) 17 Net unrealized gains (losses) on available-for-sale debt securities ( 13 ) ( 191 ) ( 143 ) ( 1,078 ) Total other comprehensive income (loss) ( 550 ) ( 2,333 ) ( 895 ) ( 5,739 ) Comprehensive income (loss) $ 2,606 $ 539 $ 18,146 $ ( 8,739 ) 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, 2021 September 30, 2022 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 36,220 $ 34,947 Marketable securities 59,829 23,715 Inventories 32,640 36,647 Accounts receivable, net and other 32,891 36,154 Total current assets 161,580 131,463 Property and equipment, net 160,281 177,195 Operating leases 56,082 62,033 Goodwill 15,371 20,168 Other assets 27,235 37,503 Total assets $ 420,549 $ 428,362 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 78,664 $ 67,760 Accrued expenses and other 51,775 59,974 Unearned revenue 11,827 12,629 Total current liabilities 142,266 140,363 Long-term lease liabilities 67,651 69,332 Long-term debt 48,744 58,919 Other long-term liabilities 23,643 22,259 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock ($ 0.01 par value; 500 shares authorized; no shares issued or outstanding) — — Common stock ($ 0.01 par value; 100,000 shares authorized; 10,644 and 10,714 shares issued; 10,175 and 10,198 shares outstanding) 106 107 Treasury stock, at cost ( 1,837 ) ( 7,837 ) Additional paid-in capital 55,437 69,419 Accumulated other comprehensive income (loss) ( 1,376 ) ( 7,115 ) Retained earnings 85,915 82,915 Total stockholders’ equity 138,245 137,489 Total liabilities and stockholders’ equity $ 420,549 $ 428,362 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 2022 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 2021 Annual Report on Form 10-K. Common Stock Split On May 27, 2022, we effected a 20 -for-1 stock split of our common stock and proportionately increased the number of authorized shares of common stock. All share, restricted stock unit (“RSU”), and per share or per RSU information throughout this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $ 0.01 per share. Accordingly, an amount equal to the par value of the increased shares resulting from the stock split was reclassified from “Additional paid-in capital” to “Common stock.” 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, impairment of property and equipment and operating leases, and valuation and impairment of investments. Actual results could differ materially from these estimates. We review the useful lives of equipment on an ongoing basis, and effective January 1, 2022 we changed our estimate of the useful lives for our servers from four to five years and for our networking equipment from five to six years . The longer useful lives are due to continuous improvements in our hardware, software, and data center designs. The effect of this change in estimate for Q3 2022, based on servers and networking equipment that were included in “ Property and equipment, net ” as of June 30, 2022 and those acquired during the three months ended September 30, 2022, was a reduction in depreciation and amortization expense of $ 882 million and a benefit to net income of $ 665 million, or $ 0.07 per basic share and $ 0.06 per diluted share. The effect of this change in estimate for the nine months ended September 30, 2022, based on servers and networking equipment that were included in “ Property and equipment, net ” as of December 31, 2021 and those acquired during the nine months ended September 30, 2022, was a reduction in depreciation and amortization expense of $ 2.8 billion and a benefit to net loss of $ 2.2 billion, or $ 0.21 per basic share and $ 0.21 per diluted share. 7 Table of Contents 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, 2021 2022 2021 2022 2021 2022 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on debt $ 276 $ 304 $ 731 $ 932 $ 933 $ 1,299 Cash paid for operating leases 1,812 1,813 5,029 6,268 6,230 7,961 Cash paid for interest on finance leases 121 88 407 290 535 404 Cash paid for interest on financing obligations 48 39 116 152 147 189 Cash paid for income taxes, net of refunds 750 742 3,354 4,340 3,774 4,674 Assets acquired under operating leases 10,447 6,755 19,561 14,031 23,908 19,839 Property and equipment acquired under finance leases, net of remeasurements and modifications 1,744 131 5,453 