Apple Inc. v. Amazon.Com, Inc.

Filing 21

Declaration of Thomas R. La Perle in Support of 18 MOTION for Preliminary Injunction NOTICE OF MOTION AND MOTION FOR PRELIMINARY INJUNCTION filed byApple Inc.. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5a, # 6 Exhibit 5b, # 7 Exhibit 6, # 8 Exhibit 7, # 9 Exhibit 8, # 10 Exhibit 9, # 11 Exhibit 10)(Related document(s) 18 ) (Eberhart, David) (Filed on 4/13/2011)

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SEC Filings
10-K
AMAZON COM INC filed this Form 10-K on 01/28/11
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Table of Contents

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, 2010
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from

to
.
Commission File No. 000-22513

AMAZON.COM, INC.
(Exact name of registrant as specified in its charter)

Delaware

91-1646860

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

410 Terry Avenue North
Seattle, Washington 98109-5210
[phone]
(Address and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ⌧ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes
No ⌧
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 ⌧ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and

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will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
No ⌧
Aggregate market value of voting stock held by non-affiliates of the registrant as of
June 30, 2010
$39,007,666,822
Number of shares of common stock outstanding as of January 19, 2011
451,003,759
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 2011, 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.

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Table of Contents
AMAZON.COM, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2010
INDEX
Page

PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Reserved

3
6
15
16
16
16

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 Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
PART IV
Exhibits, Financial Statement Schedules

17
18
19
33
35
68
68
70
70
70
70
70
70
70
72

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AMAZON.COM, INC.
PART I
Item 1.

Business

This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements
based on expectations, estimates, and projections as of the date of this filing. Actual results may differ materially from those
expressed in forward-looking statements. See Item 1A of Part I—“Risk Factors.”
Amazon.com, Inc. was incorporated in 1994 in the state of Washington and reincorporated in 1996 in the state of Delaware.
Our principal corporate offices are located in Seattle, Washington. We completed our initial public offering in May 1997 and
our common stock is listed on the Nasdaq Global Select Market under the symbol “AMZN.”
As used herein, “Amazon.com,” “we,” “our” and similar terms include Amazon.com, Inc. and its subsidiaries, unless the
context indicates otherwise.
General
Amazon.com opened its virtual doors on the World Wide Web in July 1995 and offers Earth’s Biggest Selection. We seek to
be Earth’s most customer-centric company for three primary customer sets: consumers, sellers, and enterprises. In addition, we
generate revenue through other marketing and promotional services, such as online advertising, and co-branded credit card
agreements.
We have organized our operations into two principal segments: North America and International. See Item 8 of Part II,
“Financial Statements and Supplementary Data—Note 10—Segment Information.” See Item 7 of Part II, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Supplemental
Information” for supplemental information about our net sales.
Consumers
We serve consumers through our retail websites, and focus on selection, price, and convenience. We design our websites to
enable millions of unique products to be sold by us and by third parties across dozens of product categories. We also
manufacture and sell the Kindle e-reader. We strive to offer our customers the lowest prices possible through low everyday
product pricing and free shipping offers, including through membership in Amazon Prime, and to improve our operating
efficiencies so that we can continue to lower prices for our customers. We also provide easy-to-use functionality, fast and
reliable fulfillment, and timely customer service.
We fulfill customer orders in a number of ways, including through the U.S. and international fulfillment centers and
warehouses that we operate, through co-sourced and outsourced arrangements in certain countries, and through digital
delivery. We operate customer service centers globally, which are supplemented by co-sourced arrangements. See Item 2 of
Part I, “Properties.”
Sellers
We offer programs that enable sellers to sell their products on our websites and their own branded websites and to fulfill orders
through us. We are not the seller of record in these transactions, but instead earn fixed fees, revenue share fees, per-unit
activity fees, or some combination thereof.
Enterprises
We serve developers and enterprises of all sizes through Amazon Web Services (“AWS”), which provides access to
technology infrastructure that enables virtually any type of business.
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Competition
Our businesses are rapidly evolving and intensely competitive. Our current and potential competitors include: (1) physicalworld retailers, publishers, vendors, distributors, manufacturers, and producers of our products; (2) other online e-commerce
and mobile e-commerce sites, including sites that sell or distribute digital content; (3) a number of indirect competitors,
including media companies, web portals, comparison shopping websites, and web search engines, either directly or in
collaboration with other retailers; (4) companies that provide e-commerce services, including website development,
fulfillment, and customer service; (5) companies that provide infrastructure web services or other information storage or
computing services or products; and (6) companies that design, manufacture, market, or sell digital media devices. We believe
that the principal competitive factors in our retail businesses include selection, price, and convenience, including fast and
reliable fulfillment. Additional competitive factors for our seller and enterprise services include the quality, speed, and
reliability of our services and tools. Many of our current and potential competitors have greater resources, longer histories,
more customers, and greater brand recognition. They may secure better terms from suppliers, adopt more aggressive pricing
and devote more resources to technology, infrastructure, fulfillment, and marketing. Other companies also may enter into
business combinations or alliances that strengthen their competitive positions.
Intellectual Property
We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary
technologies, and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law,
trade-secret protection, and confidentiality and/or license agreements with our employees, customers, partners, and others to
protect our proprietary rights. We have registered, or applied for the registration of, a number of U.S. and international domain
names, trademarks, service marks, and copyrights. Additionally, we have filed U.S. and international patent applications
covering certain of our proprietary technology. We have licensed in the past, and expect that we may license in the future,
certain of our proprietary rights to third parties.
Seasonality
Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter, which
ends December 31. We recognized 38%, 39%, and 35% of our annual revenue during the fourth quarter of 2010, 2009, and
2008.
Employees
We employed approximately 33,700 full-time and part-time employees at December 31, 2010. However, employment levels
fluctuate due to seasonal factors affecting our business. Additionally, we utilize independent contractors and temporary
personnel to supplement our workforce, particularly on a seasonal basis. Although we have works councils and statutory
employee representation obligations in certain countries, our employees are not represented by a labor union and we consider
our employee relations to be good. Competition for qualified personnel in our industry has historically been intense,
particularly for software engineers, computer scientists, and other technical staff.
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.
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Executive Officers and Directors
The following tables set forth certain information regarding our Executive Officers and Directors as of January 19, 2011:
Executive Officers
Name

Jeffrey P. Bezos
Jeffrey M. Blackburn
Sebastian J. Gunningham
Andrew R. Jassy
Steven Kessel
Marc A. Onetto
Diego Piacentini
Shelley L. Reynolds
Thomas J. Szkutak
H. Brian Valentine
Jeffrey A. Wilke
L. Michelle Wilson

Age

47
41
48
43
45
60
50
46
50
51
44
47

Position

President, Chief Executive Officer, and Chairman of the Board
Senior Vice President, Business Development
Senior Vice President, Seller Services
Senior Vice President, Web Services
Senior Vice President, Worldwide Digital Media
Senior Vice President, Worldwide Operations
Senior Vice President, International Retail
Vice President, Worldwide Controller, and Principal Accounting Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, Ecommerce Platform
Senior Vice President, North America Retail
Senior Vice President, General Counsel, and Secretary

