AMAZON COM INC 10-Q

Item 1. Financial Statements AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited) Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30, 2022 2023 2022 2023 2022 2023 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 36,599 $ 49,734 $ 36,477 $ 54,253 $ 40,667 $ 37,700 OPERATING ACTIVITIES: Net income (loss) ( 2,028 ) 6,750 ( 5,872 ) 9,922 11,607 13,072 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 9,716 11,589 18,909 22,712 37,748 45,724 Stock-based compensation 5,209 7,127 8,459 11,875 15,319 23,037 Non-operating expense (income), net 6,104 47 14,793 581 3,201 2,754 Deferred income taxes ( 1,955 ) ( 2,744 ) ( 3,956 ) ( 3,216 ) ( 6,670 ) ( 7,408 ) Changes in operating assets and liabilities: Inventories ( 3,890 ) ( 2,373 ) ( 6,504 ) ( 2,002 ) ( 15,478 ) 1,910 Accounts receivable, net and other ( 6,799 ) ( 5,167 ) ( 8,315 ) ( 3,646 ) ( 19,761 ) ( 17,228 ) Accounts payable 3,699 3,029 ( 5,681 ) ( 8,235 ) 6,140 391 Accrued expenses and other ( 1,412 ) ( 1,938 ) ( 7,315 ) ( 7,701 ) 553 ( 1,944 ) Unearned revenue 321 156 1,657 974 2,915 1,533 Net cash provided by (used in) operating activities 8,965 16,476 6,175 21,264 35,574 61,841 INVESTING ACTIVITIES: Purchases of property and equipment ( 15,724 ) ( 11,455 ) ( 30,675 ) ( 25,662 ) ( 65,358 ) ( 58,632 ) Proceeds from property and equipment sales and incentives 1,626 1,043 2,835 2,180 6,297 4,669 Acquisitions, net of cash acquired, and other ( 259 ) ( 316 ) ( 6,600 ) ( 3,829 ) ( 7,635 ) ( 5,545 ) Sales and maturities of marketable securities 2,608 1,551 25,361 2,666 53,706 8,906 Purchases of marketable securities ( 329 ) ( 496 ) ( 2,093 ) ( 834 ) ( 25,590 ) ( 1,306 ) Net cash provided by (used in) investing activities ( 12,078 ) ( 9,673 ) ( 11,172 ) ( 25,479 ) ( 38,580 ) ( 51,908 ) FINANCING ACTIVITIES: Common stock repurchased ( 3,334 ) — ( 6,000 ) — ( 6,000 ) — Proceeds from short-term debt, and other 4,865 4,399 18,608 17,179 23,462 40,124 Repayments of short-term debt, and other ( 7,610 ) ( 7,641 ) ( 13,841 ) ( 11,244 ) ( 18,417 ) ( 34,957 ) Proceeds from long-term debt 12,824 — 12,824 — 13,200 8,342 Repayments of long-term debt ( 1 ) ( 2,000 ) ( 1 ) ( 3,386 ) ( 1,511 ) ( 4,643 ) Principal repayments of finance leases ( 2,059 ) ( 1,220 ) ( 4,836 ) ( 2,600 ) ( 9,789 ) ( 5,705 ) Principal repayments of financing obligations ( 59 ) ( 77 ) ( 138 ) ( 134 ) ( 205 ) ( 244 ) Net cash provided by (used in) financing activities 4,626 ( 6,539 ) 6,616 ( 185 ) 740 2,917 Foreign currency effect on cash, cash equivalents, and restricted cash ( 412 ) 69 ( 396 ) 214 ( 701 ) ( 483 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 1,101 333 1,223 ( 4,186 ) ( 2,967 ) 12,367 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD $ 37,700 $ 50,067 $ 37,700 $ 50,067 $ 37,700 $ 50,067 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 June 30, Six Months Ended June 30, 2022 2023 2022 2023 Net product sales $ 56,575 $ 59,032 $ 113,030 $ 116,013 Net service sales 64,659 75,351 124,648 145,728 Total net sales 121,234 134,383 237,678 261,741 Operating expenses: Cost of sales 66,424 69,373 132,923 137,164 Fulfillment 20,342 21,305 40,613 42,210 Technology and infrastructure 18,072 21,931 32,914 42,381 Sales and marketing 10,086 10,745 18,406 20,917 General and administrative 2,903 3,202 5,497 6,245 Other operating expense (income), net 90 146 339 369 Total operating expenses 117,917 126,702 230,692 249,286 Operating income 3,317 7,681 6,986 12,455 Interest income 159 661 267 1,272 Interest expense ( 584 ) ( 840 ) ( 1,056 ) ( 1,663 ) Other income (expense), net ( 5,545 ) 61 ( 14,115 ) ( 382 ) Total non-operating expense ( 5,970 ) ( 118 ) ( 14,904 ) ( 773 ) Income (loss) before income taxes ( 2,653 ) 7,563 ( 7,918 ) 11,682 Benefit (provision) for income taxes 637 ( 804 ) 2,059 ( 1,752 ) Equity-method investment activity, net of tax ( 12 ) ( 9 ) ( 13 ) ( 8 ) Net income (loss) $ ( 2,028 ) $ 6,750 $ ( 5,872 ) $ 9,922 Basic earnings per share $ ( 0.20 ) $ 0.66 $ ( 0.58 ) $ 0.97 Diluted earnings per share $ ( 0.20 ) $ 0.65 $ ( 0.58 ) $ 0.95 Weighted-average shares used in computation of earnings per share: Basic 10,175 10,285 10,173 10,268 Diluted 10,175 10,449 10,173 10,398 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 June 30, Six Months Ended June 30, 2022 2023 2022 2023 Net income (loss) $ ( 2,028 ) $ 6,750 $ ( 5,872 ) $ 9,922 