AMAZON.COM, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, inflation, labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, variability in demand, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. In addition, global economic conditions and additional or unforeseen effects from the COVID-19 pandemic amplify many of these risks. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results or outcomes to differ significantly from management's expectations, are described in greater detail in Item 1A of Part II, "Risk Factors." For additional information, see Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" of our 2021 Annual Report on Form 10-K.
Critical Accounting Judgments
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. TheSEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see Item 8 of Part II, "Financial Statements and Supplementary Data - Note 1 - Description of Business, Accounting Policies, and Supplemental Disclosures" of our 2021 Annual Report on Form 10-K and Item 1 of Part I, "Financial Statements - Note 1 - Accounting Policies and Supplemental Disclosures," of this Form 10-Q. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
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. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as ofMarch 31, 2022 , we would have recorded an additional cost of sales of approximately$390 million .
In addition, we enter into supplier commitments for certain electronic device components and certain products. These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional costs.
Income Taxes
We are subject to income taxes in theU.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, administrative practices, principles, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. In addition, our actual and forecasted earnings are subject to 20
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change due to economic, political, and other conditions and significant judgment is required in determining our ability to use our deferred tax assets.
Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions. In addition, a number of countries have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals. We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, investigation, or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals. Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical income tax provisions and accruals.
Liquidity and Capital Resources
Cash flow information is as follows (in millions):
Three Months Ended Twelve Months Ended
March 31, March 31,
2021 2022 2021 2022
Cash provided by (used in):
Operating activities $ 4,213 $ (2,790) $ 67,213 $ 39,324
Investing activities (8,666) 906 (59,383) (48,582)
Financing activities (3,476) 1,990 (1,989) 11,757
Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were$96.0 billion and$66.4 billion as ofDecember 31, 2021 andMarch 31, 2022 . Amounts held in foreign currencies were$22.7 billion and$15.6 billion as ofDecember 31, 2021 andMarch 31, 2022 . Our foreign currency balances include British Pounds, Canadian Dollars, Euros, and Japanese Yen. Cash provided by (used in) operating activities was$4.2 billion and$(2.8) billion for Q1 2021 and Q1 2022. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations. Cash received from our customers and other activities generally corresponds to our net sales. Because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly. The decrease in operating cash flow for the trailing twelve months endedMarch 31, 2022 , compared to the comparable prior year period, was primarily due to changes in working capital, partially offset by changes in net income (loss), excluding non-cash expenses. Working capital at any specific point in time is subject to many variables, including variability in demand, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates. Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold improvements, incentives received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash provided by (used in) investing activities was$(8.7) billion and$906 million for Q1 2021 and Q1 2022, with the variability caused primarily by purchases, sales, and maturities of marketable securities. Cash capital expenditures were$11.2 billion and$13.7 billion during Q1 2021 and Q1 2022, which primarily reflect investments in additional capacity to support our fulfillment operations and in support of continued business growth in technology infrastructure (the majority of which is to support AWS), which investments we expect to continue over time. We made cash payments, net of acquired cash, related to acquisition and other investment activity of$630 million and$6.3 billion during Q1 2021 and Q1 2022. We funded the acquisition of MGM Holdings Inc. with cash on hand. Cash provided by (used in) financing activities was$(3.5) billion and$2.0 billion for Q1 2021 and Q1 2022. Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of$2.0 billion and$13.7 billion for Q1 2021 and Q1 2022. Cash outflows from financing activities resulted from repurchases of common stock, 21
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payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of$5.5 billion and$11.8 billion in Q1 2021 and Q1 2022. Property and equipment acquired under finance leases was$2.1 billion and$166 million during Q1 2021 and Q1 2022. We had no borrowings outstanding under the Credit Agreement,$10.8 billion of borrowings outstanding under the Commercial Paper Programs, and$803 million of borrowings outstanding under our Credit Facility as ofMarch 31, 2022 . See Item 1 of Part I, "Financial Statements - Note 5 - Debt" for additional information. Certain foreign subsidiary earnings and losses are subject to currentU.S. taxation and the subsequent repatriation of those earnings is not subject to tax in theU.S. We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of theU.S. in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts. OurU.S. taxable income is reduced by tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions and increased by the impact