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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 _FORM 10-Q_(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the quarterly period ended September 30,2022orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to .Commission File No.000-22513_AMAZON.COM,INC.(Exact name of registrant as specified in its charter)_Delaware 91-1646860(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)410 Terry Avenue North,Seattle,Washington 98109-5210(206)266-1000(Address and telephone number,including area code,of registrants principal executive offices)Securities registered pursuant to Section 12(b)of the Act:Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which RegisteredCommon Stock,par value$.01 per shareAMZNNasdaq Global Select Market_Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during thepreceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-Tduring the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growthcompany.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No 10,201,654,176 shares of common stock,par value$0.01 per share,outstanding as of October 19,2022Table of ContentsAMAZON.COM,INC.FORM 10-QFor the Quarterly Period Ended September 30,2022INDEX PagePART I.FINANCIAL INFORMATIONItem 1.Financial Statements3Consolidated Statements of Cash Flows3Consolidated Statements of Operations4Consolidated Statements of Comprehensive Income(Loss)5Consolidated Balance Sheets6Notes to Consolidated Financial Statements7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations21Item 3.Quantitative and Qualitative Disclosures About Market Risk32Item 4.Controls and Procedures33PART II.OTHER INFORMATIONItem 1.Legal Proceedings34Item 1A.Risk Factors34Item 2.Unregistered Sales of Equity Securities and Use of Proceeds44Item 3.Defaults Upon Senior Securities44Item 4.Mine Safety Disclosures44Item 5.Other Information44Item 6.Exhibits45Signatures462Table of ContentsPART I.FINANCIAL INFORMATIONItem 1.Financial StatementsAMAZON.COM,INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)(unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30,Twelve Months EndedSeptember 30,202120222021202220212022CASH,CASH EQUIVALENTS,AND RESTRICTED CASH,BEGINNING OF PERIOD$40,667$37,700$42,377$36,477$30,202$30,177 OPERATING ACTIVITIES:Net income(loss)3,156 2,872 19,041(3,000)26,263 11,323 Adjustments to reconcile net income(loss)to net cash from operating activities:Depreciation and amortization of property and equipment and capitalized content costs,operating leaseassets,and other8,948 10,204 24,494 28,776 32,112 38,578 Stock-based compensation3,180 5,556 9,077 14,015 11,639 17,695 Other operating expense(income),net24 123 72 460(415)525 Other expense(income),net340(1,272)(2,374)13,521(3,701)1,589 Deferred income taxes909(825)3,313(4,781)1,677(8,404)Changes in operating assets and liabilities:Inventories(7,059)732(7,572)(5,772)(7,242)(7,687)Accounts receivable,net and other(4,890)(4,794)(11,607)(13,109)(16,168)(19,665)Accounts payable3,832(1,226)(4,387)(6,907)8,863 1,082 Accrued expenses and other(1,465)(20)(7,210)(7,335)(84)1,998 Unearned revenue338 54 1,394 1,711 1,727 2,631 Net cash provided by(used in)operating activities7,313 11,404 24,241 17,579 54,671 39,665 INVESTING ACTIVITIES:Purchases of property and equipment(15,748)(16,378)(42,118)(47,053)(56,941)(65,988)Proceeds from property and equipment sales and incentives997 1,337 3,192 4,172 4,822 6,637 Acquisitions,net of cash acquired,and other(654)(885)(1,604)(7,485)(1,985)(7,866)Sales and maturities of marketable securities15,808 557 46,847 25,918 64,185 38,455 Purchases of marketable securities(15,231)(239)(51,891)(2,332)(72,692)(10,598)Net cash provided by(used in)investing activities(14,828)(15,608)(45,574)(26,780)(62,611)(39,360)FINANCING ACTIVITIES:Common stock repurchased (6,000)(6,000)Proceeds from short-term debt,and other2,187 12,338 5,289 30,946 7,724 33,613 Repayments of short-term debt,and other(1,917)(7,916)(5,094)(21,757)(7,385)(24,416)Proceeds from long-term debt176 107 18,803 12,931 19,334 13,131 Repayments of long-term debt(509)(589)(1)(703)(1,002)Principal repayments of finance leases(2,693)(1,465)(8,903)(6,301)(11,271)(8,561)Principal repayments of financing obligations(20)(48)(115)(186)(124)(233)Net cash provided by(used in)financing activities(2,776)3,016 9,391 9,632 7,575 6,532 Foreign currency effect on cash,cash equivalents,and restricted cash(199)(1,334)(258)(1,730)340(1,836)Net increase(decrease)in cash,cash equivalents,and restricted cash(10,490)(2,522)(12,200)(1,299)(25)5,001 CASH,CASH EQUIVALENTS,AND RESTRICTED CASH,END OF PERIOD$30,177$35,178$30,177$35,178$30,177$35,178 See accompanying notes to consolidated financial statements.3Table of ContentsAMAZON.COM,INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in millions,except per share data)(unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Net product sales$54,876$59,340$170,371$172,370 Net service sales55,936 67,761 162,039 192,409 Total net sales110,812 127,101 332,410 364,779 Operating expenses:Cost of sales62,930 70,268 189,509 203,191 Fulfillment18,498 20,583 52,666 61,196 Technology and content14,380 19,485 40,739 52,399 Sales and marketing8,010 11,014 21,741 29,420 General and administrative2,153 3,061 6,298 8,558 Other operating expense(income),net(11)165 38 504 Total operating expenses105,960 124,576 310,991 355,268 Operating income4,852 2,525 21,419 9,511 Interest income119 277 330 544 Interest expense(493)(617)(1,327)(1,673)Other income(expense),net(163)759 2,795(13,356)Total non-operating income(expense)(537)419 1,798(14,485)Income(loss)before income taxes4,315 2,944 23,217(4,974)Benefit(provision)for income taxes(1,155)(69)(4,179)1,990 Equity-method investment activity,net of tax(4)(3)3(16)Net income(loss)$3,156$2,872$19,041$(3,000)Basic earnings per share$0.31$0.28$1.88$(0.29)Diluted earnings per share$0.31$0.28$1.85$(0.29)Weighted-average shares used in computation of earnings per share:Basic10,132 10,191 10,103 10,178 Diluted10,309 10,331 10,287 10,178 See accompanying notes to consolidated financial statements.4Table of ContentsAMAZON.COM,INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)(in millions)(unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Net income(loss)$3,156$2,872$19,041$(3,000)Other comprehensive income(loss):Foreign currency translation adjustments,net of tax of$39,$76,$35,and$136(537)(2,142)(752)(4,661)Net change in unrealized gains(losses)on available-for-sale debtsecurities:Unrealized gains(losses),net of tax of$3,$(4),$31,and$(3)(5)(195)(109)(1,095)Reclassification adjustment for losses(gains)included in“Otherincome(expense),net,”net of tax of$5,$0,$13,and$0(8)4(34)17 Net unrealized gains(losses)on available-for-sale debt securities(13)(191)(143)(1,078)Total other comprehensive income(loss)(550)(2,333)(895)(5,739)Comprehensive income(loss)$2,606$539$18,146$(8,739)See accompanying notes to consolidated financial statements.5Table of ContentsAMAZON.COM,INC.CONSOLIDATED BALANCE SHEETS(in millions,except per share data)December 31,2021September 30,2022(unaudited)ASSETSCurrent assets:Cash and cash equivalents$36,220$34,947 Marketable securities59,829 23,715 Inventories32,640 36,647 Accounts receivable,net and other32,891 36,154 Total current assets161,580 131,463 Property and equipment,net160,281 177,195 Operating leases56,082 62,033 Goodwill15,371 20,168 Other assets27,235 37,503 Total assets$420,549$428,362 LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable$78,664$67,760 Accrued expenses and other51,775 59,974 Unearned revenue11,827 12,629 Total current liabilities142,266 140,363 Long-term lease liabilities67,651 69,332 Long-term debt48,744 58,919 Other long-term liabilities23,643 22,259 Commitments and contingencies(Note 4)Stockholders equity:Preferred stock($0.01 par value;500 shares authorized;no shares issued or outstanding)Common stock($0.01 par value;100,000 shares authorized;10,644 and 10,714 shares issued;10,175 and10,198 shares outstanding)106 107 Treasury stock,at cost(1,837)(7,837)Additional paid-in capital55,437 69,419 Accumulated other comprehensive income(loss)(1,376)(7,115)Retained earnings85,915 82,915 Total stockholders equity138,245 137,489 Total liabilities and stockholders equity$420,549$428,362 See accompanying notes to consolidated financial statements.6Table of ContentsAMAZON.COM,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)Note 1 ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURESUnaudited Interim Financial InformationWe have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission(the“SEC”)for interim financial reporting.These consolidated financial statements are unaudited and,in our opinion,include all adjustments,consisting ofnormal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows,operating results,and balance sheets for the periodspresented.Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2022 due to seasonal and otherfactors.Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generallyaccepted in the United States(“GAAP”)have been omitted in accordance with the rules and regulations of the SEC.These consolidated financial statementsshould be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II,“Financial Statements andSupplementary Data,”of our 2021 Annual Report on Form 10-K.Common Stock SplitOn May 27,2022,we effected a 20-for-1 stock split of our common stock and proportionately increased the number of authorized shares of commonstock.All share,restricted stock unit(“RSU”),and per share or per RSU information throughout this Quarterly Report on Form 10-Q has been retroactivelyadjusted to reflect the stock split.The shares of common stock retain a par value of$0.01 per share.Accordingly,an amount equal to the par value of theincreased shares resulting from the stock split was reclassified from“Additional paid-in capital”to“Common stock.”Principles of ConsolidationThe consolidated financial statements include the accounts of A,Inc.and its consolidated entities(collectively,the“Company”),consisting ofits wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary,including certain entities inIndia and certain entities that support our seller lending financing activities.Intercompany balances and transactions between consolidated entities areeliminated.