Amazon Annual Report 2013

FY2013 Annual Report · Amazon

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To our shareowners:

I’m so proud of what all the teams here at Amazon have accomplished on behalf of customers this past year.

Amazonians around the world are polishing products and services to a degree that is beyond what’s expected or
required, taking the long view, reinventing normal, and getting customers to say “Wow.”

I’d like to take you on a tour that samples a small subset of our various initiatives, ranging from Prime to
Amazon Smile to Mayday. The goal is to give you a sense for how much is going on across Amazon and how
exciting it is to work on these programs. This broad array of initiatives is only possible because a large team of
talented people at every level are exercising their good judgment every day and always asking, how do we make
this better?

Ok, let’s get started on the tour.

Prime

Customers love Prime. More than one million customers joined Prime in the third week of December alone,

and there are now tens of millions of Prime members worldwide. On a per customer basis, Prime members are
ordering more items, across more categories, than ever before. Even internally, it’s easy for us to forget that
Prime was a new, unproven (some even said foolhardy) concept when we launched it nine years ago: all-you-
can-eat, two-day shipping for a flat annual fee. At that time, we had one million eligible Prime products. This
year, we passed 20 million eligible products, and we continue to add more. We’ve made Prime better in other
ways too, adding new digital benefits – including the Kindle Owners’ Lending Library and Prime Instant Video.
And we’re not done. We have many ideas for how to make Prime even better.

Readers & Authors

We’re investing heavily on behalf of readers. The all-new, high-resolution, high-contrast Kindle Paperwhite

launched to rave reviews. We integrated the very impressive Goodreads into Kindle, introduced FreeTime for
Kindle, and launched Kindle in India, Mexico, and Australia. Bringing joy to air travelers, the FAA approved the
use of electronic devices during takeoff and landing. Our public policy team, with the help of many allies,
worked patiently for four years on this, at one point loading a test plane with 150 active Kindles. Yes, it all
worked fine!

Joining CreateSpace, Kindle Singles, and Kindle Direct Publishing, is the new service Kindle Worlds, the
literary journal Day One, eight new Amazon Publishing imprints, and the launch of Amazon Publishing in the
UK and Germany. Thousands of authors are already using these services to build fulfilling writing careers. Many
write and tell us how we have helped them send their children to college, pay off medical bills, or purchase a
home. We are missionaries for reading and these stories inspire and encourage us to keep inventing on behalf of
writers and readers.

Prime Instant Video

Prime Instant Video is experiencing tremendous growth across all metrics – including new customers,
repeat usage, and total number of streams. These are output metrics and they suggest we are on a good path,
focusing on the right inputs. Two of the key inputs are the growth of selection and the desirability of that
selection. Since we launched PIV in 2011 with 5,000 titles, we’ve grown selection to more than 40,000 movies
and TV episodes – all included in your Prime membership. PIV has exclusives on hundreds of sought after TV
seasons including Downton Abbey, the ratings blockbuster Under the Dome, The Americans, Justified, Grimm,
Orphan Black, Suits, and kids programs such as SpongeBob SquarePants, Dora the Explorer, and Blue’s Clues.
In addition, our Amazon Studios team continues to invest heavily in original content. Garry Trudeau’s Alpha
House, starring John Goodman, debuted last year and quickly became the most-watched show on Amazon. We

recently greenlit six more originals, including Bosch, by Michael Connelly, The After, from Chris Carter of The
X-Files, Mozart in the Jungle, from Roman Coppola and Jason Schwartzman, and Jill Soloway’s beautiful
Transparent, which some have called the best pilot in years. We like our approach and are replicating it with our
recent rollout of PIV in both the UK and Germany. The early customer response in those countries has been
terrific, surpassing our expectations.

Fire TV

Just this past week, after two years of hard work, our hardware team launched Fire TV. Not only is Fire TV

the best way to watch Amazon’s video offerings, it also embraces non-Amazon content services like Netflix,
Hulu Plus, VEVO, WatchESPN, and many more. Fire TV has big hardware specs in a category that’s previously
been hardware-light. It shows. Fire TV is fast and fluid. And our ASAP technology predicts what you might want
to watch and pre-buffers it, so shows start instantly. Our team also put a small microphone in the remote control.
Hold down the mic button on the remote, and you can speak your search term rather than type it into an alphabet
grid. The team has done a terrific job – the voice search actually works.

In addition to Prime Instant Video, Fire TV gives you instant access to over 200,000 movies and TV
episodes available a la carte, including new releases like Gravity, 12 Years a Slave, Dallas Buyers Club, Frozen,
and more. As a bonus, Fire TV also lets you play high-quality, inexpensive games on your living room TV. We
hope you try it out. If you do, let us know what you think. The team would love to hear your feedback.

Amazon Game Studios

It’s early in the twenty-second century and Earth is threatened by an alien species, the Ne’ahtu.
The aliens infected Earth’s energy grid with a computer virus to disable the planet’s defenses.
Before they could strike, computer science prodigy Amy Ramanujan neutralized the alien virus
and saved the planet. Now, the Ne’ahtu are back and Dr. Ramanujan must prevent them from
launching an all-out invasion on Earth. She needs your help.

That’s how Sev Zero, the first Fire TV exclusive from Amazon Game Studios, begins. The team combined
tower defense with shooter gameplay and created a co-op mode where one player leads on the ground with their
gamepad controller while a second player provides air support from a tablet. I can assure you that there are some
intense moments when you’ll appreciate a well-timed air-strike. When you see it, you may be surprised that this
level of game play is possible on an inexpensive streaming media device. Sev Zero is only the first of a collection
of innovative and graphically beautiful games we’re building from the ground up for Fire tablets and Fire TV.

Amazon Appstore

The Amazon Appstore now serves customers in almost 200 countries. Selection has grown to include over

200,000 apps and games from top developers around the globe – nearly tripling in size over the past year. We
introduced Amazon Coins, a virtual currency that saves customers up to 10% on app and in-app purchases. Our
Whispersync for Games technology lets you start a game on one device and continue it on another without losing
your progress. Developers can use the Mobile Associates program to offer millions of physical products from
Amazon inside their apps, and earn referral fees when customers buy those items. We introduced Appstore
Developer Select, a marketing program that promotes new apps and games on Kindle Fire tablets and on
Amazon’s Mobile Ad Network. We created Analytics and A/B Testing services – free services that empower
developers to track user engagement and optimize their apps for iOS, Android, and Fire OS. Also this year, we
embraced HTML5 web app developers. They too can now offer their apps on Kindle Fire and through the
Amazon Appstore.

Spoken Word Audio

2013 was a landmark year for Audible, the world’s largest seller and producer of audiobooks. Audible
makes it possible for you to read when your eyes are busy. Millions of customers download hundreds of millions
of audiobooks and other spoken-word programming from Audible. Audible customers downloaded close to
600 million listening hours in 2013. Thanks to Audible Studios, people drive to work listening to Kate Winslet,
Colin Firth, Anne Hathaway, and many other stars. One big hit in 2013 was Jake Gyllenhaal’s performance of

The Great Gatsby, which has already sold 100,000 copies. Whispersync for Voice allows customers to switch
seamlessly back and forth between reading a book on their Kindle and listening to the corresponding Audible
book on their smart phone. The Wall Street Journal called Whispersync for Voice “Amazon’s new killer app for
books.” If you haven’t already, I recommend you give it a try – it’s fun and expands the amount of time you have
available to read.

Fresh Grocery

After trialing the service for five years in Seattle (no one accuses us of a lack of patience), we expanded

Amazon Fresh to Los Angeles and San Francisco. Prime Fresh members pay $299 a year and receive same-day
and early morning delivery not only on fresh grocery items but also on over 500,000 other items ranging from
toys to electronics to household goods. We’re also partnering with favorite local merchants (the Cheese Store of
Beverly Hills, Pike Place Fish Market, San Francisco Wine Trading Company, and many more) to provide the
same convenient home delivery on a great selection of prepared foods and specialty items. We’ll continue our
methodical approach – measuring and refining Amazon Fresh – with the goal of bringing this incredible service
to more cities over time.

Amazon Web Services

AWS is eight years old, and the team’s pace of innovation is actually accelerating. In 2010, we launched 61

significant services and features. In 2011, that number was 82. In 2012, it was 159. In 2013: 280. We’re also
expanding our geographic footprint. We now have 10 AWS regions around the world, including the East Coast of
the U.S., two on the West Coast, Europe, Singapore, Tokyo, Sydney, Brazil, China, and a government-only
region called GovCloud. We have 26 availability zones across regions and 51 edge locations for our content
distribution network. The development teams work directly with customers and are empowered to design, build,
and launch based on what they learn. We iterate continuously, and when a feature or enhancement is ready, we
push it out and make it instantly available to all. This approach is fast, customer-centric, and efficient – it’s
allowed us to reduce prices more than 40 times in the past 8 years – and the teams have no plans to slow down.

Employee Empowerment

We challenge ourselves to not only invent outward facing features, but also to find better ways to do things

internally – things that will both make us more effective and benefit our thousands of employees around the
world.

Career Choice is a program where we pre-pay 95% of tuition for our employees to take courses for in-
demand fields, such as airplane mechanic or nursing, regardless of whether the skills are relevant to a career at
Amazon. The goal is to enable choice. We know that for some of our fulfillment center employees, Amazon will
be a career. For others, Amazon might be a stepping stone on the way to a job somewhere else – a job that may
require new skills. If the right training can make the difference, we want to help.

The second program is called Pay to Quit. It was invented by the clever people at Zappos, and the Amazon

fulfillment centers have been iterating on it. Pay to Quit is pretty simple. Once a year, we offer to pay our
associates to quit. The first year the offer is made, it’s for $2,000. Then it goes up one thousand dollars a year
until it reaches $5,000. The headline on the offer is “Please Don’t Take This Offer.” We hope they don’t take the
offer; we want them to stay. Why do we make this offer? The goal is to encourage folks to take a moment and
think about what they really want. In the long-run, an employee staying somewhere they don’t want to be isn’t
healthy for the employee or the company.

A third inward innovation is our Virtual Contact Center. It’s an idea we started a few years back and have

continued to grow with terrific results. Under this program, employees provide customer service support for
Amazon and Kindle customers while working from home. This flexibility is ideal for many employees who,
perhaps because they have young children or for another reason, either cannot or prefer not to work outside the
home. Our Virtual Contact Center is our fastest growing “site” in the U.S., operating in more than ten states
today. This growth will continue as we hope to double our state footprint in 2014.

Veteran Hiring

We seek leaders who can invent, think big, have a bias for action, and deliver results on behalf of customers.

These principles look familiar to men and women who’ve served our country in the armed forces, and we find
that their experience leading people is invaluable in our fast-paced work environment. We’re a member of
Joining Forces and the 100,000 Jobs Mission – two national efforts that encourage businesses to offer service
members and their families career opportunities and support. Our Military Talent team attended more than 50
recruiting events last year to help veterans find job opportunities at Amazon. In 2013, we hired more than 1,900
veterans. And once veterans join our team, we offer several programs that help them transition more easily into
the civilian workforce and that connect them with our internal network of veterans for mentoring and support.
These programs have earned us recognition as a top employer by G.I. Jobs Magazine, U.S. Veterans Magazine,
and Military Spouse Magazine, and we’ll continue to invest in military veteran hiring as we grow.

Fulfillment Innovation

Nineteen years ago, I drove the Amazon packages to the post office every evening in the back of my Chevy

Blazer. My vision extended so far that I dreamed we might one day get a forklift. Fast-forward to today and we
have 96 fulfillment centers and are on our 7th generation of fulfillment center design. Our operations team is
extraordinary – methodical and ingenious. Through our Kaizen program, named for the Japanese term “change
for the better,” employees work in small teams to streamline processes and reduce defects and waste. Our Earth
Kaizens set energy reduction, recycling, and other green goals. In 2013, more than 4,700 associates participated
in 1,100 Kaizens.

Sophisticated software is key in our FCs. This year, we rolled out 280 major software improvements across
the FC network. Our goal is to continue to iterate and improve on the design, layout, technology, and operations
in these buildings, ensuring that each new facility we build is better than the last. I invite you to come see one for
yourself. We offer fulfillment center tours open to the public, ages six and above. You can find info on the
available tours at www.amazon.com/fctours. I’m always amazed when I visit one of our FCs, and I hope you’ll
arrange a tour. I think you’ll be impressed.

Urban Campus

In 2013, we added 420,000 square feet of new headquarters space in Seattle and broke ground on what will
become four city blocks and several million square feet of new construction. It is a fact that we could have saved
money by instead building in the suburbs, but for us, it was important to stay in the city. Urban campuses are
much greener. Our employees are able to take advantage of existing communities and public transit
infrastructure, with less dependence on cars. We’re investing in dedicated bike lanes to provide safe, pollution-
free, easy access to our offices. Many of our employees can live nearby, skip the commute altogether, and walk
to work. Though I can’t prove it, I also believe an urban headquarters will help keep Amazon vibrant, attract the
right talent, and be great for the health and wellbeing of our employees and the city of Seattle.

