NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — DESCRIPTION OF BUSINESS, ACCOUNTING POLICIES, AND SUPPLEMENTAL DISCLOSURES
Description of Business
We seek to be Earth’s most customer-centric company. In each of our segments, we serve our primary customer sets, consisting of consumers, sellers, developers, enterprises, content creators, advertisers, and employees. We serve consumers through our online and physical stores and focus on selection, price, and convenience. We offer programs that enable sellers to grow their businesses, sell their products in our stores, and fulfill orders through us, and programs that allow authors, independent publishers, musicians, filmmakers, Twitch streamers, skill and app developers, and others to publish and sell content. We serve developers and enterprises of all sizes through AWS, which offers a broad set of on-demand technology services, including compute, storage, database, analytics, and machine learning, and other services. We also manufacture and sell electronic devices. In addition, we provide advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and video advertising.
We have organized our operations into three segments: North America, International, and AWS. See “Note 10 — Segment Information.”
Common Stock Split
On May 27, 2022, we effected a 20-for-1 stock split of our common stock and proportionately increased the number of authorized shares of common stock. All share, restricted stock unit (“RSU”), and per share or per RSU information throughout this Annual Report on Form 10-K has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $0.01 per share. Accordingly, an amount equal to the par value of the increased shares resulting from the stock split was reclassified from “Additional paid-in capital” to “Common stock.”
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. “Other operating expense (income), net” was reclassified into “Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other” on our consolidated statements of cash flows.
Principles of Consolidation
The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in India and certain entities that support our seller lending financing activities. Intercompany balances and transactions between consolidated entities are eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, impairment of property and equipment and operating leases, valuation and impairment of investments, self-insurance liabilities, and viewing patterns of capitalized video content. Actual results could differ materially from these estimates. We review the useful lives of equipment on an ongoing basis, and effective January 1, 2022 we changed our estimate of the useful lives for our servers from four years to five years and for our networking equipment from five years 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 the year ended December 31, 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 year ended December 31, 2022, was a reduction in depreciation and amortization expense of $3.6 billion and a benefit to net loss of $2.8 billion, or $0.28 per basic share and $0.28 per diluted share.
For the year ended December 31, 2022, we recorded approximately $1.1 billion, of which $720 million was recorded in the fourth quarter, of impairments of property and equipment and operating leases primarily related to physical stores. These charges were recorded in “Other operating expense (income), net” on our consolidated statements of operations and primarily impacted our North America segment. For the year ended December 31, 2022, we also recorded expenses of approximately
$480 million primarily in “Fulfillment” on our consolidated statements of operations relating to terminating contracts for certain leases not yet commenced as well as other purchase commitments, which primarily impacted our North America segment.
For the year ended December 31, 2022, we recorded approximately $720 million, of which $640 million was recorded in the fourth quarter, of estimated severance costs primarily related to planned role eliminations. These charges were recorded primarily in “Technology and content,” “Fulfillment,” and “General and administrative” on our consolidated statements of operations and primarily impacted our North America segment.
Supplemental Cash Flow Information
The following table shows supplemental cash flow information (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | |
Cash paid for interest on debt | $ | 916 | | | $ | 1,098 | | | $ | 1,561 | |
Cash paid for operating leases | $ | 4,475 | | | $ | 6,722 | | | $ | 8,633 | |
Cash paid for interest on finance leases | $ | 612 | | | $ | 521 | | | $ | 374 | |
Cash paid for interest on financing obligations | $ | 102 | | | $ | 153 | | | $ | 207 | |
Cash paid for income taxes, net of refunds | $ | 1,713 | | | $ | 3,688 | | | $ | 6,035 | |
Assets acquired under operating leases | $ | 16,217 | | | $ | 25,369 | | | $ | 18,800 | |
Property and equipment acquired under finance leases, net of remeasurements and modifications | $ | 11,588 | | | $ | 7,061 | | | $ | 675 | |
Property and equipment recognized during the construction period of build-to-suit lease arrangements | $ | 2,267 | | | $ | 5,846 | | | $ | 3,187 | |
Property and equipment derecognized after the construction period of build-to-suit lease arrangements, with the associated leases recognized as operating | $ | — | | | $ | 230 | | | $ | 5,158 | |
Earnings Per Share
Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.
The following table shows the calculation of diluted shares (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
Shares used in computation of basic earnings per share | 10,005 | | | 10,117 | | | 10,189 | |
Total dilutive effect of outstanding stock awards | 193 | | | 179 | | | — | |
Shares used in computation of diluted earnings per share | 10,198 | | | 10,296 | | | 10,189 | |
Revenue
Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, promotional discounts, and rebates. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes. In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. We generally determine stand-alone selling prices based on the prices charged to customers or using expected cost plus a margin.
A description of our principal revenue generating activities is as follows:
Retail sales - We offer consumer products through our online and physical stores. Revenue is recognized when control of the goods is transferred to the customer, which generally occurs upon our delivery to a third-party carrier or, in the case of an Amazon delivery, to the customer.
Third-party seller services - We offer programs that enable sellers to sell their products in our stores, and fulfill orders through us. We are not the seller of record in these transactions. The commissions and any related fulfillment and shipping fees we earn from these arrangements are recognized when the services are rendered, which generally occurs upon delivery of the related products to a third-party carrier or, in the case of an Amazon delivery, to the customer.
Subscription services - Our subscription sales include fees associated with Amazon Prime memberships and access to content including digital video, audiobooks, digital music, e-books, and other non-AWS subscription services. Prime memberships provide our customers with access to an evolving suite of benefits that represent a single stand-ready obligation. Subscriptions are paid for at the time of or in advance of delivering the services. Revenue from such arrangements is recognized over the subscription period.
Advertising services - We provide advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and video advertising. Revenue is recognized as ads are delivered based on the number of clicks or impressions.
AWS - Our AWS arrangements include global sales of compute, storage, database, and other services. Revenue is allocated to services using stand-alone selling prices and is primarily recognized when the customer uses these services, based on the quantity of services rendered, such as compute or storage capacity delivered on-demand. Certain services, including compute and database, are also offered as a fixed quantity over a specified term, for which revenue is recognized ratably. Sales commissions we pay in connection with contracts that exceed one year are capitalized and amortized over the contract term.
Other - Other revenue includes sales related to various other offerings, such as certain licensing and distribution of video content and shipping services, and our co-branded credit card agreements. Revenue is recognized when content is licensed or distributed and as or when services are performed.
Return Allowances
Return allowances, which reduce revenue and cost of sales, are estimated using historical experience. Liabilities for return allowances are included in “Accrued expenses and other” and were $859 million, $1.0 billion, and $1.3 billion as of December 31, 2020, 2021, and 2022. Additions to the allowance were $3.5 billion, $5.1 billion, and $5.5 billion and deductions from the allowance were $3.6 billion, $4.9 billion, and $5.2 billion in 2020, 2021, and 2022. Included in “Inventories” on our consolidated balance sheets are assets totaling $852 million, $882 million, and $948 million as of December 31, 2020, 2021, and 2022, for the rights to recover products from customers associated with our liabilities for return allowances.
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. Shipping costs to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers. Payment processing and related transaction costs, including those associated with seller transactions, are classified in “Fulfillment” on our consolidated statements of operations.
Vendor Agreements
We have agreements with our vendors to receive consideration primarily for cooperative marketing efforts, promotions, incentives, and volume rebates. We generally consider these amounts received from vendors to be a reduction of the prices we pay for their goods, including property and equipment, or services, and are recorded as a reduction of the cost of inventory, cost of services, or cost of property and equipment. Volume rebates typically depend on reaching minimum purchase thresholds. We evaluate the likelihood of reaching purchase thresholds using past experience and current year forecasts. When volume rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards the purchase threshold.
Fulfillment
Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International segments’ fulfillment centers, physical stores, and customer service centers, including facilities and equipment expenses, such as depreciation and amortization, and rent; costs attributable to buying, receiving, inspecting, and warehousing inventories; picking, packaging, and preparing customer orders for shipment; payment processing and related transaction costs, including costs associated with our guarantee for certain seller transactions; responding to inquiries from customers; and supply chain management for our manufactured electronic devices. Fulfillment costs also include amounts paid to third parties that assist us in fulfillment and customer service operations.
Technology and Content
Technology and content costs include payroll and related expenses for employees involved in the research and development of new and existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in our online stores, and infrastructure costs. Infrastructure costs include servers, networking equipment, and data center related depreciation and amortization, rent, utilities, and other expenses necessary to support AWS and other Amazon businesses. Collectively, these costs reflect the investments we make in order to offer a wide variety of products and services to our customers, including expenditures related to initiatives to build and deploy innovative and efficient software and electronic devices and the development of a satellite network for global broadband service and autonomous vehicles for ride-hailing services. Technology and content costs are generally expensed as incurred.
Sales and Marketing
Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities, including sales commissions related to AWS. We pay commissions to third parties when their customer referrals result in sales. We also participate in cooperative advertising arrangements with certain of our vendors, and other third parties.
Advertising and other promotional costs to market our products and services are expensed as incurred and were $10.9 billion, $16.9 billion, and $20.6 billion in 2020, 2021, and 2022.
General and Administrative
General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and equipment expenses, such as depreciation and amortization expense and rent; and professional fees.
Stock-Based Compensation
Compensation cost for all equity-classified stock awards expected to vest is measured at fair value on the date of grant and recognized over the service period. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock. Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method. The estimated number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including historical forfeiture experience by grant year and employee level. Additionally, stock-based compensation includes stock appreciation rights that are expected to settle in cash. These liability-classified awards are remeasured to fair value at the end of each reporting period until settlement or expiration.