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets andliabilities,revenues and expenses,and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.Estimatesare used for,but not limited to,income taxes,useful lives of equipment,commitments and contingencies,valuation of acquired intangibles and goodwill,stock-based compensation forfeiture rates,vendor funding,inventory valuation,collectability of receivables,impairment of property and equipment and operatingleases,and valuation and impairment of investments.Actual results could differ materially from these estimates.We review the useful lives of equipment on an ongoing basis,and effective January 1,2022 we changed our estimate of the useful lives for our serversfrom four to five years and for our networking equipment from five to six years.The longer useful lives are due to continuous improvements in our hardware,software,and data center designs.The effect of this change in estimate for Q3 2022,based on servers and networking equipment that were included in“Property and equipment,net”as of June 30,2022 and those acquired during the three months ended September 30,2022,was a reduction in depreciation andamortization expense of$882 million and a benefit to net income of$665 million,or$0.07 per basic share and$0.06 per diluted share.The effect of thischange in estimate for the nine months ended September 30,2022,based on servers and networking equipment that were included in“Property and equipment,net”as of December 31,2021 and those acquired during the nine months ended September 30,2022,was a reduction in depreciation and amortization expenseof$2.8 billion and a benefit to net loss of$2.2 billion,or$0.21 per basic share and$0.21 per diluted share.7Table of ContentsSupplemental Cash Flow InformationThe following table shows supplemental cash flow information(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,Twelve Months EndedSeptember 30,202120222021202220212022SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest on debt$276$304$731$932$933$1,299 Cash paid for operating leases1,812 1,813 5,029 6,268 6,230 7,961 Cash paid for interest on finance leases121 88 407 290 535 404 Cash paid for interest on financing obligations48 39 116 152 147 189 Cash paid for income taxes,net of refunds750 742 3,354 4,340 3,774 4,674 Assets acquired under operating leases10,447 6,755 19,561 14,031 23,908 19,839 Property and equipment acquired under finance leases,net of remeasurements andmodifications1,744 131 5,453 358 8,149 1,966 Property and equipment recognized during the construction period of build-to-suitlease arrangements1,797 526 3,877 2,877 4,916 4,847 Property and equipment derecognized after the construction period of build-to-suitlease arrangements,with the associated leases recognized as operating76 2,195 174 3,307 174 3,363 Earnings Per ShareBasic earnings per share is calculated using our weighted-average outstanding common shares.Diluted earnings per share is calculated using ourweighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.In periods when wehave a net loss,stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.The following table shows the calculation of diluted shares(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Shares used in computation of basic earnings per share10,132 10,191 10,103 10,178 Total dilutive effect of outstanding stock awards177 140 184 Shares used in computation of diluted earnings per share10,309 10,331 10,287 10,178 Other Income(Expense),NetOther income(expense),net,is as follows(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Marketable equity securities valuation gains(losses)$(129)$1,039$(48)$(11,528)Equity warrant valuation gains(losses)(50)(170)1,194(1,606)Upward adjustments relating to equity investments in private companies155 11 1,661 76 Foreign currency gains(losses)(107)(103)(28)(206)Other,net(32)(18)16(92)Total other income(expense),net(163)759 2,795(13,356)Included in other income(expense),net is a marketable equity securities valuation gain(loss)of$1.1 billion in Q3 2022,and$(10.4)billion for the ninemonths ended September 30,2022,from our equity investment in Rivian Automotive,Inc.(“Rivian”).Our investment in Rivians preferred stock wasaccounted for at cost,with adjustments for observable changes in prices or impairments,prior to Rivians initial public offering in November 2021,whichresulted in the conversion of our preferred stock to Class A common stock.As of September 30,2022,we held 158 million shares of Rivians Class A commonstock,representing an approximate 17%ownership interest,and an approximate 16%voting interest.We determined that we have the ability to exercisesignificant influence over Rivian through our equity investment,our commercial arrangement for the purchase of electric vehicles,and one of our employeesserving on Rivians board of directors.We elected the fair value8Table of Contentsoption to account for our equity investment in Rivian,which is included in“Marketable securities”on our consolidated balance sheets.Required summarized financial information of Rivian as disclosed in its most recent SEC filings is as follows(in millions):Six Months Ended June 30,20212022Revenues$459 Gross profit(1,206)Loss from operations(990)(3,287)Net loss(994)(3,305)InventoriesInventories,consisting of products available for sale,are primarily accounted for using the first-in,first-out method,and are valued at the lower of costand net realizable value.This valuation requires us to make judgments,based on currently available information,about the likely method of disposition,suchas through sales to individual customers,returns to product vendors,or liquidations,and expected recoverable values of each disposition category.Theinventory valuation allowance,representing a write-down of inventory,was$2.6 billion and$2.3 billion as of December 31,2021 and September 30,2022.Accounts Receivable,Net and OtherIncluded in“Accounts receivable,net and other”on our consolidated balance sheets are amounts primarily related to customers,vendors,and sellers.Asof December 31,2021 and September 30,2022,customer receivables,net,were$20.2 billion and$22.8 billion,vendor receivables,net,were$5.3 billion and$4.9 billion,and seller receivables,net,were$1.0 billion and$1.4 billion.Seller receivables are amounts due from sellers related to our seller lending program,which provides funding to sellers primarily to procure inventory.We estimate losses on receivables based on expected losses,including our historical experience of actual losses.The allowance for doubtful accounts was$1.1 billion and$1.3 billion as of December 31,2021 and September 30,2022.Digital Video and Music ContentThe total capitalized costs of video,which is primarily released content,and music as of December 31,2021 and September 30,2022 were$10.7 billionand$16.3 billion.Total video and music expense was$3.3 billion and$4.2 billion in Q3 2021 and Q3 2022,and$9.4 billion and$11.4 billion for the ninemonths ended September 30,2021 and 2022.Unearned RevenueUnearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the serviceperiod.Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships.Our total unearned revenue as of December 31,2021 was$14.0 billion,of which$10.1 billion was recognized as revenue during the nine months ended September 30,2022.Included in“Other long-termliabilities”on our consolidated balance sheets was$2.2 billion and$2.7 billion of unearned revenue as of December 31,2021 and September 30,2022.Additionally,we have performance obligations,primarily related to AWS,associated with commitments in customer contracts for future services thathave not yet been recognized in our consolidated financial statements.For contracts with original terms that exceed one year,those commitments not yetrecognized were$104.3 billion as of September 30,2022.The weighted-average remaining life of our long-term contracts is 3.8 years.However,the amountand timing of revenue recognition is largely driven by customer usage,which can extend beyond the original contractual term.Acquisition ActivityOn March 17,2022,we acquired MGM Holdings Inc.(“MGM”),for cash consideration of approximately$6.1 billion,net of cash acquired,to providemore digital media content options for customers.We also assumed$2.5 billion of debt,which we repaid immediately after closing.The acquired assetsprimarily consist of$3.4 billion of video content and$4.9 billion of goodwill,the majority of which is allocated to our North America segment.Pro forma results of operations have not been presented because the effects of the MGM acquisition were not material to our consolidated results ofoperations.Acquisition-related costs were expensed as incurred and were not significant.9Table of ContentsNote 2 FINANCIAL INSTRUMENTSCash,Cash Equivalents,Restricted Cash,and Marketable SecuritiesAs of December 31,2021 and September 30,2022,our cash,cash equivalents,restricted cash,and marketable securities primarily consisted of cash,AAA-rated money market funds,U.S.and foreign government and agency securities,other investment grade securities,and marketable equity securities.Cashequivalents and marketable securities are recorded at fair value.Fair value is defined as the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at the measurement date.To increase the comparability of fair value measures,the followinghierarchy prioritizes the inputs to valuation methodologies used to measure fair value:Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.Level 2Valuations based on observable inputs other than quoted prices included in Level 1,such as quoted prices for similar assets and liabilities inactive markets,quoted prices for identical or similar assets and liabilities in markets that are not active,or other inputs that are observable or can becorroborated by observable market data.Level 3Valuations based on unobservable inputs reflecting our own assumptions,consistent with reasonably available assumptions made by othermarket participants.These valuations require significant judgment.We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for identical assets orliabilities.Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similarinstruments and other significant inputs derived from or corroborated by observable market data.We did not hold significant amounts of marketable securitiescategorized as Level 3 assets as of December 31,2021 and September 30,2022.The following table summarizes,by major security type,our cash,cash equivalents,restricted cash,and marketable securities that are measured at fairvalue on a recurring basis and are categorized using the fair value hierarchy(in millions):December 31,2021September 30,2022 TotalEstimatedFair ValueCost orAmortizedCostGrossUnrealizedGainsGrossUnrealizedLossesTotalEstimatedFair ValueCash$10,942$10,720$10,720 Level 1 securities:Money market funds20,312 16,697 16,697 Equity securities(1)(3)1,646 5,988 Level 2 securities:Foreign government and agency securities181 141 (2)139 U.S.government and agency securities4,300 2,301 (169)2,132 Corporate debt securities35,764 20,229 (799)19,430 Asset-backed securities6,738 3,578 (191)3,387 Other fixed income securities686 403 (22)381 Equity securities(1)(3)15,740 19$96,309$54,069$(1,183)$58,893 Less:Restricted cash,cash equivalents,and marketablesecurities(2)(260)(231)Total cash,cash equivalents,and marketable securities$96,049$58,662 _(1)The related unrealized gain(loss)recorded in“Other income(expense),net”was$(116)million and$1.0 billion in Q3 2021 and Q3 2022,and$6 millionand$(11.3)billion for the nine months ended September 30,2021 and 2022.(2)We are required to pledge or otherwise restrict a portion of our cash,cash equivalents,and marketable fixed income securities primarily as collateral forreal estate,amounts due to third-party sellers in certain jurisdictions,debt,and standby and trade letters of credit.We classify cash,cash equivalents,andmarketable fixed income securities with use restrictions of less than twelve months as“Accounts receivable,net and other”and of twelve months or longeras non-current“Other assets”on our consolidated balance sheets.See“Note 4 Commitments and Contingencies.”