358 8,149 1,966 Property and equipment recognized during the construction period of build-to-suit lease arrangements 1,797 526 3,877 2,877 4,916 4,847 Property and equipment derecognized after the construction period of build-to-suit lease arrangements, with the associated leases recognized as operating 76 2,195 174 3,307 174 3,363 Earnings Per Share Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect. The following table shows the calculation of diluted shares (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2021 2022 2021 2022 Shares used in computation of basic earnings per share 10,132 10,191 10,103 10,178 Total dilutive effect of outstanding stock awards 177 140 184 — Shares used in computation of diluted earnings per share 10,309 10,331 10,287 10,178 Other Income (Expense), Net Other income (expense), net, is as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2021 2022 2021 2022 Marketable equity securities valuation gains (losses) $ ( 129 ) $ 1,039 $ ( 48 ) $ ( 11,528 ) Equity warrant valuation gains (losses) ( 50 ) ( 170 ) 1,194 ( 1,606 ) Upward adjustments relating to equity investments in private companies 155 11 1,661 76 Foreign currency gains (losses) ( 107 ) ( 103 ) ( 28 ) ( 206 ) Other, net ( 32 ) ( 18 ) 16 ( 92 ) Total other income (expense), net ( 163 ) 759 2,795 ( 13,356 ) Included in other income (expense), net is a marketable equity securities valuation gain (loss) of $ 1.1 billion in Q3 2022, and $( 10.4 ) billion for the nine months ended September 30, 2022, from our equity investment in Rivian Automotive, Inc. (“Rivian”). Our investment in Rivian’s preferred stock was accounted for at cost, with adjustments for observable changes in prices or impairments, prior to Rivian’s initial public offering in November 2021, which resulted in the conversion of our preferred stock to Class A common stock. As of September 30, 2022, we held 158 million shares of Rivian’s Class A common stock, representing an approximate 17 % ownership interest, and an approximate 16 % voting interest. We determined that we have the ability to exercise significant influence over Rivian through our equity investment, our commercial arrangement for the purchase of electric vehicles, and one of our employees serving on Rivian’s board of directors. We elected the fair value 8 Table of Contents option to account for our equity investment in Rivian, which is included in “Marketable securities” on our consolidated balance sheets. Required summarized financial information of Rivian as disclosed in its most recent SEC filings is as follows (in millions): Six Months Ended June 30, 2021 2022 Revenues $ — $ 459 Gross profit — ( 1,206 ) Loss from operations ( 990 ) ( 3,287 ) Net loss ( 994 ) ( 3,305 ) 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 $ 2.6 billion and $ 2.3 billion as of December 31, 2021 and September 30, 2022. 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, 2021 and September 30, 2022, customer receivables, net, were $ 20.2 billion and $ 22.8 billion, vendor receivables, net, were $ 5.3 billion and $ 4.9 billion, and seller receivables, net, were $ 1.0 billion and $ 1.4 billion. 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 $ 1.3 billion as of December 31, 2021 and September 30, 2022. Digital Video and Music Content The total capitalized costs of video, which is primarily released content, and music as of December 31, 2021 and September 30, 2022 were $ 10.7 billion and $ 16.3 billion. Total video and music expense was $ 3.3 billion and $ 4.2 billion in Q3 2021 and Q3 2022, and $ 9.4 billion and $ 11.4 billion for the nine months ended September 30, 2021 and 2022. 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, 2021 was $ 14.0 billion, of which $ 10.1 billion was recognized as revenue during the nine months ended September 30, 2022. Included in “Other long-term liabilities” on our consolidated balance sheets was $ 2.2 billion and $ 2.7 billion of unearned revenue as of December 31, 2021 and September 30, 2022. 