To our shareowners:
The Power of Invention
“To us, the value of Amazon Web Services is undeniable – in twenty seconds, we can double our server
capacity. In a high-growth environment like ours and with a small team of developers, it’s very important for us
to trust that we have the best support to give to the music community around the world. Five years ago, we would
have crashed and been down without knowing when we would be back. Now, because of Amazon’s continued
innovation, we can provide the best technology and continue to grow.” That’s Christopher Tholen, the Chief
Technology Officer of BandPage. His comments about how AWS helps with the critical need to scale compute
capacity quickly and reliably are not hypothetical: BandPage now helps 500,000 bands and artists connect with
tens of millions of fans.
“So, I started selling on Amazon in April of 2011, and by the time we became the top Amazon lunchbox
seller in June, we had between 50 and 75 orders a day. When we hit August and September – our busiest time,
with the start of the school year – we had 300, sometimes 500 orders a day. It was just phenomenal… I’m using
Amazon to fulfill my orders, which makes my life easier. Plus, when my customers found out they could get free
shipping with Prime subscriptions, the lunchboxes began selling like crazy.” Kelly Lester is the “mom
entrepreneur” of EasyLunchboxes, her own innovative line of easy-to-pack, environmentally friendly lunchbox
containers.
“I sort of stumbled onto it, and it opened a whole new world for me. Since I had over a thousand [book]
titles at my house, I thought, ‘I’ll give this a try.’ I sold some and I kept expanding it and expanding it, and come
to find out this was so much fun I decided I don’t ever want to get another job again. And I’ve got no boss –
other than my wife, that is. What could be better than that? We actually work together on this. We both go out
hunting, so it’s a team effort that’s worked out very well. We sell about 700 books a month. We ship between
800 and 900 to Amazon each month and Amazon ships out the 700 that people buy. Without Amazon handling
shipping and customer service, my wife and I would have to be running to the post office or someplace every day
with dozens of packages. With that part taken care of for us, life is much simpler… This is a terrific program and
I love it. After all, Amazon supplies the customers and even ships the books. I mean, how can it get better than
that?” Bob Frank founded RJF Books and More after getting laid off in the midst of the economic downturn. He
and his wife split their time between Phoenix and Minneapolis, and he describes finding the books he sells like “a
treasure hunt every day.”
“Because of Kindle Direct Publishing, I earn more royalties in one month than I ever did in a year of writing
for a traditional house. I have gone from worrying about if I will be able to pay the bills – and there were many
months when I couldn’t – to finally having real savings, even thinking about a vacation; something I haven’t
done in years… Amazon has allowed me to really spread my wings. Prior, I was boxed into a genre, yet I had all
of these other books I wanted to write. Now I can do just that. I manage my career. I feel as if I finally have a
partner in Amazon. They understand this business and have changed the face of publishing for the good of the
writer and the reader, putting choices back into our hands.” That’s A. K. Alexander, author of Daddy’s Home,
one of the top 100 best-selling Kindle books in March.
“I had no idea that March of 2010, the first month I decided to publish on KDP, would be a defining
moment in my life. Within a year of doing so, I was making enough on a monthly basis to quit my day job and
focus on writing full time! The rewards that have sprung out of deciding to publish through KDP have been
nothing short of life changing. Financially. Personally. Emotionally. Creatively. The ability to write full time, to
be home with my family, and to write exactly what I want without the input of a legacy publisher marketing
committee wanting to have a say in every detail of my writing, has made me a stronger writer, a more prolific
writer, and most importantly a far happier one…. Amazon and KDP are literally enabling creativity in the
publishing world and giving writers like me a shot at their dream, and for that I am forever grateful.” That’s
Blake Crouch, author of several thrillers, including the Kindle best seller Run.
“Amazon has made it possible for authors like me to get their work in front of readers and has changed my
life. In a little over a year, I have sold nearly 250,000 books through the Kindle and have traded in old dreams for
bigger and better ones. Four of my books have hit the Top 100 Kindle Best Sellers List. Also, I have been
approached by agents, foreign sales people, and two movie producers, and have received mentions in the
LA Times, Wall Street Journal, and PC Magazine, and was recently interviewed by USA Today. Mostly, I am
excited that all writers now have the opportunity to get their work in front of readers without jumping through
insurmountable hoops. Writers have more options and readers have more choices. The publishing world is
changing fast, and I plan to enjoy every minute of the ride.” Theresa Ragan is the KDP author of multiple Kindle
best sellers including Abducted.
“Past age 60 and in the midst of the recession, my wife and I found our income options severely limited.
KDP was my one shot at a lifelong dream – our only chance at financial salvation. Within months of publishing,
KDP has completely changed our lives, enabling this aging nonfiction writer to launch a brand-new career as a
best-selling novelist. I can’t say enough on behalf of Amazon and the many tools that they make available to
independent authors. Without reservation, I urge fellow writers to investigate and seize the opportunities that
KDP offers. As I’ve happily discovered, there is zero downside risk – and the potential is virtually unlimited.”
Robert Bidinotto is the author of the Kindle best seller Hunter: A Thriller.
“I leveraged KDP’s technology to blow through all the traditional gatekeepers. Can you imagine how that
feels, after struggling so hard, for so long, for every … single … reader? Now, inspirational fiction lovers I never
would have reached are enjoying Nobody and my other two novels from the Kindle Store at $2.99. I’ve always
wanted to write a Cinderella story. Now I have. And, thanks to Prince Charming (KDP), there will be more to
come…” Creston Mapes is the author of the Kindle best seller Nobody.
Invention comes in many forms and at many scales. The most radical and transformative of inventions are
often those that empower others to unleash their creativity – to pursue their dreams. That’s a big part of what’s
going on with Amazon Web Services, Fulfillment by Amazon, and Kindle Direct Publishing. With AWS, FBA,
and KDP, we are creating powerful self-service platforms that allow thousands of people to boldly experiment
and accomplish things that would otherwise be impossible or impractical. These innovative, large-scale platforms
are not zero-sum – they create win-win situations and create significant value for developers, entrepreneurs,
customers, authors, and readers.
Amazon Web Services has grown to have thirty different services and thousands of large and small
businesses and individual developers as customers. One of the first AWS offerings, the Simple Storage Service,
or S3, now holds over 900 billion data objects, with more than a billion new objects being added every day.
S3 routinely handles more than 500,000 transactions per second and has peaked at close to a million transactions
per second. All AWS services are pay-as-you-go and radically transform capital expense into a variable cost.
AWS is self-service: you don’t need to negotiate a contract or engage with a salesperson – you can just read the
online documentation and get started. AWS services are elastic – they easily scale up and easily scale down.
In just the last quarter of 2011, Fulfillment by Amazon shipped tens of millions of items on behalf of sellers.
When sellers use FBA, their items become eligible for Amazon Prime, for Super Saver Shipping, and for
Amazon returns processing and customer service. FBA is self-service and comes with an easy-to-use inventory
management console as part of Amazon Seller Central. For the more technically inclined, it also comes with a set
of APIs so that you can use our global fulfillment center network like a giant computer peripheral.
I am emphasizing the self-service nature of these platforms because it’s important for a reason I think is
somewhat non-obvious: even well-meaning gatekeepers slow innovation. When a platform is self-service, even
the improbable ideas can get tried, because there’s no expert gatekeeper ready to say “that will never work!” And
guess what – many of those improbable ideas do work, and society is the beneficiary of that diversity.
Kindle Direct Publishing has quickly taken on astonishing scale – more than a thousand KDP authors now
each sell more than a thousand copies a month, some have already reached hundreds of thousands of sales, and
two have already joined the Kindle Million Club. KDP is a big win for authors. Authors who use KDP get to
keep their copyrights, keep their derivative rights, get to publish on their schedule – a typical delay in traditional
publishing can be a year or more from the time the book is finished – and … saving the best for last … KDP
authors can get paid royalties of 70%. The largest traditional publishers pay royalties of only 17.5% on ebooks
(they pay 25% of 70% of the selling price which works out to be 17.5% of the selling price). The KDP royalty
structure is completely transformative for authors. A typical selling price for a KDP book is a reader-friendly
$2.99 – authors get approximately $2 of that! With the legacy royalty of 17.5%, the selling price would have to
be $11.43 to yield the same $2 per unit royalty. I assure you that authors sell many, many more copies at $2.99
than they would at $11.43.
Kindle Direct Publishing is good for readers because they get lower prices, but perhaps just as important,
readers also get access to more diversity since authors that might have been rejected by establishment publishing
channels now get their chance in the marketplace. You can get a pretty good window into this. Take a look at the
Kindle best-seller list, and compare it to the New York Times best-seller list – which is more diverse? The
Kindle list is chock-full of books from small presses and self-published authors, while the New York Times list
is dominated by successful and established authors.
Amazonians are leaning into the future, with radical and transformational innovations that create value for
thousands of authors, entrepreneurs, and developers. Invention has become second nature at Amazon, and in my
view the team’s pace of innovation is even accelerating – I can assure you it’s very energizing. I’m extremely
proud of the whole team, and feel lucky to have a front row seat.
As always, I attach a copy of our original 1997 letter. Our approach remains the same, and it’s still Day 1!
Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.
1997 LETTER TO SHAREHOLDERS
(Reprinted from the 1997 Annual Report)
To our shareholders:
Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers,
yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive
competitive entry.
But this is Day 1 for the Internet and, if we execute well, for Amazon.com. Today, online commerce saves
customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the
very process of discovery. Amazon.com uses the Internet to create real value for its customers and, by doing so,
hopes to create an enduring franchise, even in established and large markets.
We have a window of opportunity as larger players marshal the resources to pursue the online opportunity
and as customers, new to purchasing online, are receptive to forming new relationships. The competitive
landscape has continued to evolve at a fast pace. Many large players have moved online with credible offerings
and have devoted substantial energy and resources to building awareness, traffic, and sales. Our goal is to move
quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities
in other areas. We see substantial opportunity in the large markets we are targeting. This strategy is not without
risk: it requires serious investment and crisp execution against established franchise leaders.
It’s All About the Long Term
We believe that a fundamental measure of our success will be the shareholder value we create over the long
term. This value will be a direct result of our ability to extend and solidify our current market leadership position.
The stronger our market leadership, the more powerful our economic model. Market leadership can translate
directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on
invested capital.
Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most
indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to
purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest
aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an
enduring franchise.
Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than
some companies. Accordingly, we want to share with you our fundamental management and decision-making
approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:
• We will continue to focus relentlessly on our customers.
• We will continue to make investment decisions in light of long-term market leadership considerations
rather than short-term profitability considerations or short-term Wall Street reactions.
• We will continue to measure our programs and the effectiveness of our investments analytically, to
jettison those that do not provide acceptable returns, and to step up our investment in those that work
best. We will continue to learn from both our successes and our failures.
• We will make bold rather than timid investment decisions where we see a sufficient probability of
gaining market leadership advantages. Some of these investments will pay off, others will not, and we
will have learned another valuable lesson in either case.
• When forced to choose between optimizing the appearance of our GAAP accounting and maximizing
the present value of future cash flows, we’ll take the cash flows.
• We will share our strategic thought processes with you when we make bold choices (to the extent
competitive pressures allow), so that you may evaluate for yourselves whether we are making rational
long-term leadership investments.
• We will work hard to spend wisely and maintain our lean culture. We understand the importance of
continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.
• We will balance our focus on growth with emphasis on long-term profitability and capital management.
At this stage, we choose to prioritize growth because we believe that scale is central to achieving the
potential of our business model.
• We will continue to focus on hiring and retaining versatile and talented employees, and continue to
weight their compensation to stock options rather than cash. We know our success will be largely
affected by our ability to attract and retain a motivated employee base, each of whom must think like,
and therefore must actually be, an owner.
We aren’t so bold as to claim that the above is the “right” investment philosophy, but it’s ours, and we
would be remiss if we weren’t clear in the approach we have taken and will continue to take.
With this foundation, we would like to turn to a review of our business focus, our progress in 1997, and our
outlook for the future.
Obsess Over Customers
From the beginning, our focus has been on offering our customers compelling value. We realized that the
Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply
could not get any other way, and began serving them with books. We brought them much more selection than
was possible in a physical store (our store would now occupy 6 football fields), and presented it in a useful, easy-
to-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged
focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer
customers gift certificates, 1-ClickSM shopping, and vastly more reviews, content, browsing options, and
recommendation features. We dramatically lowered prices, further increasing customer value. Word of mouth
remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers
have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader
in online bookselling.
By many measures, Amazon.com came a long way in 1997:
•
Sales grew from $15.7 million in 1996 to $147.8 million – an 838% increase.
• Cumulative customer accounts grew from 180,000 to 1,510,000 – a 738% increase.
•
•
The percentage of orders from repeat customers grew from over 46% in the fourth quarter of 1996 to
over 58% in the same period in 1997.
In terms of audience reach, per Media Metrix, our Web site went from a rank of 90th to within the top
20.
• We established long-term relationships with many important strategic partners, including America
Online, Yahoo!, Excite, Netscape, GeoCities, AltaVista, @Home, and Prodigy.
Infrastructure
During 1997, we worked hard to expand our business infrastructure to support these greatly increased
traffic, sales, and service levels:
• Amazon.com’s employee base grew from 158 to 614, and we significantly strengthened our
management team.
• Distribution center capacity grew from 50,000 to 285,000 square feet, including a 70% expansion of our
Seattle facilities and the launch of our second distribution center in Delaware in November.
•
Inventories rose to over 200,000 titles at year-end, enabling us to improve availability for our customers.
• Our cash and investment balances at year-end were $125 million, thanks to our initial public offering in
May 1997 and our $75 million loan, affording us substantial strategic flexibility.
Our Employees
The past year’s success is the product of a talented, smart, hard-working group, and I take great pride in
being a part of this team. Setting the bar high in our approach to hiring has been, and will continue to be, the
single most important element of Amazon.com’s success.
It’s not easy to work here (when I interview people I tell them, “You can work long, hard, or smart, but at
Amazon.com you can’t choose two out of three”), but we are working to build something important, something
that matters to our customers, something that we can all tell our grandchildren about. Such things aren’t meant to
be easy. We are incredibly fortunate to have this group of dedicated employees whose sacrifices and passion
build Amazon.com.
Goals for 1998
We are still in the early stages of learning how to bring new value to our customers through Internet
commerce and merchandising. Our goal remains to continue to solidify and extend our brand and customer base.
This requires sustained investment in systems and infrastructure to support outstanding customer convenience,
selection, and service while we grow. We are planning to add music to our product offering, and over time we
believe that other products may be prudent investments. We also believe there are significant opportunities to
better serve our customers overseas, such as reducing delivery times and better tailoring the customer experience.
To be certain, a big part of the challenge for us will lie not in finding new ways to expand our business, but in
prioritizing our investments.
We now know vastly more about online commerce than when Amazon.com was founded, but we still have
so much to learn. Though we are optimistic, we must remain vigilant and maintain a sense of urgency. The
challenges and hurdles we will face to make our long-term vision for Amazon.com a reality are several:
aggressive, capable, well-funded competition; considerable growth challenges and execution risk; the risks of
product and geographic expansion; and the need for large continuing investments to meet an expanding market
opportunity. However, as we’ve long said, online bookselling, and online commerce in general, should prove to
be a very large market, and it’s likely that a number of companies will see significant benefit. We feel good about
what we’ve done, and even more excited about what we want to do.
1997 was indeed an incredible year. We at Amazon.com are grateful to our customers for their business and
trust, to each other for our hard work, and to our shareholders for their support and encouragement.
Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission File No. 000-22513
AMAZON.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
91-1646860
(I.R.S. Employer
Identification No.)
410 Terry Avenue North
Seattle, Washington 98109-5210
(206) 266-1000
(Address and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
‘
Accelerated filer
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No È
Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30,
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of common stock outstanding as of January 19, 2012 . . . . . . . . . . . . . . . . . .
$ 74,662,887,792
455,068,465
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference
from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders to be held in 2012, which
definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the
fiscal year to which this Report relates.
AMAZON.COM, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2011
INDEX
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosure About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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1
AMAZON.COM, INC.
PART I
Item 1. Business
This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-
looking statements based on expectations, estimates, and projections as of the date of this filing. Actual results
may differ materially from those expressed in forward-looking statements. See Item 1A of Part I—“Risk
Factors.”
Amazon.com, Inc. was incorporated in 1994 in the state of Washington and reincorporated in 1996 in the
state of Delaware. Our principal corporate offices are located in Seattle, Washington. We completed our initial
public offering in May 1997 and our common stock is listed on the Nasdaq Global Select Market under the
symbol “AMZN.”
As used herein, “Amazon.com,” “we,” “our” and similar terms include Amazon.com, Inc. and its
subsidiaries, unless the context indicates otherwise.
General
Amazon.com opened its virtual doors on the World Wide Web in July 1995 and offers Earth’s Biggest
Selection. We seek to be Earth’s most customer-centric company for four primary customer sets: consumers,
sellers, enterprises, and content creators. In addition, we generate revenue through other marketing and
promotional services, such as online advertising, and co-branded credit card agreements.
We have organized our operations into two principal segments: North America and International. See Item 8
of Part II, “Financial Statements and Supplementary Data—Note 11—Segment Information.” See Item 7 of
Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations—Supplemental Information” for supplemental information about our net sales.
Consumers
We serve consumers through our retail websites, and focus on selection, price, and convenience. We design
our websites to enable millions of unique products to be sold by us and by third parties across dozens of product
categories. We also manufacture and sell Kindle devices. We strive to offer our customers the lowest prices
possible through low everyday product pricing and shipping offers, including through membership in Amazon
Prime, and to improve our operating efficiencies so that we can continue to lower prices for our customers. We
also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service.
We fulfill customer orders in a number of ways, including through the U.S. and international fulfillment
centers and warehouses that we operate, through co-sourced and outsourced arrangements in certain countries,
and through digital delivery. We operate customer service centers globally, which are supplemented by
co-sourced arrangements. See Item 2 of Part I, “Properties.”
Sellers
We offer programs that enable sellers to sell their products on our websites and their own branded websites
and to fulfill orders through us. We are not the seller of record in these transactions, but instead earn fixed fees,
revenue share fees, per-unit activity fees, or some combination thereof.
Enterprises
We serve developers and enterprises of all sizes through Amazon Web Services (“AWS”), which provides
access to technology infrastructure that enables virtually any type of business.
2
Content Creators
We serve authors and independent publishers with Kindle Direct Publishing, an online platform that lets
independent authors and publishers choose a 70% royalty option and make their books available in the Kindle
Store. Amazon’s own publishing arm, Amazon Publishing, offers authors another outlet to publish their books.
We also serve authors, musicians, filmmakers and other content creators through CreateSpace, which provides
on-demand publishing and manufacturing for independent content creators, publishers, film studios, and music
labels.
Competition
Our businesses are rapidly evolving and intensely competitive. Our current and potential competitors
include: (1) physical-world retailers, publishers, vendors, distributors, manufacturers, and producers of our
products; (2) other online e-commerce and mobile e-commerce sites, including sites that sell or distribute digital
content; (3) a number of indirect competitors, including media companies, web portals, comparison shopping
websites, and web search engines, either directly or in collaboration with other retailers; (4) companies that
provide e-commerce services, including website development, fulfillment, and customer service; (5) companies
that provide infrastructure web services or other information storage or computing services or products; and
(6) companies that design, manufacture, market, or sell digital media devices. We believe that the principal
competitive factors in our retail businesses include selection, price, and convenience, including fast and reliable
fulfillment. Additional competitive factors for our seller and enterprise services include the quality, speed, and
reliability of our services and tools. Many of our current and potential competitors have greater resources, longer
histories, more customers, and greater brand recognition. They may secure better terms from suppliers, adopt
more aggressive pricing and devote more resources to technology, infrastructure, fulfillment, and marketing.
Other companies also may enter into business combinations or alliances that strengthen their competitive
positions.
Intellectual Property
We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets,
proprietary technologies, and similar intellectual property as critical to our success, and we rely on trademark,
copyright and patent law, trade-secret protection, and confidentiality and/or license agreements with our
employees, customers, partners, and others to protect our proprietary rights. We have registered, or applied for
the registration of, a number of U.S. and international domain names, trademarks, service marks, and copyrights.
Additionally, we have filed U.S. and international patent applications covering certain of our proprietary
technology. We have licensed in the past, and expect that we may license in the future, certain of our proprietary
rights to third parties.
Seasonality
Our business is affected by seasonality, which historically has resulted in higher sales volume during our
fourth quarter, which ends December 31. We recognized 36%, 38%, and 39% of our annual revenue during the
fourth quarter of 2011, 2010, and 2009.
Employees
We employed approximately 56,200 full-time and part-time employees at December 31, 2011. However,
employment levels fluctuate due to seasonal factors affecting our business. Additionally, we utilize independent
contractors and temporary personnel to supplement our workforce, particularly on a seasonal basis. Although we
have works councils and statutory employee representation obligations in certain countries, our employees are
not represented by a labor union and we consider our employee relations to be good. Competition for qualified
personnel in our industry has historically been intense, particularly for software engineers, computer scientists,
and other technical staff.