Fast Delivery

In partnership with the United States Postal Service, we’ve begun for the first time to offer Sunday delivery
to select cities. Sunday delivery is a win for Amazon customers, and we plan to roll it out to a large portion of the
U.S. population throughout 2014. We’ve created our own fast, last-mile delivery networks in the UK where
commercial carriers couldn’t support our peak volumes. In India and China, where delivery infrastructure isn’t
yet mature, you can see Amazon bike couriers delivering packages throughout the major cities. And there is more
invention to come. The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we
are in the design phase on generations 7 and 8.

Experiments and More Experiments

We have our own internal experimentation platform called “Weblab” that we use to evaluate improvements

to our websites and products. In 2013, we ran 1,976 Weblabs worldwide, up from 1,092 in 2012, and 546 in
2011. One recent success is our new feature called “Ask an owner”. It was many years ago that we pioneered the

idea of online customer reviews – customers sharing their opinion on a product to help other customers make an
informed purchase decision. “Ask” is in that same tradition. From a product page, customers can ask any
question related to the product. Is the product compatible with my TV/Stereo/PC? Is it easy to assemble? How
long does the battery last? We then route these questions to owners of the product. As is the case with reviews,
customers are happy to share their knowledge to directly help other customers. Millions of questions have
already been asked and answered.

Apparel and Shoes

Amazon Fashion is booming. Premium brands are recognizing that they can use Amazon to reach fashion-

conscious, high-demo customers, and customers are enjoying the selection, free returns, detailed photos, and
video clips that let them see how clothes move and drape as the models walk and turn. We opened a new 40,000
square foot photo studio in Brooklyn and now shoot an average of 10,413 photos every day in the studio’s
28 bays. To celebrate the opening, we hosted a design contest with students from Pratt, Parsons, School of Visual
Arts, and the Fashion Institute of Technology that was judged by a panel of industry leaders including Steven
Kolb, Eva Chen, Derek Lam, Tracy Reese, and Steven Alan. Kudos to Parsons who took home the top prize.

Frustration-Free Packaging

Our battle against annoying wire ties and plastic clamshells rages on. An initiative that began five years ago

with a simple idea that you shouldn’t have to risk bodily injury opening your new electronics or toys, has now
grown to over 200,000 products, all available in easy-to-open, recyclable packaging designed to alleviate “wrap
rage” and help the planet by reducing packaging waste. We have over 2,000 manufacturers in our Frustration-
Free Packaging program, including Fisher-Price, Mattel, Unilever, Belkin, Victorinox Swiss Army, Logitech, and
many more. We’ve now shipped many millions of Frustration-Free items to 175 countries. We are also reducing
waste for customers – eliminating 33 million pounds of excess packaging to date. This program is a perfect
example of a missionary team staying heads-down focused on serving customers. Through hard work and
perseverance, an idea that started with only 19 products is now available on hundreds of thousands and benefiting
millions of customers.

Fulfillment by Amazon

The number of sellers using Fulfillment by Amazon grew more than 65% last year. Growth like that at such
large scale is unusual. FBA is unique in many ways. It’s not often you get to delight two customer sets with one
program. With FBA, sellers can store their products in our fulfillment centers, and we pick, pack, ship, and
provide customer service for these products. Sellers benefit from one of the most advanced fulfillment networks
in the world, easily scaling their businesses to reach millions of customers. And not just any customers – Prime
members. FBA products can be eligible for Prime free two-day shipping. Customers benefit from this additional
selection – they get even more value out of their Prime membership. And, unsurprisingly, sellers see increased
sales when they join FBA. In a 2013 survey, nearly three out of four FBA respondents reported that their unit
sales increased on Amazon.com more than 20% after joining FBA. It’s a win-win.

“FBA is the best employee I have ever had. … One morning I woke up and realized FBA had
shipped 50 units. As soon as I realized I could sell products while I sleep, it was a no-brainer.”
– Thanny Schuck, Action Sports LLC

“Starting out as an unknown brand, it was difficult to find retailers willing to stock our goods. No
such barriers existed at Amazon. The beauty of Amazon is that someone can say, ‘I want to start a
business,’ and they can go on Amazon and really start a business. You don’t have to get a lease on a
building or even have any employees at first. You can just do it on your own. And that’s what I did.”
– Wendell Morris, YogaRat

For several years we’ve enabled Amazon customers to pay on other sites, such as Kickstarter, SmugMug,
and Gogo Inflight, using the credit cards and shipping addresses already stored in their Amazon account. This

year, we expanded that capability so customers can also sign in using their Amazon account credentials, saving
them the annoyance of needing to remember yet another account name and password. It’s convenient for the
customer and a business builder for the merchant. Cymax Stores, the online furniture retailer, has seen
tremendous success with Login and Pay. It now accounts for 20% of their orders, tripling their new account
registrations, and increasing purchase conversion 3.15% in the first three months. This example isn’t unusual.
We are seeing results like these with many partners, and the team is excited and encouraged. You should look for
more in 2014.

Amazon Smile

In 2013 we launched Amazon Smile – a simple way for customers to support their favorite charitable

organizations every time they shop. When you shop at smile.amazon.com, Amazon donates a portion of the
purchase price to the charity of your choice. You’ll find the same selection, prices, shipping options, and Prime
eligibility on smile.amazon.com as you do on Amazon.com – you’ll even find your same shopping cart and wish
lists. In addition to the large, national charities you would expect, you can also designate your local children’s
hospital, your school’s PTA, or practically any other cause you might like. There are almost a million charities to
choose from. I hope you’ll find your favorite on the list.

The Mayday Button

“Not only is the device awesome but the Mayday feature is absolutely FANTASTIC!!!!! The Kindle team has hit
it out of the park with this one.”

“Just tried the mayday button on my hdx. 15 second response time…amazon has done it again. Thoroughly
impressed.”

Nothing gives us more pleasure at Amazon than “reinventing normal” – creating inventions that customers
love and resetting their expectations for what normal should be. Mayday reimagines and revolutionizes the idea
of on-device tech support. Tap the Mayday button, and an Amazon expert will appear on your Fire HDX and can
co-pilot you through any feature by drawing on your screen, walking you through how to do something yourself,
or doing it for you – whatever works best. Mayday is available 24x7, 365 days a year, and our response time goal
is 15 seconds or less. We beat that goal – with an average response time of only 9 seconds on our busiest day,
Christmas.

A few of the Maydays have been amusing. Mayday Tech Advisors have received 35 marriage proposals
from customers. 475 customers have asked to talk to Amy, our Mayday television personality. 109 Maydays have
been customers asking for assistance with ordering a pizza. By a slim margin, Pizza Hut wins customer
preference over Domino’s. There are 44 instances where the Mayday Tech Advisor has sung Happy Birthday to
the customer. Mayday Tech Advisors have been serenaded by customers 648 times. And 3 customers have asked
for a bedtime story. Pretty cool.

I hope that gives you some sense of the scope of our opportunity and initiatives, as well the inventive spirit

and push for exceptional quality with which they’re undertaken. I should underscore again that this is a subset.
There are many programs I’ve omitted in this letter that are just as promising, consequential, and interesting as
those I’ve highlighted.

We have the good fortune of a large, inventive team and a patient, pioneering, customer-obsessed culture –
great innovations, large and small, are happening everyday on behalf of customers, and at all levels throughout
the company. This decentralized distribution of invention throughout the company – not limited to the company’s
senior leaders – is the only way to get robust, high-throughput innovation. What we’re doing is challenging and
fun – we get to work in the future.

Failure comes part and parcel with invention. It’s not optional. We understand that and believe in failing
early and iterating until we get it right. When this process works, it means our failures are relatively small in size

(most experiments can start small), and when we hit on something that is really working for customers, we
double-down on it with hopes to turn it into an even bigger success. However, it’s not always as clean as that.
Inventing is messy, and over time, it’s certain that we’ll fail at some big bets too.

I’d like to close by remembering Joy Covey. Joy was Amazon’s CFO in the early days, and she left an
indelible mark on the company. Joy was brilliant, intense, and so fun. She smiled a lot and her eyes were always
wide, missing nothing. She was substance over optics. She was a long-term thinker. She had a deep keel. Joy was
bold. She had a profound impact on all of us on the senior team and on the company’s entire culture. Part of her
will always be here, making sure we watch the details, see the world around us, and all have fun.

I feel super lucky to be a part of the Amazon team. 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.
April 2014

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)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

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
Common Stock, par value $.01 per share

Name of Each Exchange on Which Registered
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

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

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

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

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, a non-accelerated filer, or a smaller reporting company. See

definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
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

Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2013
Number of shares of common stock outstanding as of January 17, 2014

102,548,300,912
459,264,535

____________________________________

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 2014, 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, 2013

INDEX

PART I

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Properties

Legal Proceedings

Mine Safety Disclosures

PART II

Market for the Registrant's Common Stock, Related Shareholder Matters, and Issuer Purchases of
Equity Securities
Selected Consolidated Financial Data

Management's Discussion and Analysis of Financial Condition and Results of Operation

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

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Directors, Executive Officers, and Corporate Governance

Executive Compensation

PART III

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Certain Relationships and Related Transactions

Principal Accountant Fees and Services

Item 15.

Exhibits, Financial Statement Schedules

Signatures

PART IV

Page

15
16

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. We seek to be Earth’s most customer-centric

company. In each of our two geographic segments, we serve our primary customer sets, consisting of consumers, sellers,
enterprises, and content creators. In addition, we provide services, such as advertising services and co-branded credit card
agreements.

We manage our business primarily on a geographic basis. Accordingly, we have organized our operations into two
segments: North America and International. While each reportable operating segment provides similar products and services, a
majority of our technology costs are incurred in the U.S. and allocated to our North America segment. Additional information
on our operating segments and product information is contained in Item 8 of Part II, “Financial Statements and Supplementary
Data—Note 12—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. Customers
access our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices. We
strive to offer our customers the lowest prices possible through low everyday product pricing and shipping offers, 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. In addition, we offer Amazon Prime, an annual
membership program that includes unlimited free shipping on millions of items, access to unlimited instant streaming of
thousands of movies and TV episodes, and access to hundreds of thousands of books to borrow and read for free on a Kindle
device.

We fulfill customer orders in a number of ways, including through the North America 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 technology

infrastructure services that enable virtually any type of business.

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, along with Amazon’s
own publishing arm, Amazon Publishing. We also offer programs that allow authors, musicians, filmmakers, app developers,
and others to publish and sell content.

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) 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, customer service, and payment
processing; (5) companies that provide information storage or computing services or products, including infrastructure and
other web services; and (6) companies that design, manufacture, market, or sell consumer electronics, telecommunication, and
electronic 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 34%, 35%, and 36% of our annual revenue during the fourth quarter of 2013, 2012,
and 2011.

Employees

We employed approximately 117,300 full-time and part-time employees as of December 31, 2013. However, employment

levels fluctuate due to seasonal factors affecting our business. Additionally, we utilize independent contractors and temporary
personnel to supplement our workforce. We have works councils and statutory employee representation obligations in certain
countries. Except where required by law, unions are not the collective bargaining representatives of our employees in any
facility with more than five employees. 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.

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 17, 2014:

Executive Officers

Name
Jeffrey P. Bezos
Jeffrey M. Blackburn
Andrew R. Jassy
Diego Piacentini
Shelley L. Reynolds
Thomas J. Szkutak
H. Brian Valentine
Jeffrey A. Wilke
David A. Zapolsky

Age

Position

50 President, Chief Executive Officer, and Chairman of the Board
44 Senior Vice President, Business Development
46 Senior Vice President, Web Services
53 Senior Vice President, International Consumer Business
49 Vice President, Worldwide Controller, and Principal Accounting Officer
53 Senior Vice President and Chief Financial Officer
54 Senior Vice President, Ecommerce Platform
47 Senior Vice President, Consumer Business
50 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.

Andrew R. Jassy. Mr. Jassy has served as Senior Vice President, Web Services, since April 2006.

Diego Piacentini. Mr. Piacentini has served as Senior Vice President, International Consumer Business, since February

2012, and as Senior Vice President, International Retail, from January 2007 until February 2012.

Shelley L. Reynolds. Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal Accounting

Officer since April 2007.

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, Consumer Business, since February 2012, and as

Senior Vice President, North America Retail, from January 2007 until February 2012.

David A. Zapolsky. Mr. Zapolsky has served as Vice President, General Counsel, and Secretary since September 2012,
and as Vice President and Associate General Counsel for Litigation and Regulatory matters from April 2002 until September
2012.