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 $ 104.3 billion as of September 30, 2022. The weighted-average remaining life of our long-term contracts is 3.8 years. However, the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term. Acquisition Activity On March 17, 2022, we acquired MGM Holdings Inc. (“MGM”), for cash consideration of approximately $ 6.1 billion, net of cash acquired, to provide more digital media content options for customers. We also assumed $ 2.5 billion of debt, which we repaid immediately after closing. The acquired assets primarily consist of $ 3.4 billion of video content and $ 4.9 billion of goodwill, the majority of which is allocated to our North America segment. Pro forma results of operations have not been presented because the effects of the MGM acquisition were not material to our consolidated results of operations. Acquisition-related costs were expensed as incurred and were not significant. 9 Table of Contents Note 2 — FINANCIAL INSTRUMENTS Cash, Cash Equivalents, Restricted Cash, and Marketable Securities As of December 31, 2021 and September 30, 2022, 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, 2021 and September 30, 2022. 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, 2021 September 30, 2022 Total Estimated Fair Value Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated Fair Value Cash $ 10,942 $ 10,720 $ — $ — $ 10,720 Level 1 securities: Money market funds 20,312 16,697 — — 16,697 Equity securities (1)(3) 1,646 5,988 Level 2 securities: Foreign government and agency securities 181 141 — ( 2 ) 139 U.S. government and agency securities 4,300 2,301 — ( 169 ) 2,132 Corporate debt securities 35,764 20,229 — ( 799 ) 19,430 Asset-backed securities 6,738 3,578 — ( 191 ) 3,387 Other fixed income securities 686 403 — ( 22 ) 381 Equity securities (1)(3) 15,740 19 $ 96,309 $ 54,069 $ — $ ( 1,183 ) $ 58,893 Less: Restricted cash, cash equivalents, and marketable securities (2) ( 260 ) ( 231 ) Total cash, cash equivalents, and marketable securities $ 96,049 $ 58,662 ___________________ (1) The related unrealized gain (loss) recorded in “Other income (expense), net” was $( 116 ) million and $ 1.0 billion in Q3 2021 and Q3 2022, and $ 6 million and $( 11.3 ) billion for the nine months ended September 30, 2021 and 2022. (2) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable fixed income 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 fixed income 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.” (3) Our equity investment in Rivian had a fair value of $ 15.6 billion and $ 5.2 billion as of December 31, 2021 and September 30, 2022, respectively. The investment was subject to regulatory sales restrictions resulting in a discount for lack of marketability of approximately $ 800 million as of December 31, 2021, which expired in Q1 2022. 10 Table of Contents The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of September 30, 2022 (in millions): Amortized Cost Estimated Fair Value Due within one year $ 26,797 $ 26,738 Due after one year through five years 13,757 12,807 Due after five years through ten years 772 728 Due after ten years 2,023 1,893 Total $ 43,349 $ 42,166 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, 2021 and September 30, 2022, these warrants had a fair value of $ 3.4 billion and $ 2.5 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, 2021 and September 30, 2022, equity investments not accounted for under the equity-method and without readily determinable fair values had a carrying value of $ 603 million and $ 831 million, 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, 2021 September 30, 2022 Cash and cash equivalents $ 36,220 $ 34,947 Restricted cash included in accounts receivable, net and other 242 224 Restricted cash included in other assets 15 7 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 36,477 $ 35,178 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 $ 72.2 billion and $ 66.6 billion as of December 31, 2021 and September 30, 2022. Accumulated amortization associated with finance leases was $ 43.4 billion as of December 31, 2021 and September 30, 2022. 