What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 299 added, 292 removed, 749 unchanged (44% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statement of Stockholders' Deficit

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We have audited the accompanying consolidated balance sheets of Wayfair Inc.

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

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Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for convertible debt in 2021.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Completeness of Sales Return Reserves

Description of the Matter As described in Note 2 to the consolidated financial statements, the Company had product revenue of $14.1 billion for the year ended December 31, 2020, which was net of sales return reserves of $72.8 million.

Description of the Matter

As described in Note 2 to the consolidated financial statements, the Company had product revenue of $13.7 billion for the year ended December 31, 2021, which was net of sales return reserves of $61 million.

Auditing the Company's measurement of sales return reserves on product revenue under its contracts with customers was especially challenging because the calculation involves subjective management assumptions about products delivered as of the balance sheet date that could be subject to return in future periods under the Company's returns policy.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's sales return reserve process.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's sales return reserve process.

For example, we tested controls over management's assessment of the assumptions about expected returns by segment as of the balance sheet date.

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We also compared the Company’s projections of future sales returns as of the balance sheet date with actual returns made subsequent to year end.

Allocation of Convertible Notes Issuances and Settlements to Debt and Equity

Description of the Matter As described in Note 6 to the consolidated financial statements, the Company issued $1.5 billion in aggregate principal of 0.625% convertible senior notes due 2025 (the “2025 Notes”) pursuant to an Indenture dated August 14, 2020.

The 2025 Notes include a cash settlement feature, which requires the Company to separate the 2025 Notes into liability and equity components.

Upon issuance, the Company allocated $1.2 billion to the liability component of the 2025 Notes and $0.3 billion to the equity component of the 2025 Notes.

The Company used approximately $1.0 billion of the net proceeds from the offering to repurchase approximately $0.3 billion in aggregate principal amounts due under the convertible senior notes due 2022 (the “2022 Notes”).

Additionally, in 2020, $0.1 billion aggregate principal of the 2022 Notes were settled upon conversion by the holders for 670,610 shares of Wayfair’s Class A common stock.

The accounting for the repurchases and conversions of the 2022 Notes requires the Company to allocate consideration transferred to the holders to the liability and equity components of the 2022 Notes being settled.

The Company allocated $0.4 billion and $0.8 billion to the liability and equity components of the 2022 Notes from the total settlement consideration transferred to the holders.

Auditing the Company’s determination of the values allocated to the liability and equity components in both the issuance of the 2025 Notes and repurchases and conversions of the 2022 Notes was complex and highly judgmental as a result of the significant estimation required to determine the fair value of the liability component in each transaction.

The fair value of the liability components was measured at the estimated fair value of a similar debt instrument without the conversion option.

The fair value of similar debt instruments that do not have an associated conversion feature was determined using the Company’s estimated credit spread.

Specifically, the credit spreads underlying the estimated effective interest rates for the 2022 and 2025 Notes were estimated using binomial lattice models and observing a range of credit spreads of comparable companies with similar credit ratings.

In addition, management further estimated a credit rating for the Company using a synthetic credit rating model based on the Company’s financial performance as of each valuation date.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls that address the risks related to the Company’s process for determining the fair value of similar debt that does not have an associated conversion feature.

To test the Company’s measurements of the liability and equity components of the 2025 Notes issuance and 2022 Notes repurchase, we (i) evaluated whether the valuation methodology was appropriate in the circumstances, giving consideration to the nature of the instruments being valued, the premise of the valuation, the business and environment in which the Company operates, and the lack of observable market data, (ii) assessed whether the assumptions on which the estimates were based, individually and taken as a whole, were consistent with the general economic environment, the economic environment of the Company’s business and industry in which it operates, and existing market information, (iii) performed comparative calculations and a sensitivity analysis to test the reasonableness of significant assumptions used in the Company’s valuation analysis, and (iv) prepared independent calculations to corroborate the estimate prepared by management.

In performing our procedures, we also involved a valuation professional to assist in our evaluations.

/s/ Ernst & Young LLP

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CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(in millions, except share and per share data)

Current assets

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Property and equipment, net 674 684

Long-term investments — 155,690

Other noncurrent assets 31,446 32,276

Other non-current assets 35 32

Total assets $ 4,570 $ 4,570

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Long-term debt 3,052 2,659

Operating lease liabilities 869,958 822,602

Other noncurrent liabilities 67,031 6,940

Operating lease liabilities, net of current 892 870

Other non-current liabilities 28 67

Total liabilities 6,189 5,762

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Additional paid-in capital

698,482 1,122,548

Accumulated deficit ( 1,949 ) ( 1,886 )

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2021 2020 2019

(in thousands, except per share data)

(in millions, except per share data)

Net revenue $ 13,708 $ 14,145 $ 9,127

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Selling, operations, technology, general and administrative 2,015 1,830 1,624

Customer service center impairment and other charges 12 — —

Total operating expenses 3,989 3,752 3,077

Income (loss) from operations 360,349 ( 929,941 ) ( 473,279 )

(Loss) income from operations ( 94 ) 360 ( 930 )

Interest expense, net ( 32 ) ( 146 ) ( 55 )

Other (expense) income, net ( 4 ) ( 9 ) 3

Income (loss) before income taxes 205,319 ( 981,574 ) ( 502,043 )

(Loss) income before income taxes ( 130 ) 205 ( 982 )

Provision for income taxes, net 1 20 3

Net income (loss) $ 184,996 $ ( 984,584 ) $ ( 504,080 )

Earnings (loss) per share:

Net (loss) income $ ( 131 ) $ 185 $ ( 985 )

(Loss) earnings per share:

Basic $ ( 1.26 ) $ 1.93 $ ( 10.68 )

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See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Year Ended December 31,

2021 2020 2019

(in thousands)

Net income (loss) $ 184,996 $ ( 984,584 ) $ ( 504,080 )

Other comprehensive income (loss):

(in millions)

Net (loss) income $ ( 131 ) $ 185 $ ( 985 )

Other comprehensive (loss) income:

Foreign currency translation adjustments ( 2 ) ( 3 ) —

Net unrealized (loss) gain on available-for-sale investments ( 17 ) 233 30

Comprehensive income (loss) $ 181,894 $ ( 984,231 ) $ ( 503,497 )

Comprehensive (loss) income $ ( 133 ) $ 182 $ ( 985 )

See notes to consolidated financial statements.

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Stockholders' Deficit

(in thousands)

Balance at December 31, 2017 88,209 $ 88 $ 537,212 $ ( 583,266 ) $ ( 2,363 ) $ ( 48,329 )

Net loss — — — ( 504,080 ) — ( 504,080 )

Other comprehensive income — — — — 583 583

Exercise of options to purchase common stock 46 — 138 — — 138

Issuance of common stock upon vesting of RSUs 2,504 3 — — — 3

Shares withheld related to net settlement of RSUs ( 11 ) — ( 1,284 ) — — ( 1,284 )

Equity-based compensation expense — — 133,638 — — 133,638

Cumulative effect of adopting new revenue recognition standard — — — 4,657 — 4,657

Equity component of issuance of convertible notes, net of premium paid on capped calls (Note 6) — — 83,953 — — 83,953

(in millions)

Balance at December 31, 2018 91 $ — $ 754 $ ( 1,083 ) $ ( 2 ) $ ( 331 )

Net loss — — — ( 985 ) — ( 985 )

Other comprehensive income — — — — 353 353

Exercise of options to purchase common stock 35 — 113 — — 113

Issuance of common stock upon vesting of RSUs 3 — — — — —

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Other comprehensive loss — — — — ( 3 ) ( 3 )

Exercise of options to purchase common stock 25 — 439 — — 439

Issuance of common stock upon vesting of RSUs 3 — — — — —

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Balance at December 31, 2020 100 — 699 ( 1,886 ) ( 5 ) ( 1,192 )

Net loss — — — ( 131 ) — ( 131 )

Other comprehensive loss — — — — ( 2 ) ( 2 )

Issuance of common stock upon vesting of RSUs 2 — — — — —

Equity-based compensation expense — — 372 — — 372

Repurchase of common stock ( 1 ) — ( 300 ) — — ( 300 )

Shares issued upon conversion of convertible notes (Note 6) 4 — 265 — — 265

Cumulative effect of adopting new convertible debt standard — — ( 699 ) 68 — ( 631 )

Balance at December 31, 2021 105 $ — $ 337 $ ( 1,949 ) $ ( 7 ) $ ( 1,619 )

See notes to consolidated financial statements.