Other Operating Expense (Income), Net
Other operating expense (income), net, consists primarily of the amortization of intangible assets and, for 2020, a benefit from accelerated vesting of warrants to acquire equity of a vendor partially offset by a lease impairment and, for 2022, $1.1 billion of impairments of property and equipment and operating leases.
Other Income (Expense), Net
Other income (expense), net, is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
Marketable equity securities valuation gains (losses) | $ | 525 | | | $ | 11,526 | | | $ | (13,870) | |
Equity warrant valuation gains (losses) | 1,527 | | | 1,315 | | | (2,132) | |
Upward adjustments relating to equity investments in private companies | 342 | | | 1,866 | | | 76 | |
Foreign currency gains (losses) | 35 | | | (55) | | | (340) | |
Other, net | (58) | | | (19) | | | (540) | |
Total other income (expense), net | 2,371 | | | 14,633 | | | (16,806) | |
Included in other income (expense), net in 2021 and 2022 is a marketable equity securities valuation gain (loss) of $11.8 billion and $(12.7) billion from our equity investment in Rivian Automotive, Inc. (“Rivian”). Our investment in Rivian’s preferred stock was accounted for at cost, with adjustments for observable changes in prices or impairments, prior to Rivian’s initial public offering in November 2021, which resulted in the conversion of our preferred stock to Class A common stock. As of December 31, 2022, we held 158 million shares of Rivian’s Class A common stock, representing an approximate 17% ownership interest, and an approximate 16% voting interest. We determined that we have the ability to exercise significant influence over Rivian through our equity investment, our commercial arrangement for the purchase of electric vehicles, and one of our employees serving on Rivian’s board of directors. We elected the fair value option to account for our equity investment in Rivian, which is included in “Marketable securities” on our consolidated balance sheets.
Required summarized financial information of Rivian as disclosed in its most recent SEC filings is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2021 | | Nine Months Ended September 30, 2022 |
Revenues | $ | — | | | $ | 55 | | | $ | 995 | |
Gross profit | — | | | (465) | | | (2,123) | |
Loss from operations | (1,021) | | | (4,220) | | | (5,061) | |
Net loss | (1,018) | | | (4,688) | | | (5,029) | |
| | | | | | | | | | | |
| December 31, 2021 | | September 30, 2022 |
Total current assets | $ | 18,559 | | | $ | 14,424 | |
Total assets | 22,294 | | | 19,023 | |
Total current liabilities | 1,313 | | | 2,109 | |
Total liabilities | 2,780 | | | 3,686 | |
| | | |
Income Taxes
Income tax expense includes U.S. (federal and state) and foreign income taxes. 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 in the 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 the U.S. in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
Deferred tax assets represent amounts available to reduce income taxes payable in future periods. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe they will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative loss experience and expectations of future earnings, capital gains and investment in such jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.
We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating our tax positions and estimating our tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. We include interest and penalties related to our tax contingencies in income tax expense.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for identical assets or liabilities. Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold significant amounts of marketable securities categorized as Level 3 assets as of December 31, 2021 and 2022.
We hold equity warrants giving us the right to acquire stock of other companies. As of December 31, 2021 and 2022, these warrants had a fair value of $3.4 billion and $2.1 billion, and are recorded within “Other assets” on our consolidated balance sheets with gains and losses recognized in “Other income (expense), net” on our consolidated statements of operations. These warrants are primarily classified as Level 2 assets.
Cash and Cash Equivalents
We classify all highly liquid instruments with an original maturity of three months or less as cash equivalents.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. The inventory valuation allowance, representing a write-down of inventory, was $2.6 billion and $2.8 billion as of December 31, 2021 and 2022.
We provide Fulfillment by Amazon services in connection with certain of our sellers’ programs. Third-party sellers maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and therefore these products are not included in our inventories.
We also purchase electronic device components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate supply, we enter into agreements with contract manufacturers and suppliers for certain electronic device components. We have certain non-cancellable purchase commitments arising from these agreements. These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional costs. We also have firm, non-cancellable commitments for certain products offered in our Whole Foods Market stores.
Accounts Receivable, Net and Other
Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to customers, vendors, and sellers. As of December 31, 2021 and 2022, customer receivables, net, were $20.2 billion and $26.6 billion, vendor receivables, net, were $5.3 billion and $6.9 billion, and seller receivables, net, were $1.0 billion and $1.3 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. Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement. The allowance for doubtful accounts was $1.1 billion, $1.1 billion, and $1.4 billion as of December 31, 2020, 2021, and 2022. Additions to the allowance were $1.4 billion, $1.0 billion, and $1.6 billion, and deductions to the allowance were $1.0 billion, $1.1 billion, and $1.3 billion in 2020, 2021, and 2022.
Software Development Costs
We incur software development costs related to products to be sold, leased, or marketed to external users, internal-use software, and our websites. Software development costs capitalized were not significant for the years presented. All other costs, including those related to design or maintenance, are expensed as incurred.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation and amortization. Incentives that we receive from property and equipment vendors are recorded as a reduction to our costs. Property includes buildings and land that we own, along with property we have acquired under build-to-suit lease arrangements when we have control over the building during the construction period and finance lease arrangements. Equipment includes assets such as servers and networking equipment, heavy equipment, and other fulfillment equipment. Depreciation and amortization is recorded on a straight-line basis over the estimated useful lives of the assets (generally the lesser of 40 years or the remaining life of the underlying building, four years prior to January 1, 2022 and five years subsequent to January 1, 2022 for our servers, five years prior to January 1, 2022 and six years subsequent to January 1, 2022 for our networking equipment, ten years for heavy equipment, and three to ten years for other fulfillment equipment). Depreciation and amortization expense is classified within the corresponding operating expense categories on our consolidated statements of operations.
Leases
We categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that allow us to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in “Property and equipment, net.” All other leases are categorized as operating leases. Our leases generally have terms that range from one to ten years for equipment and one to twenty years for property.
Certain lease contracts include obligations to pay for other services, such as operations and maintenance. For leases of property, we account for these other services as a component of the lease. For substantially all other leases, the services are accounted for separately and we allocate payments to the lease and other services components based on estimated stand-alone prices.
Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified from “Other assets” upon lease commencement. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.
When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider the option in determining the classification and measurement of the lease. Our leases may include variable payments based on measures that include changes in price indices, market interest rates, or the level of sales at a physical store, which are expensed as incurred.
Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease. Finance lease assets are amortized within operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or, in the instance where title does not transfer at the end of the lease term, the lease term. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term.
We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease. Such assets are amortized over the lease period into operating expense, and the recorded liabilities are accreted to the future value of the estimated retirement costs.
Financing Obligations
We record assets and liabilities for estimated construction costs under build-to-suit lease arrangements when we have control over the building during the construction period. If we continue to control the building after the construction period, the arrangement is classified as a financing obligation instead of a lease. The building is depreciated over the shorter of its useful life or the term of the obligation.
If we do not control the building after the construction period ends, the assets and liabilities for construction costs are derecognized, and we classify the lease as operating.
Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. We may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value and if so, we perform a quantitative test. We compare the carrying value of each reporting unit and indefinite-lived intangible asset to its estimated fair value and if the fair value is determined to be less than the carrying value, we recognize an impairment loss for the difference. We estimate the fair value of the reporting units using discounted cash
flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.
We completed the required annual impairment test of goodwill for all reporting units and indefinite-lived intangible assets as of April 1, 2022, resulting in no impairments. The fair value of our reporting units substantially exceeded their carrying value. There were no events that caused us to update our annual impairment test. See “Note 5 — Acquisitions, Goodwill, and Acquired Intangible Assets.”
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to video and music content, net of accumulated amortization; long-term deferred tax assets; acquired intangible assets, net of accumulated amortization; equity warrant assets and certain equity investments; and satellite network launch services deposits. We recognize certain transactions with governments when there is reasonable assurance that incentives included in the agreements, such as cash or certain tax credits, will be received and we are able to comply with any related conditions. These incentives are recorded as reductions to the cost of related assets or expenses.
Digital Video and Music Content
We obtain video content, inclusive of episodic television and movies, and music content for customers through licensing agreements that have a wide range of licensing provisions including both fixed and variable payment schedules. When the license fee for a specific video or music title is determinable or reasonably estimable and the content is available to us, we recognize an asset and a corresponding liability for the amounts owed. We reduce the liability as payments are made and we amortize the asset to “Cost of sales” on an accelerated basis, based on estimated usage or viewing patterns, or on a straight-line basis. If the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded and licensing costs are expensed as incurred. We also develop original video content for which the production costs are capitalized and amortized to “Cost of sales” predominantly on an accelerated basis that follows the estimated viewing patterns associated with the content. The weighted average remaining life of our capitalized video content is 2.6 years. We review usage and viewing patterns impacting the amortization of capitalized video content on an ongoing basis and reflect any changes prospectively. Changes in historical and anticipated viewing patterns are lengthening the weighted average life of our capitalized video content. We anticipate the changes in viewing patterns will positively impact 2023 operating income by approximately $1.0 billion, generally ratably throughout the year.