(3)Our equity investment in Rivian had a fair value of$15.6 billion and$5.2 billion as of December 31,2021 and September 30,2022,respectively.Theinvestment was subject to regulatory sales restrictions resulting in a discount for lack of marketability of approximately$800 million as of December 31,2021,which expired in Q1 2022.10Table of ContentsThe following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of September 30,2022(in millions):AmortizedCostEstimatedFair ValueDue within one year$26,797$26,738 Due after one year through five years13,757 12,807 Due after five years through ten years772 728 Due after ten years2,023 1,893 Total$43,349$42,166 Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.Equity Warrants and Non-Marketable Equity InvestmentsWe hold equity warrants giving us the right to acquire stock of other companies.As of December 31,2021 and September 30,2022,these warrants had afair value of$3.4 billion and$2.5 billion,and are recorded within“Other assets”on our consolidated balance sheets with gains and losses recognized in“Otherincome(expense),net”on our consolidated statements of operations.These warrants are primarily classified as Level 2 assets.As of December 31,2021 and September 30,2022,equity investments not accounted for under the equity-method and without readily determinable fairvalues had a carrying value of$603 million and$831 million,and are recorded within“Other assets”on our consolidated balance sheets with adjustmentsrecognized in“Other income(expense),net”on our consolidated statements of operations.Consolidated Statements of Cash Flows ReconciliationThe following table provides a reconciliation of the amount of cash,cash equivalents,and restricted cash reported within the consolidated balance sheetsto the total of the same such amounts shown in the consolidated statements of cash flows(in millions):December 31,2021September 30,2022Cash and cash equivalents$36,220$34,947 Restricted cash included in accounts receivable,net and other242 224 Restricted cash included in other assets15 7 Total cash,cash equivalents,and restricted cash shown in the consolidated statements of cash flows$36,477$35,178 Note 3 LEASESWe have entered into non-cancellable operating and finance leases for fulfillment,delivery,office,physical store,data center,and sortation facilities aswell as server and networking equipment,vehicles,and aircraft.Gross assets acquired under finance leases,inclusive of those where title transfers at the end ofthe lease,are recorded in“Property and equipment,net”and were$72.2 billion and$66.6 billion as of December 31,2021 and September 30,2022.Accumulated amortization associated with finance leases was$43.4 billion as of December 31,2021 and September 30,2022.Lease cost recognized in our consolidated statements of operations is summarized as follows(in millions):Three Months Ended September 30,Nine Months Ended September 30,2021202220212022Operating lease cost$1,911$2,236$5,129$6,472 Finance lease cost:Amortization of lease assets2,497 1,496 7,442 4,586 Interest on lease liabilities114 85 365 280 Finance lease cost2,611 1,581 7,807 4,866 Variable lease cost372 462 1,135 1,402 Total lease cost$4,894$4,279$14,071$12,740 11Table of ContentsOther information about lease amounts recognized in our consolidated financial statements is as follows:December 31,2021September 30,2022Weighted-average remaining lease term operating leases11.3 years11.4 yearsWeighted-average remaining lease term finance leases8.1 years9.8 yearsWeighted-average discount rate operating leases2.2%2.6%Weighted-average discount rate finance leases2.0%2.3%Our lease liabilities were as follows(in millions):December 31,2021 Operating LeasesFinance LeasesTotalGross lease liabilities$66,269$25,866$92,135 Less:imputed interest(7,939)(2,113)(10,052)Present value of lease liabilities58,330 23,753 82,083 Less:current portion of lease liabilities(6,349)(8,083)(14,432)Total long-term lease liabilities$51,981$15,670$67,651 September 30,2022 Operating LeasesFinance LeasesTotalGross lease liabilities$75,495$18,838$94,333 Less:imputed interest(10,712)(2,207)(12,919)Present value of lease liabilities64,783 16,631 81,414 Less:current portion of lease liabilities(7,046)(5,036)(12,082)Total long-term lease liabilities$57,737$11,595$69,332 12Table of ContentsNote 4 COMMITMENTS AND CONTINGENCIESCommitmentsThe following summarizes our principal contractual commitments,excluding open orders for purchases that support normal operations and are generallycancellable,as of September 30,2022(in millions):Three MonthsEnded December31,Year Ended December 31,20222023202420252026ThereafterTotalLong-term debt principal and interest$1,886$4,789$8,993$5,995$4,563$67,529$93,755 Operating lease liabilities2,664 8,380 7,918 7,327 6,747 42,459 75,495 Finance lease liabilities,including interest1,616 4,523 2,137 1,345 1,188 8,029 18,838 Financing obligations,including interest(1)115 462 462 456 463 7,177 9,135 Leases not yet commenced213 1,562 2,158 2,126 2,153 19,497 27,709 Unconditional purchase obligations(2)1,721 7,102 6,296 4,984 4,335 9,405 33,843 Other commitments(3)(4)1,191 2,485 1,586 1,006 1,063 9,716 17,047 Total commitments$9,406$29,303$29,550$23,239$20,512$163,812$275,822 _(1)Includes non-cancellable financing obligations for fulfillment,sortation,and data center facilities.Excluding interest,current financing obligations of$196million and$254 million are recorded within“Accrued expenses and other”and$6.2 billion and$6.7 billion are recorded within“Other long-termliabilities”as of December 31,2021 and September 30,2022.The weighted-average remaining term of the financing obligations was 18.8 years and 18.2years and the weighted-average imputed interest rate was 3.2%as of December 31,2021 and September 30,2022.(2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content that are not reflected on theconsolidated balance sheets and certain products offered in our Whole Foods Market stores.For those digital media content agreements with variableterms,we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date.Purchase obligations associated withrenewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.(3)Includes asset retirement obligations,the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit leasearrangements that are under construction,and liabilities associated with digital media content agreements with initial terms greater than one year.(4)Excludes approximately$3.4 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period ofpayment,if any.In addition,we are paying the previously disclosed 1.13 billion fine imposed by the Italian Competition Authority in December 2021,which we willseek to recover pending conclusion of all appeals.In July 2022,we entered into an agreement to acquire 1Life Healthcare,Inc.(One Medical)for approximately$3.9 billion,including its debt,subject tocustomary closing conditions.In August 2022,we entered into an agreement to acquire iRobot Corporation for approximately$1.7 billion,including its debt,subject to customary closing conditions.We expect to fund these acquisitions with cash on hand.Other ContingenciesWe are disputing claims and denials of refunds or credits related to various non-income taxes(such as sales,value added,consumption,service,andsimilar taxes),including in jurisdictions in which we already collect and remit these taxes.These non-income tax controversies typically relate to(i)thetaxability of products and services,including cross-border intercompany transactions,(ii)collection and withholding on transactions with third parties,and(iii)the adequacy of compliance with reporting obligations,including evolving documentation requirements.Due to the inherent complexity and uncertainty ofthese matters and the judicial and regulatory processes in certain jurisdictions,the final outcome of any such controversies may be materially different from ourexpectations.13Table of ContentsLegal ProceedingsThe Company is involved from time to time in claims,proceedings,and litigation,including the matters described in Item 8 of Part II,“FinancialStatements and Supplementary Data Note 7 Commitments and Contingencies Legal Proceedings”of our 2021 Annual Report on Form 10-K and inItem 1 of Part I,“Financial Statements Note 4 Commitments and Contingencies Legal Proceedings”of our Quarterly Reports on Form 10-Q for theperiods ended March 31,2022 and June 30,2022,as supplemented by the following:Beginning in March 2020,with Frame-Wilson v.A,Inc.filed in the United States District Court for the Western District of Washington,private litigants have filed a number of cases in the U.S.and Canada alleging,among other things,price fixing arrangements between A,Inc.andvendors and third-party sellers in Amazons stores,monopolization and attempted monopolization,and consumer protection and unjust enrichment claims.Attorneys General for the District of Columbia and California brought similar suits in May 2021 and September 2022 in the Superior Court of the District ofColumbia and the California Superior Court for the County of San Francisco,respectively.Some of the private cases include allegations of several distinctpurported classes,including consumers who purchased a product through Amazons stores and consumers who purchased a product offered by Amazonthrough another e-commerce retailer.The complaints seek billions of dollars of alleged actual damages,treble damages,punitive damages,injunctive relief,civil penalties,attorneys fees,and costs.In March 2022,the court in the Frame-Wilson case granted Amazons motion to dismiss claims alleging thatAmazons pricing policies are inherently illegal under federal law and claims alleging competition and consumer protection violations under state law,anddenied Amazons motion to dismiss claims alleging that Amazons pricing policies are an unlawful restraint of trade under federal law.In the same month,theDC Superior Court dismissed the DC Attorney Generals lawsuit in its entirety;the dismissal is subject to appeal.We dispute the allegations of wrongdoing andintend to defend ourselves vigorously in these matters.In October 2020,BroadbandiTV,Inc.filed a complaint against A,Inc.,A Services LLC,and Amazon Web Services,Inc.in theUnited States District Court for the Western District of Texas.The complaint alleges,among other things,that certain Amazon Prime Video features andservices infringe U.S.Patent Nos.9,648,388,10,546,750,and 10,536,751,each entitled“Video-On-Demand Content Delivery System For Providing Video-On-Demand Services To TV Services Subscribers”;10,028,026,entitled“System For Addressing On-Demand TV Program Content On TV Services PlatformOf A Digital TV Services Provider”;and 9,973,825,entitled“Dynamic Adjustment Of Electronic Program Guide Displays Based On Viewer Preferences ForMinimizing Navigation In VOD Program Selection.”The complaint seeks an unspecified amount of damages.In April 2022,BroadbandiTV alleged in itsdamages report that,in the event of a finding of liability,A,Inc.,A Services LLC,and Amazon Web Services,Inc.could be subject to$166-$986 million in damages.In September 2022,the court granted summary judgment,holding that the patents are invalid.This decision is subject to appeal.We dispute the allegations of wrongdoing and will continue to defend ourselves vigorously in this matter.In January 2022,VideoLabs,Inc.and VL Collective IP LLC filed a complaint against A,Inc.and Amazon Web Services,Inc.in the UnitedStates District Court for the Western District of Texas.The complaint alleges,among other things,that Amazon Prime Video,Amazon Glow,Amazon EchoShow,Fire TV,Fire TV Cube,Fire TV Stick,Fire Tablets,AWS Elemental MediaConvert,AWS Elemental Live,AWS Elemental Server,AWS ElementalMediaPackage,AWS Elemental MediaLive,and Amazon Elastic Transcoder infringe U.S.Patent Nos.7,769,238 and 8,139,878;both entitled“Picture CodingMethod and Picture Decoding Method”,and 7,970,059,entitled“Variable Length Coding Method and Variable Length Decoding Method”;that Amazon PrimeVideo,AWS Elemental MediaConvert,AWS Elemental Live,AWS Elemental Server,AWS Elemental MediaPackage,AWS Elemental MediaLive,AmazonElastic Transcoder,and Amazon Kinesis Video Streams infringe U.S.Patent No.8,605,794,entitled“Method for Synchronizing Content-Dependent DataSegments of Files”;that Amazon Echo Show,Amazon Echo Spot,Amazon Connect,Amazon Chime,and Amazon Kinesis Video Streams infringe U.S.PatentNo.7,266,682,entitled“Method and System for Transmitting Data from a Transmitter to a Receiver and Transmitter and Receiver Therefore”;that AWS AutoScaling and Amazon EC2 Auto Scaling infringe U.S.Patent No.6,880,156,entitled“Demand Responsive Method and Apparatus to Automatically ActivateSpare Servers”;and that Amazon Prime Video infringes U.S.Patent No.7,440,559,entitled“System