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2021 2020 2019

(in thousands)

Cash flows from operating activities:

Net income (loss) $ 184,996 $ ( 984,584 ) $ ( 504,080 )

Adjustments to reconcile net income (loss) to net cash from (for) operating activities

(in millions)

Cash flows from (for) operating activities:

Net (loss) income $ ( 131 ) $ 185 $ ( 985 )

Adjustments to reconcile net (loss) income to net cash flows from (for) operating activities

Depreciation and amortization 322 286 192

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Amortization of discount and issuance costs on convertible notes 7 134 62

Loss on impairment 12 — —

Other non-cash adjustments 6 13 ( 2 )

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Other liabilities 4 58 13

Net cash from (for) operating activities 1,416,731 ( 196,818 ) 84,861

Cash flows from investing activities:

Net cash flows from (for) operating activities 410 1,417 ( 197 )

Cash flows for investing activities:

Purchase of short- and long-term investments ( 989 ) ( 481 ) ( 554 )

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Other investing activities, net 5 — ( 15 )

Net cash for investing activities ( 236,075 ) ( 854,837 ) ( 260,287 )

Cash flows from financing activities:

Net cash flows for investing activities ( 515 ) ( 236 ) ( 855 )

Cash flows (for) from financing activities:

Proceeds from borrowings — 200 —

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Other financing activities, net ( 3 ) — ( 3 )

Net cash from financing activities 352,588 786,504 467,463

Net cash flows (for) from financing activities ( 303 ) 353 787

Effect of exchange rate changes on cash and cash equivalents ( 16 ) 13 ( 2 )

Net increase (decrease) in cash and cash equivalents 1,546,687 ( 266,708 ) 290,501

Net (decrease) increase in cash and cash equivalents ( 424 ) 1,547 ( 267 )

Cash and cash equivalents:

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$ 27 $ 17 $ 8

Non-cash impact to equity upon conversion of convertible debt, net of taxes $ 306,889 $ — $ —

Cash paid for interest on finance lease obligations

$ — $ — $ 9,058

Construction costs capitalized under finance lease obligations and other leases $ — $ — $ 125,796

Non-cash impact to equity upon conversion of convertible notes, net of taxes $ 265 $ 307 $ —

Purchase of property and equipment included in accounts payable and other liabilities $ 41 $ 30 $ 41

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is one of the world's largest online destinations for the home.

Through its e-commerce business model, Wayfair offers visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over twenty-two million products from over 16,000 suppliers.

Through its e-commerce business model, Wayfair offers visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over thirty-three million products from over 23,000 suppliers.

These financial statements consolidate the operations and accounts of Wayfair Inc.

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Wayfair Securities Corporation U.S.

Fairway Insurance Inc.

Wayfair Stores Limited Republic of Ireland

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Wayfair Deutschland Ltd.

Wayfair Deutschland GP Ltd.

CastleGate Logistics Canada Inc.

Wayfair Canada ULC Canada

CastleGate Logistics Hong Kong Limited Hong Kong

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British Virgin Islands

Wayfair Shanghai Ltd.

Wayfair Poland sp.

In the current year, Wayfair changed its presentation from thousands to millions.

As a result of the change in presentation, prior period amounts in the consolidated financial statements and notes thereto have been reclassified to conform to current period presentation and certain current and prior period amounts may not recalculate due to rounding.

Use of Estimates

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Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Cash and Cash Equivalents

Wayfair considers all highly liquid investments purchased with an original maturity (at the date of purchase) of three months or less to be the equivalent of cash.

Cash equivalents, which consist primarily of money market accounts, are carried at cost, which approximates fair value.

Investments consist of certificates of deposits and marketable securities with original maturities of greater than three months.

Cash equivalents, which consist primarily of money market accounts and certificates of deposits with original maturities of three months or less, are carried at cost, which approximates fair value.

Notes to Consolidated Financial Statements (Continued)

Wayfair classifies investments in certificates of deposits and marketable securities with original maturities of greater than three months as short-term investments and long-term investments on our consolidated balance sheets.

Short-term investments mature in less than twelve months from the balance sheet date.

We determine the cost basis of an investment sold using the specific identification method.

To the extent the amortized cost basis of the available-for-sale debt securities exceeds the fair value, management assesses the debt securities for credit loss, however management considers the risk of credit loss to be minimized by Wayfair's policy of investing in financial instruments issued by highly-rated financial institutions.

When assessing the risk of credit loss, management considers factors such as the severity and the reason of the decline in value (i.e., any changes to the rating of the security by a rating agency or other adverse conditions specifically related to the security) and management's intended holding period and time

Notes to Consolidated Financial Statements (Continued)

horizon for selling.

During the years ended December 31, 2020, 2019 and 2018, Wayfair did no t recognize any credit losses related to its available-for-sale debt securities.

Further, as of December 31, 2020 and 2019, Wayfair did no t record an allowance for credit losses related to its available-for-sale debt securities.

To the extent the amortized cost basis of the available-for-sale debt securities exceeds the fair value, management assesses the debt securities for credit loss.

However, management considers the risk of credit loss to be minimized by Wayfair’s policy of investing in financial instruments issued by highly-rated financial institutions.

From time to time, Wayfair may enter into equity investments that align with our organizational strategies and growth initiatives.

Equity investments in companies for which we do not have the ability to exercise significant influence are accounted for at estimated fair value, with adjustments for observable changes in prices or impairments, and are classified as other non-current assets on our consolidated balance sheets with adjustments recognized in other (expense) income, net on our consolidated statements of operations.

Each reporting period, we perform a qualitative assessment to evaluate whether each investment is impaired.

Our assessment includes a review of recent operating results and trends, recent sales or acquisitions of the investee securities and other readily observable information.

If the investment is impaired, we write it down to its estimated fair value.

Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over an investee, and we classify equity-method investments as other non-current assets on our consolidated balance sheets.

Our share of the earnings or losses as reported by equity-method investees, amortization of basis differences, related gains or losses, and impairments, if any, are recognized in our consolidated statements of operations.

Each reporting period, we evaluate whether declines in fair value below carrying value are other-than-temporary and if so, we write down the investment to its estimated fair value.

Concentrations of Credit Risk

Financial instruments that subject Wayfair to credit risk consist of cash and cash equivalents, short- and long-term investments and accounts receivable.

Financial instruments that subject Wayfair to credit risk consist of cash and cash equivalents, short-term investments and accounts receivable.

The risk for cash and cash equivalents is minimized by Wayfair's policy to maintain these balances with major financial institutions of high-credit quality.

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As of December 31, 2021 and 2020, Wayfair had $ 187 million and $ 281 million in banks located outside of the U.S.

The risk for short- and long-term investments is minimized by Wayfair's policy of investing in financial instruments issued by highly-rated financial institutions.

Accounts Receivables, Net

The risk for short-term investments is minimized by Wayfair's policy of investing in financial instruments issued by highly-rated financial institutions.

Accounts Receivable, Net

Accounts receivable are stated net of the allowance for credit losses, which are recorded based on historical losses as well as management's expectation of future collections.

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Deferred costs in-transit to customers are recorded in prepaid expenses and other current assets.

Property and Equipment

Notes to Consolidated Financial Statements (Continued)

Property and Equipment, Net

Property and equipment are stated at cost, net of depreciation.

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Wayfair capitalizes certain costs associated with the development of its sites and internal-use software products after the preliminary project stage is complete and until the site enhancements or software is ready for its intended use.

Wayfair also capitalizes implementation costs incurred in cloud computing hosting arrangements.

Upgrades and enhancements are capitalized if they will result in added functionality.

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Costs incurred in the preliminary stages of development, after the software is ready for its intended use and for maintenance of internal-use software are expensed as incurred.

Notes to Consolidated Financial Statements (Continued)

Long-Lived Assets

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Upon each agreement's commencement date, we determine if the agreement is part of an arrangement that is or that contains a lease, determine the lease classification and recognize right-of-use ("ROU") assets and lease liabilities for all leases with the exception of leases with terms of 12 months or less.

We have arrangements with lease and non-lease components, and we account for lease and non-lease components separately for our warehouse and fulfillment center arrangements.

For all other lease arrangements, we account for lease and non-lease components as a single lease component.

We have arrangements with lease and non-lease components, and we account for lease and non-lease components as a single lease component for our corporate headquarters offices and field offices.

For all other lease arrangements, we account for lease and non-lease components separately.

Operating lease ROU assets are classified in operating lease right-of-use assets in the consolidated balance sheets.

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If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the ROU asset.

Notes to Consolidated Financial Statements (Continued)

Contingent Liabilities

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however, we disclose the range of such reasonably possible losses.

Notes to Consolidated Financial Statements (Continued)

Foreign Currency Translation

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Wayfair Deutschland Ltd & Co KG Euro

Wayfair Deutschland GP Ltd.

Wayfair (BVI) Ltd.

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Canadian dollar

Wayfair Canada ULC Canadian dollar

CastleGate Logistics Hong Kong Limited Hong Kong dollar

Wayfair Shanghai Ltd.

Wayfair Poland sp.

The financial statements of Wayfair are translated to U.S.

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Capital accounts are translated at their historical exchange rates when the capital transaction occurred.

Translation adjustments arising from the use of differing exchange rates from period to period are included in other comprehensive income (loss) below net income (loss) and accumulated other comprehensive loss within total stockholders’ deficit.

Transaction gains and losses are included in other (expense) income, net, which is reflected in net income (loss).

Translation adjustments arising from the use of differing exchange rates from period to period are included in other comprehensive (loss) income below net (loss) income and accumulated other comprehensive loss within total stockholders’ deficit.

Transaction gains and losses are included in other (expense) income, net, which is reflected in net (loss) income.