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax of $ 76 , $( 22 ), $ 60 , and $( 32 ) ( 2,186 ) 264 ( 2,519 ) 650 Net change in unrealized gains (losses) on available-for-sale debt securities: Unrealized gains (losses), net of tax of $ 0 , $( 5 ), $ 1 , and $( 34 ) ( 238 ) 17 ( 900 ) 112 Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $ 0 , $( 5 ), $ 0 , and $( 15 ) 7 12 13 45 Net unrealized gains (losses) on available-for-sale debt securities ( 231 ) 29 ( 887 ) 157 Total other comprehensive income (loss) ( 2,417 ) 293 ( 3,406 ) 807 Comprehensive income (loss) $ ( 4,445 ) $ 7,043 $ ( 9,278 ) $ 10,729 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, 2022 June 30, 2023 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 53,888 $ 49,529 Marketable securities 16,138 14,441 Inventories 34,405 36,587 Accounts receivable, net and other 42,360 39,925 Total current assets 146,791 140,482 Property and equipment, net 186,715 193,784 Operating leases 66,123 70,332 Goodwill 20,288 22,785 Other assets 42,758 50,224 Total assets $ 462,675 $ 477,607 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 79,600 $ 69,481 Accrued expenses and other 62,566 64,235 Unearned revenue 13,227 14,522 Total current liabilities 155,393 148,238 Long-term lease liabilities 72,968 75,822 Long-term debt 67,150 63,092 Other long-term liabilities 21,121 21,853 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; 10,757 and 10,828 shares issued; 10,242 and 10,313 shares outstanding) 108 108 Treasury stock, at cost ( 7,837 ) ( 7,837 ) Additional paid-in capital 75,066 86,896 Accumulated other comprehensive income (loss) ( 4,487 ) ( 3,680 ) Retained earnings 83,193 93,115 Total stockholders’ equity 146,043 168,602 Total liabilities and stockholders’ equity $ 462,675 $ 477,607 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 2023 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 2022 Annual Report on Form 10-K. Prior Period Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. “Other operating expense (income), net” was reclassified into “Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other” on our consolidated statements of cash flows. 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 health care services and 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, valuation and impairment of investments, self-insurance liabilities, and viewing patterns of capitalized video content. Actual results could differ materially from these estimates. For the six months ended June 30, 2023, we recorded approximately $ 510 million of estimated severance costs primarily related to planned role eliminations. These charges were recorded primarily in “Sales and marketing,” “Technology and infrastructure,” and “General and administrative” on our consolidated statements of operations and included approximately $ 320 million recorded within our AWS segment. For the six months ended June 30, 2022 and 2023, we recorded approximately $ 260 million and $ 250 million of impairments of property and equipment and operating leases primarily related to physical stores in 2022 and fulfillment network facilities in 2023. These charges were recorded in “Other operating expense (income), net” on our consolidated statements of operations and primarily impacted our North America segment. For the six months ended June 30, 2022 and 2023, we also recorded expenses of approximately $ 230 million and $ 180 million primarily in “Fulfillment” in 2022 and “Cost of sales” and “Fulfillment” in 2023, on our consolidated statements of operations primarily relating to terminating contracts for certain leases not yet commenced as well as other purchase commitments, which primarily impacted our North America segment. 