Jeffrey P. Bezos. Mr. Bezos has been Chairman of the Board of Amazon.com since founding it in 1994 and Chief Executive
Officer since May 1996. Mr. Bezos served as President of the Company from founding until June 1999 and again from
October 2000 to the present.
Jeffrey M. Blackburn. Mr. Blackburn has served as Senior Vice President, Business Development, since April 2006. From
June 2004 to April 2006, he was Vice President, Business Development.
Sebastian J. Gunningham. Mr. Gunningham has served as Senior Vice President, Seller Services, since joining
Amazon.com in March 2007. Prior to joining Amazon.com, Mr. Gunningham was President of First Data Utilities from
August 2006 to February 2007, following First Data’s acquisition of Peace Software, Inc., where he was Chief Executive
Officer from February 2004 to August 2006.
Andrew R. Jassy. Mr. Jassy has served as Senior Vice President, Web Services, since April 2006. From January 2005 to
April 2006, he was Vice President, Web Services.
Steven Kessel. Mr. Kessel has served as Senior Vice President, Worldwide Digital Media, since April 2006. From April
2004 to April 2006, he was Vice President, Digital.
Marc A. Onetto. Mr. Onetto has served as Senior Vice President, Worldwide Operations, since joining Amazon.com in
December 2006. Prior to joining Amazon.com, Mr. Onetto was Executive Vice President, Worldwide Operations, at Solectron
Corporation, an electronics manufacturing and technology company, from June 2003 to June 2006.
Diego Piacentini. Mr. Piacentini has served as Senior Vice President, International Retail, since January 2007. From
November 2001 to December 2006, Mr. Piacentini served as Senior Vice President, Worldwide Retail and Marketing.
Shelley L. Reynolds. Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal Accounting Officer
since April 2007. From February 2006 to April 2007, she was Vice President, Finance and Controller. Prior to joining
Amazon.com, Ms. Reynolds was a partner at Deloitte & Touche LLP since 1998.
Thomas J. Szkutak. Mr. Szkutak has served as Senior Vice President and Chief Financial Officer since joining
Amazon.com in October 2002.
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H. Brian Valentine. Mr. Valentine has served as Senior Vice President, Ecommerce Platform, since joining Amazon.com in
September 2006. Prior to joining Amazon.com, Mr. Valentine held various positions with Microsoft Corporation, including
Senior Vice President, Windows Core Operating System Division, from January 2004 to September 2006.
Jeffrey A. Wilke. Mr. Wilke has served as Senior Vice President, North America Retail, since January 2007. From January
2002 to December 2006, he was Senior Vice President, Worldwide Operations.
L. Michelle Wilson. Ms. Wilson has served as Senior Vice President, General Counsel, and Secretary since July 2003.
Board of Directors
Name

Age

Position

Jeffrey P. Bezos
Tom A. Alberg
John Seely Brown
William B. Gordon
Alain Monié
Jonathan J. Rubinstein

47
70
70
60
60
54

Thomas O. Ryder
Patricia Q. Stonesifer

66
54

President, Chief Executive Officer, and Chairman of the Board
Managing Director, Madrona Venture Group
Visiting Scholar and Advisor to the Provost, University of Southern California
Partner, Kleiner Perkins Caufield & Byers
Chief Executive Officer, APRIL Pte. Ltd.
Senior Vice President and General Manager, Palm Global Business Unit,
Hewlett-Packard Company
Retired, Former Chairman, Reader’s Digest Association, Inc.
Chair, Board of Regents, Smithsonian Institution

Item 1A. Risk Factors
Please carefully consider the following risk factors. If any of the following risks occur, our business, financial condition,
operating results, and cash flows could be materially adversely affected. In addition, the current global economic climate
amplifies many of these risks.
We Face Intense Competition
Our businesses are rapidly evolving and intensely competitive, and we have many competitors in different industries,
including retail, e-commerce services, digital content and digital media devices, and web services. Many of our current and
potential competitors have greater resources, longer histories, more customers, and greater brand recognition. They may secure
better terms from vendors, adopt more aggressive pricing and devote more resources to technology, infrastructure, fulfillment,
and marketing.
Competition may intensify as our competitors enter into business combinations or alliances and established companies in other
market segments expand into our market segments. In addition, new and enhanced technologies, including search, web
services, and digital, may increase our competition. The Internet facilitates competitive entry and comparison shopping, and
increased competition may reduce our sales and profits.
Our Expansion Places a Significant Strain on our Management, Operational, Financial and Other Resources
We are rapidly and significantly expanding our global operations, including increasing our product and service offerings and
scaling our infrastructure to support our retail and services businesses. This expansion increases the complexity of our business
and places significant strain on our management, personnel, operations, 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.
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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 net 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, digital media devices and web services, including in
non-U.S. markets;

•

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

•

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

•

the outcomes of legal proceedings and claims;

•

variations in the mix of products and services we sell;

•

variations in our level of merchandise and vendor returns;

•

the extent to which we offer free shipping, continue to reduce product prices worldwide, and provide additional
benefits to our customers;

•

the extent to which we invest in technology and content, fulfillment and other expense categories;

•

increases in the prices of fuel and gasoline, as well as increases in the prices of other energy products and
commodities like paper and packing supplies;

•

the extent to which 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;
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•

the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails, denial of
service attacks, data theft, computer intrusions and similar events; and

•

terrorist attacks and armed hostilities.

We May Not Be Successful in Our Efforts to Expand into International Market Segments
Our international activities are significant to our revenues and profits, and we plan to further expand internationally. In certain
international market segments, we have relatively little operating experience and may not benefit from any first-to-market
advantages or otherwise succeed. It is costly to establish, develop and maintain international operations and websites and
promote our brand internationally. Our international operations may not be profitable on a sustained basis.
In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks,
including:
•

local economic and political conditions;

•

government regulation of e-commerce, other online services and electronic devices and restrictive governmental
actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs),
nationalization and restrictions on foreign ownership;

•

restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products,
services and content, including uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal
precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media
products and enforcement of intellectual property rights;

•

business licensing or certification requirements, such as for imports, exports and electronic devices;

•

limitations on the repatriation and investment of funds and foreign currency exchange restrictions;

•

limited fulfillment and technology infrastructure;

•

shorter payable and longer receivable cycles and the resultant negative impact on cash flow;

•

laws and regulations regarding consumer and data protection, privacy, network security, encryption, and restrictions
on pricing or discounts;

•

lower levels of use of the Internet;

•

lower levels of consumer spending and fewer opportunities for growth compared to the U.S.;

•

lower levels of credit card usage and increased payment risk;

•

difficulty in staffing, developing and managing foreign operations as a result of distance, language and cultural
differences;

•

different employee/employer relationships and the existence of workers’ councils and labor unions;

•

laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans and taxes; and

•

geopolitical events, including war and terrorism.