and Associated Terminal,Method and Computer ProgramProduct for Controlling the Flow of Content.”The complaint seeks an unspecified amount of damages,enhanced damages,attorneys fees,costs,interest,andinjunctive relief.In October 2022,the case was transferred to the United States District Court for the Western District of Washington.We dispute theallegations of wrongdoing and intend to defend ourselves vigorously in this matter.In addition,we are regularly subject to claims,litigation,and other proceedings,including potential regulatory proceedings,involving patent and otherintellectual property matters,taxes,labor and employment,competition and antitrust,privacy and data protection,consumer protection,commercial disputes,goods and services offered by us and by third parties,and other matters.The outcomes of our legal proceedings and other contingencies are inherently unpredictable,subject to significant uncertainties,and could be material toour operating results and cash flows for a particular period.We evaluate,on a regular14Table of Contentsbasis,developments in our legal proceedings and other contingencies that could affect the amount of liability,including amounts in excess of any previousaccruals and reasonably possible losses disclosed,and make adjustments and changes to our accruals and disclosures as appropriate.For the matters wedisclose that do not include an estimate of the amount of loss or range of losses,such an estimate is not possible or is immaterial,and we may be unable toestimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.Until the final resolution of suchmatters,if any of our estimates and assumptions change or prove to have been incorrect,we may experience losses in excess of the amounts recorded,whichcould have a material effect on our business,consolidated financial position,results of operations,or cash flows.See also“Note 7 Income Taxes.”Note 5 DEBTAs of September 30,2022,we had$62.5 billion of unsecured senior notes outstanding(the“Notes”),including$12.8 billion issued in April 2022 forgeneral corporate purposes,and$1.0 billion of borrowings under our credit facility.Our total long-term debt obligations are as follows(in millions):Maturities(1)Stated Interest RatesEffective Interest RatesDecember 31,2021September 30,20222012 Notes issuance of$3.0 billion20222.50%2.66%1,250 1,250 2014 Notes issuance of$6.0 billion2024-20443.80%-4.95%3.90%-5.12%4,000 4,000 2017 Notes issuance of$17.0 billion2023-20572.40%-5.20%2.56%-4.33,000 16,000 2020 Notes issuance of$10.0 billion2023-20600.40%-2.70%0.56%-2.77,000 10,000 2021 Notes issuance of$18.5 billion2023-20610.25%-3.25%0.35%-3.31,500 18,500 2022 Notes Issuance of$12.8 billion2024-20622.73%-4.10%2.83%-4.15,750 Credit Facility803 1,041 Total face value of long-term debt50,553 63,541 Unamortized discount and issuance costs,net(318)(375)Less:current portion of long-term debt(1,491)(4,247)Long-term debt$48,744$58,919 _(1)The weighted-average remaining lives of the 2012,2014,2017,2020,2021,and 2022 Notes were 0.2,12.8,14.5,17.0,13.6,and 13.5 years as ofSeptember 30,2022.The combined weighted-average remaining life of the Notes was 14.0 years as of September 30,2022.Interest on the Notes is payable semi-annually in arrears.We may redeem the Notes at any time in whole,or from time to time,in part at specifiedredemption prices.We are not subject to any financial covenants under the Notes.The estimated fair value of the Notes was approximately$53.3 billion and$53.7 billion as of December 31,2021 and September 30,2022,which is based on quoted prices for our debt as of those dates.We have a$1.5 billion secured revolving credit facility with a lender that is secured by certain seller receivables,which we increased from$1.0 billion to$1.5 billion in August 2022 and we may from time to time increase in the future subject to lender approval(the“Credit Facility”).The Credit Facility isavailable until August 2025,bears interest based on the daily Secured Overnight Financing Rate plus 1.25%,and has a commitment fee of up to 0.45%on theundrawn portion.There were$803 million and$1.0 billion of borrowings outstanding under the Credit Facility as of December 31,2021 and September 30,2022,which had a weighted-average interest rate of 2.7%.As of December 31,2021 and September 30,2022,we have pledged$918 million and$1.2 billionof our cash and seller receivables as collateral for debt related to our Credit Facility.The estimated fair value of the Credit Facility,which is based on Level 2inputs,approximated its carrying value as of December 31,2021 and September 30,2022.We have U.S.Dollar and Euro commercial paper programs(the“Commercial Paper Programs”)under which we may from time to time issue unsecuredcommercial paper up to a total of$20.0 billion(including up to 3.0 billion)at the date of issue,with individual maturities that may vary but will not exceed397 days from the date of issue.In March 2022,we increased the size of the Commercial Paper Programs from$10.0 billion to$20.0 billion.There were$725million and$11.7 billion of borrowings outstanding under the Commercial Paper Programs as of December 31,2021 and September 30,2022,which wereincluded in“Accrued expenses and other”on our consolidated balance sheets and had a weighted-average effective interest rate,including issuance costs,of0.08%and 2.54%,respectively.We use the net proceeds from the issuance of commercial paper for general corporate purposes.15Table of ContentsWe also have a$10.0 billion unsecured revolving credit facility with a syndicate of lenders(the“Credit Agreement”),which was amended and restated inMarch 2022 to increase the borrowing capacity from$7.0 billion to$10.0 billion and to extend the term to March 2025.It may be extended for up to threeadditional one-year terms if approved by the lenders.The interest rate applicable to outstanding balances under the Credit Agreement is the applicablebenchmark rate specified in the Credit Agreement plus 0.45%,with a commitment fee of 0.03%on the undrawn portion of the credit facility.There were noborrowings outstanding under the Credit Agreement as of December 31,2021 and September 30,2022.We also utilize other short-term credit facilities for working capital purposes.There were$318 million and$1.1 billion of borrowings outstanding underthese facilities as of December 31,2021 and September 30,2022,which were included in“Accrued expenses and other”on our consolidated balance sheets.Inaddition,we had$10.0 billion of unused letters of credit as of September 30,2022.Note 6 STOCKHOLDERS EQUITYStock Repurchase ActivityIn March 2022,the Board of Directors authorized a program to repurchase up to$10.0 billion of our common stock,with no fixed expiration,whichreplaced the previous$5.0 billion stock repurchase authorization,approved by the Board of Directors in February 2016.We repurchased 46.2 million shares ofour common stock for$6.0 billion during the nine months ended September 30,2022 under these programs.As of September 30,2022,we have$6.1 billionremaining under the repurchase program.Stock Award ActivityCommon shares outstanding plus shares underlying outstanding stock awards totaled 10.5 billion and 10.6 billion as of December 31,2021 andSeptember 30,2022.These totals include all vested and unvested stock awards outstanding,including those awards we estimate will be forfeited.Stock-basedcompensation expense is as follows(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Cost of sales$126$190$361$549 Fulfillment473 727 1,381 1,988 Technology and content1,627 3,036 4,742 7,495 Sales and marketing657 1,128 1,804 2,783 General and administrative297 475 789 1,200 Total stock-based compensation expense$3,180$5,556$9,077$14,015 The following table summarizes our restricted stock unit activity for the nine months ended September 30,2022(in millions):Number of UnitsWeighted-AverageGrant-DateFair ValueOutstanding as of December 31,2021279.9$134 Units granted224.1 150 Units vested(69.1)109 Units forfeited(35.6)143 Outstanding as of September 30,2022399.3 147 Scheduled vesting for outstanding restricted stock units as of September 30,2022,is as follows(in millions):Three MonthsEnded December 31,Year Ended December 31,20222023202420252026ThereafterTotalScheduled vesting restricted stock units44.0 137.2 133.0 56.5 24.7 3.9 399.3 As of September 30,2022,there was$26.9 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements.This compensation is recognized on an accelerated basis with more than half of the compensation expected to be expensed in the next twelve months,and has aremaining weighted-average recognition period of 1.1 years.The16Table of Contentsestimated forfeiture rate as of December 31,2021 and September 30,2022 was 27%and 26%.Changes in our estimates and assumptions relating to forfeituresmay cause us to realize material changes in stock-based compensation expense in the future.Changes in Stockholders EquityThe following table shows changes in stockholders equity(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Total beginning stockholders equity$114,803$131,402$93,404$138,245 Beginning common stock106 107 105 106 Stock-based compensation and issuance of employee benefit plan stock 1 1 Ending common stock106 107 106 107 Beginning treasury stock(1,837)(7,837)(1,837)(1,837)Common stock repurchased (6,000)Ending treasury stock(1,837)(7,837)(1,837)(7,837)Beginning additional paid-in capital48,623 63,871 42,765 55,437 Stock-based compensation and issuance of employee benefit plan stock3,155 5,548 9,013 13,982 Ending additional paid-in capital51,778 69,419 51,778 69,419 Beginning accumulated other comprehensive income(loss)(525)(4,782)(180)(1,376)Other comprehensive income(loss)(550)(2,333)(895)(5,739)Ending accumulated other comprehensive income(loss)(1,075)(7,115)(1,075)(7,115)Beginning retained earnings68,436 80,043 52,551 85,915 Net income(loss)3,156 2,872 19,041(3,000)Ending retained earnings71,592 82,915 71,592 82,915 Total ending stockholders equity$120,564$137,489$120,564$137,489 Note 7 INCOME TAXESOur tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate,adjusted for discreteitems,if any,that are taken into account in the relevant period.Each quarter we update our estimate of the annual effective tax rate,and if our estimated tax ratechanges,we make a cumulative adjustment.Our quarterly tax provision,and our quarterly estimate of our annual effective tax rate,is subject to significant variation due to several factors,includingvariability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate,intercompany transactions,theapplicability of special tax regimes,changes in how we do business,acquisitions,investments,developments in tax controversies,changes in our stock price,changes in our deferred tax assets and liabilities and their valuation,foreign currency gains(losses),changes in statutes,regulations,case law,andadministrative practices,principles,and interpretations related to tax,including changes to the global tax framework,competition,and other laws andaccounting rules in various jurisdictions,and relative changes of expenses or losses for which tax benefits are not recognized.Our effective tax rate can bemore or less volatile based on the amount of pre-tax income or loss.For example,the impact of discrete items and non-deductible expenses on our effective taxrate is greater when our pre-tax income is lower.In addition,we record valuation allowances against deferred tax assets when there is uncertainty about ourability to generate future income in relevant jurisdictions.For 2022,we estimate that our effective tax rate will be favorably impacted by the U.S.federal research and development credit.In addition,valuationgains and losses from our equity investment in Rivian impact our pre-tax income and