Board of Directors

Name
Jeffrey P. Bezos
Tom A. Alberg
John Seely Brown
William B. Gordon
Jamie S. Gorelick
Alain Monié
Jonathan J. Rubinstein
Thomas O. Ryder
Patricia Q. Stonesifer

Age

Position

50 President, Chief Executive Officer, and Chairman of the Board
73 Managing Director, Madrona Venture Group
73 Visiting Scholar and Advisor to the Provost, University of Southern California
63 Partner, Kleiner Perkins Caufield & Byers
63 Partner, Wilmer Cutler Pickering Hale and Dorr LLP
63 Chief Executive Officer, Ingram Micro Inc.
57 Former Chairman and CEO, Palm, Inc.
69 Retired, Former Chairman, Reader’s Digest Association, Inc.
57 President and Chief Executive Officer, Martha's Table

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 electronic devices, and web and infrastructure computing services.
Some of our current and potential competitors have greater resources, longer histories, more customers, and/or 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 to become competitive with our business. In addition, new and enhanced technologies, including
search, web and infrastructure computing services, digital content, and electronic devices, 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, 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:

•

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, electronic devices, and web services, including
outside the U.S.;

•

timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure;

•

the success of our geographic, service, and product line expansions;

the extent to which we finance, and the terms of any such financing for, our current operations and future growth;

the outcomes of legal proceedings and claims, which may include significant monetary damages or injunctive relief
and could have a material adverse impact on our operating results;

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 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;

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, outages, 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:

•

local economic and political conditions;

government regulation of e-commerce and other services, electronic devices, and competition, 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, web services, 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, payments, 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 works 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 international e-commerce and other online and web services grow, 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.

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 and services. 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 access sufficient funding or 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 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 retail vendors that extend beyond the amount of time necessary to collect

proceeds from our consumer customers. As a result of holiday sales, as of 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 as
of 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 and other services to businesses through commercial agreements, strategic alliances, and
business relationships. Under these agreements, we provide web services, technology, fulfillment, computing, digital storage,
and other services, as well as enable sellers to offer products or services through our websites. These arrangements are complex
and require substantial infrastructure capacity, personnel, and other resource commitments, which may limit the amount of
business we can service. We may not be able to implement, maintain, and develop the components of these commercial
relationships, which may include web services, fulfillment, customer service, inventory management, tax collection, payment
processing, hardware, content, and third-party software, and engaging third parties to perform services. The amount of
compensation we receive under certain of our commercial 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:

•

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;

additional operating losses and expenses of the businesses we acquired or in which we invested;

the potential impairment of tangible and intangible assets and goodwill, including as a result of 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 and

product and service offerings 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, British Pounds, and Chinese Yuan. 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, including
breaches of our vendors’ technology and systems, 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. We use third party technology and systems for a variety of reasons, including, without limitation, encryption and
authentication technology, employee email, content delivery to customers, back-office support, and other functions. Some
subsidiaries had past security breaches, and, although they did not have a material adverse effect on our operating results, there
can be no assurance of a similar result in the future. Although we have developed systems and processes that are designed to
protect customer information and prevent data loss and other security breaches, including systems and processes designed to
reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security.

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.

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. 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:

•

changes in interest rates;

conditions or trends in the Internet and the industry segments we operate in;

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, electronic devices, and other services. 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, energy consumption, environmental regulation, electronic
contracts and other communications, competition, 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 or administrative practices that attempt
to impose obligations on out-of-state retailers to collect taxes on their behalf. We support a Federal law that would allow states
to 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 provision and accruals for these taxes. During the ordinary course of business, there are many
transactions for which the ultimate tax determination is uncertain. 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 (including integrations) and investments, by changes in the valuation of our deferred tax
assets and liabilities, or by changes in the relevant tax, accounting and other laws, regulations, administrative practices,
principles, and interpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The
United States, many countries in the European Union, and a number of other countries are actively considering changes in this
regard. In addition, 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,
litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations 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, and in some cases, limited or single-sources of supply, 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.

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 cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment
upon delivery. For existing and future payment options we offer to our customers, we may become 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, which could adversely affect our operating results if terminated.

In addition, we provide regulated services 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 and capital
maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also
subject to or voluntarily comply with a number of other laws and regulations relating to payments, 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 additional requirements and civil and criminal penalties, or
forced to cease providing certain services.

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, 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

Item 2.

Properties

As of December 31, 2013, we operated the following facilities (in thousands):

Description of Use
Owned office space
Leased office space
Leased office space
Sub-total
Owned fulfillment, data centers, and other
Leased fulfillment, data centers, and other
Owned fulfillment, data centers, and other
Leased fulfillment, data centers, and other
Sub-total
Total

___________________

Square
Footage (1)

Location

Lease
Expirations (1)

1,802 North America
4,485 North America
3,002
9,289

International

329 North America
48,013 North America

International
International

122
36,131
84,595
93,884

From 2014 through 2028
From 2014 through 2027

From 2014 through 2028

From 2014 through 2033

(1) For leased properties, represents the total leased space excluding sub-leased space.

We own and lease our corporate headquarters in Seattle, Washington. Additionally, we own and 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 8—Commitments and Contingencies—

Legal Proceedings.”

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of 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, 2012

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year ended December 31, 2013

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Holders

High

Low

209.85
233.84
264.11
263.11

284.72
283.34
320.57
405.63

172.00
183.65
212.61
218.18

252.07
245.75
277.16
296.50

As of January 17, 2014, there were 2,922 shareholders of record of our common stock, although there is 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

None.

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 (loss)
Basic earnings per share (1)
Diluted earnings per share (1)
Weighted average shares used in computation of
earnings per share:
Basic
Diluted
Statements of Cash Flows:
Net cash provided by (used in) operating activities
Purchases of property and equipment, including
internal-use software and website development

Free cash flow (2)

Balance Sheets:
Total assets
Total long-term obligations

___________________

Year Ended December 31,

2013

2012

2011

2010

2009

(in millions, except per share data)

74,452
745
274
0.60
0.59

$
$
$
$
$

$
61,093
676
$
(39) $
(0.09) $
(0.09) $

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

457
465

453
453

453
461

447
456

433
442

5,475

4,180

3,903

3,495

3,293

(3,444)
2,031

(3,785)
395

(1,811)
2,092

(979)
2,516

(373)
2,920

2013

2012

2011

2010

2009

December 31,

(in millions)

40,159
7,433

$
$

32,555
5,361

$
$

25,278
2,625

$
$

18,797
1,561

$
$

13,813
1,192

$
$
$
$
$

$
$

(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 cash
expenditures for purchases of property and equipment, 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.”

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 and data 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 electronic 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, 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, partially 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 long-term 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 476 million and 470 million as of December 31, 2013 and 2012.

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, costs necessary to run AWS, and a portion of our marketing costs. Our fixed costs
include the costs necessary to run our technology infrastructure; to build, enhance, and add features to our websites and web
services, our electronic 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.
_______________________
(1)

Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less cash
expenditures for purchases of property and equipment, including 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.
Working capital consists of accounts receivable, inventory, and accounts payable.

(2)

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 9, 9, and 10 for 2013, 2012, and 2011. 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 and selection of product offerings, 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, 76, and 74 for 2013,
2012, and 2011. 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, designers, software
and hardware engineers, and merchandising employees. We seek to efficiently invest in several areas of technology and content
such as web services, expansion of new and existing product categories and offerings, and initiatives to expand our ecosystem
of digital products and services, as well as in technology infrastructure to enhance the customer experience and improve our
process efficiencies. We believe that advances in technology, specifically the speed and reduced cost of processing power 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 electronic 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.

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.
_______________________
(3)

The operating cycle is the number of days of sales in inventory plus the 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.

(4)
(5)

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 and changes in our estimates and assumptions may cause us to realize material
write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of
December 31, 2013, we would have recorded an additional cost of sales of approximately $79 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 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. 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, 2013 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 whether credit or stock price
changes are a short-term swing or a longer-term trend. We have not made any significant changes to the accounting
methodology used to evaluate goodwill impairment. Changes in our estimated future cash flows and asset fair values may cause
us to realize material impairment charges in the future. As a measure of sensitivity, a prolonged 20% decrease from our
December 31, 2013 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. We have not made any significant changes to the accounting methodology used to evaluate
stock-based compensation. Changes in our estimates and assumptions may cause us to realize material changes in stock-based
compensation expense in the future. As a measure of sensitivity, a 1% change to our estimated forfeiture rate would have had
an approximately $32 million impact on our 2013 operating income. Our estimated forfeiture rate as of December 31, 2013 and
2012 was 27%.

We utilize the accelerated method, rather than the straight-line method, for recognizing compensation expense. For
example, over 50% of the compensation cost related to an award vesting ratably over four years is expensed in the first year. If
forfeited early in the life of an award, the compensation expense adjustment is much greater under an accelerated method than
under a straight-line method.

Income Taxes

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating and estimating our provision and accruals for these taxes. During the ordinary course of business, there are many
transactions for which the ultimate tax determination is uncertain. 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, losses incurred in jurisdictions for which we are not able to realize the related tax benefit,
changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses,
acquisitions (including integrations) and investments, changes in the valuation of our deferred tax assets and liabilities, or
changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations,
including fundamental changes to the tax laws applicable to corporate multinationals. The U.S., many countries in the
European Union, and a number of other countries are actively considering changes in this regard. In addition, 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, litigation, or the relevant laws, regulations,
administrative practices, principles, and interpretations 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.

Liquidity and Capital Resources

Cash flow information is as follows (in millions):

Cash provided by (used in):

Operating activities
Investing activities
Financing activities

Year Ended December 31,

2013

2012

2011

5,475
(4,276)
(539)

4,180
(3,595)
2,259

3,903
(1,930)
(482)

Our financial focus is on long-term, sustainable growth in free cash flow. Free cash flow, a non-GAAP financial measure,

was $2.0 billion for 2013, compared to $395 million and $2.1 billion for 2012 and 2011. See “Results of Operations—Non-
GAAP Financial Measures” below for a reconciliation of free cash flow to cash provided by operating activities. The increase
in free cash flow for 2013, compared to the comparable prior year period, was primarily due to higher operating cash flows and
decreased capital expenditures. The decrease in free cash flow for 2012, compared to the comparable prior year period, was due
to increased capital expenditures, including a $1.4 billion purchase of property in December 2012, partially offset by higher
operating cash flows. 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 net income (loss). 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 $12.4 billion, $11.4 billion, and $9.6 billion as of December 31, 2013,
2012, and 2011. Amounts held in foreign currencies were $5.6 billion, $5.1 billion, and $4.1 billion as of December 31, 2013,
2012, and 2011, and were primarily Euros, British Pounds, Japanese Yen, and Chinese Yuan.

Cash provided by operating activities was $5.5 billion, $4.2 billion, and $3.9 billion in 2013, 2012, and 2011. Our

operating cash flows result primarily from cash received from our consumer, seller, and enterprise customers, advertising
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. The increase in
operating cash flow in 2013, compared to the comparable prior year period, was primarily due to the increase in net income,
excluding depreciation, amortization, and stock-based compensation, partially offset by changes in working capital. The
increase in operating cash flow in 2012, compared to the comparable prior year period, was primarily due to the increase in net
income, excluding depreciation, amortization, and stock-based compensation, additions to unearned revenue, and changes in
working capital, partially offset by increased tax benefits on excess stock-based compensation deductions.

Cash provided by (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 provided by (used in) investing
activities was $(4.3) billion, $(3.6) billion, and $(1.9) billion in 2013, 2012, and 2011, with the variability caused primarily by
changes in capital expenditures, purchases, maturities, and sales of marketable securities and other investments, and changes in
cash paid for acquisitions. Capital expenditures were $3.4 billion, $3.8 billion, and $1.8 billion during 2013, 2012, and 2011. In
December 2012, we acquired 11 buildings comprising 1.8 million square feet of our previously leased corporate office space
and three city blocks in Seattle, Washington for $1.4 billion. Excluding this acquisition, increases in capital expenditures
primarily reflect additional capacity to support our fulfillment operations and additional investments in support of continued
business growth due to investments in technology infrastructure, including AWS, during all three periods. We expect this trend
to continue over time. Capital expenditures included $493 million, $381 million, and $256 million for internal-use software and
website development during 2013, 2012, and 2011. Stock-based compensation capitalized for internal-use software and website
development costs does not affect cash flows. In 2013, 2012, and 2011, we made cash payments, net of acquired cash, related
to acquisition and other investment activity of $312 million, $745 million, and $705 million.

Cash provided by (used in) financing activities was $(539) million, $2.3 billion, and $(482) million in 2013, 2012, and

2011. Cash outflows from financing activities result from common stock repurchases, payments on obligations related to
capital leases and leases accounted for as financing arrangements, 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 $1.0

billion, $588 million, and $444 million in 2013, 2012, and 2011. Property and equipment acquired under capital leases were
$1.9 billion, $802 million, and $753 million in 2013, 2012, and 2011, with the increases primarily reflecting additional
investments in support of continued business growth due to investments in technology infrastructure, including AWS. We
repurchased 5.3 million shares of common stock for $960 million in 2012 and 1.5 million shares of common stock for $277
million in 2011 under the $2.0 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 tax benefits relating to excess stock-based
compensation deductions. Proceeds from long-term debt and other were $394 million, $3.4 billion, and $177 million in 2013,
2012, and 2011. During 2012, cash inflows from financing activities consisted primarily of net proceeds from the issuance of
$3.0 billion of senior nonconvertible unsecured debt in three tranches: $750 million of 0.65% notes due in 2015; $1.0 billion of
1.20% notes due in 2017; and $1.3 billion of 2.50% notes due in 2022. See Item 8 of Part II, “Financial Statements and
Supplementary Data—Note 6—Long-Term Debt” for additional discussion of the notes. 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 $78 million, $429 million, and $62 million in 2013, 2012, and 2011.