Revenue Recognition

Wayfair primarily generated net revenue through product sales on its family of sites.

Wayfair primarily generates net revenue through product sales on its family of sites.

Wayfair recognizes net revenue on product sales through Wayfair's family of sites using the gross method when Wayfair has concluded it controls the product before it is transferred to the customer.

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Refer to Note 13, Segment and Geographic Information , for additional detail.

Notes to Consolidated Financial Statements (Continued)

Wayfair has three types of contractual liabilities:

(i) cash collections from its customers prior to delivery of products purchased, which are initially recorded in unearned revenue, and are recognized as net revenue when the products are delivered, (ii) unredeemed gift cards and site credits, which are initially recorded in unearned revenue, and are recognized in the period they are redeemed, and (iii) membership rewards redeemable for future purchases, which are earned by customers on purchases made through the Credit Card Program, and are initially recorded in other current liabilities, and recognized as net revenue when redeemed.

(i) cash collections from its customers prior to delivery of products purchased, which are initially recorded in unearned revenue within other current liabilities, and are recognized as net revenue when the products are delivered, (ii) unredeemed gift cards and site credits, which are initially recorded in unearned revenue within other current liabilities, and are recognized in the period they are redeemed, and (iii) membership rewards redeemable for future purchases, which are earned by customers on purchases made through the Credit Card Program, and are initially recorded in other current liabilities, and recognized as net revenue when redeemed.

The portion of gift cards and store credits not expected to be redeemed are recognized as net revenue based on a pattern of historical redemptions, which are substantially within twenty-four months from the date of issuance.

Notes to Consolidated Financial Statements (Continued)

Cost of Goods Sold

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Product Costs:

Wayfair capitalizes into inventory costs for the purchase price we pay to suppliers of products sold, direct and indirect labor costs, rent, depreciation and inbound shipping and handling costs.

Wayfair capitalizes into inventory the price we pay to suppliers for products purchased by Wayfair, direct and indirect labor costs, rent, depreciation and inbound shipping and handling costs.

Product costs are offset by rebates Wayfair earns through allowances and supplier incentive programs.

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Also included are administrative and professional service fees which include audit and legal fees, insurance, depreciation, rent and other corporate expenses.

Notes to Consolidated Financial Statements (Continued)

Equity-Based Compensation

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Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Notes to Consolidated Financial Statements (Continued)

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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Wayfair records valuation allowances to reduce deferred income tax assets to the amount that is more likely than not to be realized.

As of December 31, 2020, we maintained a full valuation allowance against our net worldwide deferred tax asset.

Wayfair determines whether it is more likely than not that a tax position will be sustained upon examination.

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Our position is based upon several factors including management's evaluation of Wayfair and its subsidiaries' financial requirements, the short- and long-term operational and fiscal objectives of Wayfair and the tax consequences associated with the repatriation of earnings.

Earnings (Loss) Per Share

Wayfair follows the two-class method when computing earnings (loss) per share for its two issued classes of common stock - Class A and Class B.

Basic earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the period plus, if dilutive, common stock equivalents outstanding during the period and stock issuable upon conversion of our convertible debt instruments.

(Loss) Earnings Per Share

Wayfair follows the two-class method when computing (loss) earnings per share for its two issued classes of common stock - Class A and Class B.

Basic (loss) earnings per share is computed using the weighted-average number of shares of common stock outstanding during the period.

Diluted (loss) earnings per share is computed using the weighted-average number of shares of common stock outstanding during the period plus, if dilutive, common stock equivalents outstanding during the period and stock issuable upon conversion of our convertible debt instruments.

Wayfair's common stock equivalents consist of shares issuable upon the release of restricted stock units, and to a lesser extent, the incremental shares of common stock issuable upon the exercise of stock options.

The dilutive effect of these common stock equivalents is reflected in diluted earnings (loss) per share by application of the treasury stock method.

The dilutive effect of shares issuable upon conversion of our convertible debt instruments are included in the calculation of diluted earnings (loss) per share under the if-converted method.

For periods in which Wayfair has reported net losses, diluted earnings (loss) per share is the same as basic earnings (loss) per share, as the effects of common stock equivalents outstanding and shares issuable upon conversion of convertible debt instruments are antidilutive and therefore excluded from the calculation of diluted earnings (loss) per share.

Wayfair allocates undistributed earnings between the classes on a one-to-one basis when computing earnings (loss) per share.

As a result, basic and diluted earnings (loss) per Class A and Class B shares are equivalent.

The dilutive effect of these common stock equivalents is reflected in diluted (loss) earnings per share by application of the treasury stock method.

The dilutive effect of shares issuable upon conversion of our convertible debt instruments are included in the calculation of diluted (loss) earnings per share under the if-converted method.

For periods in which Wayfair has reported net losses, diluted (loss) earnings per share is the same as basic (loss) earnings per share, as the effects of common stock equivalents outstanding and shares issuable upon conversion of convertible debt instruments are antidilutive and therefore excluded from the calculation of diluted (loss) earnings per share.

Wayfair allocates undistributed earnings between the classes on a one-to-one basis when computing (loss) earnings per share.

As a result, basic and diluted (loss) earnings per Class A and Class B shares are equivalent.

Adoption of New Accounting Principles

Wayfair adopted ASU No.

2016-13, Financial Instruments–Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , as subsequently amended (“ASU 2016-13”) on January 1, 2020, using the modified retrospective transition method.

This ASU revised how entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

As of January 1, 2020, our adoption of ASU 2016-13 resulted in a $ 5.5 million cumulative adjustment to our accumulated deficit.

Wayfair adopted ASU No.

2016-02, Leases ("ASU 2016-02") on January 1, 2019, using the modified retrospective approach.

Wayfair also elected the package of practical expedients, which among other things, allowed Wayfair to carry forward historical lease classification.

The adoption of the standard resulted in (1) the derecognition of building assets and finance lease obligations for certain leases that did not pass the sale-leaseback criteria, (2) the derecognition of construction in progress assets and other long-term liabilities for certain lease arrangements whereby Wayfair was no longer considered the deemed construction owner of the construction projects and (3) the recognition of operating lease ROU assets and lease liabilities for lease arrangements with an initial term greater than twelve months.

Convertible Debt

Notes to Consolidated Financial Statements (Continued)

New Accounting Pronouncements

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”).

This ASU simplifies the accounting for convertible instruments by removing the separation models for convertible debt with cash conversion features and convertible instruments with a beneficial conversion feature.

Under ASU 2020-06, a convertible debt instrument with those features will generally be reported as a single liability at its amortized cost with no separate accounting for the embedded conversion features.

We expect the elimination of these models will reduce reported interest expense for Wayfair’s existing convertible instruments currently falling under the scope of those models.

ASU 2020-06 requires the application of the if-converted method when calculating diluted earnings per share, eliminating our ability to use the treasury stock method when certain conditions are met.

The ASU is effective for annual reporting periods beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.

We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

Wayfair adopted ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06") on January 1, 2021 using the modified retrospective approach for all financial instruments that are outstanding as of the adoption date.

The new standard eliminates the cash conversion and beneficial conversion feature models that previously required separate accounting for conversion features.

Entities that had those conversion features will report less interest expense as those conversion features were recorded as debt discounts which were amortized over the term of the debt.

In addition, this ASU requires the application of the if-converted method when calculating diluted earnings per share.

Under the new standard, the conversion of debt that is accounted for as a liability in its entirety will not result in any gain or loss if the conversion feature is exercised according to the original conversion terms.

If those terms allowed the issuer to include cash as part of the settlement of the conversion feature, the issuer will first reduce the carrying amount of the convertible debt, including any unamortized premium, discount or issuance costs, by the value of the cash or other assets transferred and then recognize the remaining carrying value of the debt in the capital accounts.

The adoption of ASU 2020-06 resulted in the following adjustments to the consolidated balance sheets:

January 1, 2021 Adoption of ASU 2020-06 December 31,

(in millions)

Balance sheet line item:

Long-term debt $ 3,310 $ 651 $ 2,659

Other non-current liabilities $ 47 $ ( 20 ) $ 67

Additional paid-in capital

$ — $ ( 699 ) $ 699

Accumulated deficit $ ( 1,818 ) $ 68 $ ( 1,886 )

The adoption of ASU 2020-06 resulted in the following adjustments to our calculations of basic and diluted loss per share for the year ended December 31, 2021:

Under ASU 2020-06 Difference Under Legacy Accounting

Loss per share:

Basic $ ( 1.26 ) $ 1.33 $ ( 2.59 )

Diluted $ ( 1.26 ) $ 1.33 $ ( 2.59 )

The adoption of ASU 2020-06 did not materially impact our cash flows or compliance with debt covenants.

Wayfair adopted ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes on January 1, 2021, using the modified retrospective approach.

This ASU simplifies the accounting for income taxes, removes certain exceptions to the general principles in Topic 740, and clarifies and amends existing guidance to improve consistent application.

The effect of adoption of the new guidance was not material to our consolidated financial statements.