Our produced and licensed video content is primarily monetized together as a unit, referred to as a film group, in each major geography where we offer Amazon Prime memberships. These film groups are evaluated for impairment whenever an event occurs or circumstances change indicating the fair value is less than the carrying value. The total capitalized costs of video, which is primarily released content, and music as of December 31, 2021 and 2022 were $10.7 billion and $16.7 billion. Total video and music expense was $13.0 billion and $16.6 billion for the year ended December 31, 2021 and 2022. Total video and music expense includes licensing and production costs associated with content offered within Amazon Prime memberships, and costs associated with digital subscriptions and sold or rented content.
Investments
We generally invest our excess cash in AAA-rated money market funds and investment grade short- to intermediate-term fixed income securities. Such investments are included in “Cash and cash equivalents” or “Marketable securities” on the accompanying consolidated balance sheets.
Marketable fixed income securities are classified as available-for-sale and reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income (loss).” Each reporting period, we evaluate whether declines in fair value below carrying value are due to expected credit losses, as well as our ability and intent to hold the investment until a forecasted recovery occurs. Expected credit losses are recorded as an allowance through “Other income (expense), net” on our consolidated statements of operations.
Equity investments in private companies for which we do not have the ability to exercise significant influence are accounted for at cost, with adjustments for observable changes in prices or impairments, and are classified as “Other assets” on our consolidated balance sheets with adjustments recognized in “Other income (expense), net” on our consolidated statements of operations. Each reporting period, we perform a qualitative assessment to evaluate whether the investment is impaired. Our assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other publicly available data. If the investment is impaired, we write it down to its estimated fair value. As of December 31, 2021 and 2022, these investments had a carrying value of $603 million and $715 million.
Equity investments are accounted for using the equity method of accounting, or at fair value if we elect the fair value option, if the investment gives us the ability to exercise significant influence, but not control, over an investee. Equity-method
investments are included within “Other assets” on our consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of basis differences, related gains or losses, and impairments, if any, are recognized in “Equity-method investment activity, net of tax” on our consolidated statements of operations. Each reporting period, we evaluate whether declines in fair value below carrying value are other-than-temporary and if so, we write down the investment to its estimated fair value.
Equity investments that have readily determinable fair values, including investments for which we have elected the fair value option, are included in “Marketable securities” on our consolidated balance sheets and measured at fair value with changes recognized in “Other income (expense), net” on our consolidated statements of operations.
Long-Lived Assets
Long-lived assets, other than goodwill and indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable.
For long-lived assets used in operations, including lease assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value. Long-lived assets are considered held for sale when certain criteria are met, including when management has committed to a plan to sell the asset, the asset is available for sale in its immediate condition, and the sale is probable within one year of the reporting date. Assets held for sale are reported at the lower of cost or fair value less costs to sell. Assets held for sale were not significant as of December 31, 2021 and 2022.
Accrued Expenses and Other
Included in “Accrued expenses and other” on our consolidated balance sheets are liabilities primarily related to leases and asset retirement obligations, tax-related liabilities, current debt, payroll and related expenses, unredeemed gift cards, self-insurance liabilities, customer liabilities, marketing liabilities, acquired digital media content, and other operating expenses.
As of December 31, 2021 and 2022, our liabilities for payroll related expenses were $7.4 billion and $7.7 billion and our liabilities for unredeemed gift cards were $5.2 billion and $5.4 billion. We reduce the liability for a gift card when redeemed by a customer. The portion of gift cards that we do not expect to be redeemed is recognized based on customer usage patterns.
Self-Insurance Liabilities
Although we maintain certain high-deductible, third-party insurance coverage for catastrophic losses, we effectively self-insure for exposure primarily related to workers’ compensation, employee health care benefits, general and product liability, and automobile liability, including liability resulting from third-party transportation service providers. We estimate self-insurance liabilities by considering historical claims experience, frequency and costs of claims, projected claims development, inflation, and other actuarial assumptions. Changes in the number or costs of claims, healthcare costs, judgment and settlement amounts, associated legal expenses, and other factors could cause actual results to differ materially from these estimates. As of December 31, 2021 and 2022, our total self-insurance liabilities were $2.2 billion and $4.0 billion and are included in “Accrued expenses and other” on our consolidated balance sheets. In the fourth quarter of 2022, we increased our reserves for general, product, and automobile liabilities by $1.3 billion primarily driven by changes in our estimates about the costs of asserted and unasserted claims, which was primarily recorded in “Cost of sales” on our consolidated statements of operations and impacted our North America segment.
Unearned Revenue
Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. Our total unearned revenue as of December 31, 2021 was $14.0 billion, of which $11.3 billion was recognized as revenue during the year ended December 31, 2022 and our total unearned revenue as of December 31, 2022 was $16.1 billion. Included in “Other long-term liabilities” on our consolidated balance sheets was $2.2 billion and $2.9 billion of unearned revenue as of December 31, 2021 and 2022.
Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that have not yet been recognized in our financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were $110.4 billion as of December 31, 2022. The weighted average remaining life of our long-term contracts is 3.7 years. However, the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term.
Other Long-Term Liabilities
Included in “Other long-term liabilities” on our consolidated balance sheets are liabilities primarily related to financing obligations, asset retirement obligations, unearned revenue, tax contingencies, digital video and music content, and deferred tax liabilities.
Foreign Currency
We have internationally-focused stores for which the net sales generated, as well as most of the related expenses directly incurred from those operations, are denominated in local functional currencies. The functional currency of our subsidiaries that either operate or support these stores is generally the same as the local currency. Assets and liabilities of these subsidiaries are translated into U.S. Dollars at period-end foreign exchange rates, and revenues and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in “Accumulated other comprehensive income (loss),” a separate component of stockholders’ equity. Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in “Other income (expense), net” on our consolidated statements of operations. In connection with the settlement and remeasurement of intercompany balances, we recorded gains (losses) of $(118) million, $19 million, and $386 million in 2020, 2021, and 2022.
Note 2 — FINANCIAL INSTRUMENTS
Cash, Cash Equivalents, Restricted Cash, and Marketable Securities
As of December 31, 2021 and 2022, our cash, cash equivalents, restricted cash, and marketable securities primarily consisted of cash, AAA-rated money market funds, U.S. and foreign government and agency securities, other investment grade securities, and marketable equity securities. Cash equivalents and marketable securities are recorded at fair value. The following table summarizes, by major security type, our cash, cash equivalents, restricted cash, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Total Estimated Fair Value |
Cash | $ | 10,942 | | | $ | — | | | $ | — | | | $ | 10,942 | |
Level 1 securities: | | | | | | | |
Money market funds | 20,312 | | | — | | | — | | | 20,312 | |
Equity securities (1) | | | | | | | 1,646 | |
Level 2 securities: | | | | | | | |
Foreign government and agency securities | 181 | | | — | | | — | | | 181 | |
U.S. government and agency securities | 4,316 | | | 9 | | | (25) | | | 4,300 | |
Corporate debt securities | 35,810 | | | 75 | | | (121) | | | 35,764 | |
Asset-backed securities | 6,763 | | | 7 | | | (32) | | | 6,738 | |
Other fixed income securities | 688 | | | 2 | | | (4) | | | 686 | |
Equity securities (1)(3) | | | | | | | 15,740 | |
| $ | 79,012 | | | $ | 93 | | | $ | (182) | | | $ | 96,309 | |
Less: Restricted cash, cash equivalents, and marketable securities (2) | | | | | | | (260) | |
Total cash, cash equivalents, and marketable securities | | | | | | | $ | 96,049 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Total Estimated Fair Value |
Cash | $ | 10,666 | | | $ | — | | | $ | — | | | $ | 10,666 | |
Level 1 securities: | | | | | | | |
Money market funds | 27,899 | | | — | | | — | | | 27,899 | |
Equity securities (1)(3) | | | | | | | 3,709 | |
Level 2 securities: | | | | | | | |
Foreign government and agency securities | 537 | | | — | | | (2) | | | 535 | |
U.S. government and agency securities | 2,301 | | | — | | | (155) | | | 2,146 | |
Corporate debt securities | 23,111 | | | — | | | (484) | | | 22,627 | |
Asset-backed securities | 2,721 | | | — | | | (149) | | | 2,572 | |
Other fixed income securities | 249 | | | — | | | (12) | | | 237 | |
| | | | | | | |
| $ | 67,484 | | | $ | — | | | $ | (802) | | | $ | 70,391 | |
Less: Restricted cash, cash equivalents, and marketable securities (2) | | | | | | | (365) | |
Total cash, cash equivalents, and marketable securities | | | | | | | $ | 70,026 | |
___________________
(1)The related unrealized gain (loss) recorded in “Other income (expense), net” was $448 million, $11.6 billion, and $(13.6) billion for the years ended December 31, 2020, 2021, and 2022.
(2)We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable fixed income securities primarily as collateral for real estate, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit. We classify cash, cash equivalents, and marketable fixed income securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 7 — Commitments and Contingencies.”
(3)Our equity investment in Rivian had a fair value of $15.6 billion and $2.9 billion as of December 31, 2021 and December 31, 2022, respectively. The investment was subject to regulatory sales restrictions resulting in a discount for lack of marketability of approximately $800 million as of December 31, 2021, which expired in Q1 2022.
The following table summarizes gross gains and gross losses realized on sales of marketable fixed income securities (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
Realized gains | $ | 92 | | | $ | 85 | | | $ | 43 | |
Realized losses | 56 | | | 38 | | | 341 | |
The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of December 31, 2022 (in millions):
| | | | | | | | | | | |
| Amortized Cost | | Estimated Fair Value |
Due within one year | $ | 46,854 | | | $ | 46,782 | |
Due after one year through five years | 7,622 | | | 7,047 | |
Due after five years through ten years | 602 | | | 565 | |
Due after ten years | 1,740 | | | 1,622 | |
Total | $ | 56,818 | | | $ | 56,016 | |
Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.