may cause variability in our effective tax rate.17Table of ContentsOur income tax provision for the nine months ended September 30,2021 was$4.2 billion,which included$1.7 billion of net discrete tax benefitsprimarily attributable to excess tax benefits from stock-based compensation and audit-related developments.Our income tax benefit for the nine months endedSeptember 30,2022 was$2.0 billion,which included$3.3 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equityinvestment in Rivian.Cash paid for income taxes,net of refunds was$750 million and$742 million in Q3 2021 and Q3 2022,and$3.4 billion and$4.3 billion for the ninemonths ended September 30,2021 and 2022.As of December 31,2021 and September 30,2022,tax contingencies were approximately$3.2 billion and$3.4 billion.Changes in tax laws,regulations,administrative practices,principles,and interpretations may impact our tax contingencies.Due to various factors,including the inherent complexities anduncertainties of the judicial,administrative,and regulatory processes in certain jurisdictions,the timing of the resolution of income tax controversies is highlyuncertain,and the amounts ultimately paid,if any,upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued.It isreasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reach resolution of incometax controversies in one or more jurisdictions.These assessments or settlements could result in changes to our contingencies related to positions on prior yearstax filings.We are under examination,or may be subject to examination,by the Internal Revenue Service for the calendar year 2016 and thereafter.Theseexaminations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examinationas well as subsequent periods.We are also subject to taxation in various states and other foreign jurisdictions including China,France,Germany,India,Japan,Luxembourg,and theUnited Kingdom.We are under,or may be subject to,audit or examination and additional assessments by the relevant authorities in respect of these particularjurisdictions primarily for 2009 and thereafter.We are currently disputing tax assessments in multiple jurisdictions,including with respect to the allocation andcharacterization of income.In September 2022,the Luxembourg Tax Authority(“LTA”)denied the tax basis of certain intangible assets that we distributed from Luxembourg to theU.S.in 2021.We believe the LTAs position is without merit and intend to defend ourselves vigorously in this matter.In October 2014,the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg withregard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid.On October 4,2017,the EuropeanCommission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules on state aid.Based onthat decision,the European Commission announced an estimated recovery amount of approximately 250 million,plus interest,for the period May 2006through June 2014,and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to recovery.Luxembourg computed aninitial recovery amount,consistent with the European Commissions decision,which we deposited into escrow in March 2018,subject to adjustment pendingconclusion of all appeals.In December 2017,Luxembourg appealed the European Commissions decision.In May 2018,we appealed.On May 12,2021,theEuropean Union General Court annulled the European Commissions state aid decision.In July 2021,the European Commission appealed the decision to theEuropean Court of Justice.We will continue to defend ourselves vigorously in this matter.Note 8 SEGMENT INFORMATIONWe have organized our operations into three segments:North America,International,and AWS.We allocate to segment results the operating expenses“Fulfillment,”“Technology and content,”“Sales and marketing,”and“General and administrative”based on usage,which is generally reflected in the segmentin which the costs are incurred.The majority of technology infrastructure costs are allocated to the AWS segment based on usage.The majority of theremaining non-infrastructure technology costs are incurred in the U.S.and are allocated to our North America segment.There are no internal revenuetransactions between our reportable segments.These segments reflect the way our chief operating decision maker evaluates the Companys businessperformance and manages its operations.North AmericaThe North America segment primarily consists of amounts earned from retail sales of consumer products(including from sellers)and subscriptionsthrough North America-focused online and physical stores.This segment includes export sales from these online stores.18Table of ContentsInternationalThe International segment primarily consists of amounts earned from retail sales of consumer products(including from sellers)and subscriptions throughinternationally-focused online stores.This segment includes export sales from these internationally-focused online stores(including export sales from theseonline stores to customers in the U.S.,Mexico,and Canada),but excludes export sales from our North America-focused online stores.AWSThe AWS segment consists of amounts earned from global sales of compute,storage,database,and other services for start-ups,enterprises,governmentagencies,and academic institutions.Information on reportable segments and reconciliation to consolidated net income(loss)is as follows(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022North AmericaNet sales$65,557$78,843$197,473$222,517 Operating expenses64,677 79,255 189,996 225,124 Operating income(loss)$880$(412)$7,477$(2,607)InternationalNet sales$29,145$27,720$90,515$83,544 Operating expenses30,056 30,186 89,812 89,062 Operating income(loss)$(911)$(2,466)$703$(5,518)AWSNet sales$16,110$20,538$44,422$58,718 Operating expenses11,227 15,135 31,183 41,082 Operating income$4,883$5,403$13,239$17,636 ConsolidatedNet sales$110,812$127,101$332,410$364,779 Operating expenses105,960 124,576 310,991 355,268 Operating income4,852 2,525 21,419 9,511 Total non-operating income(expense)(537)419 1,798(14,485)Benefit(provision)for income taxes(1,155)(69)(4,179)1,990 Equity-method investment activity,net of tax(4)(3)3(16)Net income(loss)$3,156$2,872$19,041$(3,000)19Table of ContentsNet sales by groups of similar products and services,which also have similar economic characteristics,is as follows(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Net Sales:Online stores(1)$49,942$53,489$156,000$155,473 Physical stores(2)4,269 4,694 12,387 14,006 Third-party seller services(3)24,252 28,666 73,046 81,377 Subscription services(4)8,148 8,903 23,645 26,029 Advertising services(5)7,612 9,548 21,444 26,182 AWS16,110 20,538 44,422 58,718 Other(6)479 1,263 1,466 2,994 Consolidated$110,812$127,101$332,410$364,779 _(1)Includes product sales and digital media content where we record revenue gross.We leverage our retail infrastructure to offer a wide selection ofconsumable and durable goods that includes media products available in both a physical and digital format,such as books,videos,games,music,andsoftware.These product sales include digital products sold on a transactional basis.Digital product subscriptions that provide unlimited viewing or usagerights are included in“Subscription services.”(2)Includes product sales where our customers physically select items in a store.Sales to customers who order goods online for delivery or pickup at ourphysical stores are included in“Online stores.”(3)Includes commissions and any related fulfillment and shipping fees,and other third-party seller services.(4)Includes annual and monthly fees associated with Amazon Prime memberships,as well as digital video,audiobook,digital music,e-book,and other non-AWS subscription services.(5)Includes sales of advertising services to sellers,vendors,publishers,authors,and others,through programs such as sponsored ads,display,and videoadvertising.(6)Includes sales related to various other offerings,such as certain licensing and distribution of video content and shipping services,and our co-branded creditcard agreements.20Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsForward-Looking StatementsThis Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.Allstatements other than statements of historical fact,including statements regarding guidance,industry prospects,or future results of operations or financialposition,made in this Quarterly Report on Form 10-Q are forward-looking.We use words such as anticipates,believes,expects,future,intends,and similarexpressions to identify forward-looking statements.Forward-looking statements reflect managements current expectations and are inherently uncertain.Actualresults and outcomes could differ materially for a variety of reasons,including,among others,fluctuations in foreign exchange rates,changes in globaleconomic conditions and customer spending,inflation,interest rates,regional labor market and global supply chain constraints,world events,the rate ofgrowth of the Internet,online commerce,and cloud services,the amount that A invests in new business opportunities and the timing of thoseinvestments,the mix of products and services sold to customers,the mix of net sales derived from products as compared with services,the extent to which weowe income or other taxes,competition,management of growth,potential fluctuations in operating results,international growth and expansion,the outcomesof claims,litigation,government investigations,and other proceedings,fulfillment,sortation,delivery,and data center optimization,risks of inventorymanagement,variability in demand,the degree to which we enter into,maintain,and develop commercial agreements,proposed and completed acquisitionsand strategic transactions,payments risks,and risks of fulfillment throughput and productivity.In addition,global economic and geopolitical conditions andadditional or unforeseen effects from the COVID-19 pandemic amplify many of these risks.These risks and uncertainties,as well as other risks anduncertainties that could cause our actual results or outcomes to differ significantly from managements expectations,are described in greater detail in Item 1Aof Part II,“Risk Factors.”For additional information,see Item 7 of Part II,“Managements Discussion and Analysis of Financial Condition and Results of Operations Overview”of our 2021 Annual Report on Form 10-K.Critical Accounting JudgmentsThe preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets andliabilities,revenues and expenses,and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.The SEChas defined a companys critical accounting policies as the ones that are most important to the portrayal of the companys financial condition and results ofoperations,and which require the company to make its most difficult and subjective judgments,often as a result of the need to make estimates of matters thatare inherently uncertain.Based on this definition,we have identified the critical accounting policies and judgments addressed below.We also have other keyaccounting policies,which involve the use of estimates,judgments,and assumptions that are significant to understanding our results.For additionalinformation,see Item 8 of Part II,“Financial Statements and Supplementary Data Note 1 Description of Business,Accounting Policies,andSupplemental Disclosures”of our 2021 Annual Report on Form 10-K and Item 1 of Part I,“Financial Statements Note 1 Accounting Policies andSupplemental Disclosures,”of this Form 10-Q.Although we believe that our estimates,assumptions,and judgments are reasonable,they are based uponinformation presently available.Actual results may differ significantly from these estimates under different assumptions,judgments,or conditions.InventoriesInventories,consisting of products available for sale,are primarily accounted for using the first-in first-out method,and are valued at the lower of costand net realizable value.This valuation requires us to make judgments,based on currently available information,about the likely method of disposition,suchas through sales to individual customers,returns to product vendors,or liquidations,and expected recoverable values of each disposition category.Theseassumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future.As a measure of sensitivity,for every 1%of additional inventory valuation allowance as of September 30,2022,we would have recordedan additional cost of sales of approximately$405 million.In addition,we enter into supplier commitments for certain electronic device components and certain products.These commitments are based onforecasted customer demand.If we reduce these commitments,we may incur additional costs.Income TaxesWe are subject to income taxes in the U.S.