Notes to Consolidated Financial Statements (Continued)

Supplemental Financial Statement Disclosures

Accounts Receivable, Net

For the year ended December 31, 2020, we reported accounts receivable of $ 110.3 million, net of allowance for credit losses of $ 21.4 million.

For the year ended December 31, 2019, we reported accounts receivable of $ 99.7 million, net of allowance for credit losses of $ 22.8 million.

Other than the adjustment related to the adoption of ASU 2016-13, changes in the allowance for credit losses were not material for the year ended December 31, 2020.

As of December 31, 2021, we reported accounts receivable of $ 226 million, net of allowance for credit losses of $ 12 million.

As of December 31, 2020, we reported accounts receivable of $ 110 million, net of allowance for credit losses of $ 21 million.

The changes in the allowance for credit losses were not material for the year ended December 31, 2021.

Management believes credit risk is mitigated since approximately 99 % of the net revenue recognized for the year ended December 31, 2021 was collected in advance of recognition.

Prepaid Expenses and Other Current Assets

The following table presents the components of prepaid expenses and other current assets as of December 31, 2021 and 2020:

(in thousands)

(in millions)

Prepaid expenses and other current assets:

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Total prepaid expenses and other current assets $ 318 $ 292

Other Noncurrent Assets

The following table presents the components of other noncurrent assets as of December 31, 2020 and 2019:

(in thousands)

Other noncurrent assets:

Other Non-current Assets

The following table presents the components of other non-current assets as of December 31, 2021 and 2020:

(in millions)

Other non-current assets:

Goodwill and intangible assets, net $ 16 $ 17

Other noncurrent assets 14,183 13,467

Total other noncurrent assets $ 31,446 $ 32,276

Other non-current assets 19 15

Total other non-current assets $ 35 $ 32

Amortization expense related to intangible assets was $ 1 million, $ 2 million and $ 1 million for the years ended December 31, 2021, 2020 and 2019.

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For the years ended December 31, 2021, 2020 and 2019, no impairment of goodwill or intangible assets had been recorded.

Notes to Consolidated Financial Statements (Continued)

Other Current Liabilities

The following table presents the components of other current liabilities as of December 31, 2021 and 2020:

(in thousands)

(in millions)

Other current liabilities:

2 unchanged sentences

Short-term lease liability (Note 5)

97,286 91,104

Advertising 83 90

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As of December 31, 2021 and 2020, all of Wayfair’s marketable securities, which primarily consisted of corporate bonds and other government obligations that are priced at fair value, were classified as available-for-sale investments.

Wayfair did no t have any realized gains nor losses during the years ended December 31, 2021 and 2019.

During the year ended December 31, 2020, Wayfair collected $ 161 million of proceeds from the sale of long-term investments and recognized a realized gain of $ 1 million.

During the years ended December 31, 2019 and 2018, Wayfair did no t have any realized gains or losses.

Notes to Consolidated Financial Statements (Continued)

During the years ended December 31, 2021, December 31, 2020 and December 31, 2019, Wayfair did not recognize any credit losses related to its available-for-sale debt securities.

Further, as of December 31, 2021 and December 31, 2020, Wayfair did not record an allowance for credit losses related to its available-for-sale debt securities.

In the second quarter of 2021, Wayfair entered into an agreement with a vendor in which Wayfair received warrants to acquire shares of the vendor’s common stock.

In the third quarter of 2021, the vendor completed an initial public offering of its common stock.

As of December 31, 2021, these warrants, which vest over a five-year period, were valued at approximately $ 3 million and were classified in other non-current assets.

We recorded a decrease in the fair value of the warrants in the year ended December 31, 2021 of $ 3 million in other (expense) income, net on our consolidated statements of operations.

Furthermore, we have committed to make $ 20 million of other equity investments in connection with our impact investment initiatives.

In 2021, Wayfair made a $ 5 million initial investment which was accounted for under the equity method and presented in other non-current assets.

The following tables present details of Wayfair’s investment securities as of December 31, 2021 and 2020:

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Losses Estimated

(in thousands)

Investment securities $ 461,683 $ 20 $ ( 5 ) $ 461,698

(in millions)

Investment securities $ 693 $ — $ — $ 693

Total $ 693 $ — $ — $ 693

Notes to Consolidated Financial Statements (Continued)

December 31, 2020

Losses Estimated

(in thousands)

Investment securities $ 404,294 $ 20 $ ( 62 ) $ 404,252

(in millions)

Investment securities $ 462 $ — $ — $ 462

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The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security.

We classify short- and long-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active.

We classify short-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active.

None of our assets are classified as Level 3.

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Level 1 Level 2 Level 3 Total

(in thousands)

(in millions)

Cash and cash equivalents:

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Investment securities — 693 — 693

Other noncurrent assets:

Certificate of deposit 5,200 — — 5,200

Investment securities — — — —

Total $ 1,706 $ 693 $ — $ 2,399

1 unchanged sentence

Level 1 Level 2 Level 3 Total

(in thousands)

(in millions)

Cash and cash equivalents:

4 unchanged sentences

Investment securities — 462 — 462

Other noncurrent assets:

Other non-current assets:

Certificate of deposit 5 — — 5

Investment securities — 155,690 — 155,690

Total $ 2,135 $ 462 $ — $ 2,597

Notes to Consolidated Financial Statements (Continued)

Property and Equipment, net

The following table summarizes property and equipment, net as of December 31, 2021 and 2020:

(in thousands)

(in millions)

Furniture and computer equipment $ 557 $ 528

2 unchanged sentences

Construction in progress 35 29

1,387,003 1,080,389

Accumulated depreciation and amortization ( 967 ) ( 703 )

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Depreciation and amortization expense was $ 322 million, $ 284 million and $ 192 million, of which $ 171 million, $ 132 million and $ 82 million was attributable to the amortization expense of site and software development costs for the years ended December 31, 2021, 2020 and 2019.

For the year ended December 31, 2021, in connection with the consolidation of certain customer service centers in identified U.S.

locations, we recorded a charge of $ 5 million for the non-cash accelerated depreciation of fixed assets.

Refer to Note 5, Leases , for additional detail.

For the years ended December 31, 2020 and 2019, no impairment of long-lived assets had been recorded.

Total costs capitalized of site and software development costs, net of accumulated amortization, totaled $ 193 million and $ 158 million as of December 31, 2021 and 2020.

Wayfair has lease arrangements for warehouse, Wayfair Delivery Network facilities, which includes consolidation centers, cross docks and last mile delivery facilities and office spaces.

Notes to Consolidated Financial Statements (Continued)

Wayfair has lease arrangements for warehouses, Wayfair Delivery Network facilities, which includes consolidation centers, cross docks and last mile delivery facilities and office spaces.

These leases expire at various dates through 2036.

Operating lease expense was $ 160 million, $ 159 million and $ 122 million in 2021, 2020 and 2019.

Sublease income was $ 11.2 million in 2020 and immaterial in 2019 and 2018.

Sublease income was $ 17 million in 2021 and $ 11 million in 2020 and immaterial in 2019.

The following table presents other information related to leases:

Year Ended December 31,

(in thousands)

2021 2020 2019

(in millions)

Supplemental cash flows information:

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December 31, 2021 December 31,

2020 December 31,

Additional lease information:

Weighted average remaining lease term 8 years 10 years

Weighted average remaining lease term 8 years 8 years 10 years

Weighted average discount rate 6.0 % 6.5 % 6.7 %

Notes to Consolidated Financial Statements (Continued)

Future minimum lease payments under non-cancellable leases as of December 31, 2021 were as follows:

(in thousands)

2021 $ 149,590

(in millions)

Thereafter 422

3 unchanged sentences

The following table presents total operating leases liabilities:

December 31, 2020

(in thousands)

December 31, 2021 December 31,

(in millions)

Balance sheet line item:

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Operating lease liabilities 892 870

Total operating leases $ 967,244

As of December 31, 2020, Wayfair had additional operating lease commitments that had not yet commenced of approximately $ 127.9 million to be contractually delivered in 2021 with lease terms ranging between 2 to 15 years.

Total operating leases liabilities $ 1,002 $ 967

As of December 31, 2021, the Company has entered into $ 304 million of additional operating leases, primarily related to build-to-suit warehouse and retail leases that have not yet commenced.

As the Company does not control the underlying assets during the construction period, the company is not considered the owner of the construction project for accounting purposes.

These operating leases will commence between 2022 and 2026 with lease terms of 2 to 20 years.

Notes to Consolidated Financial Statements (Continued)

Customer service center impairment and other charges

During the year ended December 31, 2021, we enacted a plan to consolidate certain customer service centers in identified U.S.

As a result, we recorded a charge of $ 12 million during the year ended December 31, 2021, which included $ 6 million for the non-cash impairment of ROU assets, $ 5 million for the non-cash accelerated depreciation of fixed assets and the remainder for other items.