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, 2021 2022 2021 2022 Operating lease cost $ 1,911 $ 2,236 $ 5,129 $ 6,472 Finance lease cost: Amortization of lease assets 2,497 1,496 7,442 4,586 Interest on lease liabilities 114 85 365 280 Finance lease cost 2,611 1,581 7,807 4,866 Variable lease cost 372 462 1,135 1,402 Total lease cost $ 4,894 $ 4,279 $ 14,071 $ 12,740 11 Table of Contents Other information about lease amounts recognized in our consolidated financial statements is as follows: December 31, 2021 September 30, 2022 Weighted-average remaining lease term – operating leases 11.3 years 11.4 years Weighted-average remaining lease term – finance leases 8.1 years 9.8 years Weighted-average discount rate – operating leases 2.2 % 2.6 % Weighted-average discount rate – finance leases 2.0 % 2.3 % Our lease liabilities were as follows (in millions): December 31, 2021 Operating Leases Finance Leases Total Gross lease liabilities $ 66,269 $ 25,866 $ 92,135 Less: imputed interest ( 7,939 ) ( 2,113 ) ( 10,052 ) Present value of lease liabilities 58,330 23,753 82,083 Less: current portion of lease liabilities ( 6,349 ) ( 8,083 ) ( 14,432 ) Total long-term lease liabilities $ 51,981 $ 15,670 $ 67,651 September 30, 2022 Operating Leases Finance Leases Total Gross lease liabilities $ 75,495 $ 18,838 $ 94,333 Less: imputed interest ( 10,712 ) ( 2,207 ) ( 12,919 ) Present value of lease liabilities 64,783 16,631 81,414 Less: current portion of lease liabilities ( 7,046 ) ( 5,036 ) ( 12,082 ) Total long-term lease liabilities $ 57,737 $ 11,595 $ 69,332 12 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, 2022 (in millions): Three Months Ended December 31, Year Ended December 31, 2022 2023 2024 2025 2026 Thereafter Total Long-term debt principal and interest $ 1,886 $ 4,789 $ 8,993 $ 5,995 $ 4,563 $ 67,529 $ 93,755 Operating lease liabilities 2,664 8,380 7,918 7,327 6,747 42,459 75,495 Finance lease liabilities, including interest 1,616 4,523 2,137 1,345 1,188 8,029 18,838 Financing obligations, including interest (1) 115 462 462 456 463 7,177 9,135 Leases not yet commenced 213 1,562 2,158 2,126 2,153 19,497 27,709 Unconditional purchase obligations (2) 1,721 7,102 6,296 4,984 4,335 9,405 33,843 Other commitments (3)(4) 1,191 2,485 1,586 1,006 1,063 9,716 17,047 Total commitments $ 9,406 $ 29,303 $ 29,550 $ 23,239 $ 20,512 $ 163,812 $ 275,822 ___________________ (1) Includes non-cancellable financing obligations for fulfillment, sortation, and data center facilities. Excluding interest, current financing obligations of $ 196 million and $ 254 million are recorded within “Accrued expenses and other” and $ 6.2 billion and $ 6.7 billion are recorded within “Other long-term liabilities” as of December 31, 2021 and September 30, 2022. The weighted-average remaining term of the financing obligations was 18.8 years and 18.2 years and the weighted-average imputed interest rate was 3.2 % as of December 31, 2021 and September 30, 2022. (2) Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content that are not reflected on the consolidated balance sheets and certain products offered in our Whole Foods Market stores. 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 asset retirement obligations, the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that are under construction, and liabilities associated with digital media content agreements with initial terms greater than one year. (4) Excludes approximately $ 3.4 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, we are paying the previously disclosed € 1.13 billion fine imposed by the Italian Competition Authority in December 2021, which we will seek to recover pending conclusion of all appeals. In July 2022, we entered into an agreement to acquire 1Life Healthcare, Inc. (One Medical) for approximately $ 3.9 billion, including its debt, subject to customary closing conditions. In August 2022, we entered into an agreement to acquire iRobot Corporation for approximately $ 1.7 billion, including its debt, subject to customary closing conditions. We expect to fund these acquisitions with cash on hand. Other Contingencies We are disputing claims and denials of refunds or credits related to various non-income taxes (such as sales, value added, consumption, service, and similar taxes), including in jurisdictions in which we already collect and remit these taxes. These non-income tax controversies typically relate to (i) the taxability of products and services, including cross-border intercompany transactions, (ii) collection and withholding on transactions with third parties, and (iii) the adequacy of compliance with reporting obligations, including evolving documentation requirements. Due to the inherent complexity and uncertainty of these matters and the judicial and regulatory processes in certain jurisdictions, the final outcome of any such controversies may be materially different from our expectations. 