(federal and state)and numerous foreign jurisdictions.Tax laws,regulations,administrative practices,principles,and interpretations in various jurisdictions may be subject to significant change,with or without notice,due to economic,political,and otherconditions,and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.There are many transactions that occurduring the ordinary course of business for which the ultimate tax determination is uncertain.In addition,our actual and forecasted earnings are subject to21Table of Contentschange due to economic,political,and other conditions and significant judgment is required in determining our ability to use our deferred tax assets.Our effective tax rates could be affected by numerous factors,such as changes in our business operations,acquisitions,investments,entry into newbusinesses and geographies,intercompany transactions,the relative amount of our foreign earnings,including earnings being lower than anticipated injurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates,losses incurred injurisdictions for which we are not able to realize related tax benefits,the applicability of special tax regimes,changes in foreign currency exchange rates,changes in our stock price,changes to our forecasts of income and loss and the mix of jurisdictions to which they relate,changes in our deferred tax assets andliabilities and their valuation,changes in the laws,regulations,administrative practices,principles,and interpretations related to tax,including changes to theglobal tax framework,competition,and other laws and accounting rules in various jurisdictions.In addition,a number of countries have enacted or are activelypursuing changes to their tax laws applicable to corporate multinationals.We are also currently subject to tax controversies in various jurisdictions,and these jurisdictions may assess additional income tax liabilities against us.Developments in an audit,investigation,or other tax controversy could have a material effect on our operating results or cash flows in the period or periods forwhich that development occurs,as well as for prior and subsequent periods.We regularly assess the likelihood of an adverse outcome resulting from theseproceedings to determine the adequacy of our tax accruals.Although we believe our tax estimates are reasonable,the final outcome of audits,investigations,and any other tax controversies could be materially different from our historical income tax provisions and accruals.Liquidity and Capital ResourcesCash flow information is as follows(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,Twelve Months EndedSeptember 30,202120222021202220212022Cash provided by(used in):Operating activities$7,313$11,404$24,241$17,579$54,671$39,665 Investing activities(14,828)(15,608)(45,574)(26,780)(62,611)(39,360)Financing activities(2,776)3,016 9,391 9,632 7,575 6,532 Our principal sources of liquidity are cash flows generated from operations and our cash,cash equivalents,and marketable securities balances,which,atfair value,were$96.0 billion and$58.7 billion as of December 31,2021 and September 30,2022.Amounts held in foreign currencies were$22.7 billion and$11.6 billion as of December 31,2021 and September 30,2022.Our foreign currency balances include British Pounds,Canadian Dollars,Euros,and JapaneseYen.Cash provided by(used in)operating activities was$7.3 billion and$11.4 billion for Q3 2021 and Q3 2022,and$24.2 billion and$17.6 billion for thenine months ended September 30,2021 and 2022.Our operating cash flows result primarily from cash received from our consumer,seller,developer,enterprise,and content creator customers,and advertisers,offset by cash payments we make for products and services,employee compensation,paymentprocessing and related transaction costs,operating leases,and interest payments on our long-term obligations.Cash received from our customers and otheractivities generally corresponds to our net sales.Because consumers primarily use credit cards to buy from us,our receivables from consumers settle quickly.The decrease in operating cash flow for the trailing twelve months ended September 30,2022,compared to the comparable prior year period,was primarilydue to changes in working capital,as well as changes in net income(loss),excluding non-cash expenses.Working capital at any specific point in time is subjectto many variables,including variability in demand,inventory management and category expansion,the timing of cash receipts and payments,vendor paymentterms,and fluctuations in foreign exchange rates.Cash provided by(used in)investing activities corresponds with cash capital expenditures,including leasehold improvements,incentives received fromproperty and equipment vendors,proceeds from asset sales,cash outlays for acquisitions,investments in other companies and intellectual property rights,andpurchases,sales,and maturities of marketable securities.Cash provided by(used in)investing activities was$(14.8)billion and$(15.6)billion for Q3 2021 andQ3 2022,and$(45.6)billion and$(26.8)billion for the nine months ended September 30,2021 and 2022,with the variability caused primarily by purchases,sales,and maturities of marketable securities.Cash capital expenditures were$14.8 billion and$15.0 billion during Q3 2021 and Q3 2022,and$38.9 billionand$42.9 billion for the nine months ended September 30,2021 and 2022,which primarily reflect investments in technology infrastructure(the majority ofwhich is to support AWS business growth)and in additional capacity to support our fulfillment network.We expect to continue these investments over time,with increased spending on technology infrastructure and decreased spending on our fulfillment network in 2022.We made cash payments,net of acquiredcash,related to acquisition and other investment activity of$654 million and$885 million during Q3 2021 and Q3 2022,and$1.6 billion and$7.5 billion forthe nine months ended September 30,2021 and 2022.We funded the22Table of Contentsacquisition of MGM Holdings Inc.with cash on hand.We expect to fund the acquisitions of 1Life Healthcare,Inc.(One Medical)and iRobot Corporation withcash on hand.Cash provided by(used in)financing activities was$(2.8)billion and$3.0 billion for Q3 2021 and Q3 2022,and$9.4 billion and$9.6 billion for the ninemonths ended September 30,2021 and 2022.Cash inflows from financing activities resulted from proceeds from short-term debt,and other and long-term debtof$2.4 billion and$12.4 billion for Q3 2021 and Q3 2022,and$24.1 billion and$43.9 billion for the nine months ended September 30,2021 and 2022.Cashoutflows from financing activities resulted from repurchases of common stock,payments of short-term debt,and other,long-term debt,finance leases,andfinancing obligations of$5.1 billion and$9.4 billion in Q3 2021 and Q3 2022,and$14.7 billion and$34.2 billion for the nine months ended September 30,2021 and 2022.Property and equipment acquired under finance leases was$1.7 billion and$131 million during Q3 2021 and Q3 2022,and$5.5 billion and$358 million for the nine months ended September 30,2021 and 2022.We had no borrowings outstanding under the Credit Agreement,$11.7 billion of borrowings outstanding under the Commercial Paper Programs,and$1.0billion of borrowings outstanding under our Credit Facility as of September 30,2022.See Item 1 of Part I,“Financial Statements Note 5 Debt”foradditional information.Certain foreign subsidiary earnings and losses are subject to current U.S.taxation and the subsequent repatriation of those earnings is not subject to tax inthe U.S.We intend to invest substantially all of our foreign subsidiary earnings,as well as our capital in our foreign subsidiaries,indefinitely outside of theU.S.in those jurisdictions in which we would incur significant,additional costs upon repatriation of such amounts.Our U.S.taxable income is reduced by tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions andincreased by the impact of capitalized research and development expenses.U.S.tax rules provide for enhanced accelerated depreciation deductions by allowingthe election of full expensing of qualified property,primarily equipment,through 2022.Effective January 1,2022,research and development expenses arerequired to be capitalized and amortized for U.S.tax purposes,which delays the deductibility of these expenses.Cash taxes paid(net of refunds)were$750million and$742 million for Q3 2021 and Q3 2022,and$3.4 billion and$4.3 billion for the nine months ended September 30,2021 and 2022.As of December 31,2021 and September 30,2022,restricted cash,cash equivalents,and marketable securities were$260 million and$231 million.SeeItem 1 of Part I,“Financial Statements Note 4 Commitments and Contingencies”and“Financial Statements Note 5 Debt”for additional discussionof our principal contractual commitments,as well as our pledged assets.Additionally,we have purchase obligations and open purchase orders,including forinventory and capital expenditures,that support normal operations and are primarily due in the next twelve months.These purchase obligations and openpurchase orders are generally cancellable in full or in part through the contractual provisions.We believe that cash flows generated from operations and our cash,cash equivalents,and marketable securities balances,as well as our borrowingarrangements,will be sufficient to meet our anticipated operating cash needs for at least the next twelve months.However,any projections of future cash needsand cash flows are subject to substantial uncertainty.See Item 1A of Part II,“Risk Factors.”We continually evaluate opportunities to sell additional equity ordebt securities,obtain credit facilities,obtain finance and operating lease arrangements,enter into financing obligations,repurchase common stock,paydividends,or repurchase,refinance,or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.The sale of additional equity or convertible debt securities would be dilutive to our shareholders.In addition,we will,from time to time,consider theacquisition of,or investment in,complementary businesses,products,services,capital infrastructure,and technologies,which might affect our liquidityrequirements or cause us to secure additional financing,or issue additional equity or debt securities.There can be no assurance that additional credit lines orfinancing instruments will be available in amounts or on terms acceptable to us,if at all.In addition,economic conditions and actions by policymaking bodiesare contributing to rising interest rates,which,along with increases in our borrowing levels,could increase our future borrowing costs.23Table of ContentsResults of OperationsWe have organized our operations into three segments:North America,International,and AWS.These segments reflect the way the Company evaluatesits business performance and manages its operations.See Item 1 of Part I,“Financial Statements