Consolidated Statements of Cash Flows Reconciliation
The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows (in millions):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2022 |
Cash and cash equivalents | $ | 36,220 | | | $ | 53,888 | |
Restricted cash included in accounts receivable, net and other | 242 | | | 358 | |
Restricted cash included in other assets | 15 | | | 7 | |
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows | $ | 36,477 | | | $ | 54,253 | |
Note 3 — PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2022 |
Gross property and equipment (1): | | | |
Land and buildings | $ | 81,104 | | | $ | 91,650 | |
Equipment | 128,683 | | | 157,458 | |
Other assets | 4,118 | | | 4,602 | |
Construction in progress | 24,895 | | | 30,020 | |
Gross property and equipment | 238,800 | | | 283,730 | |
Total accumulated depreciation and amortization (1) | 78,519 | | | 97,015 | |
Total property and equipment, net | $ | 160,281 | | | $ | 186,715 | |
__________________
(1)Includes the original cost and accumulated depreciation of fully-depreciated assets.
Depreciation and amortization expense on property and equipment was $16.2 billion, $22.9 billion, and $24.9 billion which includes amortization of property and equipment acquired under finance leases of $8.5 billion, $9.9 billion, and $6.1 billion for 2020, 2021, and 2022.
Note 4 — LEASES
We have entered into non-cancellable operating and finance leases for fulfillment, delivery, office, data center, physical store, and sortation facilities as well as server and networking equipment, vehicles, and aircraft. Gross assets acquired under finance leases, inclusive of those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $72.2 billion and $68.0 billion as of December 31, 2021 and 2022. Accumulated amortization associated with finance leases was $43.4 billion and $45.2 billion as of December 31, 2021 and 2022.
Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
Operating lease cost | $ | 5,019 | | | $ | 7,199 | | | $ | 8,847 | |
Finance lease cost: | | | | | |
Amortization of lease assets | 8,452 | | | 9,857 | | | 6,097 | |
Interest on lease liabilities | 617 | | | 473 | | | 361 | |
Finance lease cost | 9,069 | | | 10,330 | | | 6,458 | |
Variable lease cost | 1,238 | | | 1,556 | | | 1,852 | |
Total lease cost | $ | 15,326 | | | $ | 19,085 | | | $ | 17,157 | |
Other information about lease amounts recognized in our consolidated financial statements is as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2022 |
| | | |
Weighted-average remaining lease term – operating leases | 11.3 years | | 11.6 years |
Weighted-average remaining lease term – finance leases | 8.1 years | | 10.3 years |
Weighted-average discount rate – operating leases | 2.2 | % | | 2.8 | % |
Weighted-average discount rate – finance leases | 2.0 | % | | 2.3 | % |
Our lease liabilities were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Operating Leases | | Finance Leases | | Total |
| | | | | |
Gross lease liabilities | $ | 66,269 | | | $ | 25,866 | | | $ | 92,135 | |
Less: imputed interest | (7,939) | | | (2,113) | | | (10,052) | |
Present value of lease liabilities | 58,330 | | | 23,753 | | | 82,083 | |
Less: current portion of lease liabilities | (6,349) | | | (8,083) | | | (14,432) | |
Total long-term lease liabilities | $ | 51,981 | | | $ | 15,670 | | | $ | 67,651 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Operating Leases | | Finance Leases | | Total |
| |
Gross lease liabilities | $ | 81,273 | | | $ | 18,019 | | | $ | 99,292 | |
Less: imputed interest | (12,233) | | | (2,236) | | | (14,469) | |
Present value of lease liabilities | 69,040 | | | 15,783 | | | 84,823 | |
Less: current portion of lease liabilities | (7,458) | | | (4,397) | | | (11,855) | |
Total long-term lease liabilities | $ | 61,582 | | | $ | 11,386 | | | $ | 72,968 | |
Note 5 — ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
2020 Acquisition Activity
During 2020, we acquired certain companies for an aggregate purchase price of $1.2 billion, net of cash acquired, of which $1.1 billion was capitalized to in-process research and development intangible assets (“IPR&D”).
2021 Acquisition Activity
During 2021, we acquired certain companies for an aggregate purchase price of $496 million, net of cash acquired.
2022 Acquisition Activity
On March 17, 2022, we acquired MGM Holdings Inc., for cash consideration of approximately $6.1 billion, net of cash acquired, to provide more digital media content options for customers. We also assumed $2.5 billion of debt, which we repaid immediately after closing. The acquired assets primarily consist of $3.4 billion of video content and $4.9 billion of goodwill.
During 2022, we also acquired certain other companies for an aggregate purchase price of $141 million, net of cash acquired.
Pro forma results of operations have not been presented because the effects of the 2022 acquisitions, individually and in the aggregate, were not material to our consolidated results of operations. Acquisition-related costs were expensed as incurred and were not significant.
Goodwill
The goodwill of the acquired companies is primarily related to expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition. The goodwill of the acquired companies is generally not deductible for tax purposes. The following summarizes our goodwill activity in 2021 and 2022 by segment (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| North America | | International | | AWS | | Consolidated |
Goodwill - January 1, 2021 | $ | 12,527 | | | $ | 1,288 | | | $ | 1,202 | | | $ | 15,017 | |
New acquisitions | 230 | | | 60 | | | 76 | | | 366 | |
Other adjustments (1) | 1 | | | (21) | | | 8 | | | (12) | |
Goodwill - December 31, 2021 | 12,758 | | | 1,327 | | | 1,286 | | | 15,371 | |
New acquisitions | 3,943 | | | 1,054 | | | — | | | 4,997 | |
Other adjustments (1) | (80) | | | 30 | | | (30) | | | (80) | |
Goodwill - December 31, 2022 | $ | 16,621 | | | $ | 2,411 | | | $ | 1,256 | | | $ | 20,288 | |
___________________
(1)Primarily includes changes in foreign exchange rates.
Intangible Assets
Acquired identifiable intangible assets are valued primarily by using discounted cash flows. These assets are included within “Other assets” on our consolidated balance sheets and consist of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | |
| 2021 | | 2022 | | |
| Acquired Intangibles, Gross (1) | | Accumulated Amortization (1) | | Acquired Intangibles, Net | | Acquired Intangibles, Gross (1) | | Accumulated Amortization (1) | | Acquired Intangibles, Net | | Weighted Average Life Remaining |
Finite-lived intangible assets (2): | | | | | | | | | | | | | |
Marketing-related | $ | 2,286 | | | $ | (548) | | | $ | 1,738 | | | $ | 2,407 | | | $ | (601) | | | $ | 1,806 | | | 18.6 |
Contract-based | 2,327 | | | (565) | | | 1,762 | | | 3,661 | | | (813) | | | 2,848 | | | 12.8 |
Technology- and content-based | 976 | | | (610) | | | 366 | | | 883 | | | (643) | | | 240 | | | 3.2 |
Customer-related | 197 | | | (103) | | | 94 | | | 184 | | | (128) | | | 56 | | | 2.2 |
Total finite-lived intangible assets | $ | 5,786 | | | $ | (1,826) | | | $ | 3,960 | | | $ | 7,135 | | | $ | (2,185) | | | $ | 4,950 | | | 14.4 |
| | | | | | | | | | | | | |
IPR&D and other (3) | $ | 1,147 | | | | | | $ | 1,147 | | | $ | 1,147 | | | | | | $ | 1,147 | | | |
Total acquired intangibles | $ | 6,933 | | | $ | (1,826) | | | $ | 5,107 | | | $ | 8,282 | | | $ | (2,185) | | | $ | 6,097 | | | |
___________________
(1)Excludes the original cost and accumulated amortization of fully-amortized intangibles.
(2)Finite-lived intangible assets, excluding acquired video content, have estimated useful lives of between one and twenty-five years, and are being amortized to operating expenses on a straight-line basis.
(3)Intangible assets acquired in a business combination that are in-process and used in research and development activities are considered indefinite-lived until the completion or abandonment of the research and development efforts. Once the research and development efforts are completed, we determine the useful life and begin amortizing the assets.