3
Available Information
Our investor relations website is www.amazon.com/ir and we encourage investors to use it as a way of
easily finding information about us. We promptly make available on this website, free of charge, the reports that
we file or furnish with the Securities and Exchange Commission (“SEC”), corporate governance information
(including our Code of Business Conduct and Ethics), and select press releases and social media postings.
Executive Officers and Directors
The following tables set forth certain information regarding our Executive Officers and Directors as of
January 19, 2012:
Executive Officers
Name
Age
Position
Jeffrey P. Bezos . . . . . . . . . .
Jeffrey M. Blackburn . . . . . .
Sebastian J. Gunningham . . .
Andrew R. Jassy . . . . . . . . . .
Steven Kessel
. . . . . . . . . . . .
Marc A. Onetto . . . . . . . . . . .
Diego Piacentini . . . . . . . . . .
Shelley L. Reynolds . . . . . . .
Thomas J. Szkutak . . . . . . . .
H. Brian Valentine . . . . . . . .
Jeffrey A. Wilke . . . . . . . . . .
L. Michelle Wilson . . . . . . . .
President, Chief Executive Officer, and Chairman of the Board
Senior Vice President, Business Development
Senior Vice President, Seller Services
Senior Vice President, Web Services
Senior Vice President, Worldwide Digital Media
Senior Vice President, Worldwide Operations
Senior Vice President, International Retail
48
42
49
44
46
61
51
47 Vice President, Worldwide Controller, and Principal Accounting Officer
51
52
45
48
Senior Vice President and Chief Financial Officer
Senior Vice President, Ecommerce Platform
Senior Vice President, North America Retail
Senior Vice President, General Counsel, and Secretary
Jeffrey P. Bezos. Mr. Bezos has been Chairman of the Board of Amazon.com since founding it in 1994
and Chief Executive Officer since May 1996. Mr. Bezos served as President of the Company from founding until
June 1999 and again from October 2000 to the present.
Jeffrey M. Blackburn. Mr. Blackburn has served as Senior Vice President, Business Development, since
April 2006.
Sebastian J. Gunningham. Mr. Gunningham has served as Senior Vice President, Seller Services, since
joining Amazon.com in March 2007. Prior to joining Amazon.com, Mr. Gunningham was President of First Data
Utilities from August 2006 to February 2007.
Andrew R. Jassy. Mr. Jassy has served as Senior Vice President, Web Services, since April 2006.
Steven Kessel. Mr. Kessel has served as Senior Vice President, Worldwide Digital Media, since April
2006.
Marc A. Onetto. Mr. Onetto has served as Senior Vice President, Worldwide Operations, since joining
Amazon.com in December 2006.
Diego Piacentini. Mr. Piacentini has served as Senior Vice President, International Retail, since January
2007.
Shelley L. Reynolds. Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal
Accounting Officer since April 2007. From February 2006 to April 2007, she was Vice President, Finance and
Controller.
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Thomas J. Szkutak. Mr. Szkutak has served as Senior Vice President and Chief Financial Officer since
joining Amazon.com in October 2002.
H. Brian Valentine. Mr. Valentine has served as Senior Vice President, Ecommerce Platform, since
joining Amazon.com in September 2006.
Jeffrey A. Wilke. Mr. Wilke has served as Senior Vice President, North America Retail, since January
2007.
L. Michelle Wilson. Ms. Wilson has served as Senior Vice President, General Counsel, and Secretary
since July 2003.
Board of Directors
Name
Age
Position
Jeffrey P. Bezos . . . . . . . . . .
Tom A. Alberg . . . . . . . . . . .
John Seely Brown . . . . . . . . .
President, Chief Executive Officer, and Chairman of the Board
48
71 Managing Director, Madrona Venture Group
71 Visiting Scholar and Advisor to the Provost, University of Southern
California
William B. Gordon . . . . . . . .
Blake G. Krikorian . . . . . . . .
Alain Monié . . . . . . . . . . . . .
Jonathan J. Rubinstein . . . . .
Thomas O. Ryder . . . . . . . . .
Patricia Q. Stonesifer . . . . . .
Partner, Kleiner Perkins Caufield & Byers
Founder and Chief Executive Officer, id8 Group Productions, Inc.
President and Chief Executive Officer, Ingram Micro Inc.
Former Chairman and CEO, Palm, Inc.
61
44
61
55
67 Retired, Former Chairman, Reader’s Digest Association, Inc.
55 Vice Chair, Board of Regents, Smithsonian Institution
Item 1A. Risk Factors
Please carefully consider the following risk factors. If any of the following risks occur, our business,
financial condition, operating results, and cash flows could be materially adversely affected. In addition, the
current global economic climate amplifies many of these risks.
We Face Intense Competition
Our businesses are rapidly evolving and intensely competitive, and we have many competitors in different
industries, including retail, e-commerce services, digital content and digital media devices, and web services.
Many of our current and potential competitors have greater resources, longer histories, more customers, and
greater brand recognition. They may secure better terms from vendors, adopt more aggressive pricing and devote
more resources to technology, infrastructure, fulfillment, and marketing.
Competition may intensify as our competitors enter into business combinations or alliances and established
companies in other market segments expand into our market segments. In addition, new and enhanced
technologies, including search, web services, and digital, may increase our competition. The Internet facilitates
competitive entry and comparison shopping, and increased competition may reduce our sales and profits.
Our Expansion Places a Significant Strain on our Management, Operational, Financial and Other
Resources
We are rapidly and significantly expanding our global operations, including increasing our product and
service offerings and scaling our infrastructure to support our retail and services businesses. This expansion
increases the complexity of our business and places significant strain on our management, personnel, operations,
5
systems, technical performance, financial resources, and internal financial control and reporting functions. We
may not be able to manage growth effectively, which could damage our reputation, limit our growth and
negatively affect our operating results.
Our Expansion into New Products, Services, Technologies and Geographic Regions Subjects Us to
Additional Business, Legal, Financial and Competitive Risks
We may have limited or no experience in our newer market segments, and our customers may not adopt our
new offerings. These offerings may present new and difficult technology challenges, and we may be subject to
claims if customers of these offerings experience service disruptions or failures or other quality issues. In
addition, profitability, if any, in our newer activities may be lower than in our older activities, and we may not be
successful enough in these newer activities to recoup our investments in them. If any of this were to occur, it
could damage our reputation, limit our growth and negatively affect our operating results.
We May Experience Significant Fluctuations in Our Operating Results and Growth Rate
We may not be able to accurately forecast our growth rate. We base our expense levels and investment plans
on sales estimates. A significant portion of our expenses and investments is fixed, and we may not be able to
adjust our spending quickly enough if our sales are less than expected.
Our revenue growth may not be sustainable, and our percentage growth rates may decrease. Our revenue
and operating profit growth depends on the continued growth of demand for the products and services offered by
us or our sellers, and our business is affected by general economic and business conditions worldwide. A
softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global
economies, may result in decreased revenue or growth.
Our sales and operating results will also fluctuate for many other reasons, including due to risks described
elsewhere in this section and the following:
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•
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•
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our ability to retain and increase sales to existing customers, attract new customers, and satisfy our
customers’ demands;
our ability to retain and expand our network of sellers;
our ability to offer products on favorable terms, manage inventory, and fulfill orders;
the introduction of competitive websites, products, services, price decreases, or improvements;
changes in usage or adoption rates of the Internet, e-commerce, digital media devices and web services,
including in non-U.S. markets;
timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure;
the success of our geographic, service, and product line expansions;
the outcomes of legal proceedings and claims;
variations in the mix of products and services we sell;
variations in our level of merchandise and vendor returns;
the extent to which we offer free shipping, continue to reduce product prices worldwide, and provide
additional benefits to our customers;
the extent to which we invest in technology and content, fulfillment and other expense categories;
increases in the prices of fuel and gasoline, as well as increases in the prices of other energy products
and commodities like paper and packing supplies;
the extent to which our equity method investees record significant operating and non-operating items;
6
•
•
•
•
the extent to which operators of the networks between our customers and our websites successfully
charge fees to grant our customers unimpaired and unconstrained access to our online services;
our ability to collect amounts owed to us when they become due;
the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails,
denial of service attacks, data theft, computer intrusions and similar events; and
terrorist attacks and armed hostilities.
We May Not Be Successful in Our Efforts to Expand into International Market Segments
Our international activities are significant to our revenues and profits, and we plan to further expand
internationally. In certain international market segments, we have relatively little operating experience and may
not benefit from any first-to-market advantages or otherwise succeed. It is costly to establish, develop and
maintain international operations and websites and promote our brand internationally. Our international
operations may not be profitable on a sustained basis.
In addition to risks described elsewhere in this section, our international sales and operations are subject to a
number of risks, including:
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•
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•
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•
•
local economic and political conditions;
government regulation of e-commerce, other online services and electronic devices and restrictive
governmental actions (such as trade protection measures, including export duties and quotas and custom
duties and tariffs), nationalization and restrictions on foreign ownership;
restrictions on sales or distribution of certain products or services and uncertainty regarding liability for
products, services and content, including uncertainty as a result of less Internet-friendly legal systems,
local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical
and digital distribution of media products and enforcement of intellectual property rights;
business licensing or certification requirements, such as for imports, exports and electronic devices;
limitations on the repatriation and investment of funds and foreign currency exchange restrictions;
limited fulfillment and technology infrastructure;
shorter payable and longer receivable cycles and the resultant negative impact on cash flow;
laws and regulations regarding consumer and data protection, privacy, network security, encryption, and
restrictions on pricing or discounts;
lower levels of use of the Internet;
lower levels of consumer spending and fewer opportunities for growth compared to the U.S.;
lower levels of credit card usage and increased payment risk;
difficulty in staffing, developing and managing foreign operations as a result of distance, language and
cultural differences;
different employee/employer relationships and the existence of workers’ councils and labor unions;
laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans and taxes;
and
geopolitical events, including war and terrorism.
As the international e-commerce channel grows, competition will intensify. Local companies may have a
substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as
well as their more established local brand names. We may not be able to hire, train, retain, and manage required
personnel, which may limit our international growth.
7
The People’s Republic of China (“PRC”) regulates Amazon’s and its affiliates’ businesses and operations in
the PRC through regulations and license requirements restricting (i) foreign investment in the Internet, IT
infrastructure, retail, delivery, and other sectors, (ii) Internet content and (iii) the sale of media and other
products. For example, in order to meet local ownership and regulatory licensing requirements, www.amazon.cn
is operated by PRC companies that are indirectly owned, either wholly or partially, by PRC nationals. Although
we believe these structures comply with existing PRC laws, they involve unique risks. There are substantial
uncertainties regarding the interpretation of PRC laws and regulations, and it is possible that the PRC
government will ultimately take a view contrary to ours. If our Chinese business interests were found to be in
violation of any existing or future PRC laws or regulations or if interpretations of those laws and regulations
were to change, the business could be subject to fines and other financial penalties, have licenses revoked or be
forced to shut down entirely. In addition, the Chinese businesses and operations may be unable to continue to
operate if we or our affiliates are unable to enforce contractual relationships with respect to management and
control of such businesses.
If We Do Not Successfully Optimize and Operate Our Fulfillment Centers, Our Business Could Be Harmed
If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment centers
successfully, it could result in excess or insufficient inventory or fulfillment capacity, result in increased costs,
impairment charges, or both, or harm our business in other ways. A failure to optimize inventory will increase
our net shipping cost by requiring long-zone or partial shipments. Orders from several of our websites are
fulfilled primarily from a single location, and we have only a limited ability to reroute orders to third parties for
drop-shipping. We and our co-sourcers may be unable to adequately staff our fulfillment and customer service
centers. As we continue to add fulfillment and warehouse capability or add new businesses with different
fulfillment requirements, our fulfillment network becomes increasingly complex and operating it becomes more
challenging. If the other businesses on whose behalf we perform inventory fulfillment services deliver product to
our fulfillment centers in excess of forecasts, we may be unable to secure sufficient storage space and may be
unable to optimize our fulfillment centers. There can be no assurance that we will be able to operate our network
effectively.
We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our
customers. If we are not able to negotiate acceptable terms with these companies or they experience performance
problems or other difficulties, it could negatively impact our operating results and customer experience. In
addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also may be
negatively affected by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or
terrorism, acts of God and similar factors.
Third parties either drop-ship or otherwise fulfill an increasing portion of our customers’ orders, and we are
increasingly reliant on the reliability, quality and future procurement of their services. Under some of our
commercial agreements, we maintain the inventory of other companies, thereby increasing the complexity of
tracking inventory and operating our fulfillment centers. Our failure to properly handle such inventory or the
inability of these other companies to accurately forecast product demand would result in unexpected costs and
other harm to our business and reputation.
The Seasonality of Our Business Places Increased Strain on Our Operations
We expect a disproportionate amount of our net sales to occur during our fourth quarter. If we do not stock
or restock popular products in sufficient amounts such that we fail to meet customer demand, it could
significantly affect our revenue and our future growth. If we overstock products, we may be required to take
significant inventory markdowns or write-offs, which could reduce profitability. We may experience an increase
in our net shipping cost due to complimentary upgrades, split-shipments, and additional long-zone shipments
necessary to ensure timely delivery for the holiday season. If too many customers access our websites within a
short period of time due to increased holiday demand, we may experience system interruptions that make our
websites unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we
8
sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our
fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies
and customer service co-sourcers may be unable to meet the seasonal demand. We also face risks described
elsewhere in this Item 1A relating to fulfillment center optimization and inventory.
We generally have payment terms with our vendors that extend beyond the amount of time necessary to
collect proceeds from our customers. As a result of holiday sales, at December 31 of each year, our cash, cash
equivalents, and marketable securities balances typically reach their highest level (other than as a result of cash
flows provided by or used in investing and financing activities). This operating cycle results in a corresponding
increase in accounts payable at December 31. Our accounts payable balance generally declines during the first
three months of the year, resulting in a corresponding decline in our cash, cash equivalents, and marketable
securities balances.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial
Agreements, Strategic Alliances, and Other Business Relationships
We provide e-commerce services to other businesses through our seller programs and other commercial
agreements, strategic alliances and business relationships. Under these agreements, we provide technology,
fulfillment and other services, as well as enable sellers to offer products or services through our websites and
power their websites. These arrangements are complex and require substantial personnel and resource
commitments by us, which may limit the agreements we are able to enter into and our ability to integrate and
deliver services under them. If we fail to implement, maintain, and develop the components of these commercial
relationships, which may include fulfillment, customer service, inventory management, tax collection, payment
processing, licensing of third-party software, hardware, and content, and engaging third parties to perform
hosting and other services, these initiatives may not be viable. The amount of compensation we receive under
certain of these agreements is partially dependent on the volume of the other company’s sales. Therefore, if the
other company’s offering is not successful, the compensation we receive may be lower than expected or the
agreement may be terminated. Moreover, we may not be able to enter into additional commercial relationships
and strategic alliances on favorable terms. We also may be subject to claims from businesses to which we
provide these services if we are unsuccessful in implementing, maintaining or developing these services.
As our agreements terminate, we may be unable to renew or replace these agreements on comparable terms,
or at all. We may in the future enter into amendments on less favorable terms or encounter parties that have
difficulty meeting their contractual obligations to us, which could adversely affect our operating results.
Our present and future e-commerce services agreements, other commercial agreements, and strategic
alliances create additional risks such as:
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•
disruption of our ongoing business, including loss of management focus on existing businesses;
impairment of other relationships;
variability in revenue and income from entering into, amending, or terminating such agreements or
relationships; and
difficulty integrating under the commercial agreements.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions
and Investments
We have acquired and invested in a number of companies, and we may acquire or invest in or enter into
joint ventures with additional companies. These transactions create risks such as:
•
•
disruption of our ongoing business, including loss of management focus on existing businesses;
problems retaining key personnel;
9
•
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additional operating losses and expenses of the businesses we acquired or in which we invested;
the potential impairment of tangible assets, such as inventory, and intangible assets and goodwill
acquired in the acquisitions;
the potential impairment of customer and other relationships of the company we acquired or in which
we invested or our own customers as a result of any integration of operations;
the difficulty of incorporating acquired technology and rights into our offerings and unanticipated
expenses related to such integration;
the difficulty of integrating a new company’s accounting, financial reporting, management, information
and information security, human resource and other administrative systems to permit effective
management, and the lack of control if such integration is delayed or not implemented;
for investments in which an investee’s financial performance is incorporated into our financial results,
either in full or in part, the dependence on the investee’s accounting, financial reporting and similar
systems, controls and processes;
the difficulty of implementing at companies we acquire the controls, procedures and policies appropriate
for a larger public company;
potential unknown liabilities associated with a company we acquire or in which we invest; and
for foreign transactions, additional risks related to the integration of operations across different cultures
and languages, and the economic, political, and regulatory risks associated with specific countries.
As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our
cash, or incur debt, contingent liabilities, or amortization expenses related to intangible assets, any of which
could reduce our profitability and harm our business. In addition, valuations supporting our acquisitions and
strategic investments could change rapidly given the current global economic climate. We could determine that
such valuations have experienced impairments or other-than-temporary declines in fair value which could
adversely impact our financial results.
We Have Foreign Exchange Risk
The results of operations of, and certain of our intercompany balances associated with, our international
websites are exposed to foreign exchange rate fluctuations. Upon translation, operating results may differ
materially from expectations, and we may record significant gains or losses on the remeasurement of
intercompany balances. As we have expanded our international operations, our exposure to exchange rate
fluctuations has increased. We also hold cash equivalents and/or marketable securities primarily in Euros,
Japanese Yen, and British Pounds. If the U.S. Dollar strengthens compared to these currencies, cash equivalents
and marketable securities balances, when translated, may be materially less than expected and vice versa.
The Loss of Key Senior Management Personnel Could Negatively Affect Our Business
We depend on our senior management and other key personnel, particularly Jeffrey P. Bezos, our President,
CEO, and Chairman. We do not have “key person” life insurance policies. The loss of any of our executive
officers or other key employees could harm our business.
We Could Be Harmed by Data Loss or Other Security Breaches
As a result of our services being web-based and the fact that we process, store and transmit large amounts of
data, including personal information, for our customers, failure to prevent or mitigate data loss or other security
breaches could expose us or our customers to a risk of loss or misuse of such information, adversely affect our
operating results, result in litigation or potential liability for us and otherwise harm our business. Although we
10
have developed systems and processes that are designed to protect customer information and prevent data loss
and other security breaches, such measures cannot provide absolute security. In addition, we rely on third party
technology and systems in certain aspects of our businesses, including for encryption and authentication
technology to securely transmit confidential information.
We Face Risks Related to System Interruption and Lack of Redundancy
We experience occasional system interruptions and delays that make our websites and services unavailable
or slow to respond and prevent us from efficiently fulfilling orders or providing services to third parties, which
may reduce our net sales and the attractiveness of our products and services. If we are unable to continually add
software and hardware, effectively upgrade our systems and network infrastructure and take other steps to
improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our
operating results.
Our computer and communications systems and operations could be damaged or interrupted by fire, flood,
power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses,
physical or electronic break-ins, and similar events or disruptions. Any of these events could cause system
interruption, delays, and loss of critical data, and could prevent us from accepting and fulfilling customer orders
and providing services, which could make our product and service offerings less attractive and subject us to
liability. Our systems are not fully redundant and our disaster recovery planning may not be sufficient. In
addition, we may have inadequate insurance coverage to compensate for any related losses. Any of these events
could damage our reputation and be expensive to remedy.
We Face Significant Inventory Risk
In addition to risks described elsewhere in this Item 1A relating to fulfillment center and inventory
optimization by us and third parties, we are exposed to significant inventory risks that may adversely affect our
operating results as a result of seasonality, new product launches, rapid changes in product cycles and pricing,
defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer
tastes with respect to our products and other factors. We endeavor to accurately predict these trends and avoid
overstocking or understocking products we manufacture and/or sell. Demand for products, however, can change
significantly between the time inventory or components are ordered and the date of sale. In addition, when we
begin selling or manufacturing a new product, it may be difficult to establish vendor relationships, determine
appropriate product or component selection, and accurately forecast demand. The acquisition of certain types of
inventory or components may require significant lead-time and prepayment and they may not be returnable. We
carry a broad selection and significant inventory levels of certain products, such as consumer electronics, and we
may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one of the
inventory risk factors set forth above may adversely affect our operating results.
We May Not Be Able to Adequately Protect Our Intellectual Property Rights or May Be Accused of
Infringing Intellectual Property Rights of Third Parties
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary
technology, and similar intellectual property as critical to our success, and we rely on trademark, copyright, and
patent law, trade secret protection, and confidentiality and/or license agreements with our employees, customers,
and others to protect our proprietary rights. Effective intellectual property protection may not be available in
every country in which our products and services are made available. We also may not be able to acquire or
maintain appropriate domain names in all countries in which we do business. Furthermore, regulations governing
domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks
and other proprietary rights.