of capitalized research and development expenses.U.S. tax rules provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of qualified property, primarily equipment, through 2022. EffectiveJanuary 1, 2022 , research and development expenses are required to be capitalized and amortized forU.S. tax purposes, which delays the deductibility of these expenses. Cash taxes paid (net of refunds) were$801 million and$453 million for Q1 2021 and Q1 2022. As ofDecember 31, 2021 andMarch 31, 2022 , restricted cash, cash equivalents, and marketable securities were$260 million and$209 million . See Item 1 of Part I, "Financial Statements - Note 4 - Commitments and Contingencies" and "Financial Statements - Note 5 - Debt" for additional discussion of our principal contractual commitments, as well as our pledged assets. Additionally, we have purchase obligations and open purchase orders, including for inventory and capital expenditures, that support normal operations and are primarily due in the next twelve months. These purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions. We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, as well as our borrowing arrangements, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. See Item 1A of Part II, "Risk Factors." We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, obtain finance and operating lease arrangements, enter into financing obligations, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position. The sale of additional equity or convertible debt securities would be dilutive to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to secure additional financing, or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all. In addition, economic conditions and actions by policymaking bodies are contributing to rising interest rates, which, along with increases in our borrowing levels, could increase our future borrowing costs. 22
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Results of Operations
We have organized our operations into three segments:
Overview
Macroeconomic factors, including increased inflation rates, the prolonged COVID-19 pandemic, global supply chain constraints, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. In addition, the COVID-19 pandemic and the related societal impacts, such as lockdowns, caused a significant increase in growth rates across ourNorth America and International segments throughout much of 2020 and 2021, and we are seeing a return to pre-pandemic demand patterns as consumers' mobility increases. The factors described above contributed to a deceleration in our net sales growth rate and increases in our operating costs during Q1 2022, particularly across ourNorth America and International segments, due to increased wage rates and incentives, increased transportation costs, and fulfillment network inefficiencies resulting from constrained labor markets and global supply chain constraints. We expect some or all of these factors to continue to impact our operations into Q2 2022.
Net sales include product and service sales. Product sales represent revenue from the sale of products and related shipping fees and digital media content where we record revenue gross. Service sales primarily represent third-party seller fees, which includes commissions and any related fulfillment and shipping fees, AWS sales, advertising services,Amazon Prime membership fees, and certain digital content subscriptions. Net sales information is as follows (in millions): Three Months Ended March 31, 2021 2022Net Sales : North America$ 64,366 $ 69,244 International 30,649 28,759 AWS 13,503 18,441 Consolidated$ 108,518 $ 116,444 Year-over-year Percentage Growth: North America 40 % 8 % International 60 (6) AWS 32 37 Consolidated 44 7 Year-over-year Percentage Growth, excluding the effect of foreign exchange rates: North America 39 % 8 % International 50 0 AWS 32 37 Consolidated 41 9 Net sales mix: North America 59 % 59 % International 28 25 AWS 13 16 Consolidated 100 % 100 % Sales increased 7% in Q1 2022 compared to the comparable prior year period. Changes in foreign currency exchange rates impacted net sales by$(1.8) billion for Q1 2022. For a discussion of the effect of foreign exchange rates on sales growth, see "Effect of Foreign Exchange Rates" below. 23
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North America sales increased 8% in Q1 2022 compared to the comparable prior year period. The sales growth reflects increased unit sales by third-party sellers and advertising sales. Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our shipping offers, partially offset by fulfillment network inefficiencies and supply chain constraints. International sales decreased 6% in Q1 2022 compared to the comparable prior year period, primarily due to the impact of foreign currency exchange rates, and also due to decreased unit sales, partially offset by increased subscription services and advertising sales. Unit sales decreased in Q1 2022, compared to the higher levels we experienced in Q1 2021 due to widespread regional and national COVID-19 lockdowns in Q1 2021. Q1 2022 sales were also impacted by fulfillment network inefficiencies and supply chain constraints. Changes in foreign currency exchange rates impacted International net sales by$(1.8) billion for Q1 2022. AWS sales increased 37% in Q1 2022 compared to the comparable prior year period. The sales growth primarily reflects increased customer usage, partially offset by pricing changes. Pricing changes were driven largely by our continued efforts to reduce prices for our customers.
Operating Income (Loss)
Operating income (loss) by segment is as follows (in millions):
Three Months Ended
March 31,
2021 2022
Operating Income (Loss)
North America $ 3,450 $ (1,568)
International 1,252 (1,281)
AWS 4,163 6,518
Consolidated $ 8,865 $ 3,669
Operating income decreased from $8.9 billion in Q1 2021 to $3.7 billion in Q1
2022. We believe that operating income is a more meaningful measure than gross
profit and gross margin due to the diversity of our product categories and
services.