13 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 2021 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 Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022, as supplemented by the following: Beginning in March 2020, with Frame-Wilson v. Amazon.com, Inc. filed in the United States District Court for the Western District of Washington, private litigants have filed a number of cases in the U.S. and Canada alleging, among other things, price fixing arrangements between Amazon.com, Inc. and vendors and third-party sellers in Amazon’s stores, monopolization and attempted monopolization, and consumer protection and unjust enrichment claims. Attorneys General for the District of Columbia and California brought similar suits in May 2021 and September 2022 in the Superior Court of the District of Columbia and the California Superior Court for the County of San Francisco, respectively. Some of the private cases include allegations of several distinct purported classes, including consumers who purchased a product through Amazon’s stores and consumers who purchased a product offered by Amazon through another e-commerce retailer. The complaints seek billions of dollars of alleged actual damages, treble damages, punitive damages, injunctive relief, civil penalties, attorneys’ fees, and costs. In March 2022, the court in the Frame-Wilson case granted Amazon’s motion to dismiss claims alleging that Amazon’s pricing policies are inherently illegal under federal law and claims alleging competition and consumer protection violations under state law, and denied Amazon’s motion to dismiss claims alleging that Amazon’s pricing policies are an unlawful restraint of trade under federal law. In the same month, the DC Superior Court dismissed the DC Attorney General’s lawsuit in its entirety; the dismissal is subject to appeal. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters. In October 2020, BroadbandiTV, Inc. filed a complaint against Amazon.com, Inc., Amazon.com Services LLC, and Amazon Web Services, Inc. in the United States District Court for the Western District of Texas. The complaint alleges, among other things, that certain Amazon Prime Video features and services infringe U.S. Patent Nos. 9,648,388, 10,546,750, and 10,536,751, each entitled “Video-On-Demand Content Delivery System For Providing Video-On-Demand Services To TV Services Subscribers”; 10,028,026, entitled “System For Addressing On-Demand TV Program Content On TV Services Platform Of A Digital TV Services Provider”; and 9,973,825, entitled “Dynamic Adjustment Of Electronic Program Guide Displays Based On Viewer Preferences For Minimizing Navigation In VOD Program Selection.” The complaint seeks an unspecified amount of damages. In April 2022, BroadbandiTV alleged in its damages report that, in the event of a finding of liability, Amazon.com, Inc., Amazon.com Services LLC, and Amazon Web Services, Inc. could be subject to $ 166 -$ 986 million in damages. In September 2022, the court granted summary judgment, holding that the patents are invalid. This decision is subject to appeal. We dispute the allegations of wrongdoing and will continue to defend ourselves vigorously in this matter. In January 2022, VideoLabs, Inc. and VL Collective IP LLC filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. in the United States District Court for the Western District of Texas. The complaint alleges, among other things, that Amazon Prime Video, Amazon Glow, Amazon Echo Show, Fire TV, Fire TV Cube, Fire TV Stick, Fire Tablets, AWS Elemental MediaConvert, AWS Elemental Live, AWS Elemental Server, AWS Elemental MediaPackage, AWS Elemental MediaLive, and Amazon Elastic Transcoder infringe U.S. Patent Nos. 7,769,238 and 8,139,878; both entitled “Picture Coding Method and Picture Decoding Method”, and 7,970,059, entitled “Variable Length Coding Method and Variable Length Decoding Method”; that Amazon Prime Video, AWS Elemental MediaConvert, AWS Elemental Live, AWS Elemental Server, AWS Elemental MediaPackage, AWS Elemental MediaLive, Amazon Elastic Transcoder, and