Debt and Other Financing

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Debt Instrument Principal Amount Unamortized Debt Discount Net Carrying Amount Principal Amount Unamortized Debt Discount Net Carrying Amount

(in thousands)

(in millions)

Revolving Credit Facility $ — $ —

7 unchanged sentences

Long-term debt $ 3,052 $ 2,659

Notes to Consolidated Financial Statements (Continued)

Revolving Credit Facility

Wayfair Inc., and certain of its subsidiaries (together, the “Guarantors”), and Wayfair Inc.’s wholly-owned subsidiary Wayfair LLC, as borrower (the "Borrower"), have a credit agreement with certain lenders, which provides for a $ 200 million senior secured revolving credit facility that matures on February 21, 2022 (the “Revolver”).

Wayfair has issued letters of credit, primarily as security for certain lease agreements, for approximately $ 57.0 million as of December 31, 2020, which reduces the availability of credit under the Revolver.

On March 24, 2021, Wayfair and certain of its subsidiaries (together, the “Guarantors”) and Wayfair LLC, a wholly-owned subsidiary of Wayfair, as borrower (the “Borrower”), entered into a new credit agreement (the “Credit Agreement”) with the lending institutions from time-to-time parties thereto and Citibank, N.A., in its capacity as administrative agent, collateral agent, swingline lender and a letter of credit issuer.

The Credit Agreement provides for a $ 600 million senior secured revolving credit facility that matures on March 24, 2026 (the “Revolver”).

The Revolver replaced our previous $ 200 million senior secured revolving credit facility (the “Previous Revolver”), which was set to mature on February 21, 2022.

Wayfair paid all amounts owed under the Previous Revolver and terminated all lending commitments thereunder.

Debt issuance costs for the Revolver are included in other non-current assets and are amortized to interest expense over the Revolver’s term.

There were no revolving loans outstanding under the Revolver as of December 31, 2021.

Under the Credit Agreement, the Borrower may, from time to time, request letters of credit, which reduce the availability of credit under the Revolver.

Wayfair had approximately $ 59 million outstanding letters of credit as of December 31, 2021, primarily as security for lease agreements, which reduced the availability of credit under the Revolver.

Any amounts outstanding under the Revolver are due at maturity.

In addition, subject to the terms and conditions set forth in the credit agreement, Wayfair is required to make certain mandatory prepayments prior to maturity.

In August 2020, in connection with the 2020 Repurchase Program, Wayfair amended the credit agreement to increase Wayfair’s stock repurchase basket in the negative covenant for restricted payments.

In October 2020, Wayfair also increased the revolving loan commitment to $ 200 million through an incremental commitment joinder.

In 2020, Wayfair borrowed under the Revolver, and Wayfair had repaid all borrowings as of December 31, 2020.

As a result, there were no revolving loans outstanding under the Revolver as of December 31, 2020.

Wayfair’s obligations under the Revolver are guaranteed by the Guarantors.

The obligations of the Borrower and the Guarantors are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including, with certain exceptions, all of the capital stock of Wayfair Inc.’s domestic subsidiaries and 65 % of the capital stock of Wayfair Inc.’s first-tier foreign subsidiaries.

Revolver borrowings bear interest through maturity at a variable rate based upon, at the Borrower’s option, either the Eurodollar rate or the base rate (which is the highest of (x) Citibank’s prime rate, (y) one-half of 1.00% in excess of the federal funds effective rate and (z) 1.00 % in excess of the one-month Eurodollar rate), plus, in each case an applicable margin.

As of December 31, 2020, the applicable margin for Eurodollar rate loans was 1.50 % per annum and the applicable margin for base rate loans was 0.50 % per annum.

The applicable margin is subject to specified changes depending on Wayfair’s liquidity, as defined in the credit agreement.

The Revolver contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of Wayfair LLC and the Guarantors, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments and change the nature of their businesses.

In addition, subject to the terms and conditions set forth in the Credit Agreement, the Borrower is required to make certain mandatory prepayments prior to maturity.

The proceeds of the Revolver may be used to finance working capital, to refinance existing indebtedness and to provide funds for permitted acquisitions, repurchases of equity interests and other general corporate purposes.

The Borrower’s obligations under the Revolver are guaranteed by the Guarantors.

The obligations of the Borrower and the Guarantors are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including, with certain exceptions, all of the capital stock of Wayfair’s domestic subsidiaries and 65 % of the capital stock of Wayfair’s first-tier foreign subsidiaries.

On October 11, 2021, the parties amended the Credit Agreement ("Amendment No.

1") to reflect technical and administrative changes related to the phase out of LIBOR and the implementation of SONIA with respect to loans denominated in Pounds Sterling.

Following Amendment No.

1, the Revolver borrowings bear interest through maturity at a variable rate based upon, at the Borrower’s option, (i) the LIBOR rate, (ii) the base rate (which is the highest of (x) the prime rate, (y) one-half of 1.00 % in excess of the federal funds effective rate and (z) 1.00 % in excess of the one-month LIBOR rate) or (3) with respect to loans denominated in Pounds Sterling, the RFR rate (which is the greater of (x) the SONIA rate and (y) 0.00 %), plus, in each case an applicable margin.

As of December 31, 2021, the applicable margin for LIBOR loans is 1.25 % per annum, the applicable

Notes to Consolidated Financial Statements (Continued)

margin for base rate loans is 0.25 % per annum and the applicable margin for RFR loans is 1.2826 % per annum.

The applicable margin is subject to specified changes depending on Wayfair’s Consolidated Senior Secured Debt to Consolidated EBITDA Ratio, as defined in the Credit Agreement.

The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrower and the Guarantors, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, or change the nature of their businesses.

The Revolver also contains customary events of default, subject to thresholds and grace periods, including, among others, payment default, covenant default, cross default to other material indebtedness and judgment default.

In addition, the Revolver requires Wayfair to maintain certain levels of free cash flow, as defined in the credit agreement.

In addition, the Credit Agreement requires Wayfair to maintain a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement) of 4.0 to 1.0, subject to a 0.5 step-up following certain permitted acquisitions.

We do not expect any of these restrictions to affect or limit our ability to conduct business in the ordinary course.

As of December 31, 2021, Wayfair was in compliance with all covenants.

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2025 Notes October 1, 2025 0.625 % 0.9 % April 1 and October 1

Notes to Consolidated Financial Statements (Continued)

In September 2017, Wayfair issued $ 431.25 million in aggregate principal amount of 0.375 % Convertible Senior Notes due 2022 (the "2022 Notes"), which includes the exercise in full of a $ 56.25 million option granted to the initial purchasers.

7 unchanged sentences

Convertible Accreting Notes

In April 2020, Wayfair issued $ 535.0 million in aggregate original principal amount of 2.50 % Accreting Convertible Senior Notes due 2025 (the "2025 Accreting Notes", and collectively with the Non-Accreting Notes, the “Notes”) to GHEP VII Aggregator, L.P ("Great Hill"), CBEP Investments, LLC ("Charlesbank") and The Spruce House Partnership LLC.

The 2025 Accreting Notes are fully and unconditionally guaranteed on a senior unsecured basis by Wayfair LLC, a wholly-owned subsidiary of Wayfair Inc., as guarantor.

In April 2020, Wayfair issued $ 535.0 million in aggregate original principal amount of 2.50 % Accreting Convertible Senior Notes due 2025 (the "2025 Accreting Notes", and collectively with the Non-Accreting Notes, the “Notes”) to Great Hill, CBEP Investments, LLC ("Charlesbank") and The Spruce House Partnership LLC.

The 2025 Accreting Notes are fully and unconditionally guaranteed on a senior unsecured basis by Wayfair LLC, a wholly-owned subsidiary of Wayfair Inc., as

Notes to Consolidated Financial Statements (Continued)

No cash interest is payable on the 2025 Accreting Notes.

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Each indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of not less than 25 % in aggregate principal amount of the respective notes then outstanding may declare the entire principal amount of the respective notes plus accrued interest, if any, to be immediately due and payable.

Notes to Consolidated Financial Statements (Continued)

Conversion and Redemption Terms of the Notes

10 unchanged sentences

The holders of the Non-Accreting Notes may convert all or a portion of the notes prior to certain conversion dates (the “Free Convertibility Date”) under the following circumstances (in each case, as applicable to each series of Non-Accreting Notes):

• during any calendar quarter (and only during such calendar quarter) after December 31, 2020, if the last reported sale price of Wayfair’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

• during any calendar quarter (and only during such calendar quarter), if the last reported sale price of Wayfair’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

• during the five business day period after any ten consecutive trading day period (the “measurement period") in which the trading price (as defined in the applicable indenture) per $ 1,000 principal amount of the notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Wayfair’s Class A common stock and the conversion rate on each such trading day;

• if Wayfair calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date;

Notes to Consolidated Financial Statements (Continued)

• upon the occurrence of specified corporate events (as set forth in the applicable indenture).

8 unchanged sentences

Holders of the 2025 Accreting Notes who convert in connection with a make-whole fundamental change (as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the conversion rate.

Notes to Consolidated Financial Statements (Continued)

Wayfair may not redeem the Notes prior to certain dates (the “Redemption Date”).

1 unchanged sentence

The redemption price will be either 100 % of the principal amount (or accreted principal amount) of the notes to be redeemed, plus accrued and unpaid interest, if any, or the if-converted value holder elects to convert their Notes upon receiving notice of redemption.