Amortization expense for acquired finite-lived intangibles was $509 million, $512 million, and $604 million in 2020, 2021, and 2022. Expected future amortization expense of acquired finite-lived intangible assets as of December 31, 2022 is as follows (in millions):
| | | | | |
Year Ended December 31, |
2023 | $ | 530 | |
2024 | 456 | |
2025 | 371 | |
2026 | 324 | |
2027 | 314 | |
Thereafter | 2,955 | |
| $ | 4,950 | |
Note 6 — DEBT
As of December 31, 2022, we had $69.5 billion of unsecured senior notes outstanding (the “Notes”), including $12.8 billion issued in April 2022 and $8.3 billion issued in December 2022 for general corporate purposes, and $1.0 billion of borrowings under our secured revolving credit facility. Our total long-term debt obligations are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturities (1) | | Stated Interest Rates | | Effective Interest Rates | | December 31, 2021 | | December 31, 2022 |
2012 Notes issuance of $3.0 billion | 2022 | | 2.50% | | 2.66% | | 1,250 | | | — | |
2014 Notes issuance of $6.0 billion | 2024 - 2044 | | 3.80% - 4.95% | | 3.90% - 5.12% | | 4,000 | | | 4,000 | |
2017 Notes issuance of $17.0 billion | 2023 - 2057 | | 2.40% - 5.20% | | 2.56% - 4.33% | | 16,000 | | | 16,000 | |
2020 Notes issuance of $10.0 billion | 2023 - 2060 | | 0.40% - 2.70% | | 0.56% - 2.77% | | 10,000 | | | 10,000 | |
2021 Notes issuance of $18.5 billion | 2023 - 2061 | | 0.25% - 3.25% | | 0.35% - 3.31% | | 18,500 | | | 18,500 | |
April 2022 Notes issuance of $12.8 billion | 2024 - 2062 | | 2.73% - 4.10% | | 2.83% - 4.15% | | — | | | 12,750 | |
December 2022 Notes issuance of $8.3 billion | 2024 - 2032 | | 4.55% - 4.70% | | 4.61% - 4.83% | | — | | | 8,250 | |
Credit Facility | | | | | | | 803 | | | 1,042 | |
| | | | | | | | | |
Total face value of long-term debt | | | | | | | 50,553 | | | 70,542 | |
Unamortized discount and issuance costs, net | | | | | | | (318) | | | (393) | |
Less: current portion of long-term debt | | | | | | | (1,491) | | | (2,999) | |
Long-term debt | | | | | | | $ | 48,744 | | | $ | 67,150 | |
___________________
(1)The weighted-average remaining lives of the 2014, 2017, 2020, 2021, April 2022, and December 2022 Notes were 12.6, 14.2, 16.7, 13.3, 13.3, and 5.9 years as of December 31, 2022. The combined weighted-average remaining life of the Notes was 13.1 years as of December 31, 2022.
Interest on the Notes is payable semi-annually in arrears. We may redeem the Notes at any time in whole, or from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. The estimated fair value of the Notes was approximately $53.3 billion and $61.4 billion as of December 31, 2021 and 2022, which is based on quoted prices for our debt as of those dates.
We have a $1.5 billion secured revolving credit facility with a lender that is secured by certain seller receivables, which we increased from $1.0 billion to $1.5 billion in August 2022 and we may from time to time increase in the future subject to lender approval (the “Credit Facility”). The Credit Facility is available until August 2025, bears interest based on the daily Secured Overnight Financing Rate plus 1.25%, and has a commitment fee of up to 0.45% on the undrawn portion. There were $803 million and $1.0 billion of borrowings outstanding under the Credit Facility as of December 31, 2021 and 2022, which had an interest rate of 1.5% and 5.6%, respectively. As of December 31, 2021 and 2022, we have pledged $918 million and $1.2 billion of our cash and seller receivables as collateral for debt related to our Credit Facility. The estimated fair value of the Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2021 and 2022.
As of December 31, 2022, future principal payments for our total long-term debt were as follows (in millions):
| | | | | |
Year Ended December 31, |
2023 | $ | 3,000 | |
2024 | 8,500 | |
2025 | 5,249 | |
2026 | 3,543 | |
2027 | 8,750 | |
Thereafter | 41,500 | |
| $ | 70,542 | |
We have U.S. Dollar and Euro commercial paper programs (the “Commercial Paper Programs”) under which we may from time to time issue unsecured commercial paper up to a total of $20.0 billion (including up to €3.0 billion) at the date of issue, with individual maturities that may vary but will not exceed 397 days from the date of issue. In March 2022, we increased the size of the Commercial Paper Programs from $10.0 billion to $20.0 billion. There were $725 million and $6.8 billion of borrowings outstanding under the Commercial Paper Programs as of December 31, 2021 and 2022, which were
included in “Accrued expenses and other” on our consolidated balance sheets and had a weighted-average effective interest rate, including issuance costs, of 0.08% and 4.47%, respectively. We use the net proceeds from the issuance of commercial paper for general corporate purposes.
We have a $10.0 billion unsecured revolving credit facility with a syndicate of lenders (the “Credit Agreement”), which was amended and restated in March 2022 to increase the borrowing capacity from $7.0 billion to $10.0 billion and to extend the term to March 2025. It may be extended for up to three additional one-year terms if approved by the lenders. The interest rate applicable to outstanding balances under the Credit Agreement is the applicable benchmark rate specified in the Credit Agreement plus 0.45%, with a commitment fee of 0.03% on the undrawn portion of the credit facility. There were no borrowings outstanding under the Credit Agreement as of December 31, 2021 and 2022.
In November 2022, we entered into a $10.0 billion unsecured 364-day revolving credit facility with a syndicate of lenders (the “Short-Term Credit Agreement”), which matures in November 2023 and may be extended for one additional period of 364 days if approved by the lenders. The interest rate applicable to outstanding balances under the Short-Term Credit Agreement is the Secured Overnight Financing Rate specified in the Short-Term Credit Agreement plus 0.45%, with a commitment fee of 0.05% on the undrawn portion. There were no borrowings outstanding under the Short-Term Credit Agreement as of December 31, 2022.
We also utilize other short-term credit facilities for working capital purposes. There were $318 million and $1.2 billion of borrowings outstanding under these facilities as of December 31, 2021 and 2022, which were included in “Accrued expenses and other” on our consolidated balance sheets. In addition, we had $6.9 billion of unused letters of credit as of December 31, 2022.
In January 2023, we entered into an $8.0 billion unsecured 364-day term loan with a syndicate of lenders (the “Term Loan”), which matures in January 2024 and bears interest at the Secured Overnight Financing Rate specified in the Term Loan plus 0.75%. If we exercise our option to extend the Term Loan’s maturity to January 2025, the interest rate spread will increase from 0.75% to 1.05%. As of the date of this filing, the entire Term Loan is outstanding.
Note 7 — COMMITMENTS AND CONTINGENCIES
Commitments
The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations and are generally cancellable, as of December 31, 2022 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
Long-term debt principal and interest | $ | 5,165 | | | $ | 10,618 | | | $ | 7,146 | | | $ | 5,253 | | | $ | 10,399 | | | $ | 63,815 | | | $ | 102,396 | |
Operating lease liabilities | 9,574 | | | 8,658 | | | 8,024 | | | 7,393 | | | 6,675 | | | 40,949 | | | 81,273 | |
Finance lease liabilities, including interest | 4,575 | | | 2,248 | | | 1,422 | | | 1,279 | | | 1,088 | | | 7,407 | | | 18,019 | |
Financing obligations, including interest (1) | 465 | | | 464 | | | 456 | | | 464 | | | 471 | | | 6,712 | | | 9,032 | |
Leases not yet commenced | 1,252 | | | 2,043 | | | 2,185 | | | 2,160 | | | 2,152 | | | 17,237 | | | 27,029 | |
Unconditional purchase obligations (2) | 8,156 | | | 7,217 | | | 5,366 | | | 4,525 | | | 3,419 | | | 6,093 | | | 34,776 | |
Other commitments (3)(4) | 3,173 | | | 1,608 | | | 1,027 | | | 982 | | | 622 | | | 8,652 | | | 16,064 | |
Total commitments | $ | 32,360 | | | $ | 32,856 | | | $ | 25,626 | | | $ | 22,056 | | | $ | 24,826 | | | $ | 150,865 | | | $ | 288,589 | |
___________________
(1)Includes non-cancellable financing obligations for fulfillment, sortation, and data center facilities. Excluding interest, current financing obligations of $196 million and $266 million are recorded within “Accrued expenses and other” and $6.2 billion and $6.7 billion are recorded within “Other long-term liabilities” as of December 31, 2021 and 2022. The weighted-average remaining term of the financing obligations was 18.8 years and 17.9 years and the weighted-average imputed interest rate was 3.2% and 3.1% as of December 31, 2021 and 2022.
(2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content that are not reflected on the consolidated balance sheets and certain products offered in our Whole Foods Market stores. For those digital media content agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.
(3)Includes asset retirement obligations, liabilities associated with digital media content agreements with initial terms greater than one year, and the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that are under construction.
(4)Excludes approximately $4.0 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.
In July 2022, we entered into an agreement to acquire 1Life Healthcare, Inc. (One Medical) for approximately $3.9 billion, including its debt, subject to customary closing conditions. In August 2022, we entered into an agreement to acquire iRobot Corporation for approximately $1.7 billion, including its debt, subject to customary closing conditions. We expect to fund these acquisitions with cash on hand.
Suppliers
During 2022, no vendor accounted for 10% or more of our purchases. We generally do not have long-term contracts or arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits.
Other Contingencies
We are disputing claims and denials of refunds or credits related to various non-income taxes (such as sales, value added, consumption, service, and similar taxes), including in jurisdictions in which we already collect and remit these taxes. These non-income tax controversies typically relate to (i) the taxability of products and services, including cross-border intercompany transactions, (ii) collection and withholding on transactions with third parties, and (iii) the adequacy of compliance with reporting obligations, including evolving documentation requirements. Due to the inherent complexity and uncertainty of these matters and the judicial and regulatory processes in certain jurisdictions, the final outcome of any such controversies may be materially different from our expectations.