In 2013, 2012, and 2011 we recorded net tax provisions of $161 million, $428 million, and $291 million. 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. If our intent
changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of
these undistributed earnings. As of December 31, 2013, cash held by foreign subsidiaries was $4.6 billion, which include
undistributed earnings of foreign subsidiaries indefinitely invested outside of the U.S. of $2.5 billion. We have tax benefits
relating to excess stock-based compensation deductions and accelerated depreciation deductions that are being utilized to
reduce our U.S. taxable income. Accelerated depreciation deductions on qualifying property were a result of U.S. legislation
that expired in December 2013. As such, cash taxes paid (net of refunds) were $169 million, $112 million, and $33 million for
2013, 2012, and 2011. As of December 31, 2013, our federal net operating loss carryforward was approximately $275 million
and we had approximately $295 million of federal tax credits potentially available to offset future tax liabilities. The U.S.
federal research and development credit expired in December 2013. As 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.

Our liquidity is also affected by restricted cash balances that are pledged as collateral for standby letters of credit,
guarantees, debt, and real estate lease agreements. As of December 31, 2013 and 2012, restricted cash, cash equivalents, and
marketable securities were $301 million and $99 million. To the extent we process payments for third-party sellers or offer
certain types of stored value to our customers, some states may restrict our use of those funds. This restriction would result in
the reclassification of a portion of our cash and cash equivalents from “Cash and cash equivalents” to “Accounts receivable, net
and other” on our consolidated balance sheets. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 8—
Commitments and Contingencies” for additional discussion of our principal contractual commitments, as well as our pledged
assets. Purchase obligations and open purchase orders, consisting of inventory and significant non-inventory commitments,
were $4.4 billion as of December 31, 2013. Purchase obligations and open purchase orders are generally cancellable in full or
in part through the contractual provisions.

On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers

come due. Inventory turnover was 9, 9, and 10 for 2013, 2012, and 2011. 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 and selection of product offerings, our investment in new geographies and product
lines, and the extent to which we choose to utilize outsource fulfillment providers.

We believe that cash flows generated from operations and our 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 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 segments: North America and International. We present our segment
information along the same lines that our Chief Executive Officer 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 such as AWS,
advertising services, and our co-branded credit card agreements. Amazon Prime membership fees are allocated between
product sales and services sales. Net sales information is as follows (in millions):

Net Sales:

North America

International

Consolidated

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

Consolidated

Year Ended December 31,

2013

2012

2011

44,517

29,935
74,452

34,813

26,280
61,093

26,705

21,372
48,077

28%

60%

100%

30%

57%

100%

43%

56%

100%

Sales grew 22%, 27%, and 41% in 2013, 2012, and 2011, compared to the comparable prior year periods. Changes in

currency exchange rates impacted net sales by $(1.3) billion, $(854) million, and $1.1 billion for 2013, 2012, and 2011. For a
discussion of the effect on sales growth of exchange rates, see “Effect of Exchange Rates” below.

North America sales grew 28%, 30%, and 43% in 2013, 2012, and 2011, compared to the comparable prior year periods.
The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers. Increased unit sales
were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by 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.

International sales grew 14%, 23%, and 38% in 2013, 2012, and 2011, compared to the comparable prior year periods.

The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers. Increased unit sales
were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by 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 impacted International net sales
by $(1.3) billion, $(853) million, and $1.1 billion in 2013, 2012, and 2011. We expect that, over time, our International segment
will represent 50% or more of our consolidated net sales. See Item 8 of Part II, “Financial Statements and Supplementary Data
—Note 12—Segment Information” for net sales attributed to foreign countries.

Supplemental Information

Supplemental information about outbound shipping results is as follows (in millions):

Outbound Shipping Activity:

Shipping revenue (1)(2)(3)

Shipping costs

Net shipping cost

Year-over-year Percentage Growth:

Shipping revenue

Shipping costs

Net shipping cost

Percent of Net Sales:

Shipping revenue

Shipping costs

Net shipping cost

Year Ended December 31,

2013

2012

2011

3,097

(6,635)

(3,538)

2,280

(5,134)

(2,854)

1,552

(3,989)

(2,437)

36 %

4.1 %

(8.9)
(4.8)%

47 %

3.7 %

(8.4)
(4.7)%

30 %

3.2 %

(8.3)
(5.1)%

___________________
(1)
(2)
(3)

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.
Shipping revenue for the years ended December 31, 2013 and 2012 include amounts earned from Fulfillment by
Amazon programs related to shipping services.

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, our product mix shifts to the electronics and other general merchandise category, we reduce shipping
rates, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over
time in part through achieving higher sales volumes, optimizing placement of fulfillment centers, 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.

Net sales by similar products and services were as follows (in millions):

Net Sales:

North America

Media

Electronics and other general merchandise

Other (1)

Total North America

International

Media

Electronics and other general merchandise

Other (1)

Total International

Consolidated

Media

Electronics and other general merchandise

Other (1)

Total consolidated

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

Total consolidated

Year Ended December 31,

2013

2012

2011

10,809

29,985

3,723

44,517

10,907

18,817

211

29,935

21,716

48,802

3,934

9,189

23,273

2,351

34,813

10,753

15,355

172

26,280

19,942

38,628

2,523

74,452

61,093

7,959

17,315

1,431

26,705

9,820

11,397

155

21,372

17,779

28,712

1,586

48,077

18%

12%

29%

100%

15%

12%

14%

33%

100%

16%

23%

19%

16%

37%

100%

___________________
(1)

Includes sales from non-retail activities, such as AWS sales, which are included in the North America segment, and
advertising services and our co-branded credit card agreements, which are included in both segments.

Operating Expenses

Information about operating expenses with and without stock-based compensation is as follows (in millions):

Operating Expenses:

Cost of sales

Fulfillment

Marketing

Technology and content

General and administrative

Other operating expense (income), net

Year Ended December 31, 2013

Year Ended December 31, 2012

Year Ended December 31, 2011

As
Reported

Stock-Based
Compensation

Net

As
Reported

Stock-Based
Compensation

Net

As
Reported

Stock-Based
Compensation

Net

54,181

—

54,181

45,971

—

45,971

37,288

—

37,288

8,585

3,133

6,565

1,129

114

(294)

(88)

(603)

(149)

—

8,291

3,045

5,962

980

114

6,419

2,408

4,564

896

159

(212)

(61)

(434)

(126)

—

6,207

2,347

4,130

770

159

4,576

1,630

2,909

658

154

(133)

(39)

(292)

(93)

—

4,443

1,591

2,617

565

154

Total operating expenses

73,707

(1,134)

72,573

60,417

(833)

59,584

47,215

(557)

46,658

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

34%

11.5%

4.2

8.8

1.5

34%

40%

58%

11.1%

10.5%

10.2%

9.5%

4.1

8.0

1.3

3.9

7.5

1.5

3.8

6.8

1.3

3.4

6.1

1.4

58%

9.2%

3.3

5.4

1.2

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,
including Prime Instant Video, 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 2013, 2012, and 2011, compared to the comparable prior year periods,

is primarily due to increased product, digital content, and shipping costs resulting from increased sales, as well as from
expansion of digital offerings.

Consolidated gross profit and gross margin for each of the periods presented were as follows:

Gross profit (in millions)

Gross margin

Year Ended December 31,

2013

2012

2011

20,271

15,122

10,789

27.2%

24.8%

22.4%

Gross margin increased in 2013, compared to the comparable prior year periods, primarily due to services sales
increasing as a percentage of total sales. Services sales represent third-party seller fees earned (including commissions) and
related shipping fees, and non-retail activities such as AWS, advertising services, and our co-branded credit card agreements.
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.

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
26

and enhancements to our customer self-service features. Additionally, because payment processing and fulfillment costs
associated with seller transactions are based on the gross purchase price of underlying transactions, and payment processing
and related transaction and fulfillment 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 2013, 2012, and 2011, compared to the comparable prior year
periods, is primarily due to variable costs corresponding with increased 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 2013, 2012, and 2011, compared to the comparable prior year
periods, is primarily due to increased spending on online marketing channels, such as our sponsored search programs and our
Associates program, payroll and related expenses, and television 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 such as technology infrastructure, including AWS,

expansion of new and existing product categories and offerings, and initiatives to expand our ecosystem of digital products and
services, as well as in technology infrastructure so we may continue to enhance the customer experience and improve our
process efficiency. We expect spending in technology and content to increase over time as we continue to add employees and
technology infrastructure.

The increase in technology and content costs in absolute dollars in 2013, 2012, and 2011, compared to the comparable

prior year periods, is primarily due to increases in payroll and related expenses, including those associated with our initiatives
to expand our ecosystem of digital products and services, and increased spending on technology infrastructure, including AWS.
We expect these trends to continue over time as we invest in these areas by increasing payroll and related expenses and adding
technology infrastructure.

For 2013, 2012, and 2011, we capitalized $581 million (including $87 million of stock-based compensation), $454

million (including $74 million of stock-based compensation), and $307 million (including $51 million of stock-based
compensation) of costs associated with internal-use software and website development. Amortization of previously capitalized
amounts was $451 million, $327 million, and $236 million for 2013, 2012, and 2011. A majority of our technology costs are
incurred in the U.S., most of which are allocated to our North America segment. Infrastructure, other technology, and operating
costs incurred to support AWS are included in technology and content.

General and Administrative

The increase in general and administrative costs in absolute dollars in 2013, 2012, and 2011, compared to the comparable

prior year periods, is primarily due to increases in payroll and related expenses.

Stock-Based Compensation

Stock-based compensation was $1.1 billion, $833 million, and $557 million during 2013, 2012, and 2011. The increase in

2013, 2012, and 2011, compared to the comparable prior year periods, is primarily due to an increase in the number of stock-
based compensation awards granted to existing and new employees.

Other Operating Expense (Income), Net

Other operating expense (income), net was $114 million, $159 million, and $154 million during 2013, 2012, and 2011,

and was primarily related to the amortization of intangible assets, partially offset by the settlement of certain unclaimed
property and indemnification claims in Q3 2013.

Income from Operations

For the reasons discussed above, income from operations increased 10% in 2013, decreased 22% in 2012, and decreased

39% in 2011.

Interest Income and Expense

Our interest income was $38 million, $40 million, and $61 million during 2013, 2012, and 2011. 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 components of our interest expense are related to our long-term debt and capital and financing lease

arrangements. Interest expense was $141 million, $92 million, and $65 million in 2013, 2012, and 2011.

Our long-term debt was $3.2 billion and $3.1 billion as of December 31, 2013 and 2012. Our other long-term liabilities

were $4.2 billion and $2.3 billion as of December 31, 2013 and 2012. See Item 8 of Part II, “Financial Statements and
Supplementary Data—Note 6—Long-Term Debt and Note 7—Other Long-Term Liabilities” for additional information.

Other Income (Expense), Net

Other income (expense), net was $(136) million, $(80) million, and $76 million during 2013, 2012, and 2011. The

primary component of other income (expense), net is related to foreign-currency gains (losses) on intercompany balances.

Income Taxes

Our effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and

taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do business, acquisitions
(including integrations) and investments, audit developments, foreign currency gains (losses), changes in law, regulations, and
administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized.

We recorded a provision for income taxes of $161 million, $428 million, and $291 million in 2013, 2012, and 2011. Our

effective tax rate in 2013 was lower than the 35% U.S. federal statutory rate and our effective tax rate in 2012 primarily due to
the favorable impact of earnings in lower tax rate jurisdictions, a decline in the proportion of our losses for which we may not
realize a related tax benefit, and the retroactive extension of the U.S. federal research and development credit, which expired in
December 2013. The favorable impact of earnings in lower tax rate jurisdictions primarily relates to our European operations,
which are headquartered in Luxembourg. Losses for which we may not realize a related tax benefit, primarily due to losses of
foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our tax expense, and therefore increase
our effective tax rate. In 2013, we recognized tax benefits for a greater proportion of these losses as compared to 2012. We have
recorded valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax
benefit.

In 2012, our effective tax rate was higher than the 35% U.S. federal statutory rate and our effective tax rate in 2011
primarily due to the adverse impact of foreign jurisdiction losses of subsidiaries primarily located outside of Europe for which
we may not realize a tax benefit. The adverse impact of these losses was partially offset by the favorable impact of earnings in
lower tax rate jurisdictions primarily related to our European operations. Additionally, our effective tax rate in 2012 was more
volatile as compared to 2011 due to the lower level of pre-tax income generated during the year, relative to our tax expense.
Our effective tax rate in 2012 was also adversely impacted by acquisitions (including integrations), audit developments,
nondeductible expenses, and changes in tax law such as the expiration of the U.S. federal research and development credit at
the end of 2011.

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, 2013, our federal net operating loss carryforward was approximately $275 million and we
had approximately $295 million of federal tax credits potentially available to offset future tax liabilities.