11
We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights.
Third parties that license our proprietary rights also may take actions that diminish the value of our proprietary
rights or reputation. The protection of our intellectual property may require the expenditure of significant
financial and managerial resources. Moreover, the steps we take to protect our intellectual property may not
adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights.
We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior
technology or other intellectual property rights.
Other parties also may claim that we infringe their proprietary rights. We have been subject to, and expect to
continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual
property rights of third parties. Such claims, whether or not meritorious, may result in the expenditure of
significant financial and managerial resources, injunctions against us or the payment of damages. We may need
to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be
available on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are
favorable to us, or at all, licenses or other rights with respect to intellectual property we do not own in providing
e-commerce services to other businesses and individuals under commercial agreements. These risks have been
amplified by the increase in third parties whose sole or primary business is to assert such claims.
Our digital content offerings depend in part on effective digital rights management technology to control
access to digital content. If the digital rights management technology that we use is compromised or otherwise
malfunctions, we could be subject to claims, and content providers may be unwilling to include their content in
our service.
We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile
We have a rapidly evolving business model. The trading price of our common stock fluctuates significantly
in response to, among other risks, the risks described elsewhere in this Item 1A, as well as:
•
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changes in interest rates;
conditions or trends in the Internet and the e-commerce industry;
quarterly variations in operating results;
fluctuations in the stock market in general and market prices for Internet-related companies in
particular;
changes in financial estimates by us or securities analysts and recommendations by securities analysts;
changes in our capital structure, including issuance of additional debt or equity to the public;
changes in the valuation methodology of, or performance by, other e-commerce or technology
companies; and
transactions in our common stock by major investors and certain analyst reports, news, and speculation.
Volatility in our stock price could adversely affect our business and financing opportunities and force us to
increase our cash compensation to employees or grant larger stock awards than we have historically, which could
hurt our operating results or reduce the percentage ownership of our existing stockholders, or both.
Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business
We are subject to general business regulations and laws, as well as regulations and laws specifically governing
the Internet, e-commerce, and electronic devices. Existing and future laws and regulations may impede our growth.
These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution,
mobile communications, electronic device certification, electronic waste, electronic contracts and other
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communications, consumer protection, web services, the provision of online payment services, unencumbered
Internet access to our services, the design and operation of websites, and the characteristics and quality of products
and services. It is not clear how existing laws governing issues such as property ownership, libel, and personal
privacy apply to the Internet, e-commerce, digital content and web services. Jurisdictions may regulate
consumer-to-consumer online businesses, including certain aspects of our seller programs. Unfavorable regulations
and laws could diminish the demand for our products and services and increase our cost of doing business.
We Do Not Collect Sales or Consumption Taxes in Some Jurisdictions
U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales taxes with
respect to remote sales. However, an increasing number of states have considered or adopted laws that attempt to
impose obligations on out-of-state retailers to collect taxes on their behalf. We support a Federal law that would
require sales tax collection under a nationwide system. More than half of our revenue is already earned in
jurisdictions where we collect sales tax or its equivalent. A successful assertion by one or more states or foreign
countries requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including
for past sales, as well as penalties and interest.
We Could be Subject to Additional Income Tax Liabilities
We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant
judgment is required in evaluating and estimating our worldwide provision and accruals for these taxes. During
the ordinary course of business, there are many transactions for which the ultimate tax determination is uncertain.
For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in
countries where we have lower statutory rates and higher than anticipated in countries where we have higher
statutory rates, by losses incurred in jurisdictions for which we are not able to realize the related tax benefit, by
changes in foreign currency exchange rates, by entry into new businesses and geographies and changes to our
existing businesses, by acquisitions, by changes in the valuation of our deferred tax assets and liabilities, or by
changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. We are subject
to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us.
Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation
could be materially different from our historical income tax provisions and accruals. Developments in an audit or
litigation 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.
Our Supplier Relationships Subject Us to a Number of Risks
We have significant suppliers, including licensors, that are important to our sourcing, services,
manufacturing and any related ongoing servicing of merchandise and content. We do not have long-term
arrangements with most of our suppliers to guarantee availability of merchandise, content, components or
services, particular payment terms, or the extension of credit limits. If our current suppliers were to stop selling
or licensing merchandise, content, components or services to us on acceptable terms, or delay delivery, including
as a result of one or more supplier bankruptcies due to poor economic conditions, as a result of natural disasters
or for other reasons, we may be unable to procure alternatives from other suppliers in a timely and efficient
manner and on acceptable terms, or at all.
We May be Subject to Risks Related to Government Contracts and Related Procurement Regulations
Our contracts with U.S., as well as state, local and foreign, government entities are subject to various
procurement regulations and other requirements relating to their formation, administration and performance. We
may be subject to audits and investigations relating to our government contracts and any violations could result
in various civil and criminal penalties and administrative sanctions, including termination of contract, refunding
or suspending of payments, forfeiture of profits, payment of fines and suspension or debarment from future
government business. In addition, such contracts may provide for termination by the government at any time,
without cause.
13
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
Some of the products we sell or manufacture may expose us to product liability claims relating to personal
injury, death, or environmental or property damage, and may require product recalls or other actions. Certain
third parties also sell products using our e-commerce platform that may increase our exposure to product liability
claims, such as if these sellers do not have sufficient protection from such claims. Although we maintain liability
insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that
insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our
agreements with our vendors and sellers do not indemnify us from product liability.
We Are Subject to Payments-Related Risks
We accept payments using a variety of methods, including credit card, debit card, credit accounts (including
promotional financing), gift certificates, direct debit from a customer’s bank account, consumer invoicing,
physical bank check and payment upon delivery. As we offer new payment options to our customers, we may be
subject to additional regulations, compliance requirements, and fraud. For certain payment methods, including
credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating
costs and lower profitability. We rely on third parties to provide payment processing services, including the
processing of credit cards, debit cards, electronic checks, and promotional financing, and it could disrupt our
business if these companies become unwilling or unable to provide these services to us. We are also subject to
payment card association operating rules, including data security rules, certification requirements and rules
governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for
us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached
or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees and
lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers,
or facilitate other types of online payments, and our business and operating results could be adversely affected.
We also offer co-branded credit card programs that represent a significant component of our services revenue. If
one or more of these agreements are terminated and we are unable to replace them on similar terms, or at all, it
could adversely affect our operating results.
In addition, we qualify as a money services business in certain jurisdictions because we enable customers to
keep account balances with us and transfer money to third parties, and because we provide services to third
parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for
licensing, regulatory inspection, bonding, the handling of transferred funds and consumer disclosures. We are
also subject to or voluntarily comply with a number of other laws and regulations relating to money laundering,
international money transfers, privacy and information security and electronic fund transfers. If we were found to
be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to
cease our payments services business.
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of providers of online payment services is currently unsettled. In addition,
governmental agencies could require changes in the way this business is conducted. Under our seller programs,
we may be unable to prevent sellers from collecting payments, fraudulently or otherwise, when buyers never
receive the products they ordered or when the products received are materially different from the sellers’
descriptions. Under our A2Z Guarantee, we reimburse buyers for payments up to certain limits in these
situations, and as our marketplace seller sales grow, the cost of this program will increase and could negatively
affect our operating results. We also may be unable to prevent sellers on our sites or through other seller sites
from selling unlawful goods, from selling goods in an unlawful manner, or violating the proprietary rights of
others, and could face civil or criminal liability for unlawful activities by our sellers.
Item 1B. Unresolved Staff Comments
None.
14
Item 2. Properties
As of December 31, 2011, we operated the following facilities:
Description of Use
Office lease
Office lease
Sub-total
Fulfillment and other
Fulfillment and other
Sub-total
Total
Square
Footage (1)
(in thousands)
Operating
Segments
Lease
Expirations (1)
From 2012
through 2026
From 2012
through 2021
From 2012
through 2026
From 2012
through 2025
3,416
North America
837
International
4,253
26,364
North America
International
17,690
44,054
48,307
(1) Represents the total leased space excluding sub-leased space.
We lease our corporate headquarters in Seattle, Washington. Additionally, we lease corporate office,
fulfillment and warehouse operations, data center, customer service, and other facilities, principally in North
America, Europe, and Asia.
Item 3. Legal Proceedings
See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 7—Commitments and
Contingencies—Legal Proceedings” and “—Other Contingencies.”
Item 4. Mine Safety Disclosures
Not applicable.
15
Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters and Issuer Purchases of
PART II
Equity Securities
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “AMZN.” The
following table sets forth the high and low per share sale prices for our common stock for the periods indicated,
as reported by the Nasdaq Global Select Market.
Year ended December 31, 2010
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011
First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$138.19
151.09
161.78
185.65
$191.60
206.39
244.00
246.71
$113.82
106.01
105.80
151.40
$160.59
175.37
177.10
166.97
Holders
As of January 19, 2012, there were 3,327 shareholders of record of our common stock, although there are a
much larger number of beneficial owners.
Dividends
We have never declared or paid cash dividends on our common stock. See Item 7 of Part II, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
On January 28, 2010, we publicly announced that our Board of Directors had authorized the Company to
repurchase up to $2 billion of the Company’s common stock with no fixed expiration. We may make these
purchases in the open market or through privately negotiated transactions and in discretionary purchases or
pursuant to pre-established purchase plans. The table below sets forth information regarding our purchases of our
common stock during Q4 2011 (in millions, except Average Price Paid Per Share data):
Total Number of
Shares Purchased
Average Price
Paid Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Program
Approximate Dollar
Value of Shares
that May Yet be
Repurchased Under
the Program
October 1—October 31, 2011 . . . . . . . .
November 1—November 30, 2011 . . . .
December 1—December 31, 2011 . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1.5
—
1.5
$ —
189.22
—
—
1.5
—
1.5
$2,000
1,723
1,723
16
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in conjunction with the consolidated
financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data,”
and the information contained in Item 7 of Part II, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Historical results are not necessarily indicative of future results.
Statements of Operations:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share (1) . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares used in computation of earnings
per share:
Year Ended December 31,
2011
2010
2009
2008
2007
(in millions, except per share data)
$48,077
862
631
1.39
1.37
$
$
$34,204
1,406
1,152
2.58
2.53
$
$
$24,509
1,129
902
2.08
2.04
$
$
$19,166
842
645
1.52
1.49
$
$
$14,835
655
476
1.15
1.12
$
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
453
461
447
456
433
442
423
432
413
424
Statements of Cash Flows:
Net cash provided by operating activities . . . . . . . . . . . . . . .
Purchases of fixed assets, including internal-use software
$ 3,903
$ 3,495
$ 3,293
$ 1,697
$ 1,405
and website development . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,811)
(979)
(373)
(333)
(224)
Free cash flow (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,092
$ 2,516
$ 2,920
$ 1,364
$ 1,181
Year Ended December 31,
2011
2010
2009
2008
2007
(in millions)
Balance Sheets:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,278
2,625
$18,797
1,561
$13,813
1,192
$ 8,314
896
$ 6,485
1,574
(1) For further discussion of earnings per share, see Item 8 of Part II, “Financial Statements and Supplementary
Data—Note 1—Description of Business and Accounting Policies.”
(2) Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less
purchases of fixed assets, including capitalized internal-use software and website development, both of
which are presented on our consolidated statements of cash flows. See Item 7 of Part II, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Non-
GAAP Financial Measures.”
17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 could differ materially for
a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic
conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, the
amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of
products sold to customers, the mix of net sales derived from products as compared with services, the extent to
which we owe income taxes, competition, management of growth, potential fluctuations in operating results,
international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center
optimization, risks of inventory management, seasonality, the degree to which the Company enters into,
maintains, and develops commercial agreements, acquisitions, and strategic transactions, payments risks, and
risks of fulfillment throughput and productivity. In addition, the current global economic climate amplifies many
of these risks. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual
results to differ significantly from management’s expectations, are described in greater detail in Item 1A of
Part I, “Risk Factors.”
Overview
Our primary source of revenue is the sale of a wide range of products and services to customers. The
products offered on our consumer-facing websites primarily include merchandise and content we have purchased
for resale from vendors and those offered by third-party sellers, and we also manufacture and sell Kindle devices.
Generally, we recognize gross revenue from items we sell from our inventory as product sales and recognize our
net share of revenue of items sold by other sellers as services sales. We also offer other services such as AWS,
fulfillment, publishing, digital content subscriptions, miscellaneous marketing and promotional agreements, such
as online advertising, and co-branded credit cards.
Our financial focus is on long-term, sustainable growth in free cash flow1 per share. Free cash flow is
driven primarily by increasing operating income and efficiently managing working capital2 and capital
expenditures. Increases in operating income primarily result from increases in sales of products and services and
efficiently managing our operating costs, offset by investments we make in longer-term strategic initiatives. To
increase sales of products and services, we focus on improving all aspects of the customer experience, including
lowering prices, improving availability, offering faster delivery and performance times, increasing selection,
increasing product categories and service offerings, expanding product information, improving ease of use,
improving reliability, and earning customer trust. We also seek to efficiently manage shareholder dilution while
maintaining the flexibility to issue shares for strategic purposes, such as financings, acquisitions, and aligning
employee compensation with shareholders’ interests. We utilize restricted stock units as our primary vehicle for
equity compensation because we believe they align the interests of our shareholders and employees. In measuring
shareholder dilution, we include all vested and unvested stock awards outstanding, without regard to estimated
forfeitures. Total shares outstanding plus outstanding stock awards were 468 million and 465 million at
December 31, 2011 and 2010.
1
Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less
purchases of fixed assets, including capitalized internal-use software and website development, both of
which are presented on our consolidated statements of cash flows. See “Results of Operations—Non-GAAP
Financial Measures” below.
2 Working capital consists of accounts receivable, inventory, and accounts payable.
18
We seek to reduce our variable costs per unit and work to leverage our fixed costs. Our variable costs
include product and content costs, payment processing and related transaction costs, picking, packaging, and
preparing orders for shipment, transportation, customer service support, and a portion of our marketing costs.
Our fixed costs include the costs necessary to run our technology infrastructure and AWS; to build, enhance, and
add features to our websites, our Kindle devices, and digital offerings; and to build and optimize our fulfillment
centers. Variable costs generally change directly with sales volume, while fixed costs generally increase
depending on the timing of capacity needs, geographic expansion, category expansion, and other factors. To
decrease our variable costs on a per unit basis and enable us to lower prices for customers, we seek to increase
our direct sourcing, increase discounts available to us from suppliers, and reduce defects in our processes. To
minimize growth in fixed costs, we seek to improve process efficiencies and maintain a lean culture.
Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle3. On
average our high inventory velocity means we generally collect from consumers before our payments to suppliers come
due. Inventory turnover4 was 10, 11, and 12 for 2011, 2010, and 2009. We expect variability in inventory turnover over
time since it is affected by several factors, including our product mix, the mix of sales by us and by other sellers, our
continuing focus on in-stock inventory availability, our investment in new geographies and product lines, and the extent to
which we choose to utilize outsource fulfillment providers. Accounts payable days5 were 74, 72, and 68 for 2011, 2010,
and 2009. We expect some variability in accounts payable days over time since they are affected by several factors,
including the mix of product sales, the mix of sales by other sellers, the mix of suppliers, seasonality, and changes in
payment terms over time, including the effect of balancing pricing and timing of payment terms with suppliers.
We expect spending in technology and content will increase over time as we add computer scientists, software
engineers, and merchandising employees. We seek to efficiently invest in several areas of technology and content,
including seller platforms, digital initiatives, and expansion of new and existing physical and digital product
categories, as well as in technology infrastructure to enhance the customer experience, improve our process
efficiencies, and support AWS. We believe that advances in technology, specifically the speed and reduced cost of
processing power, the improved consumer experience of the Internet outside of the workplace through lower-cost
broadband service to the home, and the advances of wireless connectivity, will continue to improve the consumer
experience on the Internet and increase its ubiquity in people’s lives. To best take advantage of these continued
advances in technology, we are investing in initiatives to build and deploy innovative and efficient software and
devices. We are also investing in AWS, which provides technology services that give developers and enterprises of
all sizes access to technology infrastructure that enables virtually any type of business.
Our financial reporting currency is the U.S. Dollar and changes in exchange rates significantly affect our
reported results and consolidated trends. For example, if the U.S. Dollar weakens year-over-year relative to
currencies in our international locations, our consolidated net sales, and operating expenses will be higher than if
currencies had remained constant. Likewise, if the U.S. Dollar strengthens year-over-year relative to currencies
in our international locations, our consolidated net sales, and operating expenses will be lower than if currencies
had remained constant. We believe that our increasing diversification beyond the U.S. economy through our
growing international businesses benefits our shareholders over the long term. We also believe it is useful to
evaluate our operating results and growth rates before and after the effect of currency changes.
In addition, the remeasurement of our intercompany balances can result in significant gains and charges
associated with the effect of movements in currency exchange rates. Currency volatilities may continue, which may
significantly impact (either positively or negatively) our reported results and consolidated trends and comparisons.
3
4
5
The operating cycle is number of days of sales in inventory plus number of days of sales in accounts
receivable minus accounts payable days.
Inventory turnover is the quotient of trailing-twelve-month cost of sales to average inventory over five
quarter-ends.
Accounts payable days, calculated as the quotient of accounts payable to current quarter cost of sales,
multiplied by the number of days in the current quarter.
19
For additional information about each line item summarized above, refer to Item 8 of Part II, “Financial
Statements and Supplementary Data—Note 1—Description of Business and Accounting Policies.”
Critical Accounting Judgments
The preparation of financial statements in conformity with generally accepted accounting principles of the
United States (“GAAP”) requires estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated
financial statements and accompanying notes. The SEC 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 and Accounting Policies.” 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
(“FIFO”) method, and are valued at the lower of cost or market 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. As a measure of
sensitivity, for every 1% of additional inventory valuation allowance at December 31, 2011 we would have
recorded an additional cost of sales of approximately $50 million.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances
change that indicate that the carrying value may not be recoverable. Our annual testing date is October 1. We test
goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If
the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than
not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference
between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting
units using discounted cash flows. Forecasts of future cash flow 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. Certain estimates of discounted cash flows involve businesses and geographies
with limited financial history and developing revenue models. Changes in these forecasts could significantly
change the amount of impairment recorded, if any.
During the year, management monitored the actual performance of the business relative to the fair value
assumptions used during our annual goodwill impairment test. For the periods presented, no triggering events
were identified that required an update to our annual impairment test. As a measure of sensitivity, a 10%
decrease in the fair value of any of our reporting units as of December 31, 2011 would have had no impact on the
carrying value of our goodwill.
Financial and credit market volatility directly impacts our fair value measurement through our weighted
average cost of capital that we use to determine our discount rate and through our stock price that we use to
determine our market capitalization. During times of volatility, significant judgment must be applied to determine
20
whether credit or stock price changes are a short-term swing or a longer-term trend. As a measure of sensitivity, a
prolonged 20% decrease from our December 31, 2011, closing stock price would not be an indicator of possible
impairment.
Stock-Based Compensation
We measure compensation cost for stock awards at fair value and recognize it as compensation expense
over the service period for awards expected to vest. The fair value of restricted stock units is determined based on
the number of shares granted and the quoted price of our common stock. The estimation of stock awards that will
ultimately vest requires judgment for the amount that will be forfeited, 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
employee class, economic environment, and historical experience. We update our estimated forfeiture rate
quarterly. A 1% change to our estimated forfeiture rate would have had an approximately $24 million impact on
our 2011 operating income. Our estimated forfeiture rates at December 31, 2011 and 2010, were 28% and 30%.
We utilize the accelerated method, rather than the straight-line method, for recognizing compensation
expense. Under this method, over 50% of the compensation cost is expensed in the first year of a four year
vesting term. If forfeited early in the life of an award, the forfeited amount is much greater under an accelerated
method than under a straight-line method.
Income Taxes
We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is
required in evaluating and estimating our tax positions and determining our provision and accruals for these
taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate
tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings being
lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries
where we have higher statutory rates, by losses incurred in jurisdictions for which we are not able to realize the
related tax benefit, by changes in foreign currency exchange rates, entry into new businesses and geographies and
changes to our existing businesses, acquisitions, by changes in the valuation of our deferred tax assets and
liabilities, or by changes in the relevant tax, accounting and other laws, regulations, principles and
interpretations. We are subject to audit in various jurisdictions, and such jurisdictions may assess additional
income tax against us. Although we believe our tax estimates are reasonable, the final determination of tax audits
and any related litigation could be materially different from our historical income tax provisions and accruals.
The results of an audit or litigation could have a material effect on our operating results or cash flows in the
period or periods for which that determination is made, as well as prior and subsequent periods.
If we determine that additional portions of our deferred tax assets are realizable, the majority of the benefit
will come from the assets associated with the stock-based compensation that was not recognized in the financial
statements, but was claimed on the tax return. Since this compensation did not originally run through our
consolidated statements of operations, the benefit generated will be recorded to stockholders’ equity.