Legal Proceedings
The Company is involved from time to time in claims, proceedings, and litigation, including the following:
In November 2015, Eolas Technologies, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that the use of “interactive features” on www.amazon.com, including “search suggestions and search results,” infringes U.S. Patent No. 9,195,507, entitled “Distributed Hypermedia Method and System for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects Within a Hypermedia Document.” The complaint sought a judgment of infringement together with costs and attorneys’ fees. In February 2016, Eolas filed an amended complaint seeking, among other things, an unspecified amount of damages. In February 2017, Eolas alleged in its damages report that in the event of a finding of liability Amazon could be subject to $130 to $250 million in damages. In April 2017, the case was transferred to the United States District Court for the Northern District of California. In May 2022, the district court granted summary judgment holding that the patent is invalid. In June 2022, Eolas filed a notice of appeal. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In May 2018, Rensselaer Polytechnic Institute and CF Dynamic Advances LLC filed a complaint against Amazon.com, Inc. in the United States District Court for the Northern District of New York. The complaint alleges, among other things, that “Alexa Voice Software and Alexa enabled devices” infringe U.S. Patent No. 7,177,798, entitled “Natural Language Interface Using Constrained Intermediate Dictionary of Results.” The complaint seeks an injunction, an unspecified amount of damages, enhanced damages, an ongoing royalty, interest, attorneys’ fees, and costs. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In December 2018, Kove IO, Inc. filed a complaint against Amazon Web Services, Inc. in the United States District Court for the Northern District of Illinois. The complaint alleges, among other things, that Amazon S3 and DynamoDB infringe U.S. Patent Nos. 7,814,170 and 7,103,640, both entitled “Network Distributed Tracking Wire Transfer Protocol”; and 7,233,978, entitled “Method and Apparatus for Managing Location Information in a Network Separate from the Data to Which the Location Information Pertains.” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief. In March 2022, the case was stayed pending resolution of review petitions we filed with the United States Patent and Trademark Office. In November 2022, the stay was lifted. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
Beginning in March 2020, with Frame-Wilson v. Amazon.com, Inc. filed in the United States District Court for the Western District of Washington, private litigants have filed a number of cases in the U.S. and Canada alleging, among other things, price fixing arrangements between Amazon.com, Inc. and vendors and third-party sellers in Amazon’s stores, monopolization and attempted monopolization, and consumer protection and unjust enrichment claims. Attorneys General for the District of Columbia and California brought similar suits in May 2021 and September 2022 in the Superior Court of the District of Columbia and the California Superior Court for the County of San Francisco, respectively. Some of the private cases include allegations of several distinct purported classes, including consumers who purchased a product through Amazon’s stores and consumers who purchased a product offered by Amazon through another e-commerce retailer. The complaints seek billions of dollars of alleged actual damages, treble damages, punitive damages, injunctive relief, civil penalties, attorneys’ fees, and costs. In March 2022 and January 2023, Amazon’s motions to dismiss were granted in part and denied in part in Frame-Wilson and De Coster v. Amazon.com, Inc. (WD Wash), respectively; both courts dismissed claims alleging that Amazon’s pricing policies are inherently illegal and denied dismissal of claims alleging that Amazon’s pricing policies are an unlawful restraint of trade. In March 2022, the DC Superior Court dismissed the DC Attorney General’s lawsuit in its entirety; the dismissal is under appeal as of January 2023. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.
In October 2020, BroadbandiTV, Inc. filed a complaint against Amazon.com, Inc., Amazon.com Services LLC, and Amazon Web Services, Inc. in the United States District Court for the Western District of Texas. The complaint alleges, among other things, that certain Amazon Prime Video features and services infringe U.S. Patent Nos. 9,648,388, 10,546,750, and 10,536,751, each entitled “Video-On-Demand Content Delivery System for Providing Video-On-Demand Services to TV Services Subscribers”; 10,028,026, entitled “System for Addressing On-Demand TV Program Content on TV Services Platform of a Digital TV Services Provider”; and 9,973,825, entitled “Dynamic Adjustment of Electronic Program Guide Displays Based on Viewer Preferences for Minimizing Navigation in VOD Program Selection.” The complaint seeks an unspecified amount of damages. In April 2022, BroadbandiTV alleged in its damages report that, in the event of a finding of liability, Amazon could be subject to $166 to $986 million in damages. In September 2022, the court granted summary judgment, holding that the patents are invalid. In October 2022, BroadbandiTV filed a notice of appeal. We dispute the allegations of wrongdoing and will continue to defend ourselves vigorously in this matter.
In November 2020, the European Commission issued a Statement of Objections alleging that Amazon uses data relating to our marketplace sellers in a manner that infringes EU competition rules. The Statement of Objections sought to impose unspecified fines and remedial actions. In December 2022, the European Commission adopted formal commitments without fines, fully resolving the investigation.
In July 2021, the Luxembourg National Commission for Data Protection (the “CNPD”) issued a decision against Amazon Europe Core S.à r.l. claiming that Amazon’s processing of personal data did not comply with the EU General Data Protection Regulation. The decision imposes a fine of €746 million and corresponding practice revisions. We believe the CNPD’s decision to be without merit and intend to defend ourselves vigorously in this matter.
In November 2021, Jawbone Innovations, LLC filed a complaint against Amazon.com, Inc. and Amazon.com Services, Inc. in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that Amazon Echo smart speakers and displays, Fire TV Cube, and Echo Buds infringe U.S. Patent Nos. 7,246,058, entitled “Detecting Voiced and Unvoiced Speech Using Both Acoustic and Nonacoustic Sensors”; 8,019,091, entitled “Voice Activity Detector (VAD)-Based Multiple-Microphone Acoustic Noise Suppression”; 8,280,072, entitled “Microphone Array with Rear Venting”; 8,321,213 and 8,326,611, both entitled “Acoustic Voice Activity Detection (AVAD) for Electronic Systems”; 8,467,543, entitled “Microphone and Voice Activity Detection (VAD) Configurations for Use with Communications Systems”; 8,503,691, entitled “Virtual Microphone Arrays Using Dual Omnidirectional Microphone Array (DOMA)”; 10,779,080, entitled “Dual Omnidirectional Microphone Array (DOMA)”; and 11,122,357, entitled “Forming Virtual Microphone Arrays Using Dual Omnidirectional Microphone Array (DOMA).” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief. In November 2022, the case was transferred to the United States District Court for the Northern District of California. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In December 2021, the Italian Competition Authority (the “ICA”) issued a decision against Amazon Services Europe S.à r.l., Amazon Europe Core S.à r.l., Amazon EU S.à r.l., Amazon Italia Services S.r.l., and Amazon Italia Logistica S.r.l. claiming that certain of our marketplace and logistics practices in Italy infringe EU competition rules. The decision imposes remedial actions and a fine of €1.13 billion, which we are paying and will seek to recover pending conclusion of all appeals. We believe the ICA’s decision to be without merit and intend to defend ourselves vigorously in this matter.
In July 2022, Acceleration Bay, LLC filed a complaint against Amazon Web Services, Inc. in the United States District Court for the District of Delaware. The complaint alleges, among other things, that Amazon EC2, Amazon CloudFront, AWS Lambda, Amazon Lumberyard, Luna, Amazon Prime Video, Twitch, Amazon GameLift, GridMate, Amazon EKS, AWS App Mesh, and Amazon VPC infringe U.S. Patent Nos. 6,701,344, entitled “Distributed Game Environment”; 6,714,966, entitled “Information Delivery Service”; 6,732,147, entitled “Leaving a Broadcast Channel”; 6,829,634, entitled “Broadcasting Network”; and 6,910,069, entitled “Joining a Broadcast Channel.” The complaint seeks injunctive relief, an unspecified amount of damages, enhanced damages, interest, attorneys’ fees, and costs. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In November 2022, LightGuide, Inc. filed a complaint against Amazon.com, Inc. and Amazon.com Services LLC in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that Amazon’s Nike Intent Detection System used in certain fulfillment centers infringes U.S. Patent Nos. 7,515,981, entitled “Light Guided Assembly System”; and 9,658,614 and 10,528,036, each entitled “Light Guided Assembly System and Method.” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In addition, we are regularly subject to claims, litigation, and other proceedings, including potential regulatory proceedings, involving patent and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy and data protection, consumer protection, commercial disputes, goods and services offered by us and by third parties, and other matters.
The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. We evaluate, on a regular basis, developments in our legal proceedings and other contingencies that could affect the amount of liability, including amounts in excess of any previous accruals and reasonably possible losses disclosed, and make adjustments and changes to our accruals and disclosures as appropriate. For the matters we disclose that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. Until the final resolution of such matters, if any of our estimates and assumptions change or prove to have been incorrect, we may experience losses in excess of the amounts recorded, which could have a material effect on our business, consolidated financial position, results of operations, or cash flows.
See also “Note 9 — Income Taxes.”
Note 8 — STOCKHOLDERS’ EQUITY
Preferred Stock
We have authorized 500 million shares of $0.01 par value preferred stock. No preferred stock was outstanding for any year presented.
Common Stock
Common shares outstanding plus shares underlying outstanding stock awards totaled 10.4 billion, 10.5 billion, and 10.6 billion, as of December 31, 2020, 2021, and 2022. These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited.
Stock Repurchase Activity
In March 2022, the Board of Directors authorized a program to repurchase up to $10.0 billion of our common stock, with no fixed expiration, which replaced the previous $5.0 billion stock repurchase authorization, approved by the Board of Directors in February 2016. We repurchased 46.2 million shares of our common stock for $6.0 billion in 2022 under these programs. There were no repurchases of common stock in 2020 or 2021. As of December 31, 2022, we have $6.1 billion remaining under the repurchase program.
Stock Award Plans
Employees vest in restricted stock unit awards over the corresponding service term, generally between two and five years.