Equity-Method Investment Activity, Net of Tax

Equity-method investment activity, net of tax, was $(71) million, $(155) million, and $(12) million in 2013, 2012, and

2011. Details of the activity are provided below (in millions):

Equity in earnings (loss) of LivingSocial:

Impairment charges recorded by LivingSocial

Gain on existing equity interests, LivingSocial acquisitions

Operating and other losses

Total equity in earnings (loss) of LivingSocial

Other equity-method investment activity:

Amazon dilution gains on LivingSocial investment

Recovery on sale of equity position

Other, net

Total other equity-method investment activity

Equity-method investment activity, net of tax

Effect of Exchange Rates

Year Ended December 31,

2013

2012

2011

(12) $
—
(58)
(70)

—

—
(1)
(1)
(71) $

(170) $
75
(96)
(191)

—
(1)
36
(155) $

—

—
(178)
(178)

114

166
(12)

The effect on our consolidated statements of operations from changes in exchange rates versus the U.S. Dollar is as

follows (in millions):

Net sales

Operating expenses

Income from operations

Year Ended December 31, 2013

Year Ended December 31, 2012

Year Ended December 31, 2011

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

75,736

(1,284)

74,452

61,947

(854)

61,093

46,985

1,092

48,077

74,962

(1,255)

73,707

61,257

(840)

60,417

46,176

1,039

47,215

774

(29)

745

690

(14)

676

809

862

___________________
(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.
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.

(2)

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 statements 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.

Free cash flow, which we reconcile to “Net cash provided by (used in) operating activities,” is cash flow from operations

reduced by “Purchases of property and equipment, including internal-use software and website development,” which are
included in cash flow from investing activities. 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 flow from operations since purchases of property and equipment, including internal-use software and website
development, 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
debt, property and equipment acquired under capital leases and other leases accounted for as financing arrangements, or cash
29

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 (used

in) operating activities,” for 2013, 2012, and 2011 (in millions):

Net cash provided by (used in) operating activities

Purchases of property and equipment, including internal-use software and website
development

Free cash flow

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Year Ended December 31,

2013

2012

2011

5,475

4,180

3,903

(3,444)
2,031
$
(4,276) $
(539) $

(3,785)
395
$
(3,595) $
$
2,259

(1,811)
2,092
(1,930)
(482)

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 expenses 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,” “Marketing,” “Technology and content,” 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 30, 2014, 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 30, 2014, and are subject to substantial
uncertainty. 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, as well as those outlined in Item 1A of Part I, “Risk Factors.”

First Quarter 2014 Guidance

• Net sales are expected to be between $18.2 billion and $19.9 billion, or to grow between 13% and 24%

compared with first quarter 2013.

• Operating income (loss) is expected to be between $(200) million and $200 million, compared to $181 million in

first quarter 2013.

• This guidance includes approximately $350 million for stock-based compensation and amortization of intangible

assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings,
or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

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 and our long-term
debt. 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 as of
December 31, 2013 (in millions, except percentages):

Money market funds

$ 5,914

$ — $ — $ — $ — $

— $ 5,914

5,914

2014

2015

2016

2017

2018

Thereafter

Total

Estimated
Fair Value as
of December
31, 2013

Weighted average interest rate

Corporate debt securities

0.12%

158

—%

267

—%

247

—%

Weighted average interest rate

0.56%

0.70%

1.02%

1.65%

1.62%

U.S. government and agency
securities

1,141

544

348

151

Weighted average interest rate

0.20%

0.47%

0.98%

1.30%

2.40%

Asset backed securities

Weighted average interest rate

0.57%

0.72%

1.01%

Foreign government and agency
securities

289

351

—

—%

—

—%

Weighted average interest rate

0.19%

0.22%

0.35%

0.64%

1.49%

Other securities

Weighted average interest rate

0.68%

0.79%

1.10%

1.57%

—

—%

—

—%

—

—%

—

—%

—

—%

—

—%

Cash equivalent and marketable
fixed income securities

$ 7,307

$ 1,134

978

204

— $ 9,670

0.12%

718

0.84%

741

2,209

2,222

0.49%

0.75%

729

0.30%

0.91%

758

9,736

As of December 31, 2013, we had $3.9 billion of debt, including the current portion, primarily consisting of fixed rate

unsecured debt in three tranches: $750 million of 0.65% notes due in 2015; $1.0 billion of 1.20% notes due in 2017; and $1.3
billion of 2.50% notes due in 2022. The fair value of our debt will fluctuate with movements of interest rates, increasing in
periods of declining rates of interest and declining in periods of increasing rates of interest. Based upon quoted market prices
and Level 2 inputs, the fair value of our debt was $3.9 billion as of December 31, 2013.

Foreign Exchange Risk

During 2013, net sales from our International segment accounted for 40% 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, Japanese Yen, and Chinese Yuan. 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 2013, International segment revenues decreased $1.3 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 as of December 31, 2013, of $5.6 billion, an assumed 5%, 10%, and 20%
negative currency movement would result in fair value declines of $280 million, $560 million, and $1.1 billion. All investments
are classified as “available-for-sale.” Fluctuations in fair value are recorded in “Accumulated other comprehensive 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 as of December 31, 2013, an assumed 5%, 10%, and 20% adverse change to foreign exchange
would result in losses of $55 million, $120 million, and $270 million, recorded to “Other income (expense), net.”

See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—

Results of Operations—Effect of Exchange Rates” for additional information on the effect on reported results of changes in
exchange rates.

Investment Risk

As of December 31, 2013, our recorded basis in equity investments was $127 million. These investments primarily relate

to equity and cost 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.

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 Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements

Page

34
35
36
37
38
39
40

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, 2013 and 2012,

and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements 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 also 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, 2013 and 2012, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting
principles.

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, 2013, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework) and our report dated January 30, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Seattle, Washington
January 30, 2014

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

8,084

5,269

3,777

Year Ended December 31,

2013

2012

2011

OPERATING ACTIVITIES:

Net income (loss)

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

Depreciation of property and equipment, 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

Net cash provided by (used in) operating activities

INVESTING ACTIVITIES:

Purchases of property and equipment, 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

Net cash provided by (used in) investing activities

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

Net increase (decrease) in cash and cash equivalents

CASH AND CASH EQUIVALENTS, END OF PERIOD

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest on long-term debt

Cash paid for income taxes (net of refunds)

Property and equipment acquired under capital leases

Property and equipment acquired under build-to-suit leases

274

(39)

631

3,253

1,134

114

166

(156)

(78)

(1,410)

(846)

1,888

736

2,691

(2,292)

5,475

(3,444)

(312)

2,306

(2,826)

(4,276)

—

394

(1,011)

(539)

(86)

574

8,658

169

1,867

877

2,159

1,083

833

154

(9)

253

(265)

(429)

(999)

(861)

2,070

1,038

1,796

(1,521)

4,180

(3,785)

(745)

4,237

(3,302)

(3,595)

429

(960)

3,378

(588)

2,259

(29)

2,815

8,084

112

802

557

154

(4)

(56)

136

(62)

(1,777)

(866)

2,997

1,067

1,064

(1,021)

3,903

(1,811)

(705)

6,843

(6,257)

(1,930)

(277)

177

(444)

(482)

1,492

5,269

753

259

See accompanying notes to consolidated financial statements.

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)

Net product sales

Net services sales

Total net sales

Operating expenses (1):

Cost of sales

Fulfillment

Marketing

Technology and content

General and administrative

Other operating expense (income), net

Total operating expenses

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 (loss)

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

Year Ended December 31,

2013

2012

2011

60,903

51,733

13,549

74,452

54,181

8,585

3,133

6,565

1,129

114
73,707

745

38
(141)
(136)
(239)
506
(161)
(71)
274

0.60

0.59

457

465

9,360

61,093

45,971

6,419

2,408

4,564

896

159
60,417

676

40
(92)
(80)
(132)
544
(428)
(155)
(39) $
(0.09) $
(0.09) $

453

294

212

603

149

434

126

42,000

6,077

48,077

37,288

4,576

1,630

2,909

658

154
47,215

862

61
(65)
76

934
(291)
(12)
631

1.39

1.37

453

461

133

292

See accompanying notes to consolidated financial statements.

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation adjustments, net of tax of $(20), $(30),
and $20

Net change in unrealized gains on available-for-sale securities:

Unrealized gains (losses), net of tax of $3, $(3), and $1

Reclassification adjustment for losses (gains) included in “Other
income (expense), net,” net of tax of $(1), $3, and $1

Net unrealized gains (losses) on available-for-sale securities

Total other comprehensive income (loss)

Comprehensive income

Year Ended December 31,

2013

2012

2011

274

(39) $

631

(10)

(9)
54
328

(7)

77
38

(123)

(1)

(2)

(3)
(126)
505

See accompanying notes to consolidated financial statements.

AMAZON.COM, INC.

CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)

ASSETS

Current assets:

Cash and cash equivalents

Marketable securities

Inventories

Accounts receivable, net and other

Total current assets

Property and equipment, net

Goodwill

Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses and other

Unearned revenue

Total current liabilities

Long-term debt

Other long-term liabilities

Commitments and contingencies

Stockholders’ equity:

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 — 483 and 478
Outstanding shares — 459 and 454

Treasury stock, at cost

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

Total stockholders’ equity

December 31,

2013

2012

8,658

3,789

7,411

4,767

24,625

10,949

2,655

1,930
40,159

15,133

6,688

1,159

22,980

3,191

4,242

8,084

3,364

6,031

3,817

21,296

7,060

2,552

1,647
32,555

13,318

4,892

792

19,002

3,084

2,277

—

5
(1,837)
9,573
(185)
2,190

9,746

5
(1,837)
8,347
(239)
1,916

8,192

32,555

Total liabilities and stockholders’ equity

40,159

See accompanying notes to consolidated financial statements.

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)

Common Stock

Amount

Treasury
Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Balance as of January 1, 2011

451

Net income

Other comprehensive income (loss)

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 as of December 31, 2011

Net income (loss)

Other 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 as of December 31, 2012

Net income

Other 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

—

(1)

—

455

—

(5)

—

454

—

Balance as of December 31, 2013

459

—

(600) $
—

—

—
(277)

—

—
(877)
—

—

—
(960)

—

—
(1,837)
—

—

6,325

—

569

6,990

—

429

854

8,347

—

1,149

$ (1,837) $

9,573

(190) $
—
(126)
—

—

—
(316)
—

—

—
(239)
—

—

—
(185) $

See accompanying notes to consolidated financial statements.

Retained
Earnings

Total
Stockholders’
Equity

1,324

6,864

631

—

1,955
(39)
—

—

1,916

274

—

2,190

631
(126)
7
(277)

569

7,757
(39)
77

8
(960)

429

854

8,192

274

—

1,149

9,746

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. We seek to be Earth’s most customer-centric

company. In each of our two geographic segments, we serve our primary customer sets, consisting of 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 electronic 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, and programs that allow authors, musicians,
filmmakers, app developers, and others to publish and sell content. 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 provide
services, such as advertising services and co-branded credit card agreements.

We have organized our operations into two segments: North America and International. See “Note 12—Segment

Information.”

Prior Period Reclassifications

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

now presented separately on our consolidated balance sheets.

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 of which we are the primary beneficiary. Intercompany balances and
transactions between consolidated entities are eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the

reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the
consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, 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 forfeiture rates, income taxes, valuation and
impairment of investments, inventory valuation and inventory purchase commitments, collectability of receivables, valuation of
acquired intangibles and goodwill, depreciable lives of property and equipment, internal-use software, acquisition purchase
price allocations, investments in equity interests, 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. In periods when we recognize a net loss, we exclude the impact of outstanding
stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect.

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

Shares used in computation of diluted earnings per share

Revenue

Year Ended December 31,

2013

2012

2011

457

465

453

—

453

461

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. 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. 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. The revenue related to the device, which is the substantial portion of the total sale price,
and related costs are recognized upon delivery as cost of sales. Revenue related to 3G wireless access and delivery and software
upgrades is amortized over the average life of the device. Sales of Amazon Prime memberships are considered arrangements
with multiple deliverables, including shipping benefits, Prime Instant Video, and access to the Kindle Owners' Lending Library.
The revenue related to the deliverables is amortized over the life of the membership according to the estimated delivery of
services. Amazon Prime membership fees are allocated between product sales and services sales. Costs to deliver Amazon
Prime benefits are recognized as cost of sales as incurred.

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 sale
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, advertising services, and our co-branded credit card agreements. 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. Allowance for returns was $167
million, $198 million, and $155 million as of December 31, 2013, 2012, and 2011. Additions to the allowance were $907
million, $702 million, and $542 million, and deductions to the allowance were $938 million, $659 million, and $490 million as
of December 31, 2013, 2012, and 2011. Revenue from product sales and services rendered is recorded net of sales and
consumption taxes. Additionally, 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 net sales.”

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 with our vendors to receive funds for cooperative marketing efforts, promotions, and volume
rebates. We generally consider amounts received from vendors to be a reduction of the prices we pay for their goods or
services, and therefore record those amounts as a reduction of the cost of inventory or cost of services. 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
electronic 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 $2.4 billion, $2.0 billion, and $1.4 billion in

2013, 2012, and 2011. Prepaid advertising costs were not significant as of December 31, 2013 and 2012.