7 Table of Contents Supplemental Cash Flow Information The following table shows supplemental cash flow information (in millions): Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30, 2022 2023 2022 2023 2022 2023 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on debt, net of capitalized interest $ 349 $ 954 $ 628 $ 1,356 $ 1,271 $ 2,289 Cash paid for operating leases 2,088 2,528 4,455 4,995 7,960 9,173 Cash paid for interest on finance leases 95 77 202 158 437 330 Cash paid for interest on financing obligations 55 41 113 100 198 194 Cash paid for income taxes, net of refunds 3,145 3,735 3,598 4,354 4,682 6,791 Assets acquired under operating leases 5,101 4,104 7,276 7,730 23,531 19,254 Property and equipment acquired under finance leases, net of remeasurements and modifications 61 240 227 248 3,579 696 Property and equipment recognized during the construction period of build-to-suit lease arrangements 986 84 2,351 215 6,117 1,051 Property and equipment derecognized after the construction period of build-to-suit lease arrangements, with the associated leases recognized as operating 1,079 — 1,112 720 1,243 4,766 Earnings Per Share Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect. The following table shows the calculation of diluted shares (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2023 2022 2023 Shares used in computation of basic earnings per share 10,175 10,285 10,173 10,268 Total dilutive effect of outstanding stock awards — 164 — 130 Shares used in computation of diluted earnings per share 10,175 10,449 10,173 10,398 Other Income (Expense), Net Other income (expense), net, is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2023 2022 2023 Marketable equity securities valuation gains (losses) $ ( 4,322 ) $ 299 $ ( 12,567 ) $ ( 181 ) Equity warrant valuation gains (losses) ( 1,124 ) ( 220 ) ( 1,436 ) ( 161 ) Upward adjustments relating to equity investments in private companies 58 10 65 26 Foreign currency gains (losses) ( 117 ) 9 ( 103 ) 79 Other, net ( 40 ) ( 37 ) ( 74 ) ( 145 ) Total other income (expense), net ( 5,545 ) 61 ( 14,115 ) ( 382 ) Included in other income (expense), net is a marketable equity securities valuation gain (loss) of $( 3.9 ) billion and $ 187 million in Q2 2022 and Q2 2023, and $( 11.5 ) billion and $( 280 ) million for the six months ended June 30, 2022 and 2023, 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 June 30, 2023, 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 8 Table of Contents board of directors. We elected the fair value option to account for our equity investment in Rivian, which is included in “Marketable securities” on our consolidated balance sheets, and had a fair value of $ 2.9 billion and $ 2.6 billion as of December 31, 2022 and June 30, 2023. 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. Required summarized financial information of Rivian as disclosed in its most recent SEC filings is as follows (in millions): Three Months Ended March 31, 2022 2023 Revenues $ 95 $ 661 Gross profit ( 502 ) ( 535 ) Loss from operations ( 1,579 ) ( 1,433 ) Net loss ( 1,593 ) ( 1,349 ) 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 $ 2.8 billion and $ 2.7 billion as of December 31, 2022 and June 30, 2023. Accounts Receivable, Net and Other Included in “Accounts receivable, net and other” on our consolidated balance sheets are receivables primarily related to customers, vendors, and sellers, as well as prepaid expenses and other current assets. As of December 31, 2022 and June 30, 2023, customer receivables, net, were $ 26.6 billion and $ 25.3 billion, vendor receivables, net, were $ 6.9 billion and $ 5.6 billion, seller receivables, net, were $ 1.3 billion and $ 1.3 billion, and other receivables, net, were $ 3.1 billion and $ 2.7 billion. Seller receivables are amounts due from sellers related to our seller lending program, which provides funding to sellers primarily to procure inventory. Prepaid expenses and other current assets were $ 4.5 billion and $ 5.0 billion as of December 31, 2022 and June 30, 2023. We estimate losses on receivables based on expected losses, including our historical experience of actual losses. The allowance for doubtful accounts was $ 1.4 billion and $ 1.5 billion as of December 31, 2022 and June 30, 2023. Digital Video and Music Content The total capitalized costs of video, which is primarily released content, and music as of December 31, 2022 and June 30, 2023 were $ 16.7 billion and $ 17.8 billion. The weighted average remaining life of our capitalized video content is 3.6 years. Total video and music expense was $ 3.7 billion and $ 4.4 billion in Q2 2022 and Q2 2023, and $ 7.3 billion and $ 8.4 billion for the six months ended June 30, 2022 and 2023. 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, 2022 was $ 16.1 billion, of which $ 8.6 billion was recognized as revenue during the six months ended June 30, 2023. Included in “Other long-term liabilities” on our consolidated balance sheets was $ 2.9 billion and $ 2.7 billion of unearned revenue as of December 31, 2022 and June 30, 2023. 