As the international e-commerce channel grows, competition will intensify. Local companies may have a substantial
competitive advantage because of their greater understanding of, and focus on, the local customer, as well as their more
established local brand names. We may not be able to hire, train, retain, and manage required personnel, which may limit our
international growth.
In 2004, we acquired Joyo.com Limited, which is organized under the laws of the British Virgin Islands and through a
People’s Republic of China (“PRC”) entity, provides technology and services for the Joyo Amazon
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websites. The PRC regulates Joyo Amazon’s business through regulations and license requirements restricting (i) foreign
investment in the Internet, retail and delivery sectors, (ii) Internet content and (iii) the sale of media and other products. In
order to meet local ownership and regulatory licensing requirements, Joyo Amazon’s business is operated by PRC companies
that are indirectly owned, either wholly of partially, by PRC nationals. Although we believe Joyo Amazon’s structure complies
with existing PRC laws, it involves 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 Joyo Amazon
(including its subsidiary and affiliates) 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 its licenses revoked or be forced to shut down entirely. In addition, if Joyo Amazon were unable to enforce its
contractual relationships with respect to management and control of its business, it might be unable to continue to operate the
business.
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, splitshipments, 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
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fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies and customer
service co-sourcers may be unable to meet the seasonal demand. We also face risks described elsewhere in this Item 1A
relating to fulfillment center optimization and inventory.
We generally have payment terms with our vendors that extend beyond the amount of time necessary to collect proceeds from
our customers. As a result of holiday sales, at December 31 of each year, our cash, cash equivalents, and marketable securities
balances typically reach their highest level (other than as a result of cash flows provided by or used in investing and financing
activities). This operating cycle results in a corresponding increase in accounts payable at December 31. Our accounts payable
balance generally declines during the first three months of the year, resulting in a corresponding decline in our cash, cash
equivalents, and marketable securities balances.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial Agreements,
Strategic Alliances, and Other Business Relationships
We provide e-commerce services to other businesses through our seller programs and other commercial agreements, strategic
alliances and business relationships. Under these agreements, we provide technology, fulfillment and other services, as well as
enable sellers to offer products or services through our websites and power their websites. These arrangements are complex
and require substantial personnel and resource commitments by us, which may limit the agreements we are able to enter into
and our ability to integrate and deliver services under them. If we fail to implement, maintain, and develop the components of
these commercial relationships, which may include fulfillment, customer service, inventory management, tax collection,
payment processing, licensing of third-party software, hardware, and content, and engaging third parties to perform hosting
and other services, these initiatives may not be viable. The amount of compensation we receive under certain of these
agreements is partially dependent on the volume of the other company’s sales. Therefore, if the other company’s offering is
not successful, the compensation we receive may be lower than expected or the agreement may be terminated. Moreover, we
may not be able to enter into additional commercial relationships and strategic alliances on favorable terms. We also may be
subject to claims from businesses to which we provide these services if we are unsuccessful in implementing, maintaining or
developing these services.
As our agreements terminate, we may be unable to renew or replace these agreements on comparable terms, or at all. We may
in the future enter into amendments on less favorable terms or encounter parties that have difficulty meeting their contractual
obligations to us, which could adversely affect our operating results.
Our present and future e-commerce services agreements, other commercial agreements, and strategic alliances create
additional risks such as:
•

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;
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•

the potential impairment of tangible assets, such as inventory, and intangible assets and goodwill acquired in the
acquisitions;

•

the potential impairment of customer and other relationships of the company we acquired or in which we invested or
our own customers as a result of any integration of operations;

•

the difficulty of incorporating acquired technology and rights into our offerings and unanticipated expenses related to
such integration;

•

the difficulty of integrating a new company’s accounting, financial reporting, management, information, human
resource and other administrative systems to permit effective management, and the lack of control if such integration
is delayed or not implemented;

•

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-thantemporary declines in fair value which could adversely impact our financial results.
We Have Foreign Exchange Risk
The results of operations of, and certain of our intercompany balances associated with, our international websites are exposed
to foreign exchange rate fluctuations. Upon translation, operating results may differ materially from expectations, and we may
record significant gains or losses on the remeasurement of intercompany balances. As we have expanded our international
operations, our exposure to exchange rate fluctuations has increased. We also hold cash equivalents and/or marketable
securities primarily in Euros, Japanese Yen, and British Pounds. If the U.S. Dollar strengthens compared to these currencies,
cash equivalents and marketable securities balances, when translated, may be materially less than expected and vice versa.
The Loss of Key Senior Management Personnel Could Negatively Affect Our Business
We depend on our senior management and other key personnel, particularly Jeffrey P. Bezos, our President, CEO, and
Chairman. We do not have “key person” life insurance policies. The loss of any of our executive officers or other key
employees could harm our business.
We 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 breakins, and similar events or disruptions. Any of these events could cause system
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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 in providing e-commerce services to other businesses and individuals under commercial agreements. These risks have
been amplified by the increase in third parties whose sole or primary business is to assert such claims.
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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 e-commerce industry;

•

quarterly variations in operating results;

•

fluctuations in the stock market in general and market prices for Internet-related companies in particular;

•

changes in financial estimates by us or securities analysts and recommendations by securities analysts;

•

changes in our capital structure, including issuance of additional debt or equity to the public;

•

changes in the valuation methodology of, or performance by, other e-commerce or technology companies; and

•

transactions in our common stock by major investors and certain analyst reports, news, and speculation.

Volatility in our stock price could adversely affect our business and financing opportunities and force us to increase our cash
compensation to employees or grant larger stock awards than we have historically, which could hurt our operating results or
reduce the percentage ownership of our existing stockholders, or both.
Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business
We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet, ecommerce, and electronic devices. Existing and future laws and regulations may impede our growth. These regulations and
laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic
device certification, electronic waste, electronic contracts and other communications, consumer protection, web services, the
provision of online payment services, unencumbered Internet access to our services, the design and operation of websites, and
the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property
ownership, libel, and personal privacy apply to the Internet, e-commerce, digital content and web services. Jurisdictions may
regulate consumer-to-consumer online businesses, including certain aspects of our seller programs. Unfavorable regulations
and laws could diminish the demand for our products and services and increase our cost of doing business.
Taxation Risks Could Subject Us to Liability for Past Sales and Cause Our Future Sales to Decrease
We do not collect sales or other taxes on shipments of most of our goods into most states in the U.S. Under some of our
commercial agreements, the other company is the seller of record, and we are obligated to collect sales tax in accordance with
that company’s instructions. We may enter into additional agreements requiring similar tax collection obligations. Our
fulfillment center and customer service center networks, and any future expansion of them, along with other aspects of our
evolving business, may result in additional sales and other tax obligations.
Currently, U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales and use taxes
with respect to sales made over the Internet. However, a number of states, as well as the
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U.S. Congress, have been considering or adopted initiatives that could limit or supersede the Supreme Court’s position
regarding sales and use taxes on Internet sales. If these initiatives are successful, we could be required to collect sales and use
taxes in additional states or change our business practices. The imposition by state and local governments of various taxes
upon Internet commerce could create administrative burdens for us, put us at a competitive disadvantage if they do not impose
similar obligations on all of our online competitors and decrease our future sales.
We collect consumption tax (including value added tax, goods and services tax, and provincial sales tax) as applicable on
goods and services sold by us that are ordered on our international sites. Additional foreign countries may seek to impose sales
or other tax collection obligations on us.
A successful assertion by one or more states or foreign countries that we should collect sales or other taxes on the sale of
merchandise or services could result in substantial tax liabilities for past sales, decrease our ability to compete with traditional
retailers, and otherwise harm our business.
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 our worldwide provision for income taxes. During the ordinary course of business, there are many transactions for
which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings
being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where
we have higher statutory rates, by changes in foreign currency exchange rates, by changes in the valuation of our deferred tax
assets and liabilities, or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations.
We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax against us. Although
we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially
different from our historical income tax provisions and accruals. The results of an audit or litigation could have a material
effect on our operating results or cash flows in the period or periods for which that determination is made.
Our Supplier Relationships Subject Us to a Number of Risks
We have significant suppliers, including licensors, that are important to our sourcing, 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,
including as a result of one or more supplier bankruptcies due to poor economic conditions, 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
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claims, such as if these sellers do not have sufficient protection from such claims. Although we maintain liability insurance,
we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be
available to us on economically reasonable terms, or at all. In addition, some of our agreements with our vendors and sellers
do not indemnify us from product liability.
We Are Subject to Payments-Related Risks
We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional
financing), gift certificates, direct debit from a customer’s bank account, consumer invoicing, physical bank check and
payment upon delivery. As we offer new payment options to our customers, we may be subject to additional regulations,
compliance requirements, and fraud. For certain payment methods, including credit and debit cards, we pay interchange and
other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to
provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional
financing, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We
are also subject to payment card association operating rules, 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, we may be subject to fines and higher transaction fees and lose our ability to accept credit and
debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and
our business and operating results could be adversely affected. We also offer co-branded credit card programs that represent a
significant component of our services revenue. If one or more of these agreements are terminated and we are unable to replace
them on similar terms, or at all, it could adversely affect our operating results.
In addition, we qualify as a money services business in certain jurisdictions because we enable customers to keep account
balances with us and transfer money to third parties, and because we provide services to third parties to facilitate payments on
their behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding, the
handling of transferred funds and consumer disclosures. We are also subject to or voluntarily comply with a number of other
laws and regulations relating to money laundering, international money transfers, privacy and information security and
electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to civil and
criminal penalties or forced to cease our payments services business.
We Could Be Liable for Breaches of Security
Although we have developed systems and processes that are designed to protect customer information and prevent fraudulent
transactions, data loss and other security breaches, failure to prevent or mitigate such breaches may adversely affect our
operating results.
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of providers of online payment services is currently unsettled. In addition, governmental
agencies could require changes in the way this business is conducted. Under our seller programs, we may be unable to prevent
sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the
products received are materially different from the sellers’ descriptions. Under our A2Z Guarantee, we reimburse buyers for
payments up to certain limits in these situations, and as our marketplace seller sales grow, the cost of this program will
increase and could negatively affect our operating results. We also may be unable to prevent sellers on our sites or through
other seller sites from selling unlawful goods, from selling goods in an unlawful manner, or violating the proprietary rights of
others, and could face civil or criminal liability for unlawful activities by our sellers.
Item 1B. Unresolved Staff Comments
None.
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Item 2.