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, systems support, and initiatives to expand our ecosystem of digital products and services, as
well as costs associated with 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.

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 resources, 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 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 and expenses related

to legal settlements.

Other Income (Expense), Net

Other income (expense), net, consists primarily of foreign currency gains and losses of $(137) million, $(95) million, and

$64 million in 2013, 2012, and 2011, and realized gains and losses on marketable securities sales of $(1) million, $10 million,
and $4 million in 2013, 2012, and 2011.

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. If our intent changes or if these funds are needed for our
U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings. Undistributed
earnings of foreign subsidiaries that are indefinitely invested outside of the U.S were $2.5 billion as of December 31, 2013.
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.

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, 2013, or December 31, 2012.

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 by Amazon services in connection with certain of our sellers’ programs. Third-party sellers

maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and
therefore these products are not included in our inventories.

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. As of December 31, 2013 and 2012, vendor receivables, net, were $1.3 billion and $1.1
billion, and customer receivables, net, were $1.7 billion and $1.5 billion.

Allowance for Doubtful Accounts

We estimate losses on receivables based on known troubled accounts and historical experience of losses incurred.
Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected
in accordance with the terms of the agreement. The allowance for doubtful accounts was $153 million, $116 million, and $82
million as of December 31, 2013, 2012, and 2011. Additions to the allowance were $172 million, $136 million, and $87
million, and deductions to the allowance were $135 million, $102 million, and $82 million as of December 31, 2013, 2012, and
2011.

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 2013, 2012, and 2011, we capitalized $581 million (including $87 million of stock-
based compensation), $454 million (including $74 million of stock-based compensation), and $307 million (including $51
million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of
previously capitalized amounts was $451 million, $327 million, and $236 million for 2013, 2012, and 2011.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation. Property includes buildings and land that we

own, along with property we have acquired under build-to-suit, financing, and capital lease arrangements. Equipment includes
assets such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal-use software and
website development. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets (generally
the lesser of 40 years or the remaining life of the underlying building, two years for assets such as internal-use software, three
years for our servers, five years for 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 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,
2013 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 acquired intangible assets,

net of amortization; digital video content, net of amortization; long-term deferred tax assets; certain equity investments;
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; and intellectual property rights, net of amortization.

Content Costs

We obtain digital video content through licensing agreements that have a wide range of licensing provisions and
generally have terms from one to five years with fixed payment schedules. When the license fee for a specific movie or
television title is determinable or reasonably estimable and available for streaming, we recognize an asset representing the fee
per title and a corresponding liability for the amounts owed. We relieve the liability as payments are made and we amortize the
asset as cost of sales on a straight-line basis over each title’s contractual window of availability, which typically ranges from six
months to five years. If we are unable to reasonably estimate the cost per title, no asset or liability is recorded and licensing
costs are expensed as incurred.

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 loss.”

Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to

exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees,
including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within “Other assets” on our
consolidated balance sheets. Our share of the 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 equity-method investment
activity and the carrying value of those investments. In the event that net losses of the investee reduce our equity-method
investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted
for under the equity method, are at-risk even if we have not committed to provide financial support to the investee. 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 sheets 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 as of December 31, 2013 or 2012.

Accrued Expenses and Other

Included in “Accrued expenses and other” as of December 31, 2013 and 2012 were liabilities of $1.4 billion and $1.1

billion for unredeemed gift cards. We reduce the liability for a gift card when redeemed by a customer. If a gift card is not
redeemed, we recognize revenue when it expires or when the likelihood of its redemption becomes remote, generally two years
from the date of issuance.

Unearned Revenue

Unearned revenue is recorded when payments are received in advance of performing our service obligations and is

recognized over the service period. Unearned revenue primarily relates to Amazon Prime memberships and AWS.

Foreign Currency

We have internationally-focused websites for the United Kingdom, Germany, France, Japan, Canada, China, Italy, Spain,

Brazil, India, Mexico, and Australia. Net sales generated from these websites, as well as most of the related expenses directly
incurred from those operations, are denominated in local functional currencies. The functional currency of our subsidiaries that
either operate or support these 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 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 settlement and remeasurement of intercompany balances, we recorded gains (losses) of $(84)
million, $(95) million, and $70 million in 2013, 2012, and 2011.

Note 2—CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

As of December 31, 2013 and 2012, 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.
Cash equivalents and marketable securities are recorded at fair value. The following table summarizes, by major security type,
our cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized
using the fair value hierarchy (in millions):

Cash

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: Restricted cash, cash equivalents, and marketable
securities (1)

Total cash, cash equivalents, and marketable securities

Cash

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: Restricted cash, cash equivalents, and marketable
securities (1)

Total cash, cash equivalents, and marketable securities

December 31, 2013

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Total
Estimated
Fair Value

3,008

— $

3,008

5,914

757
2,224

739

12,746

—

2
1

—

(1)
(3)
(1)
—

—
(5) $

5,914

758
2,222

741

12,748

(301)
12,447

December 31, 2012

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Total
Estimated
Fair Value

2,595

— $

2,595

5,561

763

1,809

719

11,531

—

—
(2)
—

—

—
(2) $

5,561

772

1,810

725

11,547

(99)
11,448

___________________
(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as

collateral for standby and trade letters of credit, guarantees, debt, and real estate lease agreements. We classify cash and
marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of
twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 8—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,

2013

2012

2011

6
(7)

The following table summarizes the contractual maturities of our cash equivalent and marketable fixed income securities

as of December 31, 2013 (in millions):

Due within one year

Due after one year through five years

Due after five years through ten years

Due after ten years

Amortized
Cost

Estimated
Fair Value

7,226

2,115

133

261
9,735

7,227

2,118

132

259
9,736

Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.

Note 3—PROPERTY AND EQUIPMENT

Property and equipment, at cost, consisted of the following (in millions):

Gross property and equipment (1):

Land and buildings
Equipment and internal-use software (2)
Other corporate assets
Construction in progress

Gross property and equipment

Total accumulated depreciation (1)

Total property and equipment, net

___________________

December 31,

2013

2012

4,584
9,274
231
720
14,809
3,860
10,949

2,966
6,228
174
214
9,582
2,522
7,060

(1) Excludes the original cost and accumulated depreciation of fully-depreciated assets.
(2) Includes internal-use software of $1.1 billion and $866 million as of December 31, 2013 and 2012.

In December 2012, we acquired our corporate headquarters for $1.2 billion consisting of land and 11 buildings that were
previously accounted for as financing leases. The acquired building assets will be depreciated over their estimated useful lives
of 40 years. We also acquired three city blocks of land for the expansion of our corporate headquarters for approximately $210
million.

Depreciation expense on property and equipment was $2.5 billion, $1.7 billion, and $1.0 billion, which includes

amortization of property and equipment acquired under capital lease obligations of $826 million, $510 million, and $335
million for 2013, 2012, and 2011. Gross assets remaining under capital leases were $4.2 billion and $2.3 billion as of
December 31, 2013 and 2012. Accumulated depreciation associated with capital leases was $1.9 billion and $1.1 billion as of
December 31, 2013 and 2012. Cash paid for interest on capital leases was $41 million, $51 million, and $44 million for 2013,
2012, and 2011.

We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements
where we are considered the owner, for accounting purposes, during the construction period. 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. Additionally, certain build-to-suit lease arrangements and financing leases provide purchase
options. Upon occupancy, the long-term construction obligations are 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 $578 million and $9 million as of December 31, 2013 and 2012. Accumulated depreciation associated with
financing leases was $22 million and $5 million as of December 31, 2013 and 2012.

Note 4—ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS

2013 Acquisition Activity

In 2013, we acquired several companies in cash transactions for an aggregate purchase price of $195 million, resulting in

goodwill of $103 million and acquired intangible assets of $83 million. The primary reasons for these acquisitions were to
expand our customer base and sales channels and to obtain certain technologies to be used in product development. We
determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost
approaches. These 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. Acquisition-related costs were
expensed as incurred and were not significant.

Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the

aggregate, were not material to our consolidated results of operations.

2012 Acquisition Activity

In May 2012, we acquired Kiva Systems, Inc. (“Kiva”) for a purchase price of $678 million. The primary reason for this

acquisition was to improve fulfillment center productivity. Acquisition-related costs were expensed as incurred and were not
significant. The aggregate purchase price of this acquisition was allocated as follows (in millions):

Purchase Price
Cash paid, net of cash acquired
Stock options assumed

Allocation
Goodwill
Intangible assets (1):
Marketing-related
Contract-based
Technology-based
Customer-related

Property and equipment
Deferred tax assets
Other assets acquired
Deferred tax liabilities
Other liabilities assumed

___________________

613
65
678

560

5
3
168
17
193
9
34
41
(81)
(78)
678

(1) Acquired intangible assets have estimated useful lives of between four and 10 years, with a weighted-average

amortization period of five years.

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. These 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.

Pro Forma Financial Information – 2012 Acquisition Activity (unaudited)

Kiva was consolidated into our financial statements starting on its acquisition date. The net sales and operating loss of

Kiva recorded in our consolidated statement of operations from its acquisition date through December 31, 2012, were $61
million and $(62) million. The following pro forma financial information presents our results as if the Kiva acquisition had
occurred at the beginning of 2011 (in millions):

Net sales
Net income (loss)

2011 Acquisition Activity

Year Ended
December 31,

2012

2011

61,118
(2)

48,157
499

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

Property and equipment
Deferred tax assets
Other assets acquired
Accounts payable
Debt
Deferred tax liabilities
Other liabilities assumed

___________________

637
89
25
20
771

615

130
94
6
230
119
49
68
(65)
(70)
(75)
(100)
771

(1) Amortization periods range from two to 10 years, with a weighted-average amortization period of eight years.

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.

Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the

aggregate, were not material to our consolidated results of operations.

Goodwill

The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected

improvements in fulfillment center productivity and 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 2013 and 2012 by segment (in millions):

Goodwill - January 1, 2012
New acquisitions (1)
Other adjustments (2)
Goodwill - December 31, 2012
New acquisitions
Other adjustments (2)
Goodwill - December 31, 2013

___________________

(1) Primarily consists of the goodwill of Kiva.
(2) Primarily consists of changes in foreign exchange.

Intangible Assets

North
America

International

Consolidated

1,533
403
1
1,937
99
(3)
2,033

422
184
9
615
4
3
622

1,955
587
10
2,552
103
—
2,655

Acquired intangible assets, included within “Other assets” on our consolidated balance sheets, consist of the following (in

millions):

2013

2012

December 31,

Weighted
Average Life
Remaining

Acquired
Intangibles,
Gross (1)

Accumulated
Amortization
(1)

Acquired
Intangibles,
Net

Acquired
Intangibles,
Gross (1)

Accumulated
Amortization
(1)

Acquired
Intangibles,
Net

6.3

3.0

4.4

2.4

429

173

278

368

(156) $
(110)

(74)
(263)

273

204

105

422

177

231

332

(113) $
(89)

(30)
(205)

4.2

1,248

(603) $

645

1,162

(437) $

309

201

127

725

Marketing-related

Contract-based

Technology- and
content-based

Customer-related

Acquired
intangibles (2)

___________________

(1) Excludes the original cost and accumulated amortization of fully-amortized intangibles.
(2) Intangible assets have estimated useful lives of between one and 10 years.

Amortization expense for acquired intangibles was $168 million, $163 million, and $149 million in 2013, 2012, and

2011. Expected future amortization expense of acquired intangible assets as of December 31, 2013 is as follows (in millions):

Year Ended December 31,

2014
2015
2016
2017
2018
Thereafter

Note 5—EQUITY-METHOD INVESTMENTS

LivingSocial’s summarized condensed financial information, as provided to us by LivingSocial, is as follows (in

millions):

Statement of Operations:

Revenue
Operating expense
Impairment charge

Operating loss from continuing operations

Net loss from continuing operations (1)
Loss from discontinued operations, net of tax (2)
Net loss

Year Ended December 31,

2013

2012

2011

399
461
41
(103)
(101)
(82)
(183) $

455
666
579
(790)
(532)
(121)
(653) $

157
140
121
101
54
72
645

238
613
—
(375)
(417)
(82)
(499)

___________________
(1)

The difference between operating loss from continuing operations and net loss from continuing operations for 2012 is
primarily due to non-operating, non-cash gains on previously held equity positions in companies that LivingSocial
acquired during Q1 2012.
In November 2013, LivingSocial announced that it had reached an agreement to sell its Korean operations for $260
million. The transaction closed in January 2014. The statement of operations information above has been recast to
present its Korean operations as discontinued operations.

(2)

Balance Sheet:

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Redeemable stock

December 31,

2013

2012

81
152
298
36
315

74
216
336
14
205

Balance sheet financial information as of December 31, 2013 includes $146 million in assets and $122 million in

liabilities that LivingSocial has classified as held for sale for its Korean operations.

As of December 31, 2013, the book value of our equity-method investment in LivingSocial has been reduced to zero due

to our recognition of equity-method losses over time. In Q1 2013 we made a $56 million investment in LivingSocial that we
have recorded as a cost method investment, bringing our total investment in LivingSocial to approximately 31% of voting
stock. In Q4 2013, we recognized additional equity-method losses and reduced this cost method investment to $38 million as of
December 31, 2013.