Note 8 Segment Information.”OverviewMacroeconomic factors,including increased inflation and interest rates,the prolonged COVID-19 pandemic,global supply chain constraints,and globaleconomic and geopolitical developments,have direct and indirect impacts on our results of operations that are difficult to isolate and quantify.These factorscontributed to increases in our operating costs during Q3 2022,particularly across our North America and International segments,primarily due to a return tomore normal,seasonal demand volumes in relation to our fulfillment network fixed costs,increased transportation and utility costs,and increased wage rates.In addition,rising fuel,utility,and food costs,rising interest rates,and recessionary fears may impact customer demand.We expect some or all of these factorsto continue to impact our operations into Q4 2022.Net SalesNet sales include product and service sales.Product sales represent revenue from the sale of products and related shipping fees and digital media contentwhere we record revenue gross.Service sales primarily represent third-party seller fees,which includes commissions and any related fulfillment and shippingfees,AWS sales,advertising services,Amazon Prime membership fees,and certain digital content subscriptions.Net sales information is as follows(inmillions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Net Sales:North America$65,557$78,843$197,473$222,517 International29,145 27,720 90,515 83,544 AWS16,110 20,538 44,422 58,718 Consolidated$110,812$127,101$332,410$364,779 Year-over-year Percentage Growth(Decline):North America10 #%International16(5)35(8)AWS39 27 36 32 Consolidated15 15 28 10 Year-over-year Percentage Growth,excluding the effect of foreign exchangerates:North America10 %International15 12 29 4 AWS39 28 36 32 Consolidated15 19 26 13 Net sales mix:North America59ba%International26 22 27 23 AWS15 16 13 16 Consolidated100000%Sales increased 15%in Q3 2022,and 10%for the nine months ended September 30,2022 compared to the comparable prior year periods.Changes inforeign currency exchange rates impacted net sales by$(5.0)billion for Q3 2022 and by$(10.5)billion for the nine months ended September 30,2022.For adiscussion of the effect of foreign exchange rates on sales growth,see“Effect of Foreign Exchange Rates”below.North America sales increased 20%in Q3 2022,and 13%for the nine months ended September 30,2022 compared to the comparable prior year periods.The sales growth primarily reflects increased unit sales,including sales by third-party sellers,and advertising sales.Increased unit sales were driven largely byour continued focus on price,selection,and convenience for our customers,including from our shipping offers.24Table of ContentsInternational sales decreased 5%in Q3 2022,and 8%for the nine months ended September 30,2022,compared to the comparable prior year periods,primarily due to the impact of foreign currency exchange rates,partially offset by increased unit sales,including sales by third-party sellers,advertising sales,and subscription services.Increased unit sales were driven largely by our continued focus on price,selection,and convenience for our customers,includingfrom our shipping offers.Changes in foreign currency exchange rates impacted International net sales by$(4.9)billion for Q3 2022,and by$(10.2)billion forthe nine months ended September 30,2022.AWS sales increased 27%in Q3 2022,and 32%for the nine months ended September 30,2022 compared to the comparable prior year periods.The salesgrowth primarily reflects increased customer usage,partially offset by pricing changes,primarily driven by long-term customer contracts.Operating Income(Loss)Operating income(loss)by segment is as follows(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Operating Income(Loss)North America$880$(412)$7,477$(2,607)International(911)(2,466)703(5,518)AWS4,883 5,403 13,239 17,636 Consolidated$4,852$2,525$21,419$9,511 Operating income decreased from$4.9 billion in Q3 2021 to$2.5 billion in Q3 2022,and decreased from$21.4 billion for the nine months endedSeptember 30,2021 to$9.5 billion for the nine months ended September 30,2022.We believe that operating income is a more meaningful measure than grossprofit and gross margin due to the diversity of our product categories and services.The North America operating loss in Q3 2022,as compared to the operating income in the comparable prior year period,is primarily due to increasedshipping and fulfillment costs,due in part to increased investments in our fulfillment network and increased transportation costs,and growth in certainoperating expenses,partially offset by increased unit sales,including sales by third-party sellers,and advertising sales.The North America operating loss forthe nine months ended September 30,2022,as compared to the operating income in the comparable prior year period,is primarily due to increased shippingand fulfillment costs,due in part to increased investments in our fulfillment network,increased transportation costs,increased wage rates and incentives,andfulfillment network inefficiencies,and growth in certain operating expenses,partially offset by increased unit sales,including sales by third-party sellers,andadvertising sales.Changes in foreign exchange rates positively impacted operating income(loss)by$95 million for Q3 2022,and by$198 million for the ninemonths ended September 30,2022.The increase in International operating loss in absolute dollars in Q3 2022,compared to the comparable prior year period,is primarily due to increasedshipping and fulfillment costs,due in part to increased investments in our fulfillment network and increased transportation costs,and growth in certainoperating expenses,partially offset by increased unit sales,including sales by third-party sellers,and advertising sales.The International operating loss for thenine months ended September 30,2022,as compared to the operating income in the comparable prior year period,is primarily due to increased shipping andfulfillment costs,due in part to increased investments in our fulfillment network,increased transportation costs,and increased wage rates and incentives,andgrowth in certain operating expenses,partially offset by increased advertising sales.Changes in foreign exchange rates negatively impacted operating income(loss)by$216 million for Q3 2022,and by$526 million for the nine months ended September 30,2022.The increase in AWS operating income in absolute dollars in Q3 2022 and for the nine months ended September 30,2022,compared to the comparableprior year periods,is primarily due to increased sales and cost structure productivity,including a reduction in depreciation and amortization expense from ourchange in the estimated useful lives of our servers and networking equipment,partially offset by increased payroll and related expenses and spending ontechnology infrastructure,all of which were primarily driven by additional investments to support AWS business growth.Changes in foreign exchange ratespositively impacted operating income by$478 million for Q3 2022,and by$976 million for the nine months ended September 30,2022.25Table of ContentsOperating ExpensesInformation about operating expenses is as follows(in millions):Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2021202220212022Operating expenses:Cost of sales$62,930$70,268$189,509$203,191 Fulfillment18,498 20,583 52,666 61,196 Technology and content14,380 19,485 40,739 52,399 Sales and marketing8,010 11,014 21,741 29,420 General and administrative2,153 3,061 6,298 8,558 Other operating expense(income),net(11)165 38 504 Total operating expenses$105,960$124,576$310,991$355,268 Year-over-year Percentage Growth(Decline):Cost of sales10#%7%Fulfillment26 11 32 16 Technology and content31 35 33 29 Sales and marketing47 38 49 35 General and administrative29 42 34 36 Other operating expense(income),net(118)(1,619)(91)1,210 Percent of Net Sales:Cost of sales56.8U.3W.0U.7%Fulfillment16.7 16.2 15.8 16.8 Technology and content13.0 15.3 12.3 14.4 Sales and marketing7.2 8.7 6.5 8.1 General and administrative1.9 2.4 1.9 2.3 Other operating expense(income),net0.0 0.1 0.0 0.1 Cost of SalesCost of sales primarily consists of the purchase price of consumer products,inbound and outbound shipping costs,including costs related to sortation anddelivery centers and where we are the transportation service provider,and digital media content costs where we record revenue gross,including video andmusic.The increase in cost of sales in absolute dollars in Q3 2022,compared to the comparable prior year period,is primarily due to increased product andshipping costs resulting from increased sales,increased investments in our fulfillment network,increased transportation costs,and increased wage rates.Theincrease in cost of sales in absolute dollars for the nine months ended September 30,2022,compared to the comparable prior year period,is primarily due toincreased product and shipping costs resulting from increased sales,increased investments in our fulfillment network,increased transportation costs,increasedwage rates and incentives,and fulfillment network inefficiencies.Changes in foreign exchange rates reduced cost of sales by$3.6 billion for Q3 2022,and by$7.4 billion for the nine months ended September 30,2022.Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to ourcustomers.Shipping costs,which include sortation and delivery centers and transportation costs,were$18.1 billion and$19.9 billion in Q3 2021 and Q3 2022,and$53.0 billion and$58.8 billion for the nine months ended September 30,2021 and 2022.We expect our cost of shipping to continue to increase to theextent our customers accept and use our shipping offers at an increasing rate,we use more expensive shipping methods,including faster delivery,and we offeradditional services.We seek to mitigate costs of shipping over time in part through achieving higher sales volumes,optimizing our fulfillment network,negotiating better terms with our suppliers,and achieving better operating efficiencies.We believe that offering low prices to our customers is fundamental toour future success,and one way we offer lower prices is through shipping offers.Costs to operate our AWS segment are primarily classified as“Technology and content”as we leverage a shared infrastructure that supports both ourinternal technology requirements and external sales to AWS customers.26Table of ContentsFulfillmentFulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International fulfillment centers,physicalstores,and customer service centers and payment processing costs.While AWS payment processing and related transaction costs are included in“Fulfillment,”AWS costs are primarily classified as“Technology and content.”Fulfillment costs as a percentage of net sales may vary due to several factors,such as paymentprocessing and related transaction costs,our level of productivity and accuracy,changes in volume,size,and weight of units received and fulfilled,the extentto which third party sellers utilize Fulfillment by Amazon services,timing of fulfillment network and physical store expansion,the extent we utilize fulfillmentservices provided by third parties,mix of products and services sold,and our ability to affect customer service contacts per unit by implementingimprovements in our operations and enhancements to our customer self-service features.Additionally,sales by our sellers have higher payment processing andrelated transaction costs as a percentage of net sales compared to our retail sales because payment processing costs are based on the gross purchase price ofunderlying transactions.The increase in fulfillment costs in absolute dollars in Q3 2022,compared to the comparable prior year period,is primarily due