Amazon Kinesis Video Streams infringe U.S. Patent No. 8,605,794, entitled “Method for Synchronizing Content-Dependent Data Segments of Files”; that Amazon Echo Show, Amazon Echo Spot, Amazon Connect, Amazon Chime, and Amazon Kinesis Video Streams infringe U.S. Patent No. 7,266,682, entitled “Method and System for Transmitting Data from a Transmitter to a Receiver and Transmitter and Receiver Therefore”; that AWS Auto Scaling and Amazon EC2 Auto Scaling infringe U.S. Patent No. 6,880,156, entitled “Demand Responsive Method and Apparatus to Automatically Activate Spare Servers”; and that Amazon Prime Video infringes U.S. Patent No. 7,440,559, entitled “System and Associated Terminal, Method and Computer Program Product for Controlling the Flow of Content.” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief. In October 2022, the case was transferred to the United States District Court for the Western District of Washington. We dispute the allegations of wrongdoing 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 14 Table of Contents 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, 2022, we had $ 62.5 billion of unsecured senior notes outstanding (the “Notes”), including $ 12.8 billion issued in April 2022 for general corporate purposes, and $ 1.0 billion of borrowings under our credit facility. Our total long-term debt obligations are as follows (in millions): Maturities (1) Stated Interest Rates Effective Interest Rates December 31, 2021 September 30, 2022 2012 Notes issuance of $ 3.0 billion 2022 2.50 % 2.66 % 1,250 1,250 2014 Notes issuance of $ 6.0 billion 2024 - 2044 3.80 % - 4.95 % 3.90 % - 5.12 % 4,000 4,000 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 18,500 2022 Notes Issuance of $ 12.8 billion 2024 - 2062 2.73 % - 4.10 % 2.83 % - 4.15 % — 12,750 Credit Facility 803 1,041 Total face value of long-term debt 50,553 63,541 Unamortized discount and issuance costs, net ( 318 ) ( 375 ) Less: current portion of long-term debt ( 1,491 ) ( 4,247 ) Long-term debt $ 48,744 $ 58,919 ___________________ (1) The weighted-average remaining lives of the 2012, 2014, 2017, 2020, 2021, and 2022 Notes were 0.2 , 12.8 , 14.5 , 17.0 , 13.6 , and 13.5 years as of September 30, 2022. The combined weighted-average remaining life of the Notes was 14.0 years as of September 30, 2022. 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 $ 53.3 billion and $ 53.7 billion as of December 31, 2021 and September 30, 2022, which is based on quoted prices for our debt as of those dates. We have a $ 1.5 billion secured revolving credit facility with a lender that is secured by certain seller receivables, which we increased from $ 1.0 billion to $ 1.5 billion in August 2022 and we may from time to time increase in the future subject to lender approval (the “Credit Facility”). The Credit Facility is available until August 2025, bears interest based on the daily Secured Overnight Financing Rate plus 1.25 %, and has a commitment fee of up to 0.45 % on the undrawn portion. There were $ 803 million and $ 1.0 billion of borrowings outstanding under the Credit Facility as of December 31, 2021 and September 30, 2022, which had a weighted-average interest rate of 2.7 %. As of December 31, 2021 and September 30, 2022, we have pledged $ 918 million and $ 1.2 billion 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, 2021 and September 30, 2022. 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 $ 20.0 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. In March 2022, we increased the size of the Commercial Paper Programs from $ 10.0 billion to $ 20.0 billion. There were $ 725 million and $ 11.7 billion of borrowings outstanding under the Commercial Paper Programs as of December 31, 2021 and September 30, 2022, 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 0.08 % and 2.54 %, respectively. We use the net proceeds from the issuance of commercial paper for general corporate purposes. 15 Table of Contents We also have a $ 10.0 billion unsecured revolving credit facility with a syndicate of lenders (the “Credit Agreement”), which was amended and restated in March 2022 to increase the borrowing capacity from $ 7.0 billion to $ 10.0 billion and to extend the term to March 2025. 