Note 6—LONG-TERM DEBT

In November 2012, we issued $3.0 billion of unsecured senior notes in three tranches as described in the table below
(collectively, the “Notes”). As of December 31, 2013 and 2012, the unamortized discount on the Notes was $23 million and
$27 million. We also have other long-term debt with a carrying amount, including the current portion, of $967 million and $691
million as of December 31, 2013 and 2012. The face value of our total long-term debt obligations is as follows (in millions):

0.65% Notes due on November 27, 2015

1.20% Notes due on November 29, 2017

2.50% Notes due on November 29, 2022

Other long-term debt

Total debt

Less current portion of long-term debt

Face value of long-term debt

December 31,

2013

2012

750

1,000

1,250

967

3,967
(753)
3,214

750

1,000

1,250

691

3,691
(579)
3,112

The effective interest rates of the 2015, 2017, and 2022 Notes were 0.84%, 1.38%, and 2.66%. Interest on the Notes is

payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or from time to time,
in part at specified redemption prices. We are not subject to any financial covenants under the Notes. We used the net proceeds
from the issuance of the Notes for general corporate purposes. The estimated fair value of the Notes was approximately $2.9
billion and $3.0 billion as of December 31, 2013 and 2012, which is based on quoted prices for our publicly-traded debt as of
that date.

The other debt, including the current portion, had a weighted average interest rate of 5.5% and 6.4% as of December 31,
2013 and 2012. We used the net proceeds from the issuance of the debt to primarily fund certain international operations. The
estimated fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of
December 31, 2013 and 2012.

As of December 31, 2013, future principal payments for debt were as follows (in millions):

Year Ended December 31,

2014
2015
2016
2017
2018
Thereafter

753
853
36
1,037
38
1,250
3,967

Note 7—OTHER LONG-TERM LIABILITIES

Our other long-term liabilities are summarized as follows (in millions):

Long-term capital lease obligations
Long-term financing lease obligations
Construction liabilities
Tax contingencies
Long-term deferred tax liabilities
Other

Capital Leases

December 31,

2013

2012

1,435
555
385
457
571
839
4,242

737
9
87
336
476
632
2,277

Certain of our equipment, primarily related to technology infrastructure, and buildings have been acquired under capital

leases. Long-term capital lease obligations are as follows (in millions):

Gross capital lease obligations
Less imputed interest
Present value of net minimum lease payments
Less current portion of capital lease obligations
Total long-term capital lease obligations

Financing Leases

December 31, 2013

2,437
(47)
2,390
(955)
1,435

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 liabilities.” As such, these arrangements are accounted for as financing
leases. Long-term finance lease obligations are as follows (in millions):

Gross financing lease obligations

Less imputed interest

Present value of net minimum lease payments

Less current portion of financing lease obligations

Total long-term financing lease obligations

Construction Liabilities

December 31, 2013

783
(200)
583
(28)
555

We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements

where we are considered the owner during the construction period for accounting purposes.

Tax Contingencies

We have recorded tax reserves for tax contingencies, inclusive of accrued interest and penalties, of approximately $457

million as of December 31, 2013, and $336 million as of December 31, 2012, for U.S. and foreign income taxes. These
contingencies primarily relate to transfer pricing, state income taxes, and research and development credits. See “Note 11—
Income Taxes” for discussion of tax contingencies.

Note 8—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 $759 million, $561 million, and $381 million
for 2013, 2012, and 2011.

The following summarizes our principal contractual commitments, excluding open orders for purchases that support

normal operations, as of December 31, 2013 (in millions):

Operating and capital commitments:

Debt principal and interest

Capital leases, including interest

Financing lease obligations, including
interest
Operating leases

Unconditional purchase obligations (1)

Other commitments (2) (3)

Total commitments

Year Ended December 31,

2014

2015

2016

2017

2018

Thereafter

Total

835

963

752

539

746

906

883

654

386

275

$ 1,081

361

604

167

539

137

$ 3,884

$ 3,152

$ 1,345

$ 1,917

470

110

773

1,375

4,347

117

2,437

529

2,116

1,194

783

5,135

1,098

2,629

5,358

$ 16,429

___________________
(1)

Includes unconditional purchase obligations related to agreements to acquire and license digital video content that
represent long-term liabilities or are not reflected on the consolidated balance sheets. For those agreements with
variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing as
of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content
provider are included to the extent such commitments are fixed or a minimum amount is specified.
Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit
lease arrangements that have not been placed in service.
Excludes $407 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and
period of payment, if any.

(2)

(3)

Pledged Assets

As of December 31, 2013 and 2012, we have pledged or otherwise restricted $482 million and $99 million of our cash,

marketable securities, and certain fixed assets as collateral for standby and trade letters of credit, guarantees, debt, and real
estate leases.

Suppliers

During 2013, no vendor accounted for 10% or more of our purchases. We generally do not have long-term contracts or

arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit
limits.

Legal Proceedings

The Company is involved from time to time in claims, proceedings, and litigation, including the following:

In November 2007, an Austrian copyright collection society, Austro-Mechana, filed lawsuits against Amazon.com
International Sales, Inc., Amazon EU Sarl, Amazon.de GmbH, Amazon.com GmbH, and Amazon Logistik 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 (ECJ). In July 2013, the European Court of Justice ruled that EU law does not preclude application

of the tariff where certain conditions are met and directed the case back to the Austrian Supreme Court for further proceedings.
In October 2013, the Austrian Supreme Court referred the case back to the Commercial Court of Vienna for further fact finding
to determine whether the tariff on blank digital media meets the conditions set by the ECJ. In December 2012, a German
copyright collection society, Zentralstelle für private Überspielungsrechte (ZPU), filed a complaint against Amazon EU Sarl,
Amazon Media EU Sarl, Amazon Services Europe Sarl, Amazon Payments Europe SCA, Amazon Europe Holding
Technologies SCS, and Amazon Eurasia Holdings Sarl in the District Court of Luxembourg seeking to collect a tariff on blank
digital media sold by the Amazon.de retail website to customers located in Germany. In January 2013, a Belgian copyright
collection society, AUVIBEL, filed a complaint against Amazon EU Sarl in the Court of First Instance of Brussels, Belgium,
seeking to collect a tariff on blank digital media sold by the Amazon.fr retail website to customers located in Belgium. In
November 2013, the Belgian court ruled in favor of AUVIBEL and ordered us to report all sales of products to which the tariff
potentially applies for a determination of damages. We dispute the allegations of wrongdoing and intend to defend ourselves
vigorously in these matters.

In May 2009, Big Baboon, Inc. filed a complaint against Amazon.com, Inc. and Amazon Payments, Inc. 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 patents owned by Big Baboon, Inc. purporting to cover
an “Integrated Business-to-Business Web Commerce And Business Automation System” (U.S. Patent Nos. 6,115,690 and
6,343,275) 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. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In April 2011, Walker Digital LLC filed several complaints against Amazon.com, Inc. 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), 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). Another 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. Another complaint, filed in the same court in February 2012, alleges that we infringe plaintiff’s U.S.
Patent No. 8,112,359 by using product information received from customers to identify and offer substitute products using a
manufacturer database. In January 2013, the plaintiff filed another complaint in the same court alleging that we infringe U.S.
Patent No. 6,381,582 by allowing customers to make local payments for products ordered online. All of the complaints seek
monetary damages, interest, injunctive relief, costs, and attorneys’ fees. In March 2013, the complaints asserting U.S. Patent
Nos. 7,236,942 and 7,933,893 were voluntarily dismissed with prejudice. In April 2013, the case asserting U.S. Patent
No. 8,041,711 was stayed pending final resolution of the reexamination of that patent. In June 2013, the court granted
defendants’ motions to dismiss the complaints asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 8,112,359 for lack of
standing. In July 2013, we filed motions seeking entry of a final judgment dismissing those claims with prejudice and for
attorneys' fees, and plaintiff filed notices of appeal from the June 2013 order granting the motions to dismiss. In October 2013,
the court ruled that its dismissals are with prejudice, and Walker has appealed those rulings. We dispute the remaining
allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

In December 2011, Personalweb Technologies, LLC filed a complaint against Amazon.com, Inc. and Amazon Web
Services, LLC in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things,
that “Amazon Simple Storage Service (S3) and Amazon ElastiCache” infringe U.S. Patent No. 5,978,791, entitled “Data
Processing System Using Substantially Unique Identifiers To Identify Data Items, Whereby Data Items Have The Same
Identifiers”; U.S. Patent No. 6,415,280, entitled “Identifying And Requesting Data In Network Using Identifiers Which Are
Based On Contents Of Data”; U.S. Patent No. 6,928,442, entitled “Enforcement And Policing Of Licensed Content Using
Content-Based Identifiers”; U.S. Patent No. 7,802,310, entitled “Controlling Access To Data In A Data Processing System”;
U.S. Patent No. 7,945,539, entitled “Distributing And Accessing Data In A Data Processing System”; U.S. Patent
No. 7,945,544, entitled “Similarity-Based Access Control Of Data In A Data Processing System”; U.S. Patent No. 7,949,662,
entitled “De-Duplication Of Data In A Data Processing System”; and U.S. Patent No. 8,001,096, entitled “Computer File
System Using Content-Dependent File Identifiers.” The complaint seeks an unspecified amount of damages, interest, attorneys’
fees, and an injunction. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In December 2011, Round Rock Research, LLC filed a complaint against Amazon.com, Inc. in the United States District
Court for the District of Delaware. The complaint alleges, among other things, that “RFID products” and “Kindle products with
unlicensed DRAM” infringe: U.S. Patent Nos. 5,500,650 and 5,627,544, entitled “Data Communication Method Using
Identification Protocol”; U.S. Patent No. 5,974,078, entitled “Modulated Spread Spectrum In RF Identification Systems
Method”; U.S. Patent No. 6,459,726, entitled “Backscatter Interrogators, Communication Systems And Backscatter

Communication Methods”; U.S. Patent No. RE41,531, entitled “Communications Systems For Radio Frequency Identification
(RFID)”; U.S. Patent Nos. 6,975,556 and 7,106,646, entitled “Circuit And Method For Controlling A Clock Synchronizing
Circuit For Low Power Refresh Operation”; U.S. Patent No. 7,221,020, entitled “Method To Construct A Self Aligned Recess
Gate For DRAM Access Devices”; and U.S. Patent No. 7,389,369, entitled “Active Termination Control.” In February 2012,
the plaintiff filed an amended complaint that further alleges, among other things, that Kindle products allegedly including
“unlicensed flash memory” infringe U.S. Patent No. 5,801,985, entitled “Memory System Having Programmable Control
Parameters” and U.S. Patent No. 5,880,996, entitled “Memory System Having Non-Volatile Data Storage Structure For
Memory Control Parameters And Method.” In April 2012, the plaintiff filed a second amended complaint further alleging,
among other things, that “RFID products” infringe U.S. Patent No. 5,266,925, entitled “Electronic Tag Interrogation Method,”
U.S. Patent No. 5,583,850, entitled “Data Communication System Using Identification Protocol,” U.S. Patent No. 5,986,570,
entitled “Method For Resolving Signal Collisions Between Multiple RFID Transponders In A Field,” U.S. Patent No.
7,265,674, entitled “Thin, Flexible RFID Labels, And Methods And Apparatus For Use,” and U.S. Patent No. RE41,562,
entitled “System And Method For Electronic Tracking Of Units Associated With A Batch.” The second amended complaint
seeks an unspecified amount of damages, enhanced damages, interest, costs, and attorneys’ fees. In April 2012, the case was
stayed pending reexamination of ten of the asserted patents. We dispute the allegations of wrongdoing and intend to defend
ourselves vigorously in this matter.

In March 2012, OIP Technologies, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in the United
States District Court for the Northern District of California. The complaint alleged, among other things, that certain aspects of
our pricing methods infringed U.S. Patent No. 7,970,713, entitled “Method And Apparatus For Automatic Pricing In Electronic
Commerce.” The complaint sought three times an unspecified amount of damages, attorneys’ fees, and interest. In September
2012, the Court invalidated the plaintiff’s patent and dismissed the case with prejudice. In September 2012, OIP appealed the
judgment of the district court to the United States Court of Appeals for the Federal Circuit, which, in November 2012, stayed
all proceedings pending its decision in a separate case that raises a related question of law and, in June 2013, continued the stay
pending a decision by the United States Supreme Court. We dispute the allegations of wrongdoing and intend to defend
ourselves vigorously in this matter.