Accounting for Non-Accreting Notes

In accounting for the issuance of the Non-Accreting Notes, Wayfair separated the Non-Accreting Notes into liability and equity components.

Accounting for the Notes After the Adoption of ASU 2020-06

Wayfair adopted ASU 2020-06 on January 1, 2021 as further described in Note 1, Summary of Significant Accounting Policies .

Following the adoption of ASU 2020-06, the Notes are recorded as a single unit within liabilities in the consolidated balance sheets as the conversion features within the Notes are not derivatives that require bifurcation and the Notes do not involve a substantial premium.

Transaction costs to issue the Notes were recorded as direct deductions from the related debt liabilities and amortized to interest expense using the effective interest method over the terms of the corresponding Notes.

Interest for the Accreting Notes is amortized to interest expense, net using the effective interest method over the term of the Accreting Notes and recorded to other long-term liabilities in the consolidated balance sheets.

Upon accretion to the principal amount on April 1 and October 1 of each year, Wayfair will reclassify the interest accrued as of that date to long-term debt.

Notes to Consolidated Financial Statements (Continued)

Accounting for the Notes Before the Adoption of ASU 2020-06

Prior to the adoption of ASU 2020-06, in accounting for the issuance of the Non-Accreting Notes, Wayfair separated the Non-Accreting Notes into liability and equity components.

The carrying amount of each Non-Accreting Note's liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature.

1 unchanged sentence

The difference between the carrying amount of the Non-Accreting Note and the liability component represents the debt discount for the Non-Accreting Note, which was recorded as a direct deduction from the related debt liabilities and is amortized to interest expense using the effective interest method over the term of the Non-Accreting Note.

The equity components of the 2022 Notes, 2024 Notes, 2026 Notes and 2025 Notes of approximately $ 95.8 million, $ 181.5 million, $ 280.3 million and $ 297.4 million, respectively, are included in additional paid-in capital and are not remeasured as long as they continue to meet the conditions for equity classification.

The equity components of the 2022 Notes, 2024 Notes, 2026 Notes and 2025 Notes of approximately $ 96 million, $ 182 million, $ 280 million and $ 297 million, respectively, were included in additional paid-in capital and were not remeasured as long as they continued to meet the conditions for equity classification.

Wayfair allocated transaction costs related to the components of the Non-Accreting Notes using the same proportions as the proceeds from the corresponding Non-Accreting Notes.

Transaction costs attributable to the liability components were recorded as direct deductions from the related debt liabilities and amortized to interest expense over the terms of the corresponding Non-Accreting Notes, and transaction costs attributable to the equity components were netted with the corresponding equity components in shareholders’ deficit.

Accounting for Accreting Notes

In accounting for the issuance of the 2025 Accreting Notes, Wayfair determined there was a beneficial conversion feature, which represents the excess of the fair value of the underlying common stock at the commitment date less the effective conversion price of the shares convertible at that time.

The beneficial conversion feature of $ 39.4 million was recorded to additional paid-in capital and represents a debt discount to the 2025 Accreting Notes, which was recorded as a direct deduction from the related debt liability.

In accounting for the issuance of the 2025 Accreting Notes, Wayfair determined there was a beneficial conversion feature, which represented the excess of the fair value of the underlying common stock at the commitment date less the effective conversion price of the shares convertible at that time.

The beneficial conversion feature of $ 39 million was recorded to additional paid-in capital and represented a debt discount to the 2025 Accreting Notes, which was recorded as a direct deduction from the related debt liability.

It is amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes.

All transaction costs incurred were recorded as a direct deduction from the related debt liability and are amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes.

Interest for the 2025 Accreting Notes is amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes and recorded to other long-term liabilities.

Upon accretion to the principal amount on April 1 and October 1 of each year, Wayfair will reclassify the interest accrued as of that date to long-term debt.

The beneficial conversion feature for additional shares, which would be issued upon conversion of paid-in-kind interest, is recorded as additional interest expense and additional paid-in capital over the term of the 2025 Accreting Notes as such interest accrues.

All transaction costs incurred were recorded as a direct deduction from the related debt liability and were amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes.

Interest for the 2025 Accreting Notes was amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes and recorded to other long-term liabilities.

Upon accretion to the principal amount on April 1 and October 1 of each year, Wayfair reclassified the interest accrued as of that date to long-term debt.

The beneficial conversion feature for additional shares, which would be issued upon conversion of paid-in-kind interest, was recorded as additional interest expense and additional paid-in capital over the term of the 2025 Accreting Notes as such interest accrued.

Proceeds from Notes Transactions

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We may also use a portion of the net proceeds to finance acquisitions, strategic transactions, investments, repurchases of our Class A common stock or the repayment, redemption, purchase or exchange of indebtedness (including the Notes).

Conversions of Notes in 2021 After the Adoption of ASU 2020-06

During the year ended December 31, 2021, holders of the 2022 Notes and 2026 Notes converted $ 15 million of aggregate principal and received 147,414 shares of Wayfair’s Class A common stock.

During the year ended December 31, 2021, Great Hill converted $ 253 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair's Class A common stock.

In aggregate, these conversions increased additional paid-in capital by $ 265 million for the year ended December 31, 2021

Notes to Consolidated Financial Statements (Continued)

Extinguishment and Conversions of Notes

In August 2020, Wayfair used $ 1.0 billion of the net proceeds from the issuance of the 2025 Notes to repurchase for cash in privately negotiated repurchase transactions $ 343.4 million in aggregate principal amount of the 2022 Notes.

Extinguishment and Conversions of Notes in 2020 Before the Adoption of ASU 2020-06

During the year ended December 31, 2020, Wayfair used $ 1.0 billion of the net proceeds from the issuance of the 2025 Notes to repurchase for cash in privately negotiated repurchase transactions $ 343 million in aggregate principal amount of the 2022 Notes.

Additionally, in 2020, $ 70 million aggregate principal of the 2022 Notes were settled upon conversion by the holders for 670,610 shares of Wayfair’s Class A common stock.

2 unchanged sentences

Wayfair applied the $ 832 million residual value of the total fair value of the consideration to the equity component in additional paid-in capital.

In October 2020, Charlesbank converted $ 253.1 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair’s Class A common stock.

During the year ended December 31, 2020, Charlesbank converted $ 253 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair’s Class A common stock.

Upon Charlesbank's conversion of the 2025 Accreting Notes, the remaining debt discount for those notes of $ 20 million was immediately recognized as interest expense in the fourth quarter of 2020.

In January 2021, Great Hill converted $ 253.1 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair's Class A common stock.

Interest Expense

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Convertible Notes Contractual Interest Expense Debt Discount Amortization Total Interest Expense Contractual Interest Expense Debt Discount Amortization Total Interest Expense

(in thousands)

(in millions)

2022 Notes $ — $ — $ — $ 1 $ 14 $ 15

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The if-converted value of the 2025 Notes did not exceed the principal value as of December 31, 2021.

The 2022 Capped Calls, 2024 Capped Calls, 2026 Capped Calls and 2025 Capped Calls (collectively, the "Capped Calls") are expected generally to reduce the potential dilution and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes if the market price per share of Wayfair’s Class A common stock is greater than the strike price of the applicable Capped Call (which corresponded to the initial conversion price of the applicable Non-Accreting Notes and is subject to certain adjustments under the terms of the applicable Capped Call), with such reduction

The Capped Calls

Notes to Consolidated Financial Statements (Continued)

and/or offset subject to a cap based on the cap price of the applicable Capped Calls (the "Initial Cap Price").

The Capped Calls can, at Wayfair’s option, remain outstanding until their maturity date, even if all or a portion of the Non-Accreting Notes are converted, repurchased or redeemed prior to such date.

can, at Wayfair’s option, remain outstanding until their maturity date, even if all or a portion of the Non-Accreting Notes are converted, repurchased or redeemed prior to such date.

Each of the Capped Calls has an initial cap price per share of Wayfair’s Class A common stock, which represented a premium over the last reported sale price (or, with respect to the 2025 Capped Calls, the volume-weighted average price) of Wayfair’s Class A common stock on the date the corresponding Non-Accreting Notes were priced (the "Cap Price Premium"), and is subject to certain adjustments under the terms of the corresponding agreements.

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Purchase Obligations

Wayfair has entered into purchase obligations that represent enforceable and legally binding software license commitments.

Our payments due under these purchase obligations are $ 97.4 million in 2021, $ 121.2 million in 2022, $ 114.6 million in 2023 and no other commitments thereafter.

Wayfair has entered into purchase obligations that represent enforceable and legally binding software license and freight commitments.

Our payments due under these purchase obligations are $ 237 million in 2022, $ 36 million in 2023, $ 29 million in 2024, $ 1 million in 2025, and no other commitments thereafter.

These payments exclude payments for contracts that are able to be canceled, both in full or in part, since they do not represent legally binding arrangements.

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On November 18, 2020, certain of our present and former directors, along with Great Hill Partners, L.P., Great Hill, Charlesbank Capital Partners, LLC and Charlesbank, were named as defendants in a shareholder derivative lawsuit filed in the Court of Chancery of the State of Delaware by the Equity-League Pension Trust Fund.