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 $ 132.1 billion as of June 30, 2023. The weighted-average remaining life of our long-term contracts is 3.6 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 February 22, 2023, we acquired 1Life Healthcare, Inc. (“One Medical”), for cash consideration of approximately $ 3.5 billion, net of cash acquired, to provide health care options for customers. The acquired assets primarily consist of $ 1.3 billion 9 Table of Contents of intangible assets and $ 2.5 billion of goodwill, which is allocated to our North America segment. The valuation of certain assets and liabilities is preliminary and subject to change. Pro forma results of operations have not been presented because the effects of the One Medical acquisition were not material to our consolidated results of operations. Acquisition-related costs were expensed as incurred and were not significant. Note 2 — FINANCIAL INSTRUMENTS Cash, Cash Equivalents, Restricted Cash, and Marketable Securities As of December 31, 2022 and June 30, 2023, 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, 2022 and June 30, 2023. 10 Table of Contents 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, 2022 June 30, 2023 Total Estimated Fair Value Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated Fair Value Cash $ 10,666 $ 11,142 $ — $ — $ 11,142 Level 1 securities: Money market funds 27,899 29,095 — — 29,095 Equity securities (1) 3,709 3,515 Level 2 securities: Foreign government and agency securities 535 273 — ( 1 ) 272 U.S. government and agency securities 2,146 2,304 — ( 133 ) 2,171 Corporate debt securities 22,627 16,469 — ( 351 ) 16,118 Asset-backed securities 2,572 2,103 — ( 101 ) 2,002 Other debt securities 237 201 — ( 8 ) 193 $ 70,391 $ 61,587 $ — $ ( 594 ) $ 64,508 Less: Restricted cash, cash equivalents, and marketable securities (2) ( 365 ) ( 538 ) Total cash, cash equivalents, and marketable securities $ 70,026 $ 63,970 ___________________ (1) The related unrealized gains (losses) recorded in “Other income (expense), net” were $( 4.2 ) billion and $ 284 million in Q2 2022 and Q2 2023, and $( 12.3 ) billion and $( 195 ) million for the six months ended June 30, 2022 and 2023. (2) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable debt 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 debt 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.” The following table summarizes the remaining contractual maturities of our cash equivalents and marketable debt securities as of June 30, 2023 (in millions): Amortized Cost Estimated Fair Value Due within one year $ 42,208 $ 42,148 Due after one year through five years 6,404 5,983 Due after five years through ten years 565 534 Due after ten years 1,268 1,186 Total $ 50,445 $ 49,851 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, 2022 and June 30, 2023, these warrants had a fair value of $ 2.1 billion and $ 1.8 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 classified as Level 2 and 3 assets. As of December 31, 2022 and June 30, 2023, equity investments not accounted for under the equity-method and without readily determinable fair values had a carrying value of $ 715 million and $ 733 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. 11 Table of Contents 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, 2022 June 30, 2023 Cash and cash equivalents $ 53,888 $ 49,529 Restricted cash included in accounts receivable, net and other 358 523 Restricted cash included in other assets 7 15 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 54,253 $ 50,067 Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, office, data center, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “ Property and equipment, net ” and were $ 68.0 billion and $ 64.6 billion as of December 31, 2022 and June 30, 2023. Accumulated amortization associated with finance leases was $ 45.2 billion and $ 44.6 billion as of December 31, 2022 and June 30, 2023. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2023 2022 2023 Operating lease cost $ 2,133 $ 2,608 $ 4,236 $ 5,120 Finance lease cost: Amortization of lease assets 1,530 1,539 3,090 3,085 Interest on lease liabilities 92 76 195 156 Finance lease cost 1,622 1,615 3,285 3,241 Variable lease cost 471 494 940 1,012 Total lease cost $ 4,226 $ 4,717 $ 8,461 $ 9,373 Other information about lease amounts recognized in our consolidated financial statements is as follows: December 31, 2022 June 30, 2023 Weighted-average remaining lease term – operating leases 11.6 years 11.5 years Weighted-average remaining lease term – finance leases 10.3 years 11.3 years Weighted-average discount rate – operating leases 2.8 % 3.1 % Weighted-average discount rate – finance leases 2.3 % 2.5 % 12 Table of Contents Our lease liabilities were as follows (in millions): December 31, 2022 Operating Leases Finance Leases Total Gross lease liabilities $ 81,273 $ 18,019 $ 99,292 Less: imputed interest ( 12,233 ) ( 2,236 ) ( 14,469 ) Present value of lease liabilities 69,040 15,783 84,823 Less: current portion of lease liabilities ( 7,458 ) ( 4,397 ) ( 11,855 ) Total long-term lease liabilities $ 61,582 $ 11,386 $ 72,968 June 30, 2023 Operating Leases Finance Leases Total Gross lease liabilities $ 87,753 $ 15,533 $ 103,286 Less: imputed interest ( 14,383 ) ( 2,075 ) ( 16,458 ) Present value of lease liabilities 73,370 13,458 86,828 Less: current portion of lease liabilities ( 7,982 ) ( 3,024 ) ( 11,006 ) Total long-term lease liabilities $ 65,388 $ 10,434 $ 75,822 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 June 30, 2023 (in millions): Six Months Ended December 31, Year Ended December 31, 2023 2024 2025 2026 2027 Thereafter Total Long-term debt principal and interest $ 1,082 $ 10,626 $ 7,293 $ 5,034 $ 10,399 $ 63,814 $ 98,248 Operating lease liabilities 5,624 9,649 9,024 8,334 7,602 47,520 87,753 Finance lease liabilities, including interest 1,917 2,245 1,433 1,269 1,077 7,592 15,533 Financing obligations, including interest (1) 234 464 457 464 471 6,712 8,802 Leases not yet commenced 558 2,009 1,887 1,897 1,926 15,712 23,989 Unconditional purchase obligations (2) 4,274 8,032 6,151 5,029 3,560 6,090 33,136 Other commitments (3)(4) 2,153 2,247 1,246 1,102 895 8,497 16,140 Total commitments $ 15,842 $ 35,272 $ 27,491 $ 23,129 $ 25,930 $ 155,937 $ 283,601 ___________________ (1) Includes non-cancellable financing obligations for fulfillment network and data center facilities. Excluding interest, current financing obligations of $ 266 million and $ 269 million are recorded within “Accrued expenses and other” and $ 6.7 billion and $ 6.6 billion are recorded within “Other long-term liabilities” as of December 31, 2022 and June 30, 2023. The weighted-average remaining term of the financing obligations was 17.9 years and 17.5 years and the weighted-average imputed interest rate was 3.1 % as of December 31, 2022 and June 30, 2023. (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, liabilities associated with digital media content agreements with initial terms greater than one year, and the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that are under construction. (4) Excludes approximately $ 5.0 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any. 13 Table of Contents In August 2022, we entered into an agreement to acquire iRobot Corporation, as amended in July 2023, for approximately $ 1.7 billion, including its debt, subject to customary closing conditions. We expect to fund this acquisition with cash on hand. Other Contingencies We are disputing claims and denials of refunds or credits, and monitoring or evaluating potential claims, 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. 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 2022 Annual Report on Form 10-K and in Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies — Legal Proceedings” of our Quarterly Report on Form 10-Q for the period ended March 31, 2023, as supplemented by the following: In December 2018, Kove IO, Inc. filed a complaint against Amazon Web Services, Inc. in the United States District Court for the Northern District of Illinois. The complaint alleges, among other things, that Amazon S3 and DynamoDB infringe U.S. Patent Nos. 7,814,170 and 7,103,640, both entitled “Network Distributed Tracking Wire Transfer Protocol”; and 7,233,978, entitled “Method and Apparatus for Managing Location Information in a Network Separate from the Data to Which the Location Information Pertains.” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief. In March 2022, the case was stayed pending resolution of review petitions we filed with the United States Patent and Trademark Office. In November 2022, the stay was lifted. In July 2023, Kove alleged in its damages report that in the event of a finding of liability Amazon Web Services could be subject to $ 517 million to $ 1.03 billion in damages. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter. In May 2023, Dialect, LLC filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. in the United States District Court for the Eastern District for Virginia. The complaint alleges, among other things, that Amazon’s Alexa-enabled products and services, such as Echo devices, Fire tablets, Fire TV sticks, Fire TVs, Alexa, and Alexa Voice Services, infringe U.S. Patent Nos. 7,693,720 and 9,031,845, each entitled “Mobile Systems and Methods for Responding to Natural Language Speech Utterance”; 8,015,006, entitled “Systems and Methods for Processing Natural Language Speech Utterances with Context-Specific Domain Agents”; 8,140,327, entitled “System and Method for Filtering and Eliminating Noise from Natural Language Utterances to Improve Speech Recognition and Parsing”; 8,195,468 and 9,495,957, each entitled “Mobile Systems and Methods of Supporting Natural Language Human-Machine Interactions”; and 9,263,039, entitled “Systems and Methods for Responding to Natural Language Speech Utterance.” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief. 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 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.” 14 Table of Contents Note 5 — DEBT As of June 30, 2023, we had $ 66.5 billion of unsecured senior notes outstanding (the “Notes”) and $ 972 million 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, 2022 June 30, 2023 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 2024 - 2057 2.80 % - 5.20 % 2.95 % - 4.33 % 16,000 15,000 2020 Notes issuance of $ 10.0 billion 2025 - 2060 0.80 % - 2.70 % 0.88 % - 2.77 % 10,000 9,000 2021 Notes issuance of $ 18.5 billion 2024 - 2061 0.45 % - 3.25 % 0.57 % - 3.31 % 18,500 17,500 April 2022 Notes issuance of $ 12.8 billion 2024 - 2062 2.73 % - 4.10 % 2.83 % - 4.15 % 12,750 12,750 December 2022 Notes issuance of $ 8.3 billion 2024 - 2032 4.55 % - 4.70 % 4.61 % - 4.83 % 8,250 8,250 Credit Facility 1,042 972 Total face value of long-term debt 70,542 67,472 Unamortized discount and issuance costs, net ( 393 ) ( 383 ) Less: current portion of long-term debt ( 2,999 ) ( 3,997 ) Long-term debt $ 67,150 $ 63,092 ___________________ (1) The weighted-average remaining lives of the 2014, 2017, 2020, 2021, April 2022, and December 2022 Notes were 12.1 , 14.6 , 18.1 , 13.6 , 12.8 , and 5.4 years as of June 30, 2023. The combined weighted-average remaining life of the Notes was 13.2 years as of June 30, 2023. 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 $ 61.4 billion and $ 59.5 billion as of December 31, 2022 and June 30, 2023, which is based on quoted prices for our debt as of those dates. In January 2023, we entered into an $ 8.0 billion unsecured 364-day term loan with a syndicate of lenders (the “Term Loan”), which matures in January 2024 and bears interest at the Secured Overnight Financing Rate specified in the Term Loan plus 0.75 %. If we exercise our option to extend the Term Loan’s maturity to January 2025, the interest rate spread will increase from 0.75 % to 1.05 %. As of June 30, 2023, $ 8.0 billion of the Term Loan was outstanding, which was included in “Accrued expenses and other” on our consolidated balance sheets and had an interest rate of 5.9 %. We have a $ 1.5 billion secured revolving credit facility with a lender that is secured by certain seller receivables, which we may from time to time increase in the future subject to lender approval (the “Credit Facility”). The Credit Facility is available until 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 $ 1.0 billion and $ 972 million of borrowings outstanding under the Credit Facility as of December 31, 2022 and June 30, 2023, which had an interest rate of 5.6 % and 6.3 %, respectively. As of December 31, 2022 and June 30, 2023, we have pledged $ 1.2 billion and $ 1.1 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, 2022 and June 30, 2023. 