Properties

As of December 31, 2010, we operated the following facilities:
Square
Footage (1)
(in thousands)

Description of Use

Operating
Segments

Corporate office facilities

2,351

North America

Corporate office facilities
Sub-total

650
3,001

International

Fulfillment and warehouse operations

15,761

North America

Fulfillment and warehouse operations
Sub-total

10,339
26,100

International

Data center, customer service and other

775

Data center, customer service and other
Sub-total
Total

209
984
30,085

North America
International

Lease
Expirations (1)

From 2011
through 2025
From 2011
through 2016
From 2011
through 2021
From 2011
through 2025
From 2011
through 2024
From 2011
through 2020

(1) Represents the total leased space excluding sub-leased space.
We lease our corporate headquarters in Seattle, Washington. Additionally, we lease corporate office, fulfillment and
warehouse operations, data center, customer service, and other facilities, principally in North America, Europe, and Asia.
Item 3.

Legal Proceedings

See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 6—Commitments and Contingencies—Legal
Proceedings” and “—Other Contingencies.”
Item 4.

Reserved

Not applicable.
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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.
High

Low

$ 75.61
88.56
94.50
145.91

$ 47.63
71.71
75.41
88.27

$138.19
151.09
161.78
185.65

Year ended December 31, 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

$113.82
106.01
105.80
151.40

Holders
As of January 19, 2011, there were 3,383 shareholders of record of our common stock, although there are a much larger
number of beneficial owners.
Dividends
We have never declared or paid cash dividends on our common stock. See Item 7 of Part II, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
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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.
2010

Income Statement:
Net sales
Income from operations
Net income
Basic earnings per share (1)
Diluted earnings per share (1)
Weighted average shares used in computation of earnings
per share:
Basic
Diluted

Year Ended December 31,
2009
2008
2007
(in millions, except per share data)

2006

$34,204
1,406
1,152
$ 2.58
$ 2.53

$14,835
655
476
$ 1.15
$ 1.12

$10,711
389
190
$ 0.46
$ 0.45

433
442

423
432

413
424

416
424

$ 3,495

$ 3,293

$ 1,697

$ 1,405

$

702

(979)
$ 2,516

(373)
$ 2,920

(333)
$ 1,364

(224)
$ 1,181

$

(216)
486

2010

2009

December 31,
2008
(in millions)

2007

2006

$18,797
184

Balance Sheet:
Total assets
Long-term debt

$19,166
842
645
$ 1.52
$ 1.49

447
456

Cash Flow Statement:
Net cash provided by operating activities
Purchases of fixed assets, including internal-use software
and website development
Free cash flow (2)

$24,509
1,129
902
$ 2.08
$ 2.04

$13,813
109

$ 8,314
409

$ 6,485
1,282

$ 4,363
1,247

(1) For further discussion of earnings per share, see Item 8 of Part II, “Financial Statements and Supplementary Data—Note
1—Description of Business and Accounting Policies.”
(2) Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less purchases of
fixed assets, including capitalized internal-use software and website development, both of which are presented on our
consolidated statements of cash flows. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Results of Operations—Non-GAAP Financial Measures.”
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Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry
prospects or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking.
We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking
statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results
could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in
global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, the
amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold
to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes,
competition, management of growth, potential fluctuations in operating results, international growth and expansion, the
outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the
degree to which the Company enters into, maintains, and develops commercial agreements, acquisitions, and strategic
transactions, payments risks, and risks of fulfillment throughput and productivity. In addition, the current global economic
climate amplifies many of these risks. These risks and uncertainties, as well as other risks and uncertainties that could cause
our actual results to differ significantly from management’s expectations, are described in greater detail in Item 1A of Part I,
“Risk Factors.”
Overview
Our primary source of revenue is the sale of a wide range of products and services to customers. The products offered on our
consumer-facing websites primarily include merchandise and content we have purchased for resale from vendors and those
offered by third party sellers, and we also manufacture and sell the Kindle e-reader. Generally, we recognize gross revenue
from items we sell from our inventory and recognize our net share of revenue of items sold by other sellers. We also offer
services such as AWS, fulfillment, miscellaneous marketing and promotional agreements, such as online advertising, and cobranded 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 capital and capital expenditures. Increases in operating income
primarily result from increases in sales of products and services and efficiently managing our operating costs, offset by
investments we make in longer-term strategic initiatives, which generally require us to hire additional software engineers,
computer scientists, and merchandisers. To increase sales of products and services, we focus on improving all aspects of the
customer experience, including lowering prices, improving availability, offering faster delivery and performance times,
increasing selection, increasing product categories and service offerings, expanding product information, improving ease of
use, improving reliability, and earning customer trust. We also seek to efficiently manage shareholder dilution while
maintaining the flexibility to issue shares for strategic purposes, such as financings, acquisitions, and aligning employee
compensation with shareholders’ interests. We utilize restricted stock units as our primary vehicle for equity compensation
because we believe they align the interests of our shareholders and employees. In measuring shareholder dilution, we include
all vested and unvested stock awards outstanding, without regard to estimated forfeitures. Total shares outstanding plus
outstanding stock awards were 465 million and 461 million at December 31, 2010 and 2009.
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
1

Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less purchases of
fixed assets, including capitalized internal-use software and website development, both of which are presented on our
consolidated statements of cash flows. See “Results of Operations—Non-GAAP Financial Measures” below.
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preparing orders for shipment, transportation, customer service support, and a portion of our marketing costs. Our fixed costs
include the costs necessary to run our technology infrastructure and AWS; to build, enhance, and add features to our websites
and our Kindle e-reader; and to build and optimize our fulfillment centers. Variable costs generally change directly with sales
volume, while fixed costs generally increase depending on the timing of capacity needs, geographic expansion, category
expansion, and other factors. To decrease our variable costs on a per unit basis and enable us to lower prices for customers, we
seek to increase our direct sourcing, increase discounts available to us from suppliers, and reduce defects in our processes. To
minimize growth in fixed costs, we seek to improve process efficiencies and maintain a lean culture.
Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle2. On average our
high inventory velocity means we generally collect from consumers before our payments to suppliers come due. Inventory
turnover3 was 11, 12, and 12 for 2010, 2009, and 2008. We expect some 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 instock inventory availability, our investment in new geographies and product lines, and the extent to which we choose to utilize
outsource fulfillment providers. Accounts payable days4 were 72, 68, and 62 for 2010, 2009, and 2008. We expect some
variability in accounts payable days over time since they are affected by several factors, including the mix of product sales, the
mix of sales by other sellers, the mix of suppliers, seasonality, and changes in payment terms over time, including the effect of
balancing pricing and timing of payment terms with suppliers.
We expect spending in technology and content will increase over time as we add computer scientists, software engineers, and
merchandising employees. We seek to efficiently invest in several areas of technology and content, including seller platforms,
digital initiatives, and expansion of new and existing product categories, as well as in technology infrastructure to enhance the
customer experience, improve our process efficiencies and support AWS. We believe that advances in technology, specifically
the speed and reduced cost of processing power, the improved consumer experience of the Internet outside of the workplace
through lower-cost broadband service to the home, and the advances of wireless connectivity, will continue to improve the
consumer experience on the Internet and increase its ubiquity in people’s lives. We are 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, and in our Kindle e-reader. A continuing challenge is to build and deploy innovative and efficient
software that will best take advantage of continued advances in technology.
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.
2

3
4

The operating cycle is number of days of sales in inventory plus number of days of sales in accounts receivable minus
accounts payable days.
Inventory turnover is the quotient of trailing-twelve-month cost of sales to average inventory over five quarter-ends.
Accounts payable days, calculated as the quotient of accounts payable to current quarter cost of sales, multiplied by the
number of days in the current quarter.
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For additional information about each line item summarized above, refer to Item 8 of Part II, “Financial Statements and
Supplementary Data—Note 1—Description of Business and Accounting Policies.”
Critical Accounting Judgments
The preparation of financial statements in conformity with generally accepted accounting principles of the United States
(“GAAP”) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses,
and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes.
The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the
company’s financial condition and results of operations, and which require the company to make its most difficult and
subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this
definition, we have identified the critical accounting policies and judgments addressed below. We also have other key
accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our
results. For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data—Note 1—
Description of Business and Accounting Policies.” Although we believe that our estimates, assumptions, and judgments are
reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates
under different assumptions, judgments, or conditions.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the first-in first-out (“FIFO”) method,
and are valued at the lower of cost or market value. This valuation requires us to make judgments, based on currently-available
information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors,
or liquidations, and expected recoverable values of each disposition category.
These assumptions about future disposition of inventory are inherently uncertain. As a measure of sensitivity, for every 1% of
additional inventory valuation allowance at December 31, 2010 we would have recorded an additional cost of sales of
approximately $33 million.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that
indicates 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, a second step is performed to compute the amount of impairment as the difference
between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using
discounted cash flows. Forecasts of future cash flow are based on our best estimate of future net sales and operating expenses,
based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Certain
estimates of discounted cash flows involve businesses and geographies with limited financial history and developing revenue
models. Changes in these forecasts could significantly change the amount of impairment recorded, if any.
During the year, management monitored the actual performance of the business relative to the fair value assumptions used
during our annual goodwill impairment test. For the periods presented, no triggering events were identified that required an
update to our annual impairment test. As a measure of sensitivity, a 10% decrease in the fair value of any of our reporting units
as of December 31, 2010 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
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determine whether credit or stock price changes are a short term swing or a longer-term trend. As a measure of sensitivity, a
prolonged 20% decrease from our December 31, 2010 closing stock price would not be an indicator of possible impairment.
Stock-Based Compensation
We measure compensation cost for stock awards at fair value and recognize it as compensation expense over the service period
for awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and
the quoted price of our common stock. The estimation of stock awards that will ultimately vest requires judgment for the
amount that will be forfeited, and to the extent actual results or updated estimates differ from our current estimates, such
amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when
estimating expected forfeitures, including employee class, economic environment, and historical experience. We update our
estimated forfeiture rate quarterly. A 1% change to our estimated forfeiture rate would have had an approximately $17 million
impact on our 2010 operating income. Our estimated forfeiture rates at December 31, 2010 and 2009, were 29.7% and 33.1%.
We utilize the accelerated method, rather than the straight-line method, for recognizing compensation expense. Under this
method, over 50% of the compensation cost is expensed in the first year of a four year vesting term. The accelerated method
also adds a higher level of sensitivity of estimating forfeitures. If forfeited early in the life of an award, the forfeited amount is
much greater under an accelerated method than under a straight-line method.
Income Taxes
We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are
many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates
could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and
higher than anticipated in countries where we have higher statutory rates, by changes in foreign currency exchange rates, by
changes in the valuation of our deferred tax assets and liabilities, or by changes in the relevant tax, accounting and other laws,
regulations, principles and interpretations. We are subject to audit in various jurisdictions, and such jurisdictions may assess
additional income tax against us. Although we believe our tax estimates are reasonable, the final determination of tax audits
and any related litigation could be materially different from our historical income tax provisions and accruals. The results of an
audit or litigation could have a material effect on our operating results or cash flows in the period or periods for which that
determination is made.
If we determine that additional portions of our deferred tax assets are realizable, the majority of the benefit will come from the
assets associated with the stock-based compensation that was not recognized in the financial statements, but was claimed on
the tax return. Since this compensation did not originally run through our consolidated statements of operations, the benefit
generated will be recorded to stockholders’ equity.
Recent Accounting Pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 1—Description of Business and Accounting
Policies—Recent Accounting Pronouncements.”
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Liquidity and Capital Resources
Cash flow information is as follows:
2010

Cash provided by (used in):
Operating activities
Investing activities
Financing activities

Year Ended December 31,
2009
2008
(in millions)

$ 3,495
(3,360)
181

$ 3,293
(2,337)
(280)

$ 1,697
(1,199)
(198)