Wayfair is named as a nominal defendant.

The derivative complaint primarily alleges that the director defendants breached their fiduciary duties with respect to Wayfair’s issuance of the 2025 Accreting Notes, and further alleges that the non-director defendants were unjustly enriched on the basis of

Wayfair was named as a nominal defendant.

The derivative complaint primarily alleged that the director defendants breached their fiduciary duties with respect to Wayfair’s issuance of the 2025 Accreting Notes, and further alleged that the non-director defendants were unjustly enriched on the basis of the issuance.

The complaint asserted causes of action for breach of fiduciary duty and unjust enrichment and sought

Notes to Consolidated Financial Statements (Continued)

the issuance.

The complaint asserts causes of action for breach of fiduciary duty and unjust enrichment and seeks disgorgement of proceeds received as a result of the issuance, other equitable relief and damages and attorneys’ fees and costs.

At this time, based on available information regarding this litigation, we are unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses.

disgorgement of proceeds received as a result of the issuance, other equitable relief and damages and attorneys’ fees and costs.

On February 16, 2021, the named director defendants and Wayfair filed motions to dismiss the complaint with prejudice and Great Hill and Charlesbank each filed separate motions to dismiss the complaint.

On November 30, 2021, the court issued an order dismissing all claims.

The plaintiff did not appeal the dismissal by the December 30, 2021 appeal deadline.

Employee Benefit Plans

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Stock Repurchase Program

On August 21, 2020, the Board authorized the repurchase of up to $ 700 million of Wayfair’s Class A common stock (the “2020 Repurchase Program”).

The 2020 Repurchase Program replaced Wayfair’s previous $ 200 million stock repurchase authorization approved by the Board in 2018, which was terminated simultaneously.

During the year ended December 31, 2020, Wayfair repurchased $ 380.2 million of its Class A common stock through the stock repurchase programs at an average price of $ 302.71 per share.

During the year ended December 31, 2019, Wayfair did not repurchase any shares of common stock.

On August 21, 2020, the Board authorized the repurchase of up to $ 700 million of Wayfair’s Class A common stock in the open market, through privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan (the “2020 Repurchase Program”).

On August 10, 2021, the Board authorized a new $ 1.0 billion share repurchase program on the same terms (the “2021 Repurchase Program”, together with the 2020 Repurchase Program, the "Repurchase Programs").

There is no stated expiration for the Repurchase Programs.

Wayfair will begin repurchasing shares under the 2021 Repurchase Program upon the completion of the 2020 Repurchase Program.

During the years ended December 31, 2021 and December 31, 2020, Wayfair repurchased $ 300 million and $ 380 million under authorized stock repurchase programs at an average price of $ 305.43 and $ 302.71 per share of Class A common stock, respectively.

In 2022, Wayfair repurchased approximately $ 75 million under the Repurchase Programs at an average price of $ 136.80 per share of Class A common stock.

Notes to Consolidated Financial Statements (Continued)

Equity-Based Compensation

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The 2014 Plan initially made 8,603,066 shares of Class A common stock available for future award grants.

The 2014 Plan also contains an evergreen provision whereby the shares available for future grants are increased on the first day of each calendar

Notes to Consolidated Financial Statements (Continued)

year from January 1, 2016 through and including January 1, 2024.

The 2014 Plan also contains an evergreen provision whereby the shares available for future grants are increased on the first day of each calendar year from January 1, 2016 through and including January 1, 2024.

As of January 1, 2022, 6,443,150 shares of Class A common stock were available for future grant under the 2014 Plan.

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Options exercised ( 19,026 ) $ 2.99

Options forfeited/canceled ( 20 ) 3.42

Outstanding and exercisable at December 31, 2021 — $ — —

The intrinsic value of stock options exercised was $ 6 million and $ 5 million for the years ended December 31, 2021 and 2020.

Aggregate intrinsic value of stock options outstanding and currently exercisable is $ 4.2 million as of December 31, 2020.

All stock options were fully vested at December 31, 2020.

The following table presents activity relating to RSUs for the year ended December 31, 2021:

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Unrecognized equity-based compensation expense related to RSUs expected to vest over time is $ 992 million with a weighted-average remaining vesting term of 1.3 years as of December 31, 2021.

Notes to Consolidated Financial Statements (Continued)

Equity-based compensation was classified as follows in the consolidated statements of operations for the years ended December 31:

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2021 2020 2019

(in thousands)

(in millions)

Cost of goods sold $ 12 $ 9 $ 5

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Total equity-based compensation $ 344 $ 276 $ 227

Equity-based compensation costs capitalized as site and software development costs was $ 17.3 million for the year ended December 31, 2020.

The amount qualifying for capitalization during the years ended December 31, 2019 and 2018 was not material.

Notes to Consolidated Financial Statements (Continued)

Equity-based compensation costs capitalized as site and software development costs were $ 28 million and $ 17 million for the years ended December 31, 2021 and December 31, 2020.

The amount qualifying for capitalization during the year ended December 31, 2019 was not material.

The components of the provision for income taxes, net for the years ended December 31, 2021, 2020 and 2019 are presented below:

Year ended 2020 2019 2018

(in thousands)

2021 2020 2019

(in millions)

Federal $ — $ — $ —

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Federal — 9 —

State 1,306 — ( 24 )

Foreign — — —

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2021 2020 2019

(in thousands)

Provision for income taxes at the federal statutory rate $ 43,116 $ ( 206,131 ) $ ( 105,429 )

(in millions)

(Benefit) provision for income taxes at the federal statutory rate $ ( 27 ) $ 43 $ ( 206 )

State income tax expense, net of federal benefit ( 1 ) 19 ( 40 )

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Change in valuation allowance 97 ( 27 ) 237

Change in tax rate ( 847 ) ( 2,293 ) 197

Limitation on officer's compensation 6 8 7

Debt integration termination — — 9,236

Other 3,177 6,163 6,724

Intangible property basis step-up ( 43 ) — —

Provision for income taxes, net $ 1 $ 20 $ 3

We recorded a provision for income taxes, net of $ 20.3 million, representing an effective tax rate of 9.88 %.

The effective tax rate differs from the U.S.

Federal statutory rate of 21 % primarily as a result of excess tax benefits on equity awards for U.S.

employees and the valuation allowance maintained against our worldwide net deferred tax asset.

The components of income (loss) before income taxes determined by tax jurisdiction, are as follows:

Notes to Consolidated Financial Statements (Continued)

The components of (loss) income before income taxes determined by tax jurisdiction, are as follows:

Year Ended December 31,

2021 2020 2019

(in thousands)

(in millions)

$ 171 $ 400 $ ( 700 )

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Total $ ( 130 ) $ 205 $ ( 982 )

Notes to Consolidated Financial Statements (Continued)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities for the periods presented are as follows:

(in thousands)

(in millions)

Deferred tax assets:

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Equity-based compensation expense 18 13

Intangibles 9,274 10,675

Intangible property 51 9

Accrued payroll 31 36

Accrued expenses and reserves 22 24

Charitable contributions — 872

Leases 269 255

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Total deferred tax liabilities ( 329 ) ( 471 )

Non-current net deferred tax assets (liabilities) $ ( 20,930 ) $ —

The valuation allowance decreased by $ 84.8 million during 2020.

The decrease in the valuation allowance is the result of Wayfair utilizing its deferred tax assets related to historical net operating losses to offset current year taxable income, as well as a decrease in valuation allowance through equity as a result of the deferred tax liability recorded related to our convertible debt issuances.

This is partially offset by establishing a valuation allowance against the current year operating losses of our foreign entities.

Non-current net deferred tax liabilities $ ( 1 ) $ ( 21 )

The valuation allowance increased by $ 240 million during 2021.

The increase in the valuation allowance is the result of Wayfair establishing a valuation allowance related to the current year operating losses, the adoption of ASU 2020-06, the basis adjustment to intangible property, and adjustments to our operating loss carryforwards when we filed our returns.

In determining the need for a valuation allowance, Wayfair has given consideration to the cumulative book income and loss positions of each of its entities as well as its worldwide cumulative income position.

We have assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income.

At December 31, 2020, we maintain a full valuation allowance against our worldwide net deferred tax assets.

At December 31, 2021, we maintained a full valuation allowance against substantially all of our worldwide net deferred tax assets.

Notes to Consolidated Financial Statements (Continued)

As of December 31, 2021, Wayfair had federal net operating loss carryforwards available to offset future federal taxable income of $ 1.3 billion.

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Our ability to utilize these federal and state net operating loss carryforwards may be limited in the future if we experience an ownership change pursuant to Internal Revenue Code Section 382.

An ownership change occurs when the ownership percentages of 5% or greater

Notes to Consolidated Financial Statements (Continued)

stockholders change by more than 50% over a three-year period.

An ownership change occurs when the ownership percentages of 5% or greater stockholders change by more than 50% over a three-year period.

Through December 31, 2021, we have determined that none of our tax attributes were subject to such a restrictive limitation.