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. There were $ 6.8 billion and $ 4.4 billion of borrowings outstanding under the Commercial Paper Programs as of December 31, 2022 and June 30, 2023, 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 4.5 % and 5.0 %, respectively. We use the net proceeds from the issuance of commercial paper for general corporate purposes. We have a $ 10.0 billion unsecured revolving credit facility with a syndicate of lenders (the “Credit Agreement”), with a term that extends 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, 2022 and June 30, 2023. 15 Table of Contents We have a $ 10.0 billion unsecured 364-day revolving credit facility with a syndicate of lenders (the “Short-Term Credit Agreement”), which matures in November 2023 and may be extended for one additional period of 364 days if approved by the lenders. The interest rate applicable to outstanding balances under the Short-Term Credit Agreement is the Secured Overnight Financing Rate specified in the Short-Term Credit Agreement plus 0.45 %, with a commitment fee of 0.05 % on the undrawn portion. There were no borrowings outstanding under the Short-Term Credit Agreement as of December 31, 2022 and June 30, 2023. We also utilize other short-term credit facilities for working capital purposes. There were $ 1.2 billion and $ 1.1 billion of borrowings outstanding under these facilities as of December 31, 2022 and June 30, 2023, which were included in “Accrued expenses and other” on our consolidated balance sheets. In addition, we had $ 7.5 billion of unused letters of credit as of June 30, 2023. 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 six months ended June 30, 2022 under these programs. There were no repurchases of our common stock during the six months ended June 30, 2023. As of June 30, 2023, we have $ 6.1 billion remaining under the repurchase program. Stock Award Activity Common shares outstanding plus shares underlying outstanding stock awards totaled 10.6 billion and 10.8 billion as of December 31, 2022 and June 30, 2023. These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited. Stock-based compensation expense is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2023 2022 2023 Cost of sales $ 213 $ 251 $ 359 $ 416 Fulfillment 763 932 1,261 1,535 Technology and infrastructure 2,814 4,043 4,459 6,617 Sales and marketing 990 1,303 1,655 2,296 General and administrative 429 598 725 1,011 Total stock-based compensation expense $ 5,209 $ 7,127 $ 8,459 $ 11,875 The following table summarizes our restricted stock unit activity for the six months ended June 30, 2023 (in millions): Number of Units Weighted-Average Grant-Date Fair Value Outstanding as of December 31, 2022 384.4 $ 144 Units granted 200.3 103 Units vested ( 70.1 ) 143 Units forfeited ( 33.1 ) 138 Outstanding as of June 30, 2023 481.5 128 Scheduled vesting for outstanding restricted stock units as of June 30, 2023, is as follows (in millions): Six Months Ended December 31, Year Ended December 31, 2023 2024 2025 2026 2027 Thereafter Total Scheduled vesting — restricted stock units 70.7 224.5 128.6 47.0 7.4 3.3 481.5 As of June 30, 2023, there was $ 28.0 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 1.0 year. The estimated forfeiture rate as of December 31, 2022 and June 30, 2023 was 26.5 % and 26.3 %. Changes in our estimates and assumptions relating to forfeitures may cause us to realize material changes in stock-based compensation expense in the future. 16 Table of Contents Changes in Stockholders’ Equity The following table shows changes in stockholders’ equity (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2023 2022 2023 Total beginning stockholders’ equity $ 134,001 $ 154,526 $ 138,245 $ 146,043 Beginning common stock 107 108 106 108 Stock-based compensation and issuance of employee benefit plan stock — — 1 — Ending common stock 107 108 107 108 Beginning treasury stock ( 4,503 ) ( 7,837 ) ( 1,837 ) ( 7,837 ) Common stock repurchased ( 3,334 ) — ( 6,000 ) — Ending treasury stock ( 7,837 ) ( 7,837 ) ( 7,837 ) ( 7,837 ) Beginning additional paid-in capital 58,691 79,863 55,437 75,066 Stock-based compensation and issuance of employee benefit plan stock 5,180 7,033 8,434 11,830 Ending additional paid-in capital 63,871 86,896 63,871 86,896 Beginning accumulated other comprehensive income (loss) ( 2,365 ) ( 3,973 ) ( 1,376 ) ( 4,487 ) Other comprehensive income (loss) ( 2,417 ) 293 ( 3,406 ) 807 Ending accumulated other comprehensive income (loss) ( 4,782 ) ( 3,680 ) ( 4,782 ) ( 3,680 ) Beginning retained earnings 82,071 86,365 85,915 83,193 Net income (loss) ( 2,028 ) 6,750 ( 5,872 ) 9,922 Ending retained earnings 80,043 93,115 80,043 93,115 Total ending stockholders’ equity $ 131,402 $ 168,602 $ 131,402 $ 168,602 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 2023, we estimate that our effective tax rate will be favorably impacted by the foreign income deduction and U.S. federal research and development credit and adversely affected by state income taxes. 