Recent Accounting Pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 1—Description of Business and
Accounting Policies—Recent Accounting Pronouncements.”
21
Liquidity and Capital Resources
Cash flow information is as follows:
Year Ended December 31,
2011
2010
2009
(in millions)
Cash provided by (used in):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,903
(1,930)
(482)
$ 3,495 $ 3,293
(2,337)
(3,360)
(280)
181
Our financial focus is on long-term, sustainable growth in free cash flow. Free cash flow, a non-GAAP
financial measure, was $2.09 billion for 2011, compared to $2.52 billion and $2.92 billion for 2010 and 2009.
See “Results of Operations—Non-GAAP Financial Measures” below for a reconciliation of free cash flow to
cash provided by operating activities. The decrease in free cash flow in 2011 was primarily due to increased
capital expenditures and changes in working capital, partially offset by increases in sales of gift certificates to our
customers, decreased tax benefits on excess stock-based compensation deductions, and increases in net income,
excluding depreciation, amortization, and stock-based compensation expense. The decrease in free cash flow in
2010 was primarily due to increased capital expenditures, changes in working capital, and utilization of excess
stock-based compensation deductions, partially offset by increases in net income, excluding depreciation,
amortization, and stock-based compensation expense. Tax benefits relating to excess stock-based compensation
deductions are presented in the statement of cash flows as financing cash inflows; accordingly, as such tax
benefits decline, a greater amount of cash is classified as operating cash inflow. Operating cash flows and free
cash flows can be volatile and are sensitive to many factors, including changes in working capital, the timing and
magnitude of capital expenditures, and our federal taxable income. Working capital at any specific point in time
is subject to many variables, including seasonality, inventory management and category expansion, the timing of
cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.
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 $9.6 billion, $8.8 billion, and $6.4 billion, at
December 31, 2011, 2010, and 2009. Amounts held in foreign currencies were $4.1 billion, $3.4 billion, and $2.8
billion at December 31, 2011, 2010, and 2009, and were primarily Euros, British Pounds, and Japanese Yen.
Cash provided by operating activities was $3.9 billion, $3.5 billion, and $3.3 billion in 2011, 2010, and
2009. Our operating cash flows result primarily from cash received from our consumer, seller, and enterprise
customers, miscellaneous marketing and promotional agreements, and our co-branded credit card agreements,
offset by cash payments we make for products and services, employee compensation (less amounts capitalized
related to internal use software that are reflected as cash used in investing activities), payment processing and
related transaction costs, operating leases, and interest payments on our long-term obligations. Cash received
from our consumer, seller, and enterprise 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.
Changes to our operating cash flows have historically been driven primarily by changes in operating income and
changes to the components of working capital, including changes to receivable and payable days and inventory
turns, as well as changes to non-cash items such as excess stock-based compensation and deferred taxes.
Cash used in investing activities corresponds with capital expenditures, including leasehold improvements,
internal-use software and website development costs, cash outlays for acquisitions, investments in other companies
and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash used in investing
activities was $(1.9) billion, $(3.4) billion, and $(2.3) billion in 2011, 2010, and 2009, with the variability caused
primarily by changes in capital expenditures and changes in cash paid for acquisitions, and purchases, maturities,
and sales of marketable securities and other investments. Capital expenditures were $1.8 billion, $979 million, and
$373 million in 2011, 2010, and 2009, with the sequential increases primarily reflecting additional investments in
22
support of continued business growth due to investments in technology infrastructure, including AWS, and
additional capacity to support our fulfillment operations. We expect this trend to continue over time. Capital
expenditures included $256 million, $176 million, and $146 million for internal-use software and website
development during 2011, 2010, and 2009. Stock-based compensation capitalized for internal-use software and
website development costs does not affect cash flows. In 2011, 2010, and 2009, we made cash payments, net of
acquired cash, related to acquisition and investment activity of $705 million, $352 million, and $40 million.
Cash provided by (used in) financing activities was $(482) million, $181 million, and $(280) million in
2011, 2010, and 2009. Cash outflows from financing activities result from payments on obligations related to
capital leases and leases accounted for as financing arrangements, repurchases of common stock, and repayments
of long-term debt. Payments on obligations related to capital leases and leases accounted for as financing
arrangements and repayments of long-term debt, were $444 million, $221 million, and $472 million in 2011,
2010, and 2009. We repurchased 1.5 million shares of common stock for $277 million in 2011 under the $2
billion repurchase program authorized by our Board of Directors in January 2010. Cash inflows from financing
activities primarily result from proceeds from long term-debt and proceeds from tax benefits relating to excess
stock-based compensation deductions. Proceeds from long-term debt and other were $177 million, $143 million,
and $87 million in 2011, 2010, and 2009. Tax benefits relating to excess stock-based compensation deductions
are presented as financing cash flows. Cash inflows from tax benefits related to stock-based compensation
deductions were $62 million, $259 million, and $105 million in 2011, 2010, and 2009.
In 2011, 2010, and 2009 we recorded net tax provisions of $291 million, $352 million, and $253 million. A
majority of this provision is non-cash. We have tax benefits relating to excess stock-based compensation
deductions that are being utilized to reduce our U.S. taxable income. Except as required under U.S. tax law, we
do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously
taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. At December 31,
2011, amounts held by foreign subsidiaries were $3.6 billion, which include undistributed earnings of foreign
subsidiaries indefinitely invested outside of the U.S. of $2.0 billion. If these funds are needed for our operations
in the U.S., we would be required to accrue and pay U.S. taxes to repatriate them. Cash taxes paid (net of
refunds) were $33 million, $75 million, and $48 million for 2011, 2010, and 2009. As of December 31, 2011, our
federal net operating loss carryforward was approximately $384 million. We also have approximately $273
million of federal tax credits potentially available to offset future tax liabilities. Once we utilize our federal net
operating losses and tax credits, we expect cash paid for taxes to significantly increase. We endeavor to optimize
our global taxes on a cash basis, rather than on a financial reporting basis.
See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 7—Commitments and
Contingencies” for additional discussion of our principal contractual commitments, as well as our pledged
securities. Purchase obligations and open purchase orders, consisting of inventory and significant non-inventory
commitments, were $3 billion at December 31, 2011. Purchase obligations and open purchase orders are
generally cancelable in full or in part through the contractual provisions.
On average, our high inventory turnover means we collect from our customers before our payments to
suppliers come due. Inventory turnover was 10, 11, and 12 for 2011, 2010, and 2009. We expect variability in
inventory turnover over time as it is affected by several factors, including category expansion and changes in our
product mix, the mix of sales by us and by other sellers, our continuing focus on in-stock inventory availability,
our investment in new geographies and product lines, and the extent to which we choose to utilize outsource
fulfillment providers.
We believe that current cash, cash equivalents, and marketable securities balances will be sufficient to meet
our anticipated operating cash needs for at least the next 12 months. However, any projections of future cash
needs and cash flows are subject to substantial uncertainty. See Item 1A of Part I, “Risk Factors.” We continually
evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, repurchase common
stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further
23
strengthen our financial position. The sale of additional equity or convertible debt securities would likely be
dilutive to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in,
complementary businesses, products, services, and technologies, which might affect our liquidity requirements or
cause us to issue additional equity or debt securities. There can be no assurance that additional lines-of-credit or
financing instruments will be available in amounts or on terms acceptable to us, if at all.
Results of Operations
We have organized our operations into two principal segments: North America and International. We
present our segment information along the same lines that our chief executive reviews our operating results in
assessing performance and allocating resources.
Net Sales
Net sales include product and services sales. Product sales represent revenue from the sale of products and
related shipping fees and digital content where we are the seller of record. Services sales represent third-party
seller fees earned (including commissions) and related shipping fees, digital content subscriptions, and non-retail
activities. Net sales information is as follows:
Year Ended December 31,
2011
2010
2009
(in millions)
Net Sales:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,705
21,372
$18,707
15,497
$12,828
11,681
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,077
$34,204
$24,509
Year-over-year Percentage Growth:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year-over-year Percentage Growth, excluding effect of exchange rates:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales Mix:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43%
38
41
43%
31
37
56%
44
46%
33
40
46%
34
40
55%
45
25%
31
28
26%
33
29
52%
48
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
Sales increased 41%, 40%, and 28% in 2011, 2010, and 2009. Changes in currency exchange rates
positively (negatively) affected net sales by $1.1 billion, $(86) million, and $(182) million for 2011, 2010, and
2009. For a discussion of the effect on sales growth of exchange rates, see “Effect of Exchange Rates” below.
The North America sales growth rate was 43%, 46%, and 25% in 2011, 2010, and 2009. The sales growth in
each year primarily reflects increased unit sales. Increased unit sales were driven largely by our continued efforts
to reduce prices for our customers, including from our shipping offers, by a larger base of sales in faster growing
categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by
increased selection of product offerings. Additionally, North America sales growth reflects increased AWS
activity.
24
The International sales growth rate was 38%, 33%, and 31% in 2011, 2010, and 2009. The sales growth in
each year primarily reflects increased unit sales. Increased unit sales were driven largely by our continued efforts
to reduce prices for our customers, including from our shipping offers, by a larger base of sales in faster growing
categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by
increased selection of product offerings. Additionally, changes in currency exchange rates positively (negatively)
affected International net sales by $1.1 billion, $(107) million, and $(174) million in 2011, 2010, and 2009. We
expect that, over time, our International segment will represent 50% or more of our consolidated net sales.
Supplemental Information
Supplemental information about shipping results is as follows:
Year Ended December 31,
2011
2010
2009
(in millions)
Shipping Activity:
Shipping revenue (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outbound shipping costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,552
(3,989)
$ 1,193
(2,579)
924
$
(1,773)
Net shipping cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(2,437)
$(1,386)
$ (849)
Year-over-year Percentage Growth:
Shipping revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outbound shipping costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net shipping cost
30%
55
76
29%
45
63
11%
21
35
Percent of Net Sales:
Shipping revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outbound shipping costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2%
(8.3)
3.5%
(7.5)
3.8%
(7.2)
Net shipping cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.1)%
(4.0)%
(3.4)%
(1) Excludes amounts earned on shipping activities by third-party sellers where we do not provide the
fulfillment service.
Includes a portion of amounts earned from Amazon Prime memberships.
(2)
We expect our net cost of shipping to continue to increase to the extent our customers accept and use our
shipping offers at an increasing rate; to the extent our product mix shifts to the electronics and other general
merchandise category; to the extent we reduce shipping rates; to the extent we use more expensive shipping
methods; and to the extent we offer additional services. We seek to mitigate costs of shipping over time in part
through achieving higher sales volumes, 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.
25
Net sales by similar products and services were as follows:
Year Ended December 31,
2011
2010
2009
(in millions)
Net Sales:
North America
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,959
17,315
1,431
$ 6,881
10,998
828
$ 5,964
6,314
550
Total North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,705
$18,707
$12,828
International
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,820
11,397
155
$ 8,007
7,365
125
$ 6,810
4,768
103
Total International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,372
$15,497
$11,681
Consolidated
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,779
28,712
1,586
$14,888
18,363
953
$12,774
11,082
653
Total consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,077
$34,204
$24,509
Year-over-year Percentage Growth:
North America
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year-over-year Percentage Growth:
Excluding the effect of exchange rates
International
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Net Sales Mix:
Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16%
57
73
43
23%
55
24
38
19%
56
66
41
16%
47
18
31
16%
53
66
37
37%
60
3
15%
74
50
46
18%
54
22
33
17%
66
46
40
18%
57
24
34
16%
67
46
40
43%
54
3
11%
43
23
25
19%
53
9
31
15%
47
20
28
20%
56
19
33
16%
48
22
29
52%
45
3
Total consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
(1)
Includes non-retail activities, such as AWS, miscellaneous marketing and promotional activities, other seller
sites, and our co-branded credit card agreements.
26
Operating Expenses
Information about operating expenses with and without stock-based compensation is as follows (in millions):
Year Ended December 31, 2011
Year Ended December 31, 2010
Year Ended December 31, 2009
As
Reported
Stock-Based
Compensation
Net
As
Reported
Stock-Based
Compensation
Net
As
Reported
Stock-Based
Compensation
Net
Operating Expenses:
Cost of sales . . . . . . $37,288
4,576
Fulfillment
. . . . . . .
1,630
Marketing . . . . . . . .
Technology and
content . . . . . . . . .
2,909
General and
$ —
(133)
(39)
$37,288 $26,561
2,898
1,029
4,443
1,591
$ —
(90)
(27)
$26,561 $18,978
2,052
680
2,808
1,002
$ —
(79)
(20)
$18,978
1,973
660
(292)
2,617
1,734
(223)
1,511
1,240
(182)
1,058
administrative . . .
658
(93)
565
470
(84)
386
328
(60)
Other operating
expense (income),
net . . . . . . . . . . . .
Total operating
154
—
154
106
—
106
102
—
268
102
expenses . . . $47,215
$(557)
$46,658 $32,798
$(424)
$32,374 $23,380
$(341)
$23,039
Year-over-year
Percentage Growth:
Fulfillment
. . . . . . .
Marketing . . . . . . . .
Technology and
content . . . . . . . . .
General and
administrative . . .
Percent of Net Sales:
Fulfillment
. . . . . . .
Marketing . . . . . . . .
Technology and
content . . . . . . . . .
General and
administrative . . .
58%
58
68
40
9.5%
3.4
6.1
1.4
58%
59
73
46
41%
51
40
44
9.2%
3.3
8.5%
3.0
5.4
1.2
5.1
1.4
42%
52
43
45
24%
41
20
17
8.2%
2.9
8.4%
2.8
4.4
1.1
5.1
1.3
24%
41
20
17
8.1%
2.7
4.3
1.1
Operating expenses without stock-based compensation are non-GAAP financial measures. See “Non-GAAP
Financial Measures” and Item 8 of Part I, “Financial Statements and Supplementary Data—Note 1—Description
of Business and Accounting Policies—Stock-Based Compensation.”
Cost of Sales
Cost of sales consists of the purchase price of consumer products and digital content where we are the seller of
record, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive products from
our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers.
The increase in cost of sales in absolute dollars in 2011, 2010, and 2009 compared to the comparable prior
year periods is primarily due to increased product, digital content, including Prime Instant Video, and shipping
costs resulting from increased sales.
Consolidated gross profit and gross margin for each of the periods presented were as follows:
Gross profit (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,789
$7,643
$5,531
22.4%
22.3%
22.6%
Gross margin for 2011 remained relatively consistent with the prior year periods. We believe that income
from operations is a more meaningful measure than gross profit and gross margin due to the diversity of our
product categories and services.
Year Ended December 31,
2011
2010
2009
27
Fulfillment
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, timing of fulfillment capacity 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, because payment processing costs associated with seller transactions are based on the
gross purchase price of underlying transactions, and payment processing and related transaction costs are higher
as a percentage of sales versus our retail sales, sales by our sellers have higher fulfillment costs as a percent of
net sales.
The increase in fulfillment costs in absolute dollars in 2011, 2010, and 2009, compared to the comparable
prior year periods, is primarily due to variable costs corresponding with physical and digital product and services
sales volume, inventory levels, and sales mix; costs from expanding fulfillment capacity; and payment processing
and related transaction costs.
We seek to expand our fulfillment capacity to accommodate greater selection and in-stock inventory levels
and 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 evaluate our facility requirements as necessary.
Marketing
We direct customers to our websites primarily through a number of targeted online marketing channels,
such as our Associates program, sponsored search, portal advertising, email marketing campaigns, and other
initiatives. Our marketing expenses 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 expense.
The increase in marketing costs in absolute dollars in 2011, 2010, and 2009, compared to the comparable
prior year periods, is primarily due to increased spending on online marketing channels, such as sponsored search
programs and our Associates program, payroll and related expenses, and in 2011 and 2010 television and print
advertising.
While costs associated with Amazon Prime memberships and other shipping offers are not included in
marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering
them indefinitely.
Technology and Content
We seek to efficiently invest in several areas of technology and content including seller platforms, digital
initiatives, AWS and expansion of new and existing product categories and offerings, as well as technology
infrastructure so we may continue to enhance the customer experience and improve our process efficiency. The
increase in technology and content costs in absolute dollars in 2011, 2010, and 2009 compared to the comparable
prior year periods is primarily due to increased spending on technology infrastructure and increases in payroll
and related expenses. Spending in technology and content significantly increased in 2011, and we expect this
trend to continue over time as we invest in these areas by adding technology infrastructure and increasing payroll
and related expenses. See “Overview” for a discussion of how management views advances in technology and
the importance of innovation.
For 2011, 2010, and 2009, we capitalized $307 million (including $51 million of stock-based compensation),
$213 million (including $38 million of stock-based compensation), and $187 million (including $35 million of
stock-based compensation) of costs associated with internal-use software and website development. Amortization of
28
previously capitalized amounts was $236 million, $184 million, and $172 million for 2011, 2010, and 2009. A
majority of our technology costs are incurred in the U.S., most of which are allocated to our North America
segment. Infrastructure and other technology costs used to support AWS are included in technology and content.
General and Administrative
The increase in general and administrative costs in absolute dollars in 2011, 2010, and 2009 compared to the
comparable prior year periods is primarily due to increases in payroll and related expenses and professional
service fees.
Stock-Based Compensation
Stock-based compensation was $557 million, $424 million, and $341 million during 2011, 2010, and 2009.
The increase in 2011, 2010, and 2009 compared to the comparable prior year periods is primarily due to an
increase in total stock-based compensation value granted to our employees and to a decrease in our estimated
forfeiture rate.
Other Operating Expense (Income), Net
Other operating expense (income), net was $154 million, $106 million, and $102 million during 2011, 2010,
and 2009. In 2011, 2010, and 2009, the amounts primarily related to amortization of intangible assets and
additionally, in 2009, a $51 million legal settlement.
Income from Operations
For the reasons discussed above, income from operations decreased 39% in 2011 and increased 25% and
34% in 2010 and 2009.
Interest Income and Expense
Our interest income was $61 million, $51 million, and $37 million during 2011, 2010, and 2009. We
generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and
AAA-rated money market funds. Our interest income corresponds with the average balance of invested funds and
the prevailing rates we are earning on them, which vary depending on the geographies and currencies in which
they are invested.
The primary component of our interest expense is related to our capital and financing leases and our long-
term debt. Interest expense was $65 million, $39 million, and $34 million in 2011, 2010, and 2009.
Our long-term liabilities were $2.6 billion and $1.6 billion at December 31, 2011 and 2010. See Item 8 of
Part II, “Financial Statements and Supplementary Data—Note 6—Long-Term Liabilities.”
Other Income (Expense), Net
Other income (expense), net was $76 million, $79 million, and $29 million during 2011, 2010, and 2009.
The primary component of other income (expense), net, is related to foreign-currency gains on intercompany
balances.
Income Taxes
We recorded a provision for income taxes of $291 million, $352 million, and $253 million in 2011, 2010, and
2009. The effective tax rate in 2011, 2010, and 2009 was lower than the 35% U.S. federal statutory rate primarily
due to earnings of our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in
29
the U.S. Earnings of our subsidiaries outside of the U.S. primarily relate to our European operations, which are
headquartered in Luxembourg. The favorable effective tax rate impact of earnings in lower tax rate jurisdictions is
offset by other items, principally losses incurred in jurisdictions for which we may not able to realize a related tax
benefit. Depending upon the jurisdictional mix and amount of our income in 2012, the losses for which we may not
receive a tax benefit in 2012 could result in an effective tax rate that is higher than the 35% U.S. federal statutory
rate.
Our effective tax rate is subject to significant variation due to several factors, including variability in
accurately predicting our taxable income, the taxable jurisdictions to which it relates, business acquisitions and
investments, foreign exchange rates, and expenses or losses for which tax benefits are not recognized. We have
tax benefits relating to excess stock-based compensation deductions that are being utilized to reduce our U.S.
taxable income. As of December 31, 2011, our federal net operating loss carryforward was approximately $384
million. We also have approximately $273 million of federal tax credits potentially available to offset future tax
liabilities. Once we utilize our federal net operating losses and tax credits, we expect cash paid for taxes to
significantly increase. As a result of U.S. legislation enacted in December 2010, we accelerated our depreciation
deductions for qualifying property acquired in 2010 and 2011.
Equity–Method Investment Activity, Net of Tax
Equity–method investment gains (losses), net of tax, were $(12) million, $7 million, and $(6) million in
2011, 2010, and 2009. The increase in equity-method investment activity in 2011 compared to 2010 is primarily
due to $175 million of equity-method losses, partially offset by gains of $163 million as a result of reductions in
our equity ownership, through dilution, and a recovery on the sale of an equity position. The increase in equity-
method investment activity in 2010 compared to 2009 is primarily due to the recognition of a non-cash gain on a
previously held equity position in a company that was acquired in 2010.