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 Credit Agreement is the applicable benchmark rate specified in the Credit Agreement plus 0.45 %, with a commitment fee of 0.03 % on the undrawn portion of the credit facility. There were no borrowings outstanding under the Credit Agreement as of December 31, 2021 and September 30, 2022. We also utilize other short-term credit facilities for working capital purposes. There were $ 318 million and $ 1.1 billion of borrowings outstanding under these facilities as of December 31, 2021 and September 30, 2022, which were included in “Accrued expenses and other” on our consolidated balance sheets. In addition, we had $ 10.0 billion of unused letters of credit as of September 30, 2022. Note 6 — STOCKHOLDERS’ EQUITY Stock Repurchase Activity In March 2022, the Board of Directors authorized a program to repurchase up to $ 10.0 billion of our common stock, with no fixed expiration, which replaced the previous $ 5.0 billion stock repurchase authorization, approved by the Board of Directors in February 2016. We repurchased 46.2 million shares of our common stock for $ 6.0 billion during the nine months ended September 30, 2022 under these programs. As of September 30, 2022, we have $ 6.1 billion remaining under the repurchase program. Stock Award Activity Common shares outstanding plus shares underlying outstanding stock awards totaled 10.5 billion and 10.6 billion as of December 31, 2021 and September 30, 2022. 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, 2021 2022 2021 2022 Cost of sales $ 126 $ 190 $ 361 $ 549 Fulfillment 473 727 1,381 1,988 Technology and content 1,627 3,036 4,742 7,495 Sales and marketing 657 1,128 1,804 2,783 General and administrative 297 475 789 1,200 Total stock-based compensation expense $ 3,180 $ 5,556 $ 9,077 $ 14,015 The following table summarizes our restricted stock unit activity for the nine months ended September 30, 2022 (in millions): Number of Units Weighted-Average Grant-Date Fair Value Outstanding as of December 31, 2021 279.9 $ 134 Units granted 224.1 150 Units vested ( 69.1 ) 109 Units forfeited ( 35.6 ) 143 Outstanding as of September 30, 2022 399.3 147 Scheduled vesting for outstanding restricted stock units as of September 30, 2022, is as follows (in millions): Three Months Ended December 31, Year Ended December 31, 2022 2023 2024 2025 2026 Thereafter Total Scheduled vesting — restricted stock units 44.0 137.2 133.0 56.5 24.7 3.9 399.3 As of September 30, 2022, there was $ 26.9 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis with more than 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 16 Table of Contents estimated forfeiture rate as of December 31, 2021 and September 30, 2022 was 27 % and 26 %. 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, 2021 2022 2021 2022 Total beginning stockholders’ equity $ 114,803 $ 131,402 $ 93,404 $ 138,245 Beginning common stock 106 107 105 106 Stock-based compensation and issuance of employee benefit plan stock — — 1 1 Ending common stock 106 107 106 107 Beginning treasury stock ( 1,837 ) ( 7,837 ) ( 1,837 ) ( 1,837 ) Common stock repurchased — — — ( 6,000 ) Ending treasury stock ( 1,837 ) ( 7,837 ) ( 1,837 ) ( 7,837 ) Beginning additional paid-in capital 48,623 63,871 42,765 55,437 Stock-based compensation and issuance of employee benefit plan stock 3,155 5,548 9,013 13,982 Ending additional paid-in capital 51,778 69,419 51,778 69,419 Beginning accumulated other comprehensive income (loss) ( 525 ) ( 4,782 ) ( 180 ) ( 1,376 ) Other comprehensive income (loss) ( 550 ) ( 2,333 ) ( 895 ) ( 5,739 ) Ending accumulated other comprehensive income (loss) ( 1,075 ) ( 7,115 ) ( 1,075 ) ( 7,115 ) Beginning retained earnings 68,436 80,043 52,551 85,915 Net income (loss) 3,156 2,872 19,041 ( 3,000 ) Ending retained earnings 71,592 82,915 71,592 82,915 Total ending stockholders’ equity $ 120,564 $ 137,489 $ 120,564 $ 137,489 Note 7 — INCOME TAXES Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, acquisitions, investments, developments in tax controversies, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. In addition, we record valuation allowances against deferred tax assets when there is uncertainty about our ability to generate future income in relevant jurisdictions. For 2022, we estimate that our effective tax rate will be favorably