As of December 31, 2020, Wayfair also had foreign net operating loss carryforwards available to offset future foreign income of $ 949.8 million.

As of December 31, 2021, Wayfair also had foreign net operating loss carryforwards available to offset future foreign income of $ 1.2 billion.

The Canadian net operating loss of $ 33 million will expire in the year ending December 31, 2038.

The remaining foreign net operating loss carryforwards do not expire.

As of December 31, 2020, Wayfair has not provided for U.S.

deferred income taxes on undistributed earnings of its foreign subsidiaries of approximately $ 6.0 million since these earnings are deemed to be indefinitely reinvested.

Upon distribution of those earnings in the form of dividends or otherwise, we could be subject to income taxes as well as withholding taxes.

The amount of taxes attributable to the undistributed earnings is immaterial.

As of December 31, 2021, Wayfair has not provided for deferred income taxes on outside basis differences in its foreign subsidiaries of approximately $ 309 million since these basis differences are deemed to be indefinitely reinvested, or it is within the control of Wayfair to recognize these basis differences on a tax-free basis.

Upon realization of the outside basis differences in the form of dividends or otherwise, we could be subject to income taxes as well as withholding taxes.

The amount of taxes attributable to the outside basis differences, if realized, is expected to be immaterial.

Wayfair establishes reserves for uncertain tax positions based on management's assessment of exposures associated with tax deductions, permanent tax differences and tax credits.

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federal and state and foreign taxing authorities to the extent of future utilization of net operating losses generated in each preceding year.

Earnings (Loss) per Share

The following table presents the calculation of basic and diluted earnings (loss) per share:

Notes to Consolidated Financial Statements (Continued)

(Loss) Earnings per Share

The following table presents the calculation of basic and diluted (loss) earnings per share:

Year Ended December 31,

2021 2020 2019

(in thousands, except per share data)

Numerator for basic EPS - Net income (loss) $ 184,996 $ ( 984,584 ) $ ( 504,080 )

(in millions, except per share data)

Numerator for basic EPS - Net (loss) income $ ( 131 ) $ 185 $ ( 985 )

Effect of dilutive securities:

Interest expense associated with convertible debt instruments — — —

Numerator for diluted EPS - net income (loss) available to common stockholders after the effect of dilutive securities $ 184,996 $ ( 984,584 ) $ ( 504,080 )

Numerator for diluted EPS - net (loss) income available to common stockholders after the effect of dilutive securities $ ( 131 ) $ 185 $ ( 985 )

Denominator for basic EPS - weighted-average number of shares of common stock outstanding 104 96 92

Effect of dilutive securities:

Employee stock options 29 — —

Restricted stock units — 3 —

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Denominator for diluted EPS - adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities 104 99 92

Earnings (Loss) per Share:

(Loss) Earnings per Share:

Basic $ ( 1.26 ) $ 1.93 $ ( 10.68 )

Diluted $ ( 1.26 ) $ 1.86 $ ( 10.68 )

Notes to Consolidated Financial Statements (Continued)

The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted earnings (loss) per share were as follows:

The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted (loss) earnings per share were as follows:

Year Ended December 31,

2021 2020 2019

(in thousands)

Outstanding employee stock options — 44 80

Unvested restricted common stock — — 20

(in millions)

Unvested restricted stock units 5 — 8

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Wayfair will settle conversions of the 2025 Accreting Notes in shares.

T he Capped Calls are generally expected to reduce the potential dilution of Wayfair's Class A common stock upon any conversion of the Notes and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes if the market price per share of Wayfair’s Class A common stock is greater than the strike price of the Capped Calls (which corresponded to the initial conversion price of the Non-Accreting Notes and is subject to certain adjustments under the terms of the Capped Calls), with such reduction and/or offset subject to the Initial Cap Price.

The number of shares of Wayfair's Class A common stock potentially issuable and obtainable at the respective conversion prices of the Notes and the Capped Calls, respectively, as of December 31, 2020, are as follows:

2022 Notes / 2022 Capped Calls 2024 Notes / 2024 Capped Calls 2026 Notes / 2026 Capped Calls 2025 Accreting Notes 2025 Notes / 2025 Capped Calls

(in thousands)

Shares potentially issuable from convertible debt instruments 173 4,940 6,390 3,979 3,639

Shares obtainable from the exercise of capped calls ( 1,347 ) ( 2,322 ) ( 3,003 ) — ( 1,710 )

Total ( 1,174 ) 2,618 3,387 3,979 1,929

For more information on the structure of the Notes and the Capped Calls, including potential adjustments to the conversion prices used to determine the shares presented in the preceding table, see Note 6, Debt and Other Financing .

T he Capped Calls are generally expected to reduce the potential dilution of Wayfair's Class A common stock upon any conversion of the Notes and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes to the extent the market price per share of Wayfair’s Class A common stock is greater than the strike price of the Capped Calls (which corresponds to the initial conversion prices of the Non-Accreting Notes, subject to certain adjustments under the terms of the Capped Calls), with such reduction and/or offset capped at the Initial Cap Price.

As of December 31, 2021, the number of shares of Wayfair's Class A common stock potentially issuable at the respective conversion prices of the 2022 Notes, 2024 Notes, 2026 Notes, 2025 Notes and 2025 Accreting Notes is 25,976 shares, 4,939,825 shares, 6,389,662 shares, 3,638,950 shares and 500,917 shares.

Under the Capped Calls outstanding as of December 31, 2021, the maximum cash value obtainable of the 2022 Capped Calls, 2024 Capped Calls, 2026 Capped Calls and 2025 Capped Calls, if exercised at maturity, is $ 208 million, $ 510 million, $ 841 million and $ 1.3 billion.

For more information on the structure of the Notes and the Capped Calls, see Note 6, Debt and Other Financing .

Notes to Consolidated Financial Statements (Continued)

Segment and Geographic Information

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These segments reflect the way the CODM allocates resources and evaluates financial performance, which is based upon each segment's Adjusted EBITDA.

Adjusted EBITDA is defined as net income (loss) before depreciation and amortization, equity-based compensation and related taxes, interest (expense), net, other (expense) income, net, provision for income taxes, net, non-recurring items and other items not indicative of our ongoing operating performance.

Adjusted EBITDA is defined as net (loss) income before depreciation and amortization, equity-based compensation and related taxes, interest expense, net, other (expense) income, net, provision for income taxes, net, non-recurring items, and other items not indicative of our ongoing operating performance.

These charges are excluded from the evaluation of segment performance because it facilitates reportable segment performance comparisons on a period-to-period basis as these costs may vary independent of business performance.

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There are no revenue transactions between Wayfair's reportable segments.

Notes to Consolidated Financial Statements (Continued)

segment primarily consists of amounts earned through product sales through Wayfair's family of sites in the U.S.

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2021 2020 2019

(in thousands)

(in millions)

net revenue $ 11,249 $ 11,901 $ 7,765

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2021 2020 2019

(in thousands)

(in millions)

Adjusted EBITDA:

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reconciling items (1) ( 745 ) ( 762 ) ( 488 )

Net income (loss) $ 184,996 $ ( 984,584 ) $ ( 504,080 )

(1) The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net income (loss):

Net (loss) income $ ( 131 ) $ 185 $ ( 985 )

Notes to Consolidated Financial Statements (Continued)

(1) The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net (loss) income:

Year Ended December 31,

2021 2020 2019

(in thousands)

(in millions)

Depreciation and amortization $ 322 $ 286 $ 192

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Total reconciling items $ 745 $ 762 $ 488

(1) We recorded a $ 4.0 million loss related to severance costs associated with February 2020 workforce reductions.

The values were recorded in selling, operations, technology, general and administrative expenses.

In 2018, we terminated

Notes to Consolidated Financial Statements (Continued)

the lease of a warehouse we had vacated in 2017 and recorded a one-time gain of $ 1.7 million related to the difference in the expected future net lease commitments and the actual costs incurred to terminate the lease.

(1) In the year ended December 31, 2021, we recorded $ 12 million of customer service center impairment and other charges related to our plan to consolidate customer service centers.

In the year ended December 31, 2020, we recorded a $ 4 million charge in selling, operations, technology, general and administrative expenses for severance costs associated with February 2020 workforce reductions.

The following table presents long-lived assets attributable to Wayfair's reportable segments reconciled to the amounts:

Year Ended December 31,

(in thousands)

(in millions)

Geographic long-lived assets:

$ 718,681 $ 731,963

International 247 164

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Year Ended December 31,

(in thousands)

(in millions)

Assets by segment:

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and International segment assets consist primarily of accounts receivable, net, inventories, prepaid expenses and other current assets, property and equipment, net and operating lease ROU assets.

Corporate assets include cash and cash equivalents, short- and long-term investments, long-lived assets at our corporate facilities, capitalized internal-use software and website development costs and other noncurrent assets.

Corporate assets include cash and cash equivalents, short-term investments, long-lived assets at our corporate facilities, capitalized internal-use software and website development costs and other non-current assets.

Notes to Consolidated Financial Statements (Continued)

Related Party Transactions

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data