Effect of Exchange Rates
The effect on our consolidated statements of operations from changes in exchange rates versus the
U.S. Dollar is as follows (in millions, except per share data):
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Year Ended
December 31, 2009
At Prior
Year
Rates (1)
Exchange
Rate
Effect (2)
As
Reported
At Prior
Year
Rates (1)
Exchange
Rate
Effect (2)
As
Reported
At Prior
Year
Rates (1)
Exchange
Rate
Effect (2)
As
Reported
Net sales . . . . . . . . . . . . . . . $46,985 $1,092 $48,077 $34,290
32,856
Operating expenses . . . . . . .
1,434
Income from operations . . .
47,215
862
46,176
809
1,039
53
$(86) $34,204 $24,691
23,522
32,798
(58)
1,170
1,406
(28)
$(182) $24,509
23,380
(142)
1,129
(41)
(1) Represents the outcome that would have resulted had exchange rates in the reported period been the same as
those in effect in the comparable prior year period for operating results.
(2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from
those in effect in the comparable prior year period for operating results.
Non-GAAP Financial Measures
Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and
prescribe the conditions for use of certain non-GAAP financial information. Our measures of “Free cash flow,”
operating expenses with and without stock-based compensation, and the effect of exchange rates on our
consolidated statement of operations, meet the definition of non-GAAP financial measures.
Free cash flow is used in addition to and in conjunction with results presented in accordance with GAAP
and free cash flow should not be relied upon to the exclusion of GAAP financial measures.
30
Free cash flow, which we reconcile to “Net cash provided by (used in) operating activities,” is cash flow
from operations reduced by “Purchases of fixed assets, including internal-use software and website
development.” We use free cash flow, and ratios based on it, to conduct and evaluate our business because,
although it is similar to cash flow from operations, we believe it typically will present a more conservative
measure of cash flows since purchases of fixed assets are a necessary component of ongoing operations.
Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for
discretionary expenditures. For example, free cash flow does not incorporate the portion of payments
representing principal reductions of obligations related to capital leases and leases accounted for as financing
arrangements or cash payments for business acquisitions. Therefore, we believe it is important to view free cash
flow as a complement to our entire consolidated statements of cash flows.
The following is a reconciliation of free cash flow to the most comparable GAAP measure, “Net cash
provided by operating activities” for 2011, 2010, and 2009 (in millions):
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of fixed assets, including internal-use software and website
Year Ended December 31,
2011
2010
2009
$ 3,903
$ 3,495 $ 3,293
development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,811)
(979)
(373)
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,092
$ 2,516 $ 2,920
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,930) $(3,360) $(2,337)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (482) $
181
$ (280)
Operating expenses with and without stock-based compensation is provided to show the impact of stock-
based compensation, which is non-cash and excluded from our internal operating plans and measurement of
financial performance (although we consider the dilutive impact to our shareholders when awarding stock-based
compensation and value such awards accordingly). In addition, unlike other centrally-incurred operating costs,
stock-based compensation is not allocated to segment results and therefore excluding it from operating expense is
consistent with our segment presentation in our footnotes to the consolidated financial statements.
Operating expenses without stock-based compensation has limitations since it does not include all expenses
primarily related to our workforce. More specifically, if we did not pay out a portion of our compensation in the
form of stock-based compensation, our cash salary expense included in the “Fulfillment,” “Technology and
content,” “Marketing,” and “General and administrative” line items would be higher.
Information regarding the effect of exchange rates, versus the U.S. Dollar, on our consolidated statements of
operations is provided to show reported period operating results had the exchange rates remained the same as
those in effect in the comparable prior year period.
Guidance
We provided guidance on January 31, 2012 in our earnings release furnished on Form 8-K as set forth
below. These forward-looking statements reflect Amazon.com’s expectations as of January 31, 2012. Our results
are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign
exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth
of the Internet and online commerce and the various factors detailed below.
First Quarter 2012 Guidance
• Net sales are expected to be between $12.0 billion and $13.4 billion, or to grow between 22% and 36%
compared with first quarter 2011.
31
• Operating income (loss) is expected to be between $(200) million and $100 million, or between 162%
decline and 69% decline compared with first quarter 2011.
•
This guidance includes approximately $200 million for stock-based compensation and amortization of
intangible assets, and it assumes, among other things, that no additional business acquisitions or
investments are concluded and that there are no further revisions to stock-based compensation estimates.
These projections are subject to substantial uncertainty. See Item 1A of Part I, “Risk Factors.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations, and
changes in the market values of our investments. Information relating to quantitative and qualitative disclosures
about market risk is set forth below and in Item 7 of Part II, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. All of
our cash equivalent and marketable fixed income securities are designated as available-for-sale and, accordingly,
are presented at fair value on our consolidated balance sheets. We generally invest our excess cash in investment
grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Fixed rate
securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer
losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.
The following table provides information about our current and long-term cash equivalent and marketable
fixed income securities, including principal cash flows by expected maturity and the related weighted average
interest rates at December 31, 2011 (in millions, except percentages):
2012
2013
2014
2015
2016
Thereafter
Total
Estimated
Fair Value at
December 31,
2011
Money market funds . . . . . . . . . . . . . . . . . .
Weighted average interest rate . . .
Corporate debt securities . . . . . . . . . . . . . . .
Weighted average interest rate . . .
U.S . Government and Agency
Securities . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate . . .
Asset backed securities . . . . . . . . . . . . . . . .
Weighted average interest rate . . .
Foreign government and agency
securities . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate . . .
Other securities . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate . . .
Cash equivalents and marketable fixed
-income securities . . . . . . . . . . . . . .
$3,651
$3,651
0.06%
545
1.80%
2,563
0.23%
54
1.21%
1,592
0.54%
21
0.74%
563
2,593
55
1,640
22
$8,524
$3,651
$ — $ — $ — $—
—
0.06% —
140
1 —
1.46% 1.88% 2.01% 1.66% —
—
124
280
—
179
963
1,390
31 —
0.12% 0.29% 0.63% 1.16% —
—
—
5 —
1.16% 1.13% 1.77% —
23
26
450
279
81 —
782
0.17% 0.87% 0.91% 0.91% —
—
—
4 —
0.74% 0.75% 0.70% —
11
6
$—
—
—
—
—
—
—
—
—
—
—
—
$5,997
$1,554
$ 762
$ 113
$—
$—
$8,426
32
Foreign Exchange Risk
During 2011, net sales from our International segment accounted for 44% of our consolidated revenues. Net
sales and related expenses generated from our international websites, as well as those relating to www.amazon.ca
(which is included in our North America segment), are denominated in the functional currencies of the
corresponding websites and primarily include Euros, British Pounds, and Japanese Yen. The functional currency
of our subsidiaries that either operate or support these websites is the same as the corresponding local currency.
The results of operations of, and certain of our intercompany balances associated with, our internationally-
focused websites are exposed to foreign exchange rate fluctuations. Upon consolidation, as exchange rates vary,
net sales and other operating results may differ materially from expectations, and we may record significant gains
or losses on the remeasurement of intercompany balances. For example, as a result of fluctuations in foreign
exchange rates during 2011, International segment revenues increased $1.1 billion in comparison with the prior
year.
We have foreign exchange risk related to foreign-denominated cash, cash equivalents, and marketable
securities (“foreign funds”). Based on the balance of foreign funds at December 31, 2011 of $4.1 billion, an
assumed 5%, 10%, and 20% negative currency movement would result in fair value declines of $205 million,
$405 million, and $815 million. All investments are classified as “available-for-sale.” Fluctuations in fair value
are recorded in “Accumulated other comprehensive income (loss),” a separate component of stockholders’
equity.
We have foreign exchange risk related to our intercompany balances denominated in various foreign
currencies. Based on the intercompany balances at December 31, 2011, an assumed 5%, 10%, and 20% adverse
change to foreign exchange would result in losses of $55 million, $110 million, and $220 million, recorded to
“Other income (expense), net.”
See Item 7 of Part II, “Effect of Exchange Rates,” for additional information on the effect on reported
results of changes in exchange rates.
Investment Risk
As of December 31, 2011, our recorded basis in equity investments was $266 million. These investments
primarily relate to equity-method investments in private companies. We review our investments for impairment
when events and circumstances indicate that the decline in fair value of such assets below the carrying value is
other-than-temporary. Our analysis includes review of recent operating results and trends, recent sales/
acquisitions of the investee securities, and other publicly available data. The current global economic climate
provides additional uncertainty. Valuations of private companies are inherently more difficult due to the lack of
readily available market data. As such, we believe that market sensitivities are not practicable.
33
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
35
36
37
38
39
40
34
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Amazon.com, Inc.
We have audited the accompanying consolidated balance sheets of Amazon.com, Inc. as of December 31,
2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2011. Our audits also included the financial statement
schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Amazon.com, Inc. at December 31, 2011 and 2010, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Amazon.com, Inc.’s internal control over financial reporting as of December 31, 2011, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated January 31, 2012 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
January 31, 2012
35
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . .
$ 3,777
$ 3,444 $ 2,769
Year Ended December 31,
2011
2010
2009
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of fixed assets, including internal-use software and website
development, and other amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expense (income), net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses (gains) on sales of marketable securities, net . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net and other
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of previously unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
631
1,152
902
1,083
557
154
(4)
(56)
136
(62)
(1,777)
(866)
2,997
1,067
1,064
(1,021)
568
424
106
(2)
(79)
4
(259)
(1,019)
(295)
2,373
740
687
(905)
378
341
103
(4)
(15)
81
(105)
(531)
(481)
1,859
300
1,054
(589)
3,293
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
3,903
3,495
INVESTING ACTIVITIES:
Purchases of fixed assets, including internal-use software and website
development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired, and other
Sales and maturities of marketable securities and other investments . . . . . . . . . . . .
Purchases of marketable securities and other investments . . . . . . . . . . . . . . . . . . . .
(1,811)
(705)
6,843
(6,257)
(979)
(352)
4,250
(6,279)
(373)
(40)
1,966
(3,890)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,930)
(3,360)
(2,337)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term debt and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of long-term debt, capital lease, and finance lease obligations . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . .
Foreign-currency effect on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
62
(277)
177
(444)
(482)
1
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,492
259
—
143
(221)
181
17
333
105
—
87
(472)
(280)
(1)
675
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . .
$ 5,269
$ 3,777 $ 3,444
SUPPLEMENTAL CASH FLOW INFORMATION:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest on long term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for income taxes (net of refunds)
Fixed assets acquired under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets acquired under build-to-suit leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
14
33
753
259
11
75
405
172
32
48
147
188
See accompanying notes to consolidated financial statements.
36
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Year Ended December 31,
2011
2010
2009
Net product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net services sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$42,000
6,077
$30,792
3,412
$22,273
2,236
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,077
34,204
24,509
Operating expenses (1):
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fulfillment
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expense (income), net
37,288
4,576
1,630
2,909
658
154
26,561
2,898
1,029
1,734
470
106
18,978
2,052
680
1,240
328
102
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,215
32,798
23,380
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-operating income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-method investment activity, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares used in computation of earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Includes stock-based compensation as follows:
Fulfillment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
862
61
(65)
76
72
934
(291)
(12)
1,406
51
(39)
79
91
1,497
(352)
7
631
$ 1,152
1.39
1.37
$
$
2.58
2.53
453
461
447
456
$
133
39
292
93
90
27
223
84
1,129
37
(34)
29
32
1,161
(253)
(6)
902
2.08
2.04
433
442
79
20
182
60
$
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
37
AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
Current assets:
A S S E T S
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2011
2010
$ 5,269
4,307
4,992
2,571
351
17,490
4,417
28
1,955
1,388
$ 3,777
4,985
3,202
1,587
196
13,747
2,414
22
1,349
1,265
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,278
$18,797
L I A B I L I T I E S A N D S T O C K H O L D E R S’ E Q U I T Y
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,145
3,751
$ 8,051
2,321
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:
14,896
2,625
10,372
1,561
Preferred stock, $0.01 par value:
Authorized shares — 500
Issued and outstanding shares — none . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.01 par value:
Authorized shares — 5,000
Issued shares — 473 and 468
Outstanding shares — 455 and 451 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
5
(877)
6,990
(316)
1,955
7,757
5
(600)
6,325
(190)
1,324
6,864
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
$25,278
$18,797
See accompanying notes to consolidated financial statements.
38
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
Common Stock
Shares Amount
Treasury
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Accumulated
Deficit)
Total
Stockholders’
Equity
4
$
—
—
—
—
$(600) $4,121
—
—
—
—
—
—
—
—
$(123)
—
62
4
1
$ (730)
902
—
—
—
3
9
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Foreign currency translation gains, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Change in unrealized gains on available-for-sale securities, net of tax . . . . . . . . . . —
Amortization of unrealized loss on terminated Euro Currency Swap, net of tax . . —
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of common stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock for acquisition activity . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . —
Stock-based compensation and issuance of employee benefit plan stock . . . . . . . . —
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Foreign currency translation gains, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Change in unrealized gains on available-for-sale securities, net of tax . . . . . . . . . . —
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of common stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . —
Stock-based compensation and issuance of employee benefit plan stock . . . . . . . . —
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Foreign currency translation gains, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Change in unrealized gains on available-for-sale securities, net of tax . . . . . . . . . . —
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of common stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . —
Stock-based compensation and issuance of employee benefit plan stock . . . . . . . . —
Issuance of common stock for acquisition activity . . . . . . . . . . . . . . . . . . . . . . . . . —
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
7 —
9
1
—
—
5
—
—
—
7 —
—
—
5
—
—
—
—
—
—
—
(600)
—
—
—
—
—
—
(600)
—
—
—
19
1,144
103
349
5,736
—
—
—
16
145
428
6,325
—
—
—
7
5 —
(1) —
—
—
—
$
5
—
(277)
—
—
—
—
62
569
27
$(877) $6,990
See accompanying notes to consolidated financial statements.
$2,672
902
62
4
1
969
19
1,145
103
349
5,257
1,152
(137)
3
1,018
16
145
428
6,864
631
(123)
(3)
505
7
(277)
62
569
27
$7,757
—
—
—
—
(56)
—
(137)
3
—
—
—
(190)
—
(123)
(3)
—
—
—
—
—
$(316)
—
—
—
—
172
1,152
—
—
—
—
—
1,324
631
—
—
—
—
—
—
—
$1,955
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
Amazon.com opened its virtual doors on the World Wide Web in July 1995 and offers Earth’s Biggest
Selection. We seek to be Earth’s most customer-centric company for four primary customer sets: consumers,
sellers, enterprises, and content creators. We serve consumers through our retail websites and focus on selection,
price, and convenience. We also manufacture and sell Kindle devices. We offer programs that enable sellers to
sell their products on our websites and their own branded websites and to fulfill orders through us. We serve
developers and enterprises of all sizes through AWS, which provides access to technology infrastructure that
enables virtually any type of business. In addition, we generate revenue through other marketing and promotional
services, such as online advertising, and co-branded credit card agreements.
We have organized our operations into two principal segments: North America and International. See
“Note 11—Segment Information.”
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. Services
sales is presented separately, because it is now more than 10% of total net sales.
Principles of Consolidation
The consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned
subsidiaries, and those entities in which we have a variable interest and are the primary beneficiary.
Intercompany balances and transactions have been 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, determining the selling price of products and services in multiple element revenue arrangements and
determining the lives of these elements, incentive discount offers, sales returns, vendor funding, stock-based
compensation, income taxes, valuation of investments and inventory, collectability of receivables, valuation of
acquired intangibles and goodwill, depreciable lives of fixed assets , and internally-developed software, and
contingencies. Actual results could differ materially from those estimates.
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.
The following table shows the calculation of diluted shares (in millions):
Shares used in computation of basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . .
Total dilutive effect of outstanding stock awards (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computation of diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2011
453
8
461
2010
447
9
456
2009
433
9
442
(1) Calculated using the treasury stock method, which assumes proceeds are used to reduce the dilutive effect of
outstanding stock awards. Assumed proceeds include the unrecognized deferred compensation of stock
awards, and assumed tax proceeds from excess stock-based compensation deductions.
40
Cash and Cash Equivalents
We classify all highly liquid instruments with an original maturity of three months or less at the time of
purchase as cash equivalents.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the FIFO method,
and are valued at the lower of cost or market 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.
We provide fulfillment-related 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.
Accounts Receivable, Net, and Other
Included in “Accounts receivable, net, and other” on our consolidated balance sheets are amounts primarily
related to vendor and customer receivables. At December 31, 2011 and 2010, vendor receivables, net, were $934
million and $763 million, and customer receivables, net, were $1.2 billion and $561 million.
Allowance for Doubtful Accounts
We estimate losses on receivables based on known troubled accounts and historical experience of losses
incurred. The allowance for doubtful accounts was $82 million and $77 million at December 31, 2011 and 2010.
Internal-use Software and Website Development
Costs incurred to develop software for internal use and our websites are capitalized and amortized over the
estimated useful life of the software. Costs related to design or maintenance of internal-use software and website
development are expensed as incurred. For the years ended 2011, 2010, and 2009, we capitalized $307 million
(including $51 million of stock-based compensation), $213 million (including $38 million of stock-based
compensation), and $187 million (including $35 million of stock-based compensation) of costs associated with
internal-use software and website development. Amortization of previously capitalized amounts was $236
million, $184 million, and $172 million for 2011, 2010, and 2009.
Depreciation of Fixed Assets
Fixed assets include assets such as furniture and fixtures, heavy equipment, servers and networking
equipment, internal-use software and website development. Depreciation is recorded on a straight-line basis over
the estimated useful lives of the assets (generally two years for assets such as internal-use software, three years
for our servers and networking equipment, five years for furniture and fixtures, and ten years for heavy
equipment). Depreciation expense is classified within the corresponding operating expense categories on our
consolidated statements of operations.
Leases and Asset Retirement Obligations
We categorize leases at their inception as either operating or capital leases. On certain of our lease
agreements, we may receive rent holidays and other incentives. We recognize lease costs on a straight-line basis
without regard to deferred payment terms, such as rent holidays that defer the commencement date of required
41
payments. Additionally, incentives we receive are treated as a reduction of our costs over the term of the
agreement. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful
life or the non-cancellable term of the lease.
We establish assets and liabilities for the estimated construction costs incurred under build-to-suit lease
arrangements to the extent we are involved in the construction of structural improvements or take construction
risk prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, we assess
whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance. If we
continue to be the deemed owner, the facilities are accounted for as financing leases.
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 depreciated over the lease period into operating expense,
and the recorded liabilities are accreted to the future value of the estimated retirement costs.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances
change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by first
comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be
less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a
second step is performed to compute the amount of impairment as the difference between the estimated fair value
of goodwill and the carrying value. 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 conduct our annual impairment test as of October 1 of each year, and have determined there to be no
impairment for any of the periods presented. There were no triggering events identified from the date of our
assessment through December 31, 2011 that would require an update to our annual impairment test. See
“Note 4—Acquisitions, Goodwill, and Acquired Intangible Assets.”
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to marketable
securities restricted for longer than one year, the majority of which are attributable to collateralization of bank
guarantees and debt related to our international operations; acquired intangible assets, net of amortization;
deferred costs; certain equity investments; and intellectual property rights, net of amortization.
Investments
We generally invest our excess cash in investment grade short-to intermediate-term fixed income securities
and AAA-rated money market funds. Such investments are included in “Cash and cash equivalents,” or
“Marketable securities” on the accompanying consolidated balance sheets, classified as available-for-sale, and
reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income
(loss).”
Equity investments, including our 31% investment in LivingSocial, are accounted for using the equity
method of accounting if the investment gives us the ability to exercise significant influence, but not control, over
an investee. The total of these investments in equity-method investees, including identifiable intangible assets,
deferred tax liabilities and goodwill, is classified on our consolidated balance sheets as “Other assets.” Our share
of the investees’ earnings or losses as reported by equity method investees, amortization of the related intangible
assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on our
consolidated statements of operations. Our share of the net income or loss of our equity method investees
includes operating and non-operating gains and charges, which can have a significant impact on our reported
42
equity-method investment activity and the carrying value of those investments. We regularly evaluate these
investments, which are not carried at fair value, for other-than-temporary impairment. We also consider whether
our equity method investments generate sufficient cash flows from their operating or financing activities to meet
their obligations and repay their liabilities when they come due.
We record purchases, including incremental purchases, of shares in equity-method investees at cost.
Reductions in our ownership percentage of an investee, including through dilution, are generally valued at fair
value, with the difference between fair value and our recorded cost reflected as a gain or loss in our equity-
method investment activity. In the event we no longer have the ability to exercise significant influence over an
equity-method investee, we would discontinue accounting for the investment under the equity method.
Equity investments without readily determinable fair values for which we do not have the ability to exercise
significant influence are accounted for using the cost method of accounting and classified as “Other assets” on
our consolidated balance sheets. Under the cost method, investments are carried at cost and are adjusted only for
other-than-temporary declines in fair value, certain distributions, and additional investments.