Stock Award Activity
Stock-based compensation expense is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
Cost of sales | $ | 283 | | | $ | 540 | | | $ | 757 | |
Fulfillment | 1,357 | | | 1,946 | | | 2,745 | |
Technology and content | 5,061 | | | 6,645 | | | 10,621 | |
Sales and marketing | 1,710 | | | 2,530 | | | 3,875 | |
General and administrative | 797 | | | 1,096 | | | 1,623 | |
Total stock-based compensation expense (1) | $ | 9,208 | | | $ | 12,757 | | | $ | 19,621 | |
___________________
(1)The related tax benefits were $1.9 billion, $2.7 billion, and $4.3 billion for 2020, 2021, and 2022.
The following table summarizes our restricted stock unit activity (in millions):
| | | | | | | | | | | |
| Number of Units | | Weighted Average Grant-Date Fair Value |
Outstanding as of January 1, 2020 | 286.7 | | | $ | 73 | |
Units granted | 158.6 | | | 119 | |
Units vested | (115.5) | | | 62 | |
Units forfeited | (26.5) | | | 82 | |
Outstanding as of December 31, 2020 | 303.3 | | | 100 | |
Units granted | 127.3 | | | 167 | |
Units vested | (108.4) | | | 85 | |
Units forfeited | (42.3) | | | 116 | |
Outstanding as of December 31, 2021 | 279.9 | | | 134 | |
Units granted | 262.8 | | | 142 | |
Units vested | (113.3) | | | 114 | |
Units forfeited | (45.0) | | | 143 | |
Outstanding as of December 31, 2022 | 384.4 | | | 144 | |
Scheduled vesting for outstanding restricted stock units as of December 31, 2022, is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | | | |
| 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
Scheduled vesting — restricted stock units | 140.8 | | | 136.6 | | | 67.3 | | | 35.8 | | | 1.7 | | | 2.2 | | | 384.4 | |
As of December 31, 2022, there was $23.8 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis with more than half of the compensation expected to be expensed in the next twelve months, and has a remaining weighted-average recognition period of 1.1 years. The estimated forfeiture rate as of December 31, 2020, 2021, and 2022 was 26.7%, 26.5%, and 26.5%. Changes in our estimates and assumptions relating to forfeitures may cause us to realize material changes in stock-based compensation expense in the future.
During 2020, 2021, and 2022, the fair value of restricted stock units that vested was $15.5 billion, $18.2 billion, and $12.8 billion.
Common Stock Available for Future Issuance
As of December 31, 2022, common stock available for future issuance to employees is 1.7 billion shares.
Note 9 — INCOME TAXES
In 2020, 2021, and 2022, we recorded net tax provision (benefit) of $2.9 billion, $4.8 billion, and $(3.2) billion. Our U.S. taxable income is reduced by accelerated depreciation deductions and increased by the impact of capitalized research and development expenses. Cash taxes paid, net of refunds, were $1.7 billion, $3.7 billion, and $6.0 billion for 2020, 2021, and 2022.
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 in the U.S. The U.S. tax rules also provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of qualified property, primarily equipment, through 2022. Our federal tax provision included a partial election for 2020 and 2021, and a full election for 2022. Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes.
The components of the provision (benefit) for income taxes, net are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
U.S. Federal: | | | | | |
Current | $ | 1,835 | | | $ | 2,129 | | | $ | 2,175 | |
Deferred | (151) | | | 155 | | | (6,686) | |
Total | 1,684 | | | 2,284 | | | (4,511) | |
U.S. State: | | | | | |
Current | 626 | | | 763 | | | 1,074 | |
Deferred | (190) | | | (178) | | | (1,302) | |
Total | 436 | | | 585 | | | (228) | |
International: | | | | | |
Current | 956 | | | 2,209 | | | 1,682 | |
Deferred | (213) | | | (287) | | | (160) | |
Total | 743 | | | 1,922 | | | 1,522 | |
Provision (benefit) for income taxes, net | $ | 2,863 | | | $ | 4,791 | | | $ | (3,217) | |
U.S. and international components of income (loss) before income taxes are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
U.S. | $ | 20,219 | | | $ | 35,879 | | | $ | (8,225) | |
International | 3,959 | | | 2,272 | | | 2,289 | |
Income (loss) before income taxes | $ | 24,178 | | | $ | 38,151 | | | $ | (5,936) | |
The items accounting for differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
Income taxes computed at the federal statutory rate | $ | 5,078 | | | $ | 8,012 | | | $ | (1,246) | |
Effect of: | | | | | |
Tax impact of foreign earnings and losses | (538) | | | (1,349) | | | (370) | |
State taxes, net of federal benefits | 343 | | | 465 | | | (173) | |
Tax credits | (639) | | | (1,136) | | | (1,006) | |
Stock-based compensation (1) | (1,107) | | | (1,094) | | | 612 | |
Foreign income deduction (2) | (372) | | | (301) | | | (1,258) | |
Other, net | 98 | | | 194 | | | 224 | |
Total | $ | 2,863 | | | $ | 4,791 | | | $ | (3,217) | |
___________________
(1)Includes non-deductible stock-based compensation and excess tax benefits or shortfalls from stock-based compensation. Our tax provision includes $1.8 billion and $1.9 billion of excess tax benefits from stock-based compensation for 2020 and 2021, and a $33 million tax shortfall from stock-based compensation for 2022.
(2)U.S. companies are eligible for a deduction that lowers the effective tax rate on certain foreign income. This regime is referred to as the Foreign-Derived Intangible Income deduction.
Our provision for income taxes in 2021 was higher than in 2020 primarily due to an increase in pretax income. This was partially offset by an increase in U.S. federal research and development credits and the impact of the distribution of certain intangible assets from Luxembourg to the U.S. in Q4 2021, resulting in the utilization of $2.6 billion of Luxembourg deferred tax assets previously subject to a valuation allowance.
We generated an income tax benefit in 2022 as compared to a provision for income taxes in 2021 primarily due to a decrease in pretax income and an increase in the foreign income deduction. This was partially offset by a reduction in excess tax benefits from stock-based compensation and a decrease in the tax impact of foreign earnings and losses driven by a decline in the favorable effects of corporate restructuring transactions. The foreign income deduction benefit recognized in 2022 reflects a change in our application of tax regulations related to the computation of qualifying foreign income and includes an income tax benefit of approximately $655 million related to years prior to 2022.
We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.
Deferred income tax assets and liabilities are as follows (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2022 |
Deferred tax assets (1): | | | |
Loss carryforwards U.S. - Federal/States | 228 | | | 386 | |
Loss carryforwards - Foreign | 2,417 | | | 2,831 | |
Accrued liabilities, reserves, and other expenses | 2,821 | | | 3,280 | |
Stock-based compensation | 2,738 | | | 4,295 | |
Depreciation and amortization | 941 | | | 1,009 | |
Operating lease liabilities | 15,399 | | | 18,285 | |
Capitalized research and development | — | | | 6,824 | |
Other items | 603 | | | 1,023 | |
Tax credits | 626 | | | 950 | |
Total gross deferred tax assets | 25,773 | | | 38,883 | |
Less valuation allowances (2) | (3,596) | | | (4,374) | |
Deferred tax assets, net of valuation allowances | 22,177 | | | 34,509 | |
Deferred tax liabilities: | | | |
Depreciation and amortization | (3,562) | | | (9,039) | |
Operating lease assets | (14,422) | | | (17,140) | |
Assets held for investment | (4,019) | | | — | |
Other items | (668) | | | (817) | |
Net deferred tax assets (liabilities), net of valuation allowances | $ | (494) | | | $ | 7,513 | |
___________________
(1)Deferred tax assets are presented after tax effects and net of tax contingencies.
(2)Relates primarily to deferred tax assets that would only be realizable upon the generation of net income in certain foreign taxing jurisdictions or future capital gains, as well as tax credits.
Our valuation allowances primarily relate to foreign deferred tax assets, including substantially all of our foreign net operating loss carryforwards as of December 31, 2022. Our foreign net operating loss carryforwards for income tax purposes as of December 31, 2022 were approximately $10.4 billion before tax effects and certain of these amounts are subject to annual limitations under applicable tax law. If not utilized, a portion of these losses will begin to expire in 2023.
Tax Contingencies
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
The reconciliation of our tax contingencies is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2021 | | 2022 |
Gross tax contingencies – January 1 | $ | 3,923 | | | $ | 2,820 | | | $ | 3,242 | |
Gross increases to tax positions in prior periods | 88 | | | 403 | | | 274 | |
Gross decreases to tax positions in prior periods | (465) | | | (354) | | | (172) | |
Gross increases to current period tax positions | 507 | | | 507 | | | 706 | |
Settlements with tax authorities | (1,207) | | | (60) | | | (20) | |
Lapse of statute of limitations | (26) | | | (74) | | | (28) | |
Gross tax contingencies – December 31 (1) | $ | 2,820 | | | $ | 3,242 | | | $ | 4,002 | |
___________________
(1)As of December 31, 2022, we had approximately $4.0 billion of accrued tax contingencies of which $2.2 billion, if fully recognized, would decrease our effective tax rate.
As of December 31, 2021 and 2022, we had accrued interest and penalties, net of federal income tax benefit, related to tax contingencies of $110 million and $103 million. Interest and penalties, net of federal income tax benefit, recognized for the years ended December 31, 2020, 2021, and 2022 were $(48) million, $28 million, and $(7) million.
We are under examination, or may be subject to examination, by the Internal Revenue Service for the calendar year 2016 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods.