Our financial focus is on long-term, sustainable growth in free cash flow. Free cash flow, a non-GAAP financial measure, was
$2.52 billion for 2010, compared to $2.92 billion and $1.36 billion for 2009 and 2008. See “Results of Operations—NonGAAP Financial Measures” below for a reconciliation of free cash flow to cash provided by operating activities. The decrease
in free cash flow in 2010 was primarily due to increased capital expenditures, changes in working capital, and utilization of
excess stock-based compensation deductions, partially offset by increases in operating income. The increase in free cash flow
in 2009 primarily resulted from changes in working capital, increased operating income, and increased deferred revenue. Tax
benefits relating to excess stock-based compensation deductions are presented in the statement of cash flows as financing cash
inflows; accordingly, as such tax benefits decline, a greater amount of cash is classified as operating cash inflow. Operating
cash flows and free cash flows can be volatile and are sensitive to many factors, including changes in working capital and the
timing and magnitude of capital expenditures. 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 $8.8 billion, $6.4 billion, and $3.7 billion, at December 31, 2010, 2009, and
2008. Amounts held in foreign currencies were $3.4 billion, $2.8 billion, and $1.7 billion at December 31, 2010, 2009, and
2008, and were primarily Euros, British Pounds, and Japanese Yen.
Cash provided by operating activities was $3.5 billion, $3.3 billion, and $1.7 billion in 2010, 2009, and 2008. Our operating
cash flows result primarily from cash received from our consumer, seller, and enterprise customers, miscellaneous marketing
and promotional agreements, and our co-branded credit card agreements, offset by cash payments we make for products and
services, employee compensation (less amounts capitalized related to internal use software that are reflected as cash used in
investing activities), payment processing and related transaction costs, operating leases, and interest payments on our longterm 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 customers settle quickly.
Changes to our operating cash flows have historically been driven primarily by changes in operating income and changes to
the components of working capital, including changes to receivable and payable days and inventory turns, as well as changes
to non-cash items such as excess stock-based compensation and deferred taxes.
Cash provided by (used in) investing activities corresponds with purchases, sales, and maturities of marketable securities,
capital expenditures, including leasehold improvements, internal-use software and website development costs, and cash
outlays for acquisitions, investments in other companies and intellectual property rights. Cash provided by (used in) investing
activities was $(3.4) billion, $(2.3) billion, and $(1.2) billion in 2010, 2009, and 2008, with the variability caused primarily by
increased capital expenditures, increases in cash paid for acquisitions, and purchases, maturities, and sales of marketable
securities and other investments. Capital expenditures were $979 million, $373 million, and $333 million in 2010, 2009, and
2008, with the sequential increases primarily reflecting additional investments in support of continued business growth,
including investments in technology infrastructure including AWS, additional capacity to support our fulfillment operations,
and, in 2010, investments in corporate office space. We expect this trend to continue over time.
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Capital expenditures included $176 million, $146 million, and $128 million for internal-use software and website development
during 2010, 2009, and 2008. Stock-based compensation capitalized for internal-use software and website development costs
does not affect cash flows. In 2010, 2009, and 2008, we made cash payments, net of acquired cash, related to acquisition and
investment activity of $352 million, $40 million, and $494 million.
Cash provided by (used in) financing activities was $181 million, $(280) million, and $(198) million in 2010, 2009, and 2008.
Cash outflows from financing activities result from payments on obligations related to capital leases and leases accounted for
as financing arrangements, repayments of long-term debt, and repurchases of common stock. Payments on obligations related
to capital leases and leases accounted for as financing arrangements, and repayments of long-term debt, were $221 million,
$472 million, and $355 million in 2010, 2009, and 2008. We repurchased 2.2 million shares of common stock for $100 million
in 2008 under the $1 billion repurchase program authorized by our Board of Directors in February 2008. Cash inflows from
financing activities primarily result from proceeds from tax benefits relating to excess stock-based compensation deductions
and proceeds from long-term debt. Proceeds from long-term debt and other were $143 million, $87 million, and $98 million in
2010, 2009, and 2008. Tax benefits relating to excess stock-based compensation deductions are presented as financing cash
flows. Cash inflows (outflows) from tax benefits related to stock-based compensation deductions were $259 million, $105
million, and $159 million in 2010, 2009, and 2008.
In 2010, 2009, and 2008 we recorded net tax provisions of $352 million, $253 million, and $247 million. A majority of this
provision is non-cash. We have current tax benefits and net operating loss carryforwards relating to excess stock-based
compensation deductions that are being utilized to reduce our U.S. taxable income. Cash taxes paid, net of refunds, were $75
million, $48 million, and $53 million for 2010, 2009, and 2008. We used substantially all of our federal net operating loss
carryforwards in 2010 and have available federal tax credits of $227 million. Once we use our 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.
In January 2010, our Board of Directors authorized a program to repurchase up to $2 billion of our common stock, which
replaces the prior February 2008 repurchase authorization described above. We did not repurchase any of our common stock in
2010 or 2009.
Additionally, in November 2010 and January 2011, we signed agreements to acquire Quidsi, Inc. and LOVEFiLM
International Limited for aggregate consideration of approximately $660 million, primarily in cash, and the assumption of
debt. We expect the acquisitions to close in 2011, subject to regulatory approvals and closing conditions.
See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 6—Commitments and Contingencies” for
additional discussion of our principal contractual commitments, as well as our pledged securities. Purchase obligations and
open purchase orders, consisting of inventory and significant non-inventory commitments, were $1.5 billion at December 31,
2010.
On average, our high inventory turnover means we collect from our customers before our payments to suppliers come due.
Inventory turnover was 11, 12, and 12 for 2010, 2009, and 2008. We expect some variability in inventory turnover over time
as it is affected by several factors, including category expansion and changes in our product mix, the mix of sales by us and by
other sellers, our continuing focus on in-stock inventory availability, our investment in new geographies and product lines, and
the extent to which we choose to utilize outsource fulfillment providers.
We believe that current cash, cash equivalents, and marketable securities balances will be sufficient to meet our anticipated
operating cash needs for at least the next 12 months. However, any projections of future cash needs and cash flows are subject
to substantial uncertainty. See Item 1A of Part I, “Risk Factors.” We continually evaluate opportunities to sell additional equity
or debt securities, obtain credit facilities, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise
restructure our debt for strategic reasons or to further
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strengthen our financial position. The sale of additional equity or convertible debt securities would likely be dilutive to our
shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses,
products, services, and technologies, which might affect our liquidity requirements or cause us to issue additional equity or
debt securities. There can be no assurance that additional lines-of-credit or financing instruments will be available in amounts
or on terms acceptable to us, if at all.
Results of Operations
We have organized our operations into two principal segments: North America and International. We present our segment
information along the same lines that our chief executive reviews our operating results in assessing performance and allocating
resources.
Net Sales
Net sales information is as follows:
2010

2008

$18,707
15,497
$34,204

Net Sales:
North America
International
Consolidated
Year-over-year Percentage Growth:
North America
International
Consolidated

Year Ended December 31,
2009
(in millions)

$12,828
11,681
$24,509

$10,228
8,938
$19,166

46%
33
40

Net Sales Mix:
North America
International
Consolidated

26%
33
29

46%
34
40

26%
33
29

26%
31
28

55%
45
100%

Year-over-year Percentage Growth, excluding effect of exchange rates:
North America
International
Consolidated