to increased investmentsin our fulfillment network and variable costs corresponding with increased product and service sales volume and inventory levels.The increase in fulfillmentcosts in absolute dollars for the nine months ended September 30,2022,compared to the comparable prior year period,is primarily due to increasedinvestments in our fulfillment network and variable costs corresponding with increased product and service sales volume and inventory levels,and increasedwage rates and incentives.Changes in foreign exchange rates reduced fulfillment costs by$810 million for Q3 2022,and by$1.7 billion for the nine monthsended September 30,2022.We seek to expand our fulfillment network to accommodate a greater selection and in-stock inventory levels and to meet anticipated shipment volumesfrom sales of our own products as well as sales by third parties for which we provide the fulfillment services.We regularly evaluate our facility requirements.Technology and ContentTechnology and content costs include payroll and related expenses for employees involved in the research and development of new and existing productsand services,development,design,and maintenance of our stores,curation and display of products and services made available in our online stores,andinfrastructure costs.Infrastructure costs include servers,networking equipment,and data center related depreciation and amortization,rent,utilities,and otherexpenses necessary to support AWS and other Amazon businesses.Collectively,these costs reflect the investments we make in order to offer a wide variety ofproducts and services to our customers.We seek to invest efficiently in numerous areas of technology and content so we may continue to enhance the customer experience and improve ourprocess efficiency through rapid technology developments,while operating at an ever increasing scale.Our technology and content investment and capitalspending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems andoperations.We expect spending in technology and content to increase over time as we continue to add employees and technology infrastructure.These costs areallocated to segments based on usage.The increase in technology and content costs in absolute dollars in Q3 2022 and for the nine months ended September30,2022,compared to the comparable prior year periods,is primarily due to increased payroll and related costs associated with technical teams responsible forexpanding our existing products and services and initiatives to introduce new products and service offerings,and an increase in spending on technologyinfrastructure,partially offset by a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers andnetworking equipment.See Item 7 of Part II,“Managements Discussion and Analysis of Financial Condition and Results of Operations Overview”of our2021 Annual Report on Form 10-K for a discussion of how management views advances in technology and the importance of innovation.See Item 1 of Part I,“Financial Statements Note 1 Accounting Policies and Supplemental Disclosures Use of Estimates”for additional information on the change inestimated useful lives of our servers and networking equipment.Sales and MarketingSales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities,including salescommissions related to AWS.We direct customers to our stores primarily through a number of marketing channels,such as our sponsored search,social andonline advertising,third party customer referrals,television advertising,and other initiatives.Our marketing costs are largely variable,based on growth in salesand changes in rates.To the extent there is increased or decreased competition for these traffic sources,or to the extent our mix of these channels shifts,wewould expect to see a corresponding change in our marketing costs.The increase in sales and marketing costs in absolute dollars in Q3 2022 and for the nine months ended September 30,2022,compared to the comparableprior year periods,is primarily due to increased payroll and related expenses for personnel engaged in marketing and selling activities and higher marketingspend.27Table of ContentsWhile costs associated with Amazon Prime membership benefits and other shipping offers are not included in sales and marketing expense,we viewthese offers as effective worldwide marketing tools,and intend to continue offering them indefinitely.General and AdministrativeThe increase in general and administrative costs in absolute dollars in Q3 2022 and for the nine months ended September 30,2022,compared to thecomparable prior year periods,is primarily due to increases in payroll and related expenses and professional fees.Other Operating Expense(Income),NetOther operating expense(income),net was$(11)million and$165 million for Q3 2021 and Q3 2022,and$38 million and$504 million for the ninemonths ended September 30,2021 and 2022,and was primarily related to impairments of property and equipment and operating leases in 2022 and theamortization of intangible assets.Interest Income and ExpenseOur interest income was$119 million and$277 million during Q3 2021 and Q3 2022,and$330 million and$544 million for the nine months endedSeptember 30,2021 and 2022.We generally invest our excess cash in AAA-rated money market funds and investment grade short-to intermediate-term fixedincome securities.Our interest income corresponds with the average balance of invested funds based on the prevailing rates,which vary depending on thegeographies and currencies in which they are invested.Interest expense was$493 million and$617 million during Q3 2021 and Q3 2022,and$1.3 billion and$1.7 billion for the nine months ended September30,2021 and 2022,and was primarily related to debt and finance leases.Other Income(Expense),NetOther income(expense),net was$(163)million and$759 million during Q3 2021 and Q3 2022,and$2.8 billion and$(13.4)billion for the nine monthsended September 30,2021 and 2022.The primary components of other income(expense),net are related to equity securities valuations and adjustments,equitywarrant valuations,and foreign currency.Included in other income(expense),net is a marketable equity securities valuation gain(loss)of$1.1 billion in Q32022,and$(10.4)billion for the nine months ended September 30,2022,from our equity investment in Rivian.Income TaxesOur income tax provision for the nine months ended September 30,2021 was$4.2 billion,which included$1.7 billion of net discrete tax benefitsprimarily attributable to excess tax benefits from stock-based compensation and audit-related developments.Our income tax benefit for the nine months endedSeptember 30,2022 was$2.0 billion,which included$3.3 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equityinvestment in Rivian.See Item 1 of Part I,“Financial Statements Note 7 Income Taxes”for additional information.Non-GAAP Financial MeasuresRegulation G,Conditions for Use of Non-GAAP Financial Measures,and other SEC regulations define and prescribe the conditions for use of certainnon-GAAP financial information.Our measures of free cash flows and the effect of foreign exchange rates on our consolidated statements of operations meetthe definition of non-GAAP financial measures.We provide multiple measures of free cash flows because we believe these measures provide additional perspective on the impact of acquiring propertyand equipment with cash and through finance leases and financing obligations.28Table of ContentsFree Cash FlowFree cash flow is cash flow from operations reduced by“Purchases of property and equipment,net of proceeds from sales and incentives.”The followingis a reconciliation of free cash flow to the most comparable GAAP cash flow measure,“Net cash provided by(used in)operating activities,”for the trailingtwelve months ended September 30,2021 and 2022(in millions):Twelve Months EndedSeptember 30,20212022Net cash provided by(used in)operating activities$54,671$39,665 Purchases of property and equipment,net of proceeds from sales and incentives(52,119)(59,351)Free cash flow$2,552$(19,686)Net cash provided by(used in)investing activities$(62,611)$(39,360)Net cash provided by(used in)financing activities$7,575$6,532 Free Cash Flow Less Principal Repayments of Finance Leases and Financing ObligationsFree cash flow less principal repayments of finance leases and financing obligations is free cash flow reduced by“Principal repayments of financeleases”and“Principal repayments of financing obligations.”Principal repayments of finance leases and financing obligations approximates the actualpayments of cash for our finance leases and financing obligations.The following is a reconciliation of free cash flow less principal repayments of financeleases and financing obligations to the most comparable GAAP cash flow measure,“Net cash provided by(used in)operating activities,”for the trailing twelvemonths ended September 30,2021 and 2022(in millions):Twelve Months EndedSeptember 30,20212022Net cash provided by(used in)operating activities$54,671$39,665 Purchases of property and equipment,net of proceeds from sales and incentives(52,119)(59,351)Free cash flow2,552(19,686)Principal repayments of finance leases(11,271)(8,561)Principal repayments of financing obligations(124)(233)Free cash flow less principal repayments of finance leases and financing obligations$(8,843)(28,480)Net cash provided by(used in)investing activities$(62,611)$(39,360)Net cash provided by(used in)financing activities$7,575$6,532 Free Cash Flow Less Equipment Finance Leases and Principal Repayments of All Other Finance Leases and Financing ObligationsFree cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations is free cash flow reduced byequipment acquired under finance leases,which is included in“Property and equipment acquired under finance leases,net of remeasurements andmodifications,”principal repayments of all other finance lease liabilities,which is included in“Principal repayments of finance leases,”and“Principalrepayments of financing obligations.”All other finance lease liabilities and financing obligations consists of property.In this measure,equipment acquiredunder finance leases is reflected as if these assets had been purchased with cash,which is not the case as these assets have been leased.The following is areconciliation of free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations to the mostcomparable GAAP cash flow measure,“Net cash provided by(used in)operating activities,”for the trailing twelve months ended September 30,2021 and2022(in millions):29Table of Contents Twelve Months EndedSeptember 30,20212022Net cash provided by(used in)operating activities$54,671$39,665 Purchases of property and equipment,net of proceeds from sales and incentives(52,119)(59,351)Free cash flow2,552(19,686)Equipment acquired under finance leases(1)(5,738)(868)Principal repayments of all other finance leases(2)(582)(706)Principal repayments of financing obligations(124)(233)Free cash flow less equipment finance leases and principal repayments of all other finance leases and financingobligations$(3,892)$(21,493)Net cash provided by(used in)investing activities$(62,611)$(39,360)Net cash provided by(used in)financing activities$7,575$6,532 _(1)For the twelve months ended September 30,2021 and 2022,this amount relates to equipment included in“Property and equipment acquired under financeleases,net of remeasurements and modifications”of$8,149 million and$1,966 million.(2)For the twelve months ended September 30,2021 and 2022,this amount relates to property included in“Principal repayments of finance leases”of$11,271 million and$8,561 million.All of these free cash flows measures have limitations as they omit certain components of the overall 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