Equity investments that have readily determinable fair values are classified as available-for-sale and are
included in “Marketable securities” in our consolidated balance sheet and are recorded at fair value with
unrealized gains and losses, net of tax, included in “Accumulated other comprehensive loss.”
We periodically evaluate whether declines in fair values of our investments below their book value are
other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the
severity and duration of the unrealized loss as well as our ability and intent to hold the investment until a
forecasted recovery occurs. Additionally, we assess whether we have plans to sell the security or it is more likely
than not we will be required to sell any investment before recovery of its amortized cost basis. Factors considered
include quoted market prices; recent financial results and operating trends; implied values from any recent
transactions or offers of investee securities; credit quality of debt instrument issuers; other publicly available
information that may affect the value of our investments; duration and severity of the decline in value; and our
strategy and intentions for holding the investment.
Long-Lived Assets
Long-lived assets, other than goodwill, 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, 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 at December 31, 2011 or 2010.
Accrued Expenses and Other
Included in “Accrued expenses and other” at December 31, 2011 and 2010 were liabilities of $788 million
and $503 million for unredeemed gift certificates. We reduce the liability for a gift certificate when redeemed by
a customer. If a gift certificate is not redeemed, we recognize revenue when it expires or, for a certificate without
an expiration date, when the likelihood of its redemption becomes remote, generally two years from the date of
issuance.
43
Unearned Revenue
Unearned revenue is recorded when payments are received in advance of performing our service obligations
and is recognized over the service period. Current unearned revenue is included in “Accrued expenses and other”
and non-current unearned revenue is included in “Long-term liabilities” on our consolidated balance sheets.
Current unearned revenue was $462 million and $461 million at December 31, 2011 and 2010. Non-current
unearned revenue was $87 million and $34 million at December 31, 2011 and 2010.
Income Taxes
Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, we
do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously
taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. Undistributed
earnings of foreign subsidiaries that are indefinitely invested outside of the U.S were $2.0 billion at
December 31, 2011. Determination of the unrecognized deferred tax liability that would be incurred if such
amounts were repatriated is not practicable.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of
assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are
actually paid or recovered.
Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent
we believe a portion will not be realized. We consider many factors when assessing the likelihood of future
realization of our deferred tax assets, including our recent cumulative earnings experience and expectations of
future taxable income and capital gains by taxing jurisdiction, the carry-forward periods available to us for tax
reporting purposes, and other relevant factors. We allocate our valuation allowance to current and long-term
deferred tax assets on a pro-rata basis.
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 that 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 and estimating our tax positions and 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.
44
We measure the fair value of money market funds and equity securities based on quoted prices in active
markets for identical assets or liabilities. All other financial instruments 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 any cash, cash equivalents, or
marketable securities categorized as Level 3 as of December 31, 2011, or December 31, 2010.
Revenue
We recognize revenue from product sales or services rendered when the following four criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling
price is fixed or determinable, and collectability is reasonably assured. Revenue arrangements with multiple
deliverables are divided into separate units and revenue is allocated using estimated selling prices if we do not
have vendor-specific objective evidence or third-party evidence of the selling prices of the deliverables. Sales of
our Kindle device are considered arrangements with multiple deliverables, consisting of the device, 3G wireless
access and delivery for some models, and software upgrades. We allocate the arrangement price to each of the
elements based on the estimated selling prices of each element. Estimated selling prices are management’s best
estimates of the prices that we would charge our customers if we were to sell the standalone elements separately
and include considerations of customer demand, prices charged by us and others for similar deliverables, and the
price if largely based on costs. The revenue related to the device, which is the substantial portion of the total sale
price, and related costs are recognized upon delivery. Revenue related to 3G wireless access and delivery and
software upgrades is amortized over the average life of the device, which is estimated to be three years.
We evaluate whether it is appropriate to record the gross amount of product sales and related costs or the net
amount earned as commissions. Generally, when we are primarily obligated in a transaction, are subject to
inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these
indicators, revenue is recorded at the gross sales price. We generally record the net amounts as commissions
earned if we are not primarily obligated and do not have latitude in establishing prices. Such amounts earned are
determined using a fixed percentage, a fixed-payment schedule, or a combination of the two.
Product sales represent revenue from the sale of products and related shipping fees and digital content where
we are the seller of record. Product sales and shipping revenues, net of promotional discounts, rebates, and return
allowances, are recorded when the products are shipped and title passes to customers. Kindle devices sold
through retailers are recognized at the point of sale to consumers. Retail sales to customers are made pursuant to
a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier.
Services sales represent third-party seller fees earned (including commissions) and related shipping fees and
non-retail activities such as AWS, miscellaneous marketing and promotional activities, other seller sites, and our
co-branded credit card arrangements. Services sales, net of promotional discounts and return allowances, are
recognized when services have been rendered.
Return allowances, which reduce revenue, are estimated using historical experience. Revenue from product
sales and services rendered is recorded net of sales and consumption taxes. Amounts received in advance for
subscription services, including amounts received for Amazon Prime and other membership programs, are
deferred and recognized as revenue over the subscription term.
We periodically provide incentive offers to our customers to encourage purchases. Such offers include
current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for
future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when
accepted by our customers, are treated as a reduction to the purchase price of the related transaction, while
inducement offers, when accepted by our customers, are treated as a reduction to purchase price based on
estimated future redemption rates. Redemption rates are estimated using our historical experience for similar
inducement offers. Current discount offers and inducement offers are presented as a net amount in “Total sales.”
45
Cost of Sales
Cost of sales consists of the purchase price of consumer products and digital content where we are the seller
of record, inbound and outbound shipping charges, and packaging supplies. Shipping charges 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 to receive cash consideration from certain of our vendors, including rebates and
cooperative marketing reimbursements. We generally consider amounts received from our vendors as a reduction
of the prices we pay for their products and, therefore, record such amounts as a reduction of the cost of inventory
we buy from them. Vendor rebates are typically dependent upon 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.
When we receive direct reimbursements for costs incurred by us in advertising the vendor’s product or
service, the amount we receive is recorded as an offset to “Marketing” on our consolidated statements of
operations.
Fulfillment
Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer
service centers, including 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 Kindle devices. Fulfillment costs also include
amounts paid to third parties that assist us in fulfillment and customer service operations.
Marketing
Marketing costs consist primarily of targeted online advertising, television advertising, public relations
expenditures; and payroll and related expenses for personnel engaged in marketing, business development, and
selling activities. We pay commissions to participants in our Associates program when their customer referrals
result in product sales and classify such costs as “Marketing” on our consolidated statements of operations. We
also participate in cooperative advertising arrangements with certain of our vendors, and other third parties.
Advertising and other promotional costs, are expensed as incurred, and were $1.4 billion, $890 million, and
$593 million in 2011, 2010, and 2009. Prepaid advertising costs were not significant at December 31, 2011 and
2010.
Technology and Content
Technology and content expenses consist principally of technology infrastructure expenses and payroll and
related expenses for employees involved in application, product, and platform development, category expansion,
editorial content, buying, merchandising selection, and systems support, digital initiatives, as well as costs
associated with the compute, storage and telecommunications infrastructure used internally and supporting AWS.
Technology and content costs are expensed as incurred, except for certain costs relating to the development
of internal-use software and website development, including software used to upgrade and enhance our websites
and applications supporting our business, which are capitalized and amortized over two years.
46
General and Administrative
General and administrative expenses consist of payroll and related expenses for employees involved in
general corporate functions, including accounting, finance, tax, legal, and human relations, among others; costs
associated with use by these functions of facilities and equipment, such as depreciation expense and rent;
professional fees and litigation costs; and other general corporate costs.
Stock-Based Compensation
Compensation cost for all stock-based 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 estimation 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 employee class, economic
environment, and historical experience.
Other Operating Expense (Income), Net
Other operating expense (income), net, consists primarily of intangible asset amortization expense, expenses
related to legal settlements, and certain gains and losses on the sale of assets.
Other Income (Expense), Net
Other income (expense), net, consists primarily of foreign currency transaction gains and losses of $64
million, $75 million, and $26 million in 2011, 2010, and 2009, and realized gains and losses on marketable
securities sales of $4 million, $1 million, and $4 million in 2011, 2010, and 2009.
Foreign Currency
We have internationally-focused websites for the United Kingdom, Germany, France, Japan, Canada, China,
Italy, and Spain. Net sales generated from these websites, as well as most of the related expenses directly
incurred from those operations, are denominated in the functional currencies of the resident countries. The
functional currency of our subsidiaries that either operate or support these websites is the same as the local
currency. Assets and liabilities of these subsidiaries are translated into U.S. Dollars at period-end 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, and in the “Foreign currency effect on cash and cash equivalents,” on our consolidated
statements of cash flows. 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 remeasurement of intercompany balances,
we recorded gains of $70 million, $70 million, and $5 million in 2011, 2010, and 2009.
Recent Accounting Pronouncements
In 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update
(“ASU”) to address diversity in practice in interpreting the pro forma revenue and earnings disclosure
requirements for business combinations. The ASU specifies that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the current year
business combination(s) had occurred as of the beginning of the comparable prior annual reporting period. We
prospectively adopted this ASU effective Q1 2011, with no material impact on our consolidated financial
statements.
47
In 2011, the FASB issued two ASUs which amend guidance for the presentation of comprehensive income.
The amended guidance requires an entity to present components of net income and other comprehensive income
in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive statements. The current option to report other comprehensive income and its components in the
statement of stockholders’ equity will be eliminated. Although the new guidance changes the presentation of
comprehensive income, there are no changes to the components that are recognized in net income or other
comprehensive income under existing guidance. These ASUs are effective for us in Q1 2012 and retrospective
application will be required. These ASUs will change our financial statement presentation of comprehensive
income but will not impact our net income, financial position, or cash flows.
In 2011, the FASB issued an ASU which intended to reduce complexity and costs by allowing an entity the
option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it
should calculate the fair value of a reporting unit. The ASU also expands upon the examples of events and
circumstances that an entity should consider between annual impairment tests in determining whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. The ASU is effective for us
in Q1 2012, with early adoption permitted. We do not expect adoption to have an impact on our consolidated
financial statements.
Note 2—CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
As of December 31, 2011 and 2010 our cash, cash equivalents, and marketable securities primarily
consisted of cash, U.S. and foreign government and agency securities, AAA-rated money market funds, and other
investment grade securities. Such amounts are recorded at fair value. The following table summarizes, by major
security type, our assets that are measured at fair value on a recurring basis and are categorized using the fair
value hierarchy (in millions):
December 31, 2011
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Total
Estimated
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,207
$ 0
$ 0
$1,207
Level 1 securities:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 2 securities:
Foreign government and agency securities . . . . . . . . . . . . . . .
U.S. government and agency securities . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . .
3,651
2
1,627
2,592
562
56
22
0
0
14
3
3
0
0
0
(1)
(1)
(2)
(2)
(1)
0
3,651
1
1,640
2,593
563
55
22
$9,719
$20
$(7)
$9,732
Less: Long-term restricted cash, cash equivalents, and marketable
securities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash, cash equivalents, and marketable securities . . . . . . . . .
(156)
$9,576
48
December 31, 2010
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Total
Estimated
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 613
$—
Level 1 securities:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 2 securities:
Foreign government and agency securities . . . . . . . . . . . . . . .
U.S. government and agency securities . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Long-term restricted cash, cash equivalents, and marketable
securities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash, cash equivalents, and marketable securities . . . . . . . . .
1,882
2
2,152
3,746
457
32
17
$8,901
—
—
7
11
3
1
—
$ 22
$—
—
(1)
(1)
(1)
(1)
—
—
$ 613
1,882
1
2,158
3,756
459
33
17
$ (4)
$8,919
(157)
$8,762
(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable
securities as collateral for standby letters of credit, guarantees, debt, and real estate lease agreements. We
classify cash and marketable securities with use restrictions of twelve months or longer as non-current
“Other assets” on our consolidated balance sheets. See “Note 7—Commitments and Contingencies.”
The following table summarizes gross gains and gross losses realized on sales of available-for-sale
marketable securities (in millions):
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2011
$15
11
2010
2009
$5
4
$
4
—
The following table summarizes contractual maturities of our cash equivalent and marketable fixed-income
securities as of December 31, 2011 (in millions):
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
Estimated
Fair Value
$6,011
2,498
$8,509
$6,012
2,512
$8,524
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Note 3—FIXED ASSETS
Fixed assets, at cost, consisted of the following (in millions):
December 31,
2011
2010
Gross Fixed Assets (1):
Fulfillment and customer service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal-use software, content, and website development
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other corporate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,633
2,573
643
831
106
$ 775
1,192
487
418
384
Gross fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,786
$3,256
Accumulated Depreciation (1):
Fulfillment and customer service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Internal-use software, content, and website development
Other corporate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
364
610
294
101
Total accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,369
211
316
255
60
842
Total fixed assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,417
$2,414
(1) Excludes the original cost and accumulated depreciation of fully-depreciated assets.
Depreciation expense on fixed assets was $1.0 billion, $552 million, and $384 million which includes
amortization of fixed assets acquired under capital lease obligations of $335 million, $164 million, and $88
million for 2011, 2010, and 2009. Gross assets remaining under capital leases were $1.6 billion and $818 million
at December 31, 2011 and 2010. Accumulated depreciation associated with capital leases was $603 million and
$331 million at December 31, 2011 and 2010.
We capitalize construction in progress and record a corresponding long-term liability for lease agreements
where we are considered the owner during the construction period for accounting purposes, including portions of
our Seattle, Washington, corporate office space that we do not currently occupy. The building which we have not
yet occupied is scheduled to be completed in 2012 and 2013.
For buildings under build-to-suit lease arrangements where we have taken occupancy, which do not qualify
for sales recognition under the sale-leaseback accounting guidance, we determined that we continue to be the
deemed owner of these buildings. This is principally due to our significant investment in tenant improvements.
As a result, the buildings are being depreciated over the shorter of their useful lives or the related leases’ terms.
The long-term construction obligation is now considered long-term financing lease obligations with amounts
payable during the next 12 months recorded as “Accrued expenses and other.” Gross assets remaining under
financing leases were $595 million and $189 million at December 31, 2011 and 2010. Accumulated depreciation
associated with financing leases was $37 million and $8 million at December 31, 2011 and 2010.
50
Note 4—ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
2011 Acquisition Activity
In 2011, we acquired certain companies for an aggregate purchase price of $771 million. The primary
reasons for these acquisitions, none of which was individually material to our consolidated financial statements,
were to expand our customer base and sales channels, including our consumer channels and subscription
entertainment services. Acquisition-related costs were expensed as incurred and were not significant. The
aggregate purchase price of these acquisitions was allocated as follows (in millions):
Purchase Price
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Existing equity interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification holdbacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation
Goodwill
Intangible assets (1):
Marketing-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract-based . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities assumed (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 637
89
25
20
$ 771
$ 615
130
94
6
230
119
49
68
(65)
(70)
(75)
(100)
$ 771
(1) Amortization periods range from 2 to 10 years, with a weighted-average amortization period of 8 years.
(2)
Includes a $38 million contingent liability related to historic tax exposures.
In addition to cash consideration and the fair value of vested stock options, the aggregate purchase price
included the estimated fair value of our previous, noncontrolling interest in one of the acquired companies. We
remeasured this equity interest to fair value at the acquisition date and recognized a non-cash gain of $6 million
in “equity-method investment activity, net of tax,” in our 2011 consolidated statement of operations. The fair
value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair
value of identifiable intangible assets acquired primarily by using the income and cost approaches. Purchased
identifiable intangible assets are included within “Other assets” on our consolidated balance sheets and are being
amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives.
51
Pro Forma Financial Information (unaudited)
The acquired companies were consolidated into our financial statements starting on their respective acquisition dates.
The aggregate net sales and net losses of the acquired companies recorded in our consolidated statement of operations from
the respective acquisition dates through December 31, 2011 were $511 million and $95 million. The following pro forma
financial information presents our results as if these acquisitions had occurred at the beginning of 2010 (in millions):
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,356
608
$34,813
1,051
Year Ended December 31,
2011
2010
2010 Acquisition Activity
In 2010, we acquired certain companies for an aggregate purchase price of $228 million, resulting in
goodwill of $111 million and acquired intangible assets of $91 million. The primary reasons for these
acquisitions were to expand our customer base and sales channels. The purchase price was allocated to the
tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the
acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to
identifiable intangible assets acquired was determined primarily by using the income and cost approaches. These
intangible assets are being amortized on a straight-line or accelerated basis over their respective useful lives.
The acquired companies were consolidated into our financial statements starting on their respective
acquisition dates. Pro forma results of operations have not been presented because the effects of these business
combinations, individually and in the aggregate, were not material to our consolidated results of operations.
2009 Acquisition Activity
On November 1, 2009, we acquired 100% of the outstanding equity of Zappos.com, Inc. (“Zappos”), in exchange
for shares of our common stock, to expand our presence in softline retail categories, such as shoes and apparel.
The fair value of Zappos’ stock options assumed was determined using the Black-Scholes model. The
following table summarizes the consideration paid for Zappos (in millions):
Stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed stock options, net
$1,079
55
$1,134
The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the
income approach. Purchased identifiable intangible assets are being amortized on a straight-line or accelerated
basis over their respective useful lives.
52
The following summarizes the allocation of the Zappos purchase price (in millions):
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets (1):
Marketing-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract-based . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 778
83
(167)
223
103
114
$1,134
(1) Acquired intangible assets have estimated useful lives of between 1 and 10 years.
Zappos’ financial results have been included in our consolidated statements of income since November 1,
2009. The following pro forma financial information presents our results as if the Zappos acquisition had
occurred at the beginning of 2009 (in millions):
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,064
853
We acquired certain additional companies during 2009 for an aggregate purchase price of $26 million,
resulting in goodwill of $16 million and acquired intangible assets of $5 million. All of the entities have been
consolidated into our financial statements since their respective acquisition dates. Pro forma results of operations
have not been presented because the effects of these business combinations, individually and in the aggregate,
were not material to our consolidated results of operations.
Year Ended
December 31, 2009
Goodwill
The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related
to expected sales growth from future product offerings and customers, together with certain intangible assets that
do not qualify for separate recognition. The following summarizes our goodwill activity in 2011 and 2010 by
segment (in millions):
North America
International Consolidated
Goodwill—January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill—December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,055
60
1
1,116
417
—
$179
51
3
233
198
(9)
$1,234
111
4
1,349
615
(9)
Goodwill—December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,533
$422
$1,955
(1) Primarily includes changes in foreign exchange for goodwill in our International segment.
53
Intangible Assets
Acquired intangible assets, included within “Other assets” on our consolidated balance sheets, consist of the
following:
December 31,
2011
2010
Weighted
Average Life
Remaining
Acquired
Intangibles,
Gross (1)
Accumulated
Amortization (1)
Acquired
Intangibles,
Net
Acquired
Intangibles,
Gross (1)
Accumulated
Amortization (1)
Acquired
Intangibles,
Net
Marketing-related . . . . .
Contract-based . . . . . . . .
Technology and
content . . . . . . . . . . . .
Customer-related . . . . . .
8.2
4.5
6.1
3.9
$408
189
37
343
$ (74)
(74)
(13)
(169)
Acquired
(in millions)
$334
115
24
174
$277
183
34
251
$ (37)
(43)
(10)
(92)
$240
140
24
159
intangibles (2) . . . . . .
5.9
$977
$(330)
$647
$745
$(182)
$563
(1) Excludes the original cost and accumulated amortization of fully-amortized intangibles.
(2)
Intangible assets have estimated useful lives of between 1 and 10 years.
Amortization expense for acquired intangibles was $149 million, $105 million, and $48 million in 2011,
2010, and 2009. Expected future amortization expense of acquired intangible assets as of December 31, 2011 is
as follows (in millions):
Year Ended December 31,
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
$135
114
95
79
65
159
$647
54
Note 5—EQUITY-METHOD INVESTMENTS
Our equity-method investments include a 31% interest in LivingSocial. Summarized condensed financial
information for this investee, as provided to us by LivingSocial, is as follows (in millions):
Statement of Operations:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheet:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mandatorily redeemable stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2011
$ 245
686
(117)
$(558)
December 31,
2011
$156
285
225
21
199
As of December 31, 2011, the book value of our LivingSocial investment was $208 million. The summarized
financial information is included for the periods in which we held an equity method ownership interest.