25%
31
28

52%
48
100%

53%
47
100%

Sales increased 40%, 28%, and 29% in 2010, 2009, and 2008. Changes in currency exchange rates positively (negatively)
affected net sales by $(86) million, $(182) million, and $127 million for 2010, 2009, and 2008. For a discussion of the effect
on sales growth of exchange rates, see “Effect of Exchange Rates” below.
The North America sales growth rate was 46%, 25%, and 26% in 2010, 2009, and 2008. The sales growth in each year
primarily reflects increased unit sales, a larger base of sales in faster growing categories such as electronics and other general
merchandise, and, in 2010, our adoption of the new accounting standard update (“ASU”) 2009-13 (see Item 8 of Part II,
“Financial Statements and Supplementary Data—Note 1—Description of Business and Accounting Policies”). Increased unit
sales were driven largely by our continued efforts to reduce prices for our customers, including from our free shipping offers
and Amazon Prime, by increased in-stock inventory availability and increased selection of product offerings, and by the
impact of Zappos, which we acquired in the fourth quarter of 2009.
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The International sales growth rate was 33%, 31%, and 33% in 2010, 2009, and 2008. The sales growth in each year primarily
reflects increased unit sales and a larger base of sales in faster growing categories such as electronics and other general
merchandise. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including
from our free shipping offers and Amazon Prime, and by increased in-stock inventory availability and increased selection of
product offerings. Additionally, changes in currency exchange rates positively (negatively) affected International net sales by
$(107) million, $(174) million, and $131 million in 2010, 2009, and 2008. We expect that, over time, our International
segment will represent 50% or more of our consolidated net sales.
Sales of products by marketplace sellers on our websites represented 31%, 30%, and 28% of unit sales in 2010, 2009, and
2008. Revenues from these sales are recorded as a net amount. Because we focus on operating profits, we are largely neutral
on whether an item is sold by us or by another seller.
Supplemental Information
Supplemental information about shipping results is as follows:
2010

$ 1,193
(2,579)
$(1,386)

Shipping Activity:
Shipping revenue (1)(2)
Outbound shipping costs
Net shipping cost
Year-over-year Percentage Growth:
Shipping revenue
Outbound shipping costs
Net shipping cost

December 31,
2009
(in millions)

$ 924
(1,773)
$ (849)

2008

$

835
(1,465)
$ (630)

29%
45
63

13%
25
45

3.5%
(7.5)
(4.0)%

Percent of Net Sales:
Shipping revenue
Outbound shipping costs
Net shipping cost

11%
21
35
3.8%
(7.2)
(3.4)%

4.4%
(7.6)
(3.2)%

(1) Excludes amounts earned on shipping activities by third-party sellers where we do not provide the fulfillment service.
(2) Includes amounts earned from Amazon Prime membership and Fulfillment by Amazon programs.
We expect our net cost of shipping to continue to increase to the extent our customers accept and use our free-shipping offers
at an increasing rate, including through membership in Amazon Prime; to the extent our product mix shifts to the electronics
and other general merchandise category; to the extent we reduce shipping rates; and to the extent we use more expensive
shipping methods. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, negotiating
better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our
customers is fundamental to our future success. One way we offer lower prices is through free-shipping offers, as well as
through membership in Amazon Prime.
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Supplemental information about our net sales is as follows:
2010

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,
2009
(in millions)

$ 6,881
10,998
828
$18,707

$ 5,964
6,314
550
$12,828

$ 5,350
4,430
448
$10,228

$ 8,007
7,365
125
$15,497

$ 6,810
4,768
103
$11,681

$ 5,734
3,110
94
$ 8,938

$14,888
18,363
953
$34,204

$12,774
11,082
653
$24,509

$11,084
7,540
542
$19,166

2008

15%
74
50
46

11%
43
23
25

16%
41
38
26

18%
54
22
33

19%
53
9
31

24%
50
65
33

17%
66
46
40

15%
47
20
28

20%
45
42
29

18%
57
24
34

20%
56
19
33

22%
49
67
31

16%
67
46
40

16%
48
22
29

19%
44
42
28

43%
54
3
100%

52%
45
3
100%

58%
39
3
100%

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our co-branded credit card agreements.
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Operating Expenses
Information about operating expenses with and without stock-based compensation is as follows (in millions):
Year ended December 31, 2010
As
Stock-Based
Net
Reported
Compensation
Operating Expenses:
Cost of Sales
$ 26,561
Fulfillment
2,898
Marketing
1,029
Technology and
1,734
content
General and
470
administrative
Other operating
expense
106
(income), net
Total
operating
expenses $ 32,798
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

$

Year ended December 31, 2009
As
Stock-Based
Net
Reported
Compensation

—
$ 26,561
(90)
2,808
(27)
1,002

Year ended December 31, 2008
As
Stock-Based
Net
Reported
Compensation

$ 18,978
2,052
680

$ 14,896
1,658
482

$

—
$ 18,978
(79)
1,973
(20)
660

$

—
$ 14,896
(61)
1,597
(13)
469

(223)

1,240

(182)

1,058

1,033

(151)

882

(84)

386

328

(60)

268

279

(50)

229

—

$

1,511

106

102

—

102

(24)

—

(24)

(424) $ 32,375

$ 23,380

(341) $ 23,039

$ 18,324

$

$

(275) $ 18,049

41%
51

42%
52

24%
41

24%
41

28%
40

27%
39

40

43

20

20

26

23

44

45

17

17

19

15

8.5%
3.0

8.2%
2.9

8.4%
2.8

8.1%
2.7

8.6%
2.5

8.3%
2.4

5.1

4.4

5.1

4.3

5.4

4.6

1.4

1.1

1.3

1.1

1.5

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 content where we are the seller of record, inbound and
outbound shipping charges, and packaging supplies. Shipping charges to receive products from our suppliers are included in
our inventory, and recognized as cost of sales upon sale of products to our customers.
The increase in cost of sales in absolute dollars in 2010 and 2009 compared to the comparable prior year periods is primarily
due to increased product and shipping costs resulting from increased sales.
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Consolidated gross profit and gross margin for each of the periods presented were as follows:
2010