The North America operating loss in Q1 2022, as compared to the operating income
in the comparable prior year period, is primarily due to increased shipping and
fulfillment costs, due in part to increased investments in our fulfillment
network, increased wage rates and incentives, increased transportation costs,
and fulfillment network inefficiencies, and growth in certain operating
expenses, partially offset by increased unit sales by third-party sellers and
advertising sales. Changes in foreign exchange rates positively impacted
operating loss by $42 million for Q1 2022.
The International operating loss in Q1 2022, as compared to the operating income
in the comparable prior year period, is primarily due to: increased shipping and
fulfillment costs, due in part to increased investments in our fulfillment
network, increased wage rates and incentives, increased transportation costs,
and fulfillment network inefficiencies; decreased unit sales; and growth in
certain operating expenses; partially offset by increased advertising sales.
Changes in foreign exchange rates negatively impacted operating loss by
$79 million for Q1 2022.
The increase in AWS operating income in absolute dollars in Q1 2022, compared to
the comparable prior year period, is primarily due to increased customer usage
and cost structure productivity, including a reduction in depreciation and
amortization expense from our change in the estimated useful lives of our
servers and networking equipment, partially offset by increased spending on
technology infrastructure and payroll and related expenses, all of which were
primarily driven by additional investments to support the business growth, and
reduced prices for our customers. Changes in foreign exchange rates positively
impacted operating income by $163 million for Q1 2022.
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Operating Expenses
Information about operating expenses is as follows (in millions):
Three Months Ended
March 31,
2021 2022
Operating expenses:
Cost of sales $ 62,403 $ 66,499
Fulfillment 16,530 20,271
Technology and content 12,488 14,842
Sales and marketing 6,207 8,320
General and administrative 1,987 2,594
Other operating expense (income), net 38 249
Total operating expenses$ 99,653 $ 112,775 Year-over-year Percentage Growth: Cost of sales 41 % 7 % Fulfillment 43 23 Technology and content 34 19 Sales and marketing 29 34 General and administrative 37 31 Other operating expense (income), net (46) 562 Percent ofNet Sales : Cost of sales 57.5 % 57.1 % Fulfillment 15.2 17.4 Technology and content 11.5 12.7 Sales and marketing 5.7 7.1 General and administrative 1.8 2.2 Other operating expense (income), net 0.0 0.2 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. The increase in cost of sales in absolute dollars in Q1 2022, compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales, increased investments in our fulfillment network, as well as increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies resulting from a constrained labor market and global supply chain constraints. 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. Shipping costs, which include sortation and delivery centers and transportation costs, were$17.2 billion and$19.6 billion in Q1 2021 and Q1 2022. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, including faster delivery, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fulfillment network, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers. Costs to operate our AWS segment are primarily classified as "Technology and content" as we leverage a shared infrastructure that supports both our internal technology requirements and external sales to AWS customers.
Fulfillment
Fulfillment costs primarily consist of those costs incurred in operating and staffing ourNorth America and International fulfillment centers, physical stores, and customer service centers and payment processing costs. While AWS payment processing 25
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and related transaction costs are included in "Fulfillment," AWS costs are primarily classified as "Technology and content." Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third party sellers utilize Fulfillment byAmazon services, timing of fulfillment network and physical store expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our customer self-service features. Additionally, sales by our sellers have higher payment processing and related transaction costs as a percentage of net sales compared to our retail sales because payment processing costs are based on the gross purchase price of underlying transactions. The increase in fulfillment costs in absolute dollars in Q1 2022, compared to the comparable prior year period, is primarily due to variable costs corresponding with increased product and service sales volume and inventory levels, increased wage rates and incentives and fulfillment network inefficiencies resulting from a constrained labor market and global supply chain constraints, and increased investments in our fulfillment network. We seek to expand our fulfillment network to accommodate a greater selection and in-stock inventory levels and to meet anticipated shipment volumes from sales of our own products as well as sales by third parties for which we provide the fulfillment services. We regularly evaluate our facility requirements.