Note 6—LONG-TERM LIABILITIES
Our long-term liabilities are summarized as follows:
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term financing lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2011
2010
(in millions)
$ 255
598
562
57
266
887
$ 184
276
181
260
243
417
$2,625
$1,561
Long-term Debt
Our long-term debt had a weighted average interest rate of 5.8% and 5.5% in 2011 and 2010 and has
maturities in 2012 and 2013. Long-term debt relates to amounts borrowed to fund certain international
operations. Long-term debt obligations are as follows:
Debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of debt obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
(in millions)
$ 384
(129)
Total long-term debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 255
55
Capital Leases
Certain of our equipment fixed assets, primarily related to technology infrastructure, have been acquired
under capital leases. Long-term capital lease obligations are as follows:
Gross capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
(in millions)
$1,024
(49)
975
(377)
Total long-term capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 598
Financing Leases
We continue to be the deemed owner after occupancy of certain facilities that were constructed as
build-to-suit lease arrangements and previously reflected as “Construction liability.” As such, these arrangements
are accounted for as financing leases. Long-term finance lease obligations are as follows:
Gross financing lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of financing lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
(in millions)
$ 863
(283)
580
(18)
Total long-term financing lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 562
Construction Liabilities
We capitalize construction in progress and record a corresponding long-term liability for certain
build-to-suit lease agreements where we are considered the owner during the construction period for accounting
purposes, including our Seattle, Washington, corporate office space that we do not currently occupy. See
“Note 3—Fixed Assets” for a discussion of these leases.
Tax Contingencies
As of December 31, 2011 and 2010, we have recorded tax reserves for tax contingencies, inclusive of
accrued interest and penalties, of approximately $266 million and $243 million for U.S. and foreign income
taxes. These contingencies primarily relate to transfer pricing, state income taxes, and research and development
credits. See “Note 10—Income Taxes” for discussion of tax contingencies.
The remainder of our long-term liabilities primarily include deferred tax liabilities, unearned revenue, asset
retirement obligations, and deferred rental liabilities.
Note 7—COMMITMENTS AND CONTINGENCIES
Commitments
We have entered into non-cancellable operating, capital and financing leases for equipment and office,
fulfillment center, and data center facilities. Rental expense under operating lease agreements was $362 million,
$225 million, and $171 million for 2011, 2010, and 2009.
56
The following summarizes our principal contractual commitments, excluding open orders for inventory
purchases that support normal operations, as of December 31, 2011:
Year Ended December 31,
2012
2013
2014
2015
2016
Thereafter
Total
(in millions)
Operating and capital commitments:
Debt principal and interest . . . . . . . . . . . . . . . .
Capital leases, including interest . . . . . . . . . . .
Financing lease obligations, including
interest (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . .
Unconditional purchase obligations . . . . . . . .
. . . . . . . . . . . .
Other commitments (2) (3) (4)
$ 147
397
$ 265
316
$— $— $— $ — $ 412
1,024
150
29
58
74
49
380
117
325
51
420
84
127
54
407
66
72
55
354
48
66
56
300
23
61
598
1,232
—
664
863
3,093
338
1,315
Total commitments . . . . . . . . . . . . . . . . .
$1,415
$1,263
$749
$581
$469
$2,568
$7,045
(1) Relates to the 1,370,000 square feet of occupied corporate office space under build-to-suit lease
(2)
(3)
arrangements.
Includes contractual obligations with minimum firm commitments recorded as liabilities on the consolidated
balance sheets.
Includes the estimated timing and payments for rent, operating expenses, and tenant improvements
associated with approximately 330,000 square feet of corporate office space currently being developed
under build-to-suit leases and which we anticipate occupying in 2012 to 2013. The amount of space
available and our financial and other obligations under the lease agreements are affected by various factors,
including government approvals and permits, interest rates, development costs and other expenses and our
exercise of certain rights under the lease agreements. See “Note 3—Fixed Assets” for a discussion of these
leases.
(4) Excludes $229 million of tax contingencies for which we cannot make a reasonably reliable estimate of the
amount and period of payment, if any.
Pledged Securities
We have pledged or otherwise restricted $156 million and $160 million in 2011 and 2010 of our cash and
marketable securities as collateral for standby and trade letters of credit, guarantees, debt related to our
international operations, as well as real estate leases. We classify cash and marketable securities with use
restrictions of twelve months or longer as non-current “Other assets” on our consolidated balance sheets.
Inventory Suppliers
During 2011, no vendor accounted for 10% or more of our inventory 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.
Legal Proceedings
The Company is involved from time to time in claims, proceedings and litigation, including the following:
In June 2001, Audible, Inc., our subsidiary acquired in March 2008, was named as a defendant in a
securities class-action filed in United States District Court for the Southern District of New York related to its
initial public offering in July 1999. The lawsuit also named certain of the offering’s underwriters, as well as
Audible’s officers and directors as defendants. Approximately 300 other issuers and their underwriters have had
similar suits filed against them, all of which are included in a single coordinated proceeding in the Southern
57
District of New York. The complaints allege that the prospectus and the registration statement for Audible’s
offering failed to disclose that the underwriters allegedly solicited and received “excessive” commissions from
investors and that some investors allegedly agreed with the underwriters to buy additional shares in the
aftermarket in order to inflate the price of Audible’s stock. Audible and its officers and directors were named in
the suits pursuant to Section 11 of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of
1934, and other related provisions. The complaints seek unspecified damages, attorney and expert fees, and other
unspecified litigation costs. In March 2009, all parties, including Audible, reached a settlement of these class
actions that would resolve this dispute entirely with no payment required from Audible. The settlement was
approved by the Court in October 2009, and subsequently upheld by the United States Court of Appeals for the
Second Circuit, and the appeal of the last remaining objector to the settlement was dismissed in January 2012.
Beginning in March 2003, we were served with complaints filed in several different states, including
Illinois, by a private litigant, Beeler, Schad & Diamond, P.C., purportedly on behalf of the state governments
under various state False Claims Acts. The complaints allege that we (along with other companies with which we
have commercial agreements) wrongfully failed to collect and remit sales and use taxes for sales of personal
property to customers in those states and knowingly created records and statements falsely stating we were not
required to collect or remit such taxes. In December 2006, we learned that one additional complaint was filed in
the state of Illinois by a different private litigant, Matthew T. Hurst, alleging similar violations of the Illinois
state law. All of the complaints seek injunctive relief, unpaid taxes, interest, attorneys’ fees, civil penalties of up
to $10,000 per violation, and treble or punitive damages under the various state False Claims Acts. It is possible
that we have been or will be named in similar cases in other states as well. We dispute the allegations of
wrongdoing in these complaints and intend to vigorously defend ourselves in these matters.
In November 2007, an Austrian copyright collection society, Austro-Mechana, filed lawsuits against several
Amazon.com EU subsidiaries in the Commercial Court of Vienna, Austria and in the District Court of Munich,
Germany seeking to collect a tariff on blank digital media sold by our EU-based retail websites to customers
located in Austria. In July 2008, the German court stayed the German case pending a final decision in the
Austrian case. In July 2010, the Austrian court ruled in favor of Austro-Mechana and ordered us to report all
sales of products to which the tariff potentially applies for a determination of damages. We contested Austro-
Mechana’s claim and in September 2010 commenced an appeal in the Commercial Court of Vienna. We lost this
appeal and in March 2011 commenced an appeal in the Supreme Court of Austria. In October 2011, the Austrian
Supreme Court referred the case to the European Court of Justice.
In March 2009, Discovery Communications, Inc. filed a complaint against us for patent infringement in the
United States District Court for the District of Delaware. The complaint alleged that our Kindle e-reader infringed a
patent owned by Discovery purporting to cover an “Electronic Book Security and Copyright Protection System”
(U.S. Patent No. 7,298,851) and sought monetary damages, a continuing royalty sufficient to compensate Discovery
for any future infringement, treble damages, costs and attorneys’ fees. In May 2009, we filed counterclaims and an
additional lawsuit in the United States District Court for the Western District of Washington against Discovery
alleging infringement of several patents owned by Amazon and requesting a declaration that several Discovery
patents, including the one listed above, are invalid and unenforceable. In November 2011, we entered into a
settlement of the litigation that included, among other things, a payment to the plaintiff and a non-exclusive patent
cross-license agreement. The settlement was not material to either the current or future years.
In April 2009, Parallel Networks, LLC filed a complaint against us for patent infringement in the United
States District Court for the Eastern District of Texas. The complaint alleges, among other things, that our
website technology infringes a patent owned by Parallel Networks purporting to cover a “Method And Apparatus
For Client-Server Communication Using a Limited Capability Client Over A Low-Speed Communications Link”
(U.S. Patent No. 6,446,111) and seeks injunctive relief, monetary damages, costs and attorneys’ fees. The
complaint was dismissed without prejudice in February 2010, but the plaintiff filed a new complaint against us
the following month containing similar allegations. We dispute the allegations of wrongdoing and intend to
58
vigorously defend ourselves in this matter. In December 2011 the Court granted Amazon’s motion for summary
judgment and dismissed the claims against Amazon with prejudice. The plaintiff is appealing that decision.
In May 2009, Big Baboon, Inc. filed a complaint against us for patent infringement in the United States
District Court for the Central District of California. The complaint alleges, among other things, that our third-
party selling and payments technology infringes a patent owned by Big Baboon, Inc. purporting to cover an
“Integrated Business-to-Business Web Commerce and Business Automation System” (U.S. Patent
No. 6,115,690) and seeks injunctive relief, monetary damages, treble damages, costs and attorneys’ fees. In
February 2011, the Court entered an order staying the lawsuit pending the outcome of the Patent and Trademark
Office’s re-examination of the patent in suit. We dispute the allegations of wrongdoing and intend to vigorously
defend ourselves in this matter.
In September 2009, SpeedTrack, Inc. filed a complaint against us for patent infringement in the United States
District Court for the Northern District of California. The complaint alleges, among other things, that our website
technology infringes a patent owned by SpeedTrack purporting to cover a “Method For Accessing Computer Files
and Data, Using Linked Categories Assigned to Each Data File Record on Entry of the Data File Record” (U.S.
Patent Nos. 5,544,360) and seeks injunctive relief, monetary damages, enhanced damages, costs and attorneys’
fees. In November 2009, the Court entered an order staying the lawsuit pending the outcome of the Patent and
Trademark Office’s re-examination of the patent in suit and the resolution of similar litigation against another
party. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In October 2009, Eolas Technologies Incorporated filed a complaint against us for patent infringement in
the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that
our website technology infringes two patents owned by Eolas purporting to cover “Distributed Hypermedia
Method for Automatically Invoking External Application Providing Interaction and Display of Embedded
Objects within a Hypermedia Document” (U.S. Patent No. 5,838,906) and “Distributed Hypermedia Method and
System for Automatically Invoking External Application Providing Interaction and Display of Embedded
Objects within a Hypermedia Document” (U.S. Patent No. 7,599,985) and seeks injunctive relief, monetary
damages, costs and attorneys’ fees. In July 2011, Eolas’s damages expert opined that, if we are found to infringe
the patents-in-suit and the patents are found to be valid (both of which we dispute), Amazon and its affiliates
should pay damages of approximately $135 million. Amazon’s damages expert has opined that, under the same
circumstances, the maximum damages fairly recoverable against Amazon and its affiliates would be $1.2 million.
Eolas’s damages could be trebled if Eolas prevails in its claim that any infringement was willful. We dispute the
allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In December 2009, Nazomi Communications, Inc. filed a complaint against us for patent infringement in the
United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that the
processor core in our Kindle e-reader infringes two patents owned by Nazomi purporting to cover “Java virtual
machine hardware for RISC and CISC processors” and “Java hardware accelerator using microcode engine” (U.S.
Patent Nos. 7,080,362 and 7,225,436) and seeks monetary damages, injunctive relief, costs and attorneys’ fees. In
January 2012, Nazomi added Amazon to a second lawsuit, which alleges, among other things, that the Kindle Fire
infringes a patent owned by Nazomi purporting to cover a “Constant Pool Reference Resolution Method” (U.S.
Patent No. 6,338,160) also seeking monetary damages, injunctive relief, costs and attorneys’ fees. We dispute the
allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In May 2010, Site Update Solutions LLC filed a complaint against us for patent infringement in the United
States District Court for the Eastern District of Texas. The complaint alleges, among other things, that our
website technology infringes a patent owned by Site Update purporting to cover a “Process for Maintaining
Ongoing Registration for Pages on a Given Search Engine” (U.S. Patent No. RE40,683) and seeks monetary
damages, a future royalty, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to
vigorously defend ourselves in this matter.
59
In July 2010, Positive Technologies Inc. filed a complaint against us for patent infringement in the United
States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain of
our products, including our Kindle e-reader, infringe three patents owned by the plaintiff purporting to cover a
“DC Integrating Display Driver Employing Pixel Status Memories” (U.S. Patent Nos. 5,444,457; 5,627,558 and
5,831,588) and seeks monetary damages, injunctive relief, costs and attorneys’ fees. We dispute the allegations
of wrongdoing and intend to vigorously defend ourselves in this matter.
In July 2010, the Federal Trade Commission (“FTC”) staff informed us that it was considering whether to
recommend enforcement proceedings against us for advertising and selling certain textile fiber products as
“bamboo” when they are made of rayon manufactured from bamboo, in violation of the Textile Fiber Product
Identification Act, the FTC Act, and the regulations promulgated thereunder. We do not believe we have violated
these laws and regulations and are cooperating voluntarily with the Commission’s inquiry. In September 2011, we
learned that the Commission voted to refer the matter to the Department of Justice for enforcement proceedings.
In September 2010, Olympic Developments AG, LLC filed a complaint against us for patent infringement in
the United States District Court for the Central District of California. The complaint alleges, among other things,
that certain aspects of our technology, including our Kindle e-reader, infringe two patents owned by the plaintiff
purporting to cover a “Transactional Processing System” (U.S. Patent No. 5,475,585) and a “Device for
Controlling Remote Interactive Receiver” (U.S. Patent No. 6,246,400B1) and seeks monetary damages,
injunctive relief, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously
defend ourselves in this matter.
In November 2010, Kelora Systems, LLC filed a complaint against us for patent infringement in the United
States District Court for the Western District of Wisconsin. The complaint alleges that our website infringes a
patent owned by Kelora Systems purporting to cover a “Method and system for executing a guided parametric
search” (U.S. Patent No. 6,275,821) and seeks monetary damages, costs, attorneys’ fees, and injunctive relief. In
August 2011, Kelora filed an amended complaint adding Amazon subsidiaries Audible and Zappos as
defendants. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In December 2010, Global Sessions LP filed a complaint against us for patent infringement in the United
States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain
Amazon and AWS technologies infringe four patents owned by the plaintiff purporting to cover a “System And
Method For Maintaining A State For A User Session Using A Web System Having A Global Session Server”
(U.S. Patent No. 6,076,108), an “Enterprise Interaction Hub For Managing An Enterprise Web System” (U.S.
Patent Nos. 6,085,220 and 6,360,249), and a “System And Method For Maintaining A State For A User Session
Using A Web System” (U.S. Patent No. 6,480,894), and seeks monetary damages, a future royalty, injunctive
relief, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend
ourselves in this matter.
In December 2010, Technology Innovations, LLC filed a complaint against us for patent infringement in the
United States District Court for the Southern District of Texas. The complaint alleges, among other things, that
Amazon’s sale of e-books and Kindle e-readers infringes a patent owned by the plaintiff purporting to cover a
“Device For Including Enhancing Information With Printed Information And Method For Electronic Searching
Thereof” (U.S. Patent No. 5,517,407) and seeks monetary damages, injunctive relief, costs, interest, and
attorneys’ fees. The complaint was dismissed without prejudice in August 2011, but the plaintiff filed a new
complaint against us in the United States District Court for the District of Delaware containing similar allegations
and alleging infringement of an additional patent purporting to cover an “Apparatus for the Display of Embedded
Information” (U.S. Patent No. 7,429,965). We dispute the allegations of wrongdoing and intend to vigorously
defend ourselves in this matter.
In February 2011, SFA Systems, LLC, filed a complaint against us for patent infringement in the United States
District Court for the Eastern District of Texas. The complaint alleges, among other things, that by using computer-
60
implemented systems and methods for personalization Amazon and Zappos infringe a patent owned by the plaintiff
purporting to cover an “Integrated Computerized Sales Force Automation System” (U.S. Patent No. 6,067,525), and
seeks monetary damages, interest, costs, and attorneys’ fees. In August 2011, the plaintiff filed an additional
complaint against us in the United States District Court for the Eastern District of Texas alleging, among other
things, that certain supply chain, sales, marketing, and inventory systems and methods used by Amazon and Zappos
infringe a patent owned by the plaintiff purporting to cover a “Sales Force Automation System and Method” (U.S.
Patent No. 7,941,341), and seeking monetary damages, interest, costs, and attorneys’ fees. We dispute the
allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In April 2011, Walker Digital LLC filed six complaints against us for patent infringement in the United
States District Court for the District of Delaware. The complaints allege that we infringe several of the plaintiff’s
U.S. patents by, among other things, providing “cross benefits” to customers through our promotions, (U.S.
Patent Nos. 7,831,470 and 7,827,056), using a customer’s identified original product to offer a substitute product
(U.S. Patent No. 7,236,942), offering products and services from retailers at discounted prices and arranging for
users to buy them from merchants (U.S. Patent No. 6,249,772), using our product recommendations and
personalization features to offer complementary products together (U.S. Patent Nos. 6,601,036 and 6,138,105),
enabling customers to subscribe to a delivery schedule for products they routinely use at reduced prices (U.S.
Patent No. 5,970,470), and offering personalized advertising based on customers’ preferences identified using a
data pattern (U.S. Patent No. 7,933,893). A seventh complaint, filed in the same court in October 2011, alleges
that we infringe plaintiff’s U.S. Patent No. 8,041,711 by offering personalized advertising based on customer
preferences that associate data with resource locators. The complaints seek monetary damages, interest,
injunctive relief, costs, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously
defend ourselves in these matters. In June 2011, the complaint alleging that we infringed U.S. Patent
No. 6,249,772 was dismissed.
In July 2011, GPNE Corp. filed a complaint against us for patent infringement in the United States District
Court for the District of Hawaii. The complaint alleges, among other things, that certain aspects of our
technology, including our Kindle e-reader, infringe three patents owned by the plaintiff purporting to cover a
“Network Communication System Wherein a Node Obtains Resources for Transmitting Data by Transmitting
Two Reservation Requests” (U.S. Patent No. 7,555,267), a “Communication System Wherein a Clocking Signal
from a Controller, a Request from a Node, Acknowledgement of the Request, and Data Transferred from the
Node are all Provided on Different Frequencies, Enabling Simultaneous Transmission of these Signals” (U.S.
Patent No. 7,570,954) and a “Network Communication System with an Alignment Signal to Allow a Controller
to Provide Messages to Nodes and Transmission of the Messages over Four Independent Frequencies” (U.S.
Patent No. 7,792,492) and seeks monetary damages, interest, costs, and attorneys’ fees. We dispute the
allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In September 2011, Parallel Iron, LLC, filed a complaint against us for patent infringement in the United
States District Court for the District of Delaware. The complaint alleges, among other things, that certain AWS
file storage systems that include a Hadoop Distributed File System infringe a patent owned by the plaintiff
purporting to cover “Methods and Systems for a Storage System With a Program-Controlled Switch for Routing
Data” (U.S. Patent No. 7,415,565), and seeks monetary damages, injunctive relief, costs, and attorneys’ fees. We
dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In September 2011, Lochner Technologies, LLC, filed a complaint against us for patent infringement in the
United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that by
offering products used for desktop virtualization or cloud computing solutions that provide virtual desktop
environments Amazon infringes a patent owned by the plaintiff purporting to cover a “Modular Computer
System” (U.S. Patent No. 7,035,598), and seeks monetary damages, injunctive relief, costs, and attorneys’ fees.
We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In September 2011, Semiconductor Ideas to the Market BV filed a complaint against us for patent
infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among
61
other things, that by offering products including our Kindle e-reader that employ receiver technology designed to
diminish signal leakage Amazon infringes two patents owned by the plaintiff purporting to cover a “Receiver
Comprising A Digitally Controlled Capacitor Bank” (U.S. Patent No. 7,299,018) and a “Communication Device”
(U.S. Patent No. 7,072,614), and seeks monetary damages, injunctive relief, costs, and attorneys’ fees. We
dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In September 2011, Droplets, Inc. filed a complaint against us for patent infringement in the United States
District Court for the Eastern District of Texas. The complaint alleges, among other things, that by offering web
applications and software Amazon infringes two patents owned by the plaintiff purporting to cover a “System
and Method for Delivering a Graphical User Interface of Remote Applications Over a Thin Client” (U.S. Patent
No. 6,687,745) and a “System and Method for Delivering Remotely Stored Graphics and Information” (U.S.
Patent No. 7,502,838), and seeks monetary damages, injunctive relief, costs, and attorneys’ fees. We dispute the
allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In September 2011, Execware, LLC filed a complaint against us for patent infringement in the United States
District Court for the District of Delaware. The complaint alleges, among other things, that by rapidly formatting
and reformatting tabular displays of records, such as product listings on our websites, Amazon infringes a patent
owned by the plaintiff purporting to cover an “Integrated Dialog Box for Rapidly Altering Presentation of
Parametric Text Data Objects on a Computer Display” (U.S. Patent No. 6,216,139), and seeks monetary
damages, injunctive relief, costs, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to
vigorously defend ourselves in this matter.