impacted by the U.S. federal research and development credit. In addition, valuation gains and losses from our equity investment in Rivian impact our pre-tax income and may cause variability in our effective tax rate. 17 Table of Contents Our income tax provision for the nine months ended September 30, 2021 was $ 4.2 billion, which included $ 1.7 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 nine months ended September 30, 2022 was $ 2.0 billion, which included $ 3.3 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equity investment in Rivian. Cash paid for income taxes, net of refunds was $ 750 million and $ 742 million in Q3 2021 and Q3 2022, and $ 3.4 billion and $ 4.3 billion for the nine months ended September 30, 2021 and 2022. As of December 31, 2021 and September 30, 2022, tax contingencies were approximately $ 3.2 billion and $ 3.4 billion. Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies. Due to various factors, including the inherent complexities and uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, 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 2016 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. We are also subject to taxation in various states and other foreign jurisdictions including China, France, 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. We are currently disputing tax assessments in multiple jurisdictions, including with respect to the allocation and characterization of income. In September 2022, the Luxembourg Tax Authority (“LTA”) denied the tax basis of certain intangible assets that we distributed from Luxembourg to the U.S. in 2021. We believe the LTA’s position is without merit and intend to defend ourselves vigorously in this matter. 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. 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,” “Sales and marketing,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. The majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. There are no internal revenue transactions between our reportable segments. These segments reflect the way our chief operating decision maker evaluates the Company’s business performance and manages its operations. North America The North America segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused online and physical stores. This segment includes export sales from these online stores. 18 Table of Contents 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 (loss) is as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2021 2022 2021 2022 North America Net sales $ 65,557 $ 78,843 $ 197,473 $ 222,517 Operating expenses 64,677 79,255 189,996 225,124 Operating income (loss) $ 880 $ ( 412 ) $ 7,477 $ ( 2,607 ) International Net sales $ 29,145 $ 27,720 $ 90,515 $ 83,544 Operating expenses 30,056 30,186 89,812 89,062 Operating income (loss) $ ( 911 ) $ ( 2,466 ) $ 703 $ ( 5,518 ) AWS Net sales $ 16,110 $ 20,538 $ 44,422 $ 58,718 Operating expenses 11,227 15,135 31,183 41,082 Operating income $ 4,883 $ 5,403 $ 13,239 $ 17,636 Consolidated Net sales $ 110,812 $ 127,101 $ 332,410 $ 364,779 Operating expenses 105,960 124,576 310,991 355,268 Operating income 4,852 2,525 21,419 9,511 Total non-operating income (expense) ( 537 ) 419 1,798 ( 14,485 ) Benefit (provision) for income taxes ( 1,155 ) ( 69 ) ( 4,179 ) 1,990 Equity-method investment activity, net of tax ( 4 ) ( 3 ) 3 ( 16 ) Net income (loss) $ 3,156 $ 2,872 $ 19,041 $ ( 3,000 ) 19 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, 2021 2022 2021 2022 Net Sales: Online stores (1) $ 49,942 $ 53,489 $ 156,000 $ 155,473 Physical stores (2) 4,269 4,694 12,387 14,006 Third-party seller services (3) 24,252 28,666 73,046 81,377 Subscription services (4) 8,148 8,903 23,645 26,029 Advertising services (5) 7,612 9,548 21,444 26,182 AWS 16,110 20,538 44,422 58,718 Other (6) 479 1,263 1,466 2,994 Consolidated $ 110,812 $ 127,101 $ 332,410 $ 364,779 ____________________________ (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) Includes sales of advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and video advertising. (6) Includes sales related to various other offerings, such as certain licensing and distribution of video content and shipping services, and our co-branded credit card agreements. 20 Table of Contents