In May 2012, Clouding IP, LLC f/k/a/ STEC IP, LLC filed a complaint against Amazon.com, Inc. and Amazon Web
Services, LLC in the United States District Court for the District of Delaware. The complaint alleges, among other things, that
our “Elastic Compute Cloud,” “WhisperSync,” “Virtual Private Cloud,” “Cloud Drive,” and “Kindle Store” services infringe
one or more of 11 patents: U.S. Patent Nos. 7,596,784, entitled “Method System And Apparatus For Providing Pay-Per-Use
Distributed Computing Resources”; 7,065,637, entitled “System For Configuration Of Dynamic Computing Environments
Using A Visual Interface”; 6,738,799, entitled “Methods And Apparatuses For File Synchronization And Updating Using A
Signature List”; 5,944,839, entitled “System And Method For Automatically Maintaining A Computer System”; 5,825,891,
entitled “Key Management For Network Communication”; 5,495,607, entitled “Network Management System Having Virtual
Catalog Of Files Distributively Stored Across Network Domain”; 6,925,481 and 7,254,621, entitled “Technique For Enabling
Remote Data Access And Manipulation From A Pervasive Device”; 6,631,449 and 6,918,014, entitled “Dynamic Distributed
Data System And Method”; and 6,963,908, entitled “System For Transferring Customized Hardware And Software Settings
From One Computer To Another Computer To Provide Personalized Operating Environments.” In August 2012, Clouding
amended its complaint to also assert U.S. Patent No. 7,032,089, entitled “Replica Synchronization Using Copy-On-Read
Technique,” against WhisperSync. In February 2013, Clouding served its notice of accused products in which it also identified
“AWS Market Place,” “AWS Storage Gateway,” “Cloud Player,” “DynamoDB,” “Elastic Block Store (EBS),” “Elastic Load
Balancing,” “Elastic Map Reduce,” “Relational Database Service,” “Simple Storage Service,” “Simple DB,” “Cloud Watch,”
“Kindle,” and “Elastic Compute Cloud AutoScaling” as allegedly infringing. The complaint seeks an unspecified amount of
damages together with interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this
matter.

In June 2012, Hand Held Products, Inc., a subsidiary of Honeywell, filed a complaint against Amazon.com, Inc., AMZN
Mobile, LLC, AmazonFresh, LLC, A9.com, Inc., A9 Innovations, LLC, and Quidsi, Inc. in the United States District Court for
the District of Delaware. The complaint alleges, among other things, that the use of mobile barcode reader applications,
including Amazon Mobile, Amazon Price Check, Flow, and AmazonFresh, infringes U.S. Patent No. 6,015,088, entitled
“Decoding Of Real Time Video Imaging.” The complaint seeks an unspecified amount of damages, interest, and an injunction.
We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In July 2012, Norman Blagman filed a purported class-action complaint against Amazon.com, Inc. for copyright
infringement in the United States District Court for the Southern District of New York. The complaint alleges, among other
things, that Amazon.com, Inc. sells digital music in our Amazon MP3 Store obtained from defendant Orchard Enterprises and
other unnamed “digital music aggregators” without obtaining mechanical licenses for the compositions embodied in that
music. The complaint seeks certification as a class action, statutory damages, attorneys’ fees, and interest. We dispute the
allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In August 2012, an Australian quasi-government entity named Commonwealth Scientific and Industrial Research
Organization filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas.
The complaint alleges, among other things, that the sale of “products which are operable according to the Institute of Electrical
and Electronics Engineers (“IEEE”) 802.11a, g, n, and/or draft n standards” infringe U.S. Patent No. 5,487,069, entitled
“Wireless LAN.” The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, and injunctive
relief. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In November 2012, Lexington Luminance LLC filed a complaint against Amazon.com, Inc. and Amazon Digital
Services, Inc. in the United States District Court for the District of Massachusetts. The complaint alleges, among other things,
that certain light-emitting diodes in certain Kindle devices infringe U.S. Patent No. 6,936,851, entitled “Semiconductor Light-
Emitting Device And Method For Manufacturing Same.” The complaint seeks an unspecified amount of damages and an
injunction or, in the absence of an injunction, a compulsory ongoing royalty. We dispute the allegations of wrongdoing and
intend to defend ourselves vigorously in this matter.

In May 2013, Adaptix, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern

District of Texas. The complaint alleges, among other things, that certain Kindle devices infringe U.S. Patent Nos. 7,454,212
and 6,947,748, both entitled “OFDMA With Adaptive Subcarrier-Cluster Configuration And Selective Loading.” The complaint
seeks an unspecified amount of damages, interest, injunctive relief, and attorneys’ fees. We dispute the allegations of
wrongdoing and intend to defend ourselves vigorously in this matter.

In July 2013, Telebuyer, LLC filed a complaint against Amazon.com, Inc., Amazon Web Services, LLC, and VADATA,

Inc. in the United States District Court for the Eastern District of Virginia. The complaint alleges, among other things, that
certain features used on our retail website-including high resolution video and still images, user-indicated areas of interest,
targeted follow-up communications, vendor proposals, on-line chat, Gold Box and Lightning Deals, and vendor ratings-infringe
seven U.S. patents: Nos. 6,323,894, 7,835,508, 7,835,509, 7,839,984, 8,059,796, and 8,098,272, all entitled “Commercial
Product Routing System With Video Vending Capability,” and 8,315,364, entitled “Commercial Product Routing System With
Mobile Wireless And Video Vending Capability.” The complaint seeks an unspecified amount of damages, interest, and
injunctive relief. In September 2013, the case was transferred to the United States District Court for the Western District of
Washington. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In August 2013, Cellular Communications Equipment, LLC filed a complaint against Amazon.com, Inc. in the United

States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain Kindle devices
infringe U.S. Patent Nos.: 6,819,923, entitled “Method For Communication Of Neighbor Cell Information”; 7,215,962, entitled
“Method For An Intersystem Connection Handover”; 7,941,174, entitled “Method For Multicode Transmission By A
Subscriber Station”; and 8,055,820, entitled “Apparatus, System, And Method For Designating A Buffer Status Reporting
Format Based On Detected Pre-Selected Buffer Conditions.” The complaint seeks an unspecified amount of damages and
interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

Beginning in August 2013, a number of complaints were filed alleging, among other things, that Amazon.com, Inc. and
several of its subsidiaries failed to compensate hourly workers for time spent waiting in security lines and otherwise violated
federal and state wage and hour statutes and common law. In August 2013, Busk v. Integrity Staffing Solutions, Inc. and
Amazon.com, Inc. was filed in the United States District Court for the District of Nevada, and Vance v. Amazon.com, Inc.,
Zappos.com Inc., another affiliate of Amazon.com, Inc., and Kelly Services, Inc. was filed in the United States District Court
for the Western District of Kentucky. In September 2013, Allison v. Amazon.com, Inc. and Integrity Staffing Solutions, Inc.
was filed in the United States District Court for the Western District of Washington, and Johnson v. Amazon.com, Inc. and an
affiliate of Amazon.com, Inc. was filed in the United States District Court for the Western District of Kentucky. In October
2013, Davis v. Amazon.com, Inc., an affiliate of Amazon.com, Inc., and Integrity Staffing Solutions, Inc. was filed in the
United States District Court for the Middle District of Tennessee. The plaintiffs variously purport to represent a nationwide
class of certain current and former employees under the Fair Labor Standards Act and/or state-law-based subclasses for certain
current and former employees in states including Arizona, California, Pennsylvania, South Carolina, Kentucky, and Nevada,
and one complaint asserts nationwide breach of contract and unjust enrichment claims. The complaints seek an unspecified
amount of damages, interest, injunctive relief, and attorneys’ fees. We have been named in several other similar cases. We
dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

In September 2013, Personalized Media Communications, LLC filed a complaint against Amazon.com, Inc. and Amazon
Web Services, LLC in the United States District Court for the District of Delaware. The complaint alleges, among other things,
that the use of certain Kindle devices, Kindle apps and/or Amazon.com, Inc.’s website to purchase and receive electronic media
infringes nine U.S. Patents: Nos. 5,887,243, 7,801,304, 7,805,749, 7,940,931, 7,769,170, 7,864,956, 7,827,587, 8,046,791, and
7,883,252, all entitled “Signal Processing Apparatus And Methods.” The complaint also alleges, among other things, that
CloudFront, S3, and EC2 web services infringe three of those patents, Nos. 7,801,304, 7,864,956, and 7,827,587. The
complaint seeks an unspecified amount of damages, interest, and injunctive relief. We dispute the allegations of wrongdoing
and intend to defend ourselves vigorously in this matter.

In October 2013, Mobile Telecommunications Technologies, LLC filed a complaint against Amazon.com, Inc. for patent

infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things,
that our network operation centers and our mobile devices, such as Kindle Fire models based on the Android operating system
that provide XMPP-compliant messaging services and applications, infringe U.S. Patent No. 5,809,428, entitled “Method And
Device For Processing Undelivered Data Messages In A Two-Way Wireless Communications System.” The complaint also
alleges that Amazon’s mobile devices infringe U.S. Patent No. 5,754,946, entitled “Nationwide Communication System,” and
that Amazon.com, Inc. infringes U.S. Patent No. 5,786,748, entitled “Method And Apparatus For Giving Notification Of
Express Mail Delivery,” by providing tracking and notification services to customers who purchase products directly from
Amazon.com, Inc. The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest,
and injunctive relief. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In October 2013, Tuxis Technologies, LLC filed a complaint against Amazon.com, Inc. for patent infringement in the

United States District Court for District of Delaware. The complaint alleges, among other things, that “the Amazon.com
website” with “recommendation features” infringes U.S. Patent No. 6,055,513, entitled “Methods And Apparatus For
Intelligent Selection Of Goods And Services In Telephonic And Electronic Commerce.” The complaint seeks an unspecified
amount of damages, attorneys’ fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend
ourselves vigorously in this matter.

In November 2013, Memory Integrity, LLC filed a complaint against Amazon.com, Inc. for patent infringement in the
United States District Court for the District of Delaware. The complaint alleges, among other things, that certain Kindle devices
infringe U.S. Patent No. 7,296,121, entitled “Reducing Probe Traffic In Multiprocessor Systems.” The complaint seeks an
unspecified amount of damages, costs, expenses, and interest. We dispute the allegations of wrongdoing and intend to defend
ourselves vigorously in this matter.

In November 2013, Vantage Point Technology, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in

the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that Kindle
devices with a Cortex A-9 core processor and OMAP 4430 chipset, Kindle device HD tablets with a Cortex A-9 core processor
and OMAP 4470 chipset, and Kindle devices with a Cortex A-8 core processor and Freescale MX50 family chipset infringe
U.S. Patent No. 5,463,750, entitled “Method And Apparatus For Translating Virtual Addresses In A Data Processing System
Having Multiple Instruction Pipelines And Separate TLB’s For Each Pipeline.” The complaint seeks an unspecified amount of
damages, enhanced damages, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves
vigorously in this matter.

In December 2013, Appistry, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent

infringement in the United States District Court for the Eastern District of Missouri. The complaint alleges, among other things,
that Amazon’s Elastic Compute Cloud infringes U.S. Patent Nos. 8,200,746, entitled “System And Method For Territory-Based
Processing Of Information,” and 8,341,209, entitled “System And Method For Processing Information Via Networked
Computers Including Request Handlers, Process Handlers, And Task Handlers.” The complaint seeks injunctive relief, an
unspecified amount of monetary damages, trebled damages, costs, and interest. We dispute the allegations of wrongdoing and
intend to defend ourselves vigorously in this matter.

In December 2013, Delaware Display Group LLC and Innovative Display Technologies LLC filed a complaint against

Amazon.com, Inc. for patent infringement in the United States District Court for the District of Delaware. The complaint
alleges, among other things, that Amazon’s tablets with liquid crystal displays infringe U.S. Patent Nos.: 6,755,547, 7,300,194,
7,384,177, 7,404,660, 7,434,974, 7,357,370, and 8,215,816, all entitled “Light Emitting Panel Assemblies.” The complaint also
alleges that tablets with liquid crystal displays infringe U.S. Patent No. 7,914,196, entitled “Light Redirecting Film Systems
Having Pattern Of Variable Optical Elements.” The complaint seeks injunctive relief, an unspecified amount of monetary
damages, costs, interest, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to defend ourselves
vigorously in this matter.

In December 2013, ContentGuard Holdings, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in

the United States District Court for Eastern District of Texas. The complaint alleges, among other things, that certain digital
rights management software used by various Kindle Fire software applications, including the Kindle Reader and Amazon
Instant Video, infringe seven U.S. Patents: Nos. 6,963,859, entitled “Content Rendering Repository”; 7,523,072, entitled
“System For Controlling The Distribution And Use Of Digital Works”; 7,269,576, entitled “Content Rendering Apparatus”;
8,370,956, entitled “System And Method For Rendering Digital Content In Accordance With Usage Rights Information”;
8,393,007, entitled “System And Method For Distributing Digital Content In Accordance With Usage Rights Information”;
7,225,160, entitled “Digital Works Having Usage Rights And Method For Creating The Same”; and 8,583,556, entitled
“Method For Providing A Digital Asset For Distribution.” The complaint seeks an unspecified amount of damages, an
injunction, enhanced damages, attorneys’ fees, costs, and interest. We dispute the allegations of wrongdoing and intend to
defend ourselves vigorously in this matter.

The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be

material to our operating results and cash flows for a particular period. In addition, for some matters for which a loss is
probable or reasonably possible, an estimate of the amount of loss or range of loss is not possible and we may be unable to
estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.