Technology and 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 otherAmazon businesses. Collectively, these costs reflect the investments we make in order to offer a wide variety of products and services to our customers. We seek to invest efficiently in numerous areas of technology and content so we may continue to enhance the customer experience and improve our process efficiency through rapid technology developments, while operating at an ever increasing scale. Our technology and content investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations. We expect spending in technology and content to increase over time as we continue to add employees and technology infrastructure. These costs are allocated to segments based on usage. The increase in technology and content costs in absolute dollars in Q1 2022, compared to the comparable prior year period, is primarily due to an increase in spending on technology infrastructure, partially offset by a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment, and increased payroll and related costs associated with technical teams responsible for expanding our existing products and services and initiatives to introduce new products and service offerings. See Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" of our 2021 Annual Report on Form 10-K for a discussion of how management views advances in technology and the importance of innovation. See Item 1 of Part I, "Financial Statements - Note 1 - Accounting Policies and Supplemental Disclosures - Use of Estimates" for additional information on the change in estimated useful lives of our servers and networking equipment.
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 direct customers to our stores primarily through a number of marketing channels, such as our sponsored search, social and online advertising, third party customer referrals, television advertising, and other initiatives. Our marketing costs are largely variable, based on growth in sales and changes in rates. To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing costs.
The increase in sales and marketing costs in absolute dollars in Q1 2022, compared to the comparable prior year period, is primarily due to higher marketing spend and increased payroll and related expenses for personnel engaged in marketing and selling activities.
While costs associated withAmazon Prime membership benefits and other shipping offers are not included in sales and marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.
General and Administrative
The increase in general and administrative costs in absolute dollars in Q1 2022,
compared to the comparable prior year period, is primarily due to increases in
payroll and related expenses and professional fees.
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Other Operating Expense (Income), Net
Other operating expense (income), net was$38 million and$249 million for Q1 2021 and Q1 2022, and was primarily related to asset impairments for physical store closures in Q1 2022 and the amortization of intangible assets.
Interest Income and Expense
Our interest income was$105 million and$108 million during Q1 2021 and Q1 2022. We generally invest our excess cash in AAA-rated money market funds and investment grade short- to intermediate-term fixed income securities. Our interest income corresponds with the average balance of invested funds based on the prevailing rates, which vary depending on the geographies and currencies in which they are invested.
Interest expense was
Other Income (Expense), Net
Other income (expense), net was$1.7 billion and$(8.6) billion during Q1 2021 and Q1 2022. The primary components of other income (expense), net are related to equity securities valuations and adjustments, equity warrant valuations, and foreign currency. Included in other income (expense), net in Q1 2022 is a marketable equity securities valuation loss of$7.6 billion from our equity securities of Rivian Automotive, Inc.
Income Taxes
Our income tax provision for the three months endedMarch 31, 2021 was$2.2 billion , which included$349 million of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation. Our income tax benefit for the three months endedMarch 31, 2022 was$1.4 billion , which included$2.1 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equity investment in Rivian. See Item 1 of Part I, "Financial Statements - Note 7 - Income Taxes" for additional information.
Non-GAAP Financial Measures
Regulation G, Conditions for Use of Non-GAAP Financial Measures, and otherSEC regulations define and prescribe the conditions for use of certain non-GAAP financial information. Our measures of free cash flows and the effect of foreign exchange rates on our consolidated statements of operations meet the definition of non-GAAP financial measures.
We provide multiple measures of free cash flows because we believe these measures provide additional perspective on the impact of acquiring property and equipment with cash and through finance leases and financing obligations.