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. 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. Our income tax provision for the six months ended June 30, 2023 was $ 1.8 billion, which included $ 306 million of net discrete tax benefits, consisting of $ 805 million resulting from a change in the estimated qualifying expenditures associated with our 2022 U.S. 17 Table of Contents federal R&D credit and a related increase in our foreign income deduction tax benefit, partially offset by discrete tax expense related to shortfalls from stock-based compensation. Cash paid for income taxes, net of refunds was $ 3.1 billion and $ 3.7 billion in Q2 2022 and Q2 2023, and $ 3.6 billion and $ 4.4 billion for the six months ended June 30, 2022 and 2023. As of December 31, 2022 and June 30, 2023, tax contingencies were approximately $ 4.0 billion and $ 5.0 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 2011 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 February 2023, we received a decision by the Indian tax authority (“ITA”) that tax applies to cloud services fees paid to Amazon in the U.S. We will need to remit taxes on the services in question, including for a portion of prior years, until this matter is resolved, which payments could be significant in the aggregate. We believe the ITA’s decision is without merit, we are defending our position vigorously in the Indian courts, and we expect to recoup taxes paid. If this matter is adversely resolved, we could recognize significant additional tax expense, including for taxes previously paid. 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 infrastructure,” “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 costs recorded in “Technology and infrastructure” are incurred in the U.S. and are included in our North America and AWS segments. The majority of infrastructure costs recorded in “Technology and infrastructure” are allocated to the AWS segment based on usage. 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 advertising and subscription services 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 advertising and subscription services 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 June 30, Six Months Ended June 30, 2022 2023 2022 2023 North America Net sales $ 74,430 $ 82,546 $ 143,674 $ 159,427 Operating expenses 75,057 79,335 145,869 155,318 Operating income (loss) $ ( 627 ) $ 3,211 $ ( 2,195 ) $ 4,109 International Net sales $ 27,065 $ 29,697 $ 55,824 $ 58,820 Operating expenses 28,836 30,592 58,876 60,962 Operating loss $ ( 1,771 ) $ ( 895 ) $ ( 3,052 ) $ ( 2,142 ) AWS Net sales $ 19,739 $ 22,140 $ 38,180 $ 43,494 Operating expenses 14,024 16,775 25,947 33,006 Operating income $ 5,715 $ 5,365 $ 12,233 $ 10,488 Consolidated Net sales $ 121,234 $ 134,383 $ 237,678 $ 261,741 Operating expenses 117,917 126,702 230,692 249,286 Operating income 3,317 7,681 6,986 12,455 Total non-operating expense ( 5,970 ) ( 118 ) ( 14,904 ) ( 773 ) Benefit (provision) for income taxes 637 ( 804 ) 2,059 ( 1,752 ) Equity-method investment activity, net of tax ( 12 ) ( 9 ) ( 13 ) ( 8 ) Net income (loss) $ ( 2,028 ) $ 6,750 $ ( 5,872 ) $ 9,922 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 June 30, Six Months Ended June 30, 2022 2023 2022 2023 Net Sales: Online stores (1) $ 50,855 $ 52,966 $ 101,984 $ 104,062 Physical stores (2) 4,721 5,024 9,312 9,919 Third-party seller services (3) 27,376 32,332 52,711 62,152 Subscription services (4) 8,716 9,894 17,126 19,551 Advertising services (5) 8,757 10,683 16,634 20,192 AWS 19,739 22,140 38,180 43,494 Other (6) 1,070 1,344 1,731 2,371 Consolidated $ 121,234 $ 134,383 $ 237,678 $ 261,741 ____________________________ (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 media content 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, health care services, and shipping services, and our co-branded credit card agreements. 20 Table of Contents