We are also subject to taxation in various states and other foreign jurisdictions including China, France, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities in respect of these particular jurisdictions primarily for 2011 and thereafter. We are currently disputing tax assessments in multiple jurisdictions, including with respect to the allocation and characterization of income.
In September 2022, the Luxembourg Tax Authority (“LTA”) denied the tax basis of certain intangible assets that we distributed from Luxembourg to the U.S. in 2021. We believe the LTA’s position is without merit and intend to defend ourselves vigorously in this matter.
In February 2023, we received a decision by the Indian Tax Authority (“ITA”) that tax applies to cloud services fees paid to the U.S. We will need to remit taxes on the services in question, including for a portion of prior years, until this matter is resolved, which payments could be significant in the aggregate. We believe the ITA’s decision is without merit, we intend to defend our position vigorously, and we expect to recoup taxes paid. If this matter is adversely resolved, we would reflect significant additional tax expense, including for taxes previously paid.
In October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid. On October 4, 2017, the European Commission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules on state aid. Based on that decision the European Commission announced an estimated recovery amount of approximately €250 million, plus interest, for the period May 2006 through June 2014, and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to recovery. Luxembourg computed an initial recovery amount, consistent with the European Commission’s decision, which we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals. In December 2017, Luxembourg appealed the European Commission’s decision. In May 2018, we appealed. On May 12, 2021, the European Union General Court annulled the European Commission’s state aid decision. In July 2021, the European Commission appealed the decision to the European Court of Justice. We will continue to defend ourselves vigorously in this matter.
Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies. Due to various factors, including the inherent complexities and uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax controversies in one or more jurisdictions. These assessments or settlements could result in changes to our contingencies related to positions on prior years’ tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes.
Note 10 — SEGMENT INFORMATION
We have organized our operations into three segments: North America, International, and AWS. We allocate to segment results the operating expenses “Fulfillment,” “Technology and content,” “Sales and marketing,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. The majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. There are no internal revenue transactions between our reportable segments. These segments reflect the way our chief operating decision maker evaluates the Company’s business performance and manages its operations.
North America
The North America segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused online and physical stores. This segment includes export sales from these online stores.
International
The International segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused online stores. This segment includes export sales from these internationally-focused online stores (including export sales from these online stores to customers in the U.S., Mexico, and Canada), but excludes export sales from our North America-focused online stores.
AWS
The AWS segment consists of amounts earned from global sales of compute, storage, database, and other services for start-ups, enterprises, government agencies, and academic institutions.
Information on reportable segments and reconciliation to consolidated net income (loss) is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
North America | | | | | |
Net sales | $ | 236,282 | | | $ | 279,833 | | | $ | 315,880 | |
Operating expenses | 227,631 | | | 272,562 | | | 318,727 | |
Operating income (loss) | $ | 8,651 | | | $ | 7,271 | | | $ | (2,847) | |
International | | | | | |
Net sales | $ | 104,412 | | | $ | 127,787 | | | $ | 118,007 | |
Operating expenses | 103,695 | | | 128,711 | | | 125,753 | |
Operating income (loss) | $ | 717 | | | $ | (924) | | | $ | (7,746) | |
AWS | | | | | |
Net sales | $ | 45,370 | | | $ | 62,202 | | | $ | 80,096 | |
Operating expenses | 31,839 | | | 43,670 | | | 57,255 | |
Operating income | $ | 13,531 | | | $ | 18,532 | | | $ | 22,841 | |
Consolidated | | | | | |
Net sales | $ | 386,064 | | | $ | 469,822 | | | $ | 513,983 | |
Operating expenses | 363,165 | | | 444,943 | | | 501,735 | |
Operating income | 22,899 | | | 24,879 | | | 12,248 | |
Total non-operating income (expense) | 1,279 | | | 13,272 | | | (18,184) | |
Benefit (provision) for income taxes | (2,863) | | | (4,791) | | | 3,217 | |
Equity-method investment activity, net of tax | 16 | | | 4 | | | (3) | |
Net income (loss) | $ | 21,331 | | | $ | 33,364 | | | $ | (2,722) | |
Net sales by groups of similar products and services, which also have similar economic characteristics, is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
Net Sales: | | | | | |
Online stores (1) | $ | 197,346 | | | $ | 222,075 | | | $ | 220,004 | |
Physical stores (2) | 16,227 | | | 17,075 | | | 18,963 | |
Third-party seller services (3) | 80,461 | | | 103,366 | | | 117,716 | |
Subscription services (4) | 25,207 | | | 31,768 | | | 35,218 | |
Advertising services (5) | 19,773 | | | 31,160 | | | 37,739 | |
AWS | 45,370 | | | 62,202 | | | 80,096 | |
Other (6) | 1,680 | | | 2,176 | | | 4,247 | |
Consolidated | $ | 386,064 | | | $ | 469,822 | | | $ | 513,983 | |
___________________
(1)Includes product sales and digital media content where we record revenue gross. We leverage our retail infrastructure to offer a wide selection of consumable and durable goods that includes media products available in both a physical and digital format, such as books, videos, games, music, and software. These product sales include digital products sold on a transactional basis. Digital product subscriptions that provide unlimited viewing or usage rights are included in “Subscription services.”
(2)Includes product sales where our customers physically select items in a store. Sales to customers who order goods online for delivery or pickup at our physical stores are included in “Online stores.”
(3)Includes commissions and any related fulfillment and shipping fees, and other third-party seller services.
(4)Includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS subscription services.
(5)Includes sales of advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and video advertising.
(6)Includes sales related to various other offerings, such as certain licensing and distribution of video content and shipping services, and our co-branded credit card agreements.
Net sales are attributed to countries primarily based on country-focused online and physical stores or, for AWS purposes, the selling entity. Net sales attributed to countries that represent a significant portion of consolidated net sales are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
United States | $ | 263,520 | | | $ | 314,006 | | | $ | 356,113 | |
Germany | 29,565 | | | 37,326 | | | 33,598 | |
United Kingdom | 26,483 | | | 31,914 | | | 30,074 | |
Japan | 20,461 | | | 23,071 | | | 24,396 | |
Rest of world | 46,035 | | | 63,505 | | | 69,802 | |
Consolidated | $ | 386,064 | | | $ | 469,822 | | | $ | 513,983 | |
Total segment assets exclude corporate assets, such as cash and cash equivalents, marketable securities, other long-term investments, corporate facilities, goodwill and other acquired intangible assets, and tax assets. Technology infrastructure assets are allocated among the segments based on usage, with the majority allocated to the AWS segment. Total segment assets reconciled to consolidated amounts are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2021 | | 2022 |
North America (1) | $ | 108,405 | | | $ | 161,255 | | | $ | 185,268 | |
International (1) | 42,212 | | | 57,983 | | | 64,666 | |
AWS (2) | 47,574 | | | 63,835 | | | 88,491 | |
Corporate | 123,004 | | | 137,476 | | | 124,250 | |
Consolidated | $ | 321,195 | | | $ | 420,549 | | | $ | 462,675 | |
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(1)North America and International segment assets primarily consist of property and equipment, operating leases, inventory, and accounts receivable.
(2)AWS segment assets primarily consist of property and equipment and accounts receivable.
Property and equipment, net by segment is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2021 | | 2022 |
North America | $ | 54,912 | | | $ | 83,640 | | | $ | 90,076 | |
International | 15,375 | | | 21,718 | | | 23,347 | |
AWS | 32,151 | | | 43,245 | | | 60,324 | |
Corporate | 10,676 | | | 11,678 | | | 12,968 | |
Consolidated | $ | 113,114 | | | $ | 160,281 | | | $ | 186,715 | |
Total net additions to property and equipment by segment are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
North America (1) | $ | 29,889 | | | $ | 37,397 | | | $ | 23,682 | |
International (1) | 8,072 | | | 10,259 | | | 6,711 | |
AWS (2) | 16,530 | | | 22,047 | | | 27,755 | |
Corporate | 3,485 | | | 2,622 | | | 2,688 | |
Consolidated | $ | 57,976 | | | $ | 72,325 | | | $ | 60,836 | |
___________________
(1)Includes property and equipment added under finance leases of $5.6 billion, $3.6 billion, and $422 million in 2020, 2021, and 2022, and under build-to-suit lease arrangements of $2.7 billion, $5.6 billion, and $3.2 billion in 2020, 2021, and 2022.
(2)Includes property and equipment added under finance leases of $7.7 billion, $3.5 billion, and $253 million in 2020, 2021, and 2022, and under build-to-suit lease arrangements of $130 million, $51 million, and $20 million in 2020, 2021, and 2022.
U.S. property and equipment, net and operating leases were $109.5 billion, $155.0 billion, and $180.0 billion, as of December 31, 2020, 2021, and 2022, and non-U.S. property and equipment, net and operating leases were $41.2 billion, $61.3 billion, and $72.9 billion as of December 31, 2020, 2021, and 2022. Except for the U.S., property and equipment, net and operating leases in any single country were less than 10% of consolidated property and equipment, net and operating leases.
Depreciation and amortization expense on property and equipment, including corporate property and equipment, are allocated to all segments based on usage. Total depreciation and amortization expense, by segment, is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2021 | | 2022 |
North America | $ | 6,421 | | | $ | 9,234 | | | $ | 11,565 | |
International | 2,215 | | | 3,022 | | | 3,483 | |
AWS | 7,603 | | | 10,653 | | | 9,876 | |
Consolidated | $ | 16,239 | | | $ | 22,909 | | | $ | 24,924 | |