In September 2011, Select Retrieval, Inc. filed complaints against us and one of our subsidiaries for patent
infringement in the United States District Courts for the District of Oregon and the District of Delaware. The
complaints allege, among other things, that certain aspects of our websites’ technology infringe a patent owned
by the plaintiff purporting to cover “Data Display Software with Actions and Links Integrated with Information”
(U.S. Patent No. 6,128,617), and seek monetary damages, injunctive relief, costs, and attorneys’ fees. In
December 2011, the plaintiff dismissed all claims against us with prejudice.
In September 2011, LVL Patent Group, LLC filed three complaints against us for patent infringement in the
United States District Court for the District of Delaware. The complaints allege, among other things, that certain
aspects of our technology, including our mobile applications, infringe four patents owned by the plaintiff
purporting to cover a “Telephone/Transaction Entry Device and System for Entering Transaction Data into
Databases (U.S. Patent Nos. 5,805,676; 5,987,103; and 8,019,060) and a “Data Transaction Assembly Server”
(U.S. Patent No. 6,044,382), and seeks monetary damages, injunctive relief, costs, and attorneys’ fees. We
dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In October 2011, Smartphone Technologies LLC filed a complaint against us for patent infringement in the
United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that
certain aspects of our Kindle devices infringe five patents owned by the plaintiff purporting to cover a “Power-
Conserving Intuitive Device Discovery Technique In A Bluetooth Environment” (U.S. Patent No. 6,950,645); a
“Handheld Computer System That Attempts To Establish An Alternative Network Link Upon Failing To Establish
A Requested Network Link” (U.S. Patent No. 7,506,064); a “Method And Apparatus For Communicating
Information Over Low Bandwidth Communications Networks” (U.S. Patent No. RE 40,459); a “Method For
Controlling A Handheld Computer By Entering Commands Onto A Displayed Feature Of The Handheld
Computer” (U.S. Patent No. 6,956,562); and a “System and Method For Displaying And Manipulating Multiple
Calendars On A Personal Digital Assistant” (U.S. Patent No. 6,466,236). In December 2011, we entered into a
settlement of the litigation that included, among other things, a payment to the plaintiff and a non-exclusive patent
license agreement. The settlement was not material to either the current or future years.
We cannot predict the impact (if any) that any of the matters described above may have on our business,
results of operations, financial position, or cash flows. Because of the inherent uncertainties of such matters,
62
including the early stage and lack of specific damage claims in many of them, we cannot estimate the range of
possible losses from them (except as otherwise indicated).
Other Contingencies
In September 2010, the State of Texas issued an assessment of $269 million for uncollected sales taxes for
the period from December 2005 to December 2009, including interest and penalties through the date of the
assessment. The State of Texas is alleging that we should have collected sales taxes on applicable sales
transactions during those years. We believe that the State of Texas did not provide a sufficient basis for its
assessment and that the assessment is without merit. We intend to vigorously defend ourselves in this matter. In
March 2011, the SEC staff notified us of an inquiry concerning this assessment. We cooperated with the staff’s
inquiry, and in November 2011 the staff notified us that it had completed its inquiry.
In November 2011, the State of Arizona issued assessments on behalf of the State and certain cities in the
amount of approximately $53 million, including tax and interest, for uncollected tax for the periods March 1,
2006 through December 31, 2010. The State of Arizona is alleging that we should have collected a transaction
tax that is similar to a sales tax on applicable transactions during those years. We believe that the assessment is
without merit and intend to vigorously defend ourselves in this matter.
Depending on the amount and the timing, an unfavorable resolution of this matter could materially affect
our business, results of operations, financial position, or cash flows.
See also “Note 10—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 period presented.
Common Stock
Common shares outstanding plus shares underlying outstanding stock awards totaled 468 million,
465 million, and 461 million, at December 31, 2011, 2010, and 2009. These totals include all vested and
unvested stock-based awards outstanding, before consideration of estimated forfeitures.
Stock Repurchase Activity
In January 2010, our Board of Directors authorized a program to repurchase up to $2 billion of our common
stock. We repurchased 1.5 million shares of common stock for $277 million in 2011 under this repurchase
program. We did not repurchase any of our common stock in 2010 or 2009.
Stock Award Plans
Employees vest in restricted stock unit awards over the corresponding service term, generally between two
and five years.
Stock Award Activity
We granted restricted stock units representing 5.4 million, 5.3 million, and 6.0 million shares of common
stock during 2011, 2010, and 2009 with a per share weighted average fair value of $192.82, $140.43, and $79.24.
63
The following summarizes our restricted stock unit activity (in millions):
Number of Units
Outstanding at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.7
6.0
(6.0)
(1.0)
15.7
5.3
(5.7)
(1.3)
14.0
5.4
(5.1)
(1.2)
13.1
Scheduled vesting for outstanding restricted stock units at December 31, 2011 is as follows (in millions):
Scheduled vesting—restricted stock units . . . . . . . . . . . . . . . .
4.4
4.2
2.6
1.4
0.3
0.2
13.1
Year Ended December 31,
2012
2013
2014
2015
2016 Thereafter Total
As of December 31, 2011, there was $842 million of net unrecognized compensation cost related to
unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis
resulting in approximately half of the compensation expected to be expensed in the next twelve months, and has a
weighted average recognition period of 1.2 years.
During 2011 and 2010, the fair value of restricted stock units that vested was $1.0 billion and $792 million.
As matching contributions under our 401(k) savings plan, we granted 0.1 million shares of common stock in
both 2011 and 2010. Shares granted as matching contributions under our 401(k) plan are included in outstanding
common stock when issued.
Common Stock Available for Future Issuance
At December 31, 2011, common stock available for future issuance to employees is 155 million shares.
64
Note 9—OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) are as follows:
Year Ended December 31,
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 631
Net change in unrealized gains/losses on available-for-sale securities:
2011
2010
(in millions)
$1,152
2009
$902
Unrealized gains (losses), net of tax of $1, $(2), and $(2) . . . . . . . . . . . . . . . . .
Reclassification adjustment for losses (gains) included in net income, net of
tax effect of $1, $0, and $1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains (losses) on available for sale securities . . . . . . . . . . .
Foreign currency translation adjustment, net of tax effect of $20, $29, and $0 . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(2)
(3)
(123)
0
(126)
5
7
(2)
(3)
3
(137)
—
(134)
4
62
1
67
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 505
$1,018
$969
Balances within accumulated other comprehensive income (loss) are as follows:
December 31,
2011
2010
(in millions)
Net unrealized losses on foreign currency translation, net of tax . . . . . . . . . . . . . . . .
Net unrealized gains on available-for-sale securities, net of tax . . . . . . . . . . . . . . . . .
$(326)
10
$(203)
13
Total accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . .
$(316)
$(190)
Note 10—INCOME TAXES
In 2011, 2010, and 2009 we recorded net tax provisions of $291 million, $352 million, and $253 million.
A majority of this provision is non-cash. We have tax benefits relating to excess stock-based compensation that
are being utilized to reduce our U.S. taxable income. As such, cash taxes paid, net of refunds, were $33 million,
$75 million, and $48 million for 2011, 2010, and 2009.
The components of the provision for income taxes, net are as follows:
Current taxes:
U.S. and state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes:
U.S. and state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2011
2010
2009
(in millions)
$103
52
155
157
(21)
136
$311
37
348
$149
23
172
1
3
4
89
(8)
81
Provision for income taxes, net
. . . . . . . . . . . . . . . . . . . . . .
$291
$352
$253
65
U.S. and international components of income before income taxes are as follows:
U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$658
276
(in millions)
$ 886
611
$ 529
632
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$934
$1,497
$1,161
Year Ended December 31,
2011
2010
2009
The items accounting for differences between income taxes computed at the federal statutory rate and the
provision recorded for income taxes are as follows:
Year Ended December 31,
2011
2010
2009
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0% 35.0% 35.0%
Effect of:
Impact of foreign tax differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
(8.4)
1.5
(3.2)
4.1
2.2
(12.7)
1.5
(1.1)
1.6
(0.8)
(16.9)
1.1
(0.4)
1.7
1.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.2% 23.5% 21.9%
The effective tax rate in 2011, 2010, and 2009 was lower than the 35% U.S. federal statutory rate primarily
due to earnings of our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in
the U.S. Such earnings primarily relate to our European operations, which are headquartered in Luxembourg. The
favorable effective tax rate impact of earnings in lower tax rate jurisdictions is offset by other items, principally
losses incurred in jurisdictions for which we may not be able to realize a related tax benefit.
66
Deferred income tax assets and liabilities are as follows:
Year Ended December 31,
2011
2010
(in millions)
Deferred tax assets:
Net operating losses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for investment
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities, reserves, & other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Acquisition related intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 156
178
64
41
412
98
7
956
(227)
729
(231)
(572)
(21)
$ 93
101
61
3
269
80
14
621
(146)
475
(209)
(135)
(91)
Net deferred tax assets (liabilities), net of valuation allowance . . . . . . . . . . . . .
$ (95)
$ 40
(1) Excluding $129 million and $18 million of deferred tax assets at December 31, 2011 and 2010, related to
net operating losses that result from excess stock based compensation.
(2) Excluding $278 million and $231 million of deferred tax assets at December 31, 2011 and 2010, related to
tax credits that result from excess stock based compensation.
(3) Relates primarily to deferred tax assets that would only be realizable upon the generation of future capital
gains and net income in certain foreign taxing jurisdictions.
As of December 31, 2011, our federal, foreign and state net operating loss carryforwards for income tax
purposes were approximately $384 million, $474 million and $585 million. The federal and state net operating
loss carryforwards are subject to limitations under Section 382 of the Internal Revenue Code and applicable state
tax law. If not utilized, a portion of the federal, foreign, and state net operating loss carryforwards will begin to
expire in 2025, 2012, and 2012, respectively. As of December 31, 2011, our tax credit carryforwards for income
tax purposes were approximately $285 million. If not utilized, a portion of the tax credit carryforwards will begin
to expire in 2015.
The company’s consolidated balance sheet reflects net operating losses and tax credit carryforwards
excluding amounts resulting from excess stock-based compensation. Accordingly, such losses and credits from
excess stock-based compensation are accounted for as a credit to additional paid-in capital if and when realized
through a reduction in income taxes payable.
Tax Contingencies
We are subject to income taxes in the U.S. 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.
67
The reconciliation of our tax contingencies is as follows:
December 31,
2011
2010
2009
Gross tax contingencies—January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases to tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decreases to tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases to current period tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit settlements paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain (loss) on tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$181
31
(1)
5
(3)
0
0
$213
22
(3)
4
(1)
(6)
0
$166
15
0
1
0
0
(1)
Gross tax contingencies—December 31 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$229
$213
$181
(1) As of December 31, 2011, we had $229 million of tax contingencies all of which, if fully recognized, would
decrease our effective tax rate.
As of December 31, 2011 and 2010, we had accrued interest and penalties, net of federal income tax benefit,
related to tax contingencies of $24 million and $21 million. Interest and penalties, net of federal income tax
benefit, recognized for the year ended December 31, 2011 and 2010 was $3 million and $4 million.
We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for
the calendar year 2005 or thereafter. These examinations may lead to ordinary course adjustments or proposed
adjustments to our taxes or our net operating losses. In addition, while we have not yet received a Revenue
Agent’s Report generally issued at the conclusion of an IRS examination, we have received Notices of Proposed
Adjustment from the IRS for the 2005 and 2006 calendar years relating to transfer pricing with our foreign
subsidiaries. The notices propose an increase to our U.S. taxable income that would result in additional federal
tax expense over a seven year period beginning in 2005, totaling approximately $1.5 billion, subject to interest.
We disagree with the proposed adjustments and intend to vigorously contest them. If we are not able to resolve
these proposed adjustments at the IRS examination level, we plan to pursue all available administrative and, if
necessary, judicial remedies. Certain of our subsidiaries are under examination or investigation or may be subject
to examination or investigation by the French Tax Administration for the calendar year 2006 or thereafter. We
are also subject to taxation in various states and other foreign jurisdictions including China, Germany, Japan,
Luxembourg, and the United Kingdom. We are or may be subject to examination by these particular tax
authorities for the calendar year 2003 or thereafter.
Due to the nature of our business operations, we expect the total amount of tax contingencies for prior
period positions will grow in 2012 in comparable amounts to 2011. Also, changes in state, federal, and foreign
tax laws may increase our tax contingencies. The timing of the resolution of income tax examinations 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 12 months we will receive
additional assessments by various tax authorities or possibly reach resolution of income tax examinations in one
or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies
related to positions on tax filings in years through 2011. 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 11—SEGMENT INFORMATION
We have organized our operations into two principal segments: North America and International. We
present our segment information along the same lines that our chief executive reviews our operating results in
assessing performance and allocating resources.
68
We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and
content,” and “General and administrative,” but exclude from our allocations the portions of these expense lines
attributable to stock-based compensation. We do not allocate the line item “Other operating expense (income),
net” to our segment operating results. A majority of our costs for “Technology and content” are incurred in the
United States and most of these costs are allocated to our North America segment. There are no internal revenue
transactions between our reporting segments.
North America
The North America segment consists of amounts earned from retail sales of consumer products (including
from sellers) and subscriptions through North America-focused websites such as www.amazon.com and
www.amazon.ca and include amounts earned from AWS. This segment includes export sales from
www.amazon.com and www.amazon.ca.
International
The International segment consists of amounts earned from retail sales of consumer products (including
from sellers) and subscriptions through internationally focused locations. This segment includes export sales
from these internationally based locations (including export sales from these sites to customers in the U.S. and
Canada), but excludes export sales from our U.S. and Canadian locations.
Information on reportable segments and reconciliation to consolidated net income is as follows:
Year Ended December 31,
2011
2010
2009
(in millions)
North America
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment operating expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,705
25,772
$18,707
17,752
$12,828
12,119
Segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
933
$
955
$
709
International
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment operating expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,372
20,732
$15,497
14,516
$11,681
10,818
Segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
640
$
981
$
863
Consolidated
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment operating expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,077
46,504
$34,204
32,268
$24,509
22,937
Segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income (expense), net
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-operating income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-method investment activity, net of tax . . . . . . . . . . . . . . . . . . . . . . . . .
1,573
(557)
(154)
862
72
(291)
(12)
1,936
(424)
(106)
1,406
91
(352)
7
1,572
(341)
(102)
1,129
32
(253)
(6)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
631
$ 1,152
$
902
(1) Represents operating expenses, excluding stock-based compensation and “Other operating expense
(income), net,” which are not allocated to segments.
69
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our Executive Officers required by Item 10 of Part III is set forth in Item 1 of Part I
“Business—Executive Officers and Directors.” Information required by Item 10 of Part III regarding our
Directors and any material changes to the process by which security holders may recommend nominees to the
Board of Directors is included in our Proxy Statement relating to our 2012 Annual Meeting of Shareholders, and
is incorporated herein by reference. Information relating to our Code of Business Conduct and Ethics and to
compliance with Section 16(a) of the 1934 Act is set forth in our Proxy Statement relating to our 2012 Annual
Meeting of Shareholders and is incorporated herein by reference. To the extent permissible under Nasdaq rules,
we intend to disclose amendments to our Code of Business Conduct and Ethics, as well as waivers of the
provisions thereof, on our investor relations website under the heading “Corporate Governance” at
www.amazon.com/ir.
Item 11. Executive Compensation
Information required by Item 11 of Part III is included in our Proxy Statement relating to our 2012 Annual
Meeting of Shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Information required by Item 12 of Part III is included in our Proxy Statement relating to our 2012 Annual
Meeting of Shareholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2012 Annual
Meeting of Shareholders and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information required by Item 14 of Part III is included in our Proxy Statement relating our 2012 Annual
Meeting of Shareholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) List of Documents Filed as a Part of This Report:
(1) Index to Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2011
Consolidated Statements of Operations for each of the three years ended December 31, 2011
74
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Stockholders’ Equity for each of the three years ended December 31,
2011
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
(2) Index to Financial Statement Schedules:
Schedule II – Valuation and Qualifying Accounts
All other schedules have been omitted because the required information is included in the
consolidated financial statements or the notes thereto, or because it is not required.
(3) Index to Exhibits
See exhibits listed under the Exhibit Index below.
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, as of
January 31, 2012.
AMAZON.COM, INC.
By:
/S/
JEFFREY P. BEZOS
Jeffrey P. Bezos
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by
the following persons on behalf of the registrant and in the capacities indicated as of January 31, 2012.
Signature
Title
/S/
JEFFREY P. BEZOS
Jeffrey P. Bezos
Chairman of the Board, President and Chief Executive
Officer (Principal Executive Officer)
/S/ THOMAS J. SZKUTAK
Senior Vice President and Chief Financial Officer
Thomas J. Szkutak
(Principal Financial Officer)
/S/ SHELLEY REYNOLDS
Vice President, Worldwide Controller (Principal
Shelley Reynolds
Accounting Officer)
/S/ TOM A. ALBERG
Tom A. Alberg
/S/
JOHN SEELY BROWN
John Seely Brown
Director
Director
/S/ WILLIAM B. GORDON
Director
William B. Gordon
/S/ BLAKE G. KRIKORIAN
Director
Blake G. Krikorian
/S/ ALAIN MONIÉ
Alain Monié
/S/
JONATHAN J. RUBINSTEIN
Jonathan J. Rubinstein
/S/ THOMAS O. RYDER
Thomas O. Ryder
Director
Director
Director
/S/ PATRICIA Q. STONESIFER
Director
Patricia Q. Stonesifer
76
AMAZON.COM, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning of
Period
Charged to
Costs and
Expense
Amounts
Written
Off
Balance at
End of
Period
Allowance for doubtful accounts
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for sales returns and commissions
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 77
66
76
$103
76
36
(in millions)
$ 87
75
55
$(490)
(396)
(154)
$ (82)
(64)
(65)
$542
423
194
$ 82
77
66
$155
103
76
77
Exhibit
Number
3.1
3.2
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
12.1
21.1
23.1
31.1
31.2
32.1
32.2
EXHIBIT INDEX
Description
Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the Quarter ended March 31, 2000).
Restated Bylaws of the Company (incorporated by reference to the Company’s Current Report on
Form 8-K, filed February 18, 2009).
1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q
for the Quarter ended March 31, 2010).
1999 Non-Officer Employee Stock Option Plan (incorporated by reference to the Company’s
Registration Statement on Form S-8 (Registration No. 333-74419) filed March 15, 1999).
Offer Letter of Employment to Diego Piacentini, dated January 17, 2000 (incorporated by reference
to the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2000).
Offer Letter of Employment to H. Brian Valentine, dated June 23, 2006 (incorporated by reference to
the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2007).
Form of Indemnification Agreement between the Company and each of its Directors (incorporated by
reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-23795) filed
March 24, 1997).
Form of Restricted Stock Unit Agreement for Officers and Employees (incorporated by reference to
the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2002).
Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to the Company’s
Annual Report on Form 10-K for the Year Ended December 31, 2002).
Form of Restricted Stock Agreement (incorporated by reference to the Company’s Annual Report on
Form 10-K for the Year Ended December 31, 2001).
Computation of Ratio of Earnings to Fixed Charges.
List of Significant Subsidiaries.
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc.,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of
Amazon.com, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc.,
pursuant to 18 U.S.C. Section 1350.
Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of
Amazon.com, Inc., pursuant to 18 U.S.C. Section 1350.
101
The following financial statements from the Company’s Annual Report on Form 10-K for the year
ended December 31, 2011, formatted in XBRL: (i) Consolidated Statements of Cash Flows, (ii)
Consolidated Statements of Operations, (iii) Consolidated Balance Sheets, (iv) Consolidated
Statements of Stockholders’ Equity, and (v) Notes to Consolidated Financial Statements, tagged as
blocks of text.
†
Executive Compensation Plan or Agreement
78
Stock Price Performance Graph
The graph set forth below compares cumulative total return on the common stock with the cumulative total
return of the Morgan Stanley Technology Index, the S&P 500 Index, and the S&P 500 Retailing Index, resulting
from an initial investment of $100 in each and, except in the case of the Morgan Stanley Technology Index,
assuming the reinvestment of any dividends, based on closing prices. Measurement points are the last trading day
of each of Amazon’s fiscal years ended December 31, 2006, 2007, 2008, 2009, 2010, and 2011.
s
r
a
l
l
o
D
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
2006
2007
2008
2009
2010
2011
Year Ended December 31
Cumulative Total Return
Year Ended December 31,
Legend
2006
2007
2008
2009
2010
2011
Amazon.com, Inc.
Morgan Stanley Technology Index
S&P 500 Index
S&P 500 Retailing Index
$100
100
100
100
$235
$130
110
105
83
60
66
57
$341
102
84
86
$456
$439
117
97
108
104
99
113
Note: Stock price performance shown in the Stock Price Performance Graph for the common stock is
historical and not necessarily indicative of future price performance.
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