Free Cash Flow
Free cash flow is cash flow from operations reduced by "Purchases of property and equipment, net of proceeds from sales and incentives." The following is a reconciliation of free cash flow to the most comparable GAAP cash flow measure, "Net cash provided by (used in) operating activities," for the trailing twelve months endedMarch 31, 2021 and 2022 (in millions): Twelve Months Ended March 31, 2021 2022 Net cash provided by (used in) operating activities$ 67,213 $ 39,324 Purchases of property and equipment, net of proceeds from sales and incentives (40,803) (57,951) Free cash flow$ 26,410 $ (18,627) Net cash provided by (used in) investing activities$ (59,383) $ (48,582) Net cash provided by (used in) financing activities $
(1,989)
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Free Cash Flow Less Principal Repayments of Finance Leases and Financing Obligations
Free cash flow less principal repayments of finance leases and financing obligations is free cash flow reduced by "Principal repayments of finance leases" and "Principal repayments of financing obligations." Principal repayments of finance leases and financing obligations approximates the actual payments of cash for our finance leases and financing obligations. The following is a reconciliation of free cash flow less principal repayments of finance leases and financing obligations to the most comparable GAAP cash flow measure, "Net cash provided by (used in) operating activities," for the trailing twelve months endedMarch 31, 2021 and 2022 (in millions): Twelve Months EndedMarch 31, 2021 2022 Net cash provided by (used in) operating activities $
67,213
(40,803) (57,951)
Free cash flow 26,410 (18,627)
Principal repayments of finance leases (11,448) (10,534)
Principal repayments of financing obligations (103) (174)
Free cash flow less principal repayments of finance leases and financing obligations
$ 14,859 (29,335) Net cash provided by (used in) investing activities$ (59,383) $ (48,582) Net cash provided by (used in) financing activities $
(1,989)
Free Cash Flow Less Equipment Finance Leases and Principal Repayments of All Other Finance Leases and Financing Obligations
Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations is free cash flow reduced by equipment acquired under finance leases, which is included in "Property and equipment acquired under finance leases," principal repayments of all other finance lease liabilities, which is included in "Principal repayments of finance leases," and "Principal repayments of financing obligations." All other finance lease liabilities and financing obligations consists of property. In this measure, equipment acquired under finance leases is reflected as if these assets had been purchased with cash, which is not the case as these assets have been leased. The following is a reconciliation of free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations to the most comparable GAAP cash flow measure, "Net cash provided by (used in) operating activities," for the trailing twelve months endedMarch 31, 2021 and 2022 (in millions): Twelve Months EndedMarch 31, 2021 2022 Net cash provided by (used in) operating activities $
67,213
(40,803) (57,951)
Free cash flow 26,410 (18,627)
Equipment acquired under finance leases (1) (8,936) (2,764)
Principal repayments of all other finance leases (2) (525) (714)
Principal repayments of financing obligations (103) (174)
Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations
$
16,846
Net cash provided by (used in) investing activities$ (59,383) $ (48,582) Net cash provided by (used in) financing activities $
(1,989)
___________________
(1)For the twelve months endedMarch 31, 2021 and 2022, this amount relates to equipment included in "Property and equipment acquired under finance leases" of$11,489 million and$5,160 million . (2)For the twelve months endedMarch 31, 2021 and 2022, this amount relates to property included in "Principal repayments of finance leases" of$11,448 million and$10,534 million . 28
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All of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement and do not represent the residual cash flow available for discretionary expenditures. For example, these measures of free cash flows do not incorporate the portion of payments representing principal reductions of debt or cash payments for business acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change over time. Therefore, we believe it is important to view free cash flows measures only as a complement to our entire consolidated statements of cash flows.
Effect of Foreign Exchange Rates
Information regarding the effect of foreign exchange rates, versus theU.S. Dollar, on our net sales, operating expenses, and operating income is provided to show reported period operating results had the foreign exchange rates remained the same as those in effect in the comparable prior year period. The effect on our net sales, operating expenses, and operating income from changes in our foreign exchange rates versus theU.S. Dollar is as follows (in millions): Three Months Ended March 31, 2021 2022 Exchange At Prior Exchange At Prior As Rate Year Rate Year Reported Effect (1) Rates (2) As Reported Effect (1) Rates (2) Net sales$ 108,518 $ (2,073) $ 106,445 $ 116,444 $ 1,841 $ 118,285 Operating expenses 99,653 (1,966) 97,687 112,775
1,967 114,742
Operating income 8,865 (107) 8,758 3,669 (126) 3,543
___________________
(1)Represents the change in reported amounts resulting from changes in foreign
exchange rates from those in effect in the comparable prior year period for
operating results.
(2)Represents the outcome that would have resulted had foreign exchange rates in
the reported period been the same as those in effect in the comparable prior
year period for operating results.
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Guidance
We provided guidance onApril 28, 2022 , in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com's expectations as ofApril 28, 2022 , and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, as well as those outlined in Item 1A of Part II, "Risk Factors." This guidance reflects our estimates as ofApril 28, 2022 regarding the impacts of the COVID-19 pandemic on our operations as well as the effect of other factors discussed above.
Second Quarter 2022 Guidance
•Net sales are expected to be between$116.0 billion and$121.0 billion , or to grow between 3% and 7% compared with second quarter 2021. This guidance anticipates an unfavorable impact of approximately 200 basis points from foreign exchange rates.
•Operating income (loss) is expected to be between
•This guidance assumes that Prime Day occurs in third quarter 2022.
•This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded.
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