Gross Profit (in millions)
Gross Margin

Year Ended December 31,
2009

$7,643
22.3%

$5,531
22.6%

2008

$4,270
22.3%

Gross margin for 2010 remained relatively consistent with the prior year periods. We believe that income from operations is a
more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services.
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,
the extent we utilize fulfillment services provided by third parties, and our ability to affect customer service contacts per unit
by implementing improvements in our operations and enhancements to our customer self-service features. Additionally,
because payment processing costs associated with seller transactions are based on the gross purchase price of underlying
transactions, and payment processing and related transaction costs are higher as a percentage of sales versus our retail sales,
sales by our sellers have higher fulfillment costs as a percent of net sales.
The increase in fulfillment costs in absolute dollars in 2010 and 2009 compared to the comparable prior year periods is
primarily due to variable costs corresponding with sales volume, inventory levels, and product sales mix; payment processing
and related transaction costs; and costs from expanding fulfillment capacity.
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 2010 and 2009 compared to the comparable prior year periods is
primarily due to increased spending on online marketing channels, such as sponsored search programs and our Associates
program, and, in 2010, on television advertising.
While costs associated with free shipping are not included in marketing expense, we view free shipping offers and Amazon
Prime as effective worldwide marketing tools, and intend to continue offering them indefinitely.
Technology and Content
We seek to efficiently invest in several areas of technology and content including seller platforms, digital initiatives, and
expansion of new and existing product categories, as well as technology infrastructure so that we can continue to enhance the
customer experience, improve our process efficiency and support AWS. See “Overview” for a discussion of how management
views advances in technology and the importance of innovation.
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Table of Contents
The increase in technology and content costs in absolute dollars in 2010 and 2009 compared to the comparable prior year
periods is primarily due to increases in payroll and related expenses and increased spending on technology infrastructure. We
expect these trends to continue over time.
For the years ended 2010, 2009, and 2008, we capitalized $213 million, $187 million, and $187 million of costs associated
with internal-use software and website development. Amortization of previously capitalized amounts was $184 million, $172
million, and $143 million for 2010, 2009, and 2008.
A majority of our technology costs are incurred in the U.S., most of which are allocated to our North America segment.
Infrastructure and other technology costs used to support AWS are included in technology and content.
General and Administrative
The increase in general and administrative costs in absolute dollars in 2010 and 2009 compared to the comparable prior year
periods is primarily due to increases in payroll and related expenses, and professional service fees.
Stock-Based Compensation
Stock-based compensation was $424 million, $341 million, and $275 million during 2010, 2009, and 2008. The increase in
stock-based compensation in 2010 compared to 2009 is primarily due to an increase in total stock-based compensation value
granted to our employees and to a decrease in our estimated forfeiture rate. The increase in stock-based compensation in 2009
compared to 2008 is primarily due to a decrease in our estimated forfeiture rate.
Other Operating Expense (Income), Net
Other operating expense (income), net was $106 million, $102 million, and $(24) million during 2010, 2009 and 2008. In
2010, the amount primarily related to amortization of intangible assets, in 2009, the amount included amortization of
intangible assets and a $51 million legal settlement, and in 2008, the balance included amortization of intangible assets and a
$53 million noncash gain on the sale of our European DVD rental assets.
Interest Income and Expense
Our interest income was $51 million, $37 million, and $83 million during 2010, 2009, and 2008. We generally invest our
excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Our
interest income corresponds with the average balance of invested funds and the prevailing rates we are earning on them, which
vary depending on the geographies and currencies in which they are invested.
The primary component of our net interest expense is related to our capital and financing leases and our long-term debt.
Interest expense was $39 million, $34 million, and $71 million in 2010, 2009, and 2008. The decline in 2009 primarily relates
to principal reductions of long term debt of $319 million.
Our long-term liabilities were $1.6 billion and $1.2 billion at December 31, 2010 and 2009. See Item 8 of Part II, “Financial
Statements and Supplementary Data—Note 5—Long-Term Liabilities.”
Other Income (Expense), Net
Other income (expense), net was $79 million, $29 million, and $47 million during 2010, 2009, and 2008. The primary
component of other income (expense), net, is related to foreign-currency gain on intercompany balances.
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Income Taxes
We recorded a provision for income taxes of $352 million, $253 million, and $247 million in 2010, 2009, and 2008. The
effective tax rate in 2010, 2009 and 2008 was lower than the 35% U.S. federal statutory rate primarily due to earnings of our
subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in the U.S.
Our effective tax rate is subject to significant variation due to several factors, including variability in accurately predicting our
taxable income, the taxable jurisdictions to which it relates, business acquisitions and investments, and foreign currencies. We
have current tax benefits and net operating losses relating to excess stock-based compensation deductions that are being
utilized to reduce our U.S. taxable income. We used substantially all of our federal net operating loss carryforwards in 2010
and have available federal tax credits of $227 million. As a result of new U.S. legislation that became effective in December
2010, we are able to accelerate our depreciation deductions for qualifying property acquired in the fourth quarter of 2010. This
accelerated depreciation deduction will continue for qualifying property acquired in 2011.
Equity–Method Investment Activity, Net of Tax
Equity–method investment activity, net of tax, was $7 million, $(6) million, and $(9) million in 2010, 2009, and 2008. The
increase in equity-method investment activity in 2010 compared to 2009 is primarily due to the recognition of a non-cash gain
on a previously held equity position in a company that was acquired in 2010.
Effect of Exchange Rates
The effect on our consolidated statements of operations from changes in exchange rates versus the U.S. Dollar is as follows (in
millions, except per share data):
Year Ended
December 31, 2010
At Prior
Exchange
As
Year
Rate
Reported
Rates (1)
Effect (2)

Net sales
Operating expenses
Income from operations
Net interest income
(expense) and other (3)
Net income
Diluted earnings per share

Year Ended
December 31, 2009
At Prior
Exchange
As
Year
Rate
Reported
Rates (1)
Effect (2)

$34,290
32,856
1,434

$

$24,691
23,522
1,170

$ (182) $24,509
(142) 23,380
(41)
1,129

19,039
18,206
832

17
1,118
$ 2.45

74
34
$ 0.08

6
911
$ 2.06

26
32
(9)
902
$ (0.02) $ 2.04

17
609
$ 1.41

(86) $34,204
(58) 32,798
(28)
1,406
91
1,152
$ 2.53

Year Ended
December 31, 2008
At Prior
Exchange
As
Year
Rate
Reported
Rates (1)
Effect (2)

$

127
118
10

$19,166
18,324
842

42
36
$ 0.08

59
645
1.49

$

(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, and if we did not incur the variability associated with
remeasurements for our intercompany balances and 6.875% PEACS, which we redeemed in 2009.
(2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in
the comparable prior year period for operating results, and if we did not incur the variability associated with
remeasurements for our intercompany balances and 6.875% PEACS, which we redeemed in 2009.
(3) Includes foreign currency gains and losses on cross-currency investments, and remeasurement of our intercompany
balances and 6.875% PEACS, which we redeemed in 2009.
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Non-GAAP Financial Measures
Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and prescribe the
conditions for use of certain non-GAAP financial information. Our measures of “Free cash flow,” operating expenses with and
without stock-based compensation, and the effect of exchange rates on our consolidated statement of operations, meet the
definition of non-GAAP financial measures.
Free cash flow is used in addition to and in conjunction with results presented in accordance with GAAP and free cash flow
should not be relied upon to the exclusion of GAAP financial measures.
Free cash flow, which we reconcile to “Net cash provided by (used in) operating activities,” is cash flow from operations
reduced by “Purchases of fixed assets, including internal-use software and website development.” We use free cash flow, and
ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe
it typically will present a more conservative measure of cash flows since purchases of fixed assets are a necessary component
of ongoing operations.
Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary
expenditures. For example, free cash flow does not incorporate the portion of payments representing principal reductions of
obligations related to capital leases and leases accounted for as financing arrangements or cash payments for business
acquisitions. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements
of cash flows.
The following is a reconciliation of free cash flow to the most comparable GAAP measure, “Net cash provided by (used in)
operating activities” for 2010, 2009, and 2008 (in millions):
2010

Net cash provided by (used in) operating activities
Purchases of fixed assets, 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,
2009
2008

$ 3,495
(979)
$ 2,516
$(3,360)
$ 181

$ 3,293
(373)
$ 2,920
$(2,337)
$ (280)

$ 1,697
(333)
$ 1,364
$(1,199)
$ (198)

Operating expenses with and without stock-based compensation is provided to show the impact of stock-based compensation,
which is non-cash and excluded from our internal operating plans and measurement of financial performance (although we
consider the dilutive impact to our shareholders when awarding stock-based compensation and value such awards
accordingly). In addition, unlike other centrally-incurred operating costs, stock-based compensation is not allocated to segment
results and therefore excluding it from operating expense is consistent with our segment presentation in our footnotes to the
consolidated financial statements.
Operating expenses without stock-based compensation has limitations since it does not include all expenses primarily related
to our workforce. More specifically, if we did not pay out a portion of our compensation in the form of stock-based
compensation, our cash salary expense included in the “Fulfillment,” “Technology and content,” “Marketing,” and “General
and administrative” line items would be higher.
Information regarding the effect of exchange rates, versus the U.S. Dollar, on our consolidated statements of operations is
provided to show reported period operating results had the exchange rates remained the same as those in effect in the
comparable prior year period.
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Guidance
We provided guidance on January 27, 2011 in our earnings release furnished on Form 8-K as follows:
First Quarter 2011 Guidance
•

Net sales are expected to be between $9.1 billion and $9.9 billion, or to grow between 28% and 39% compared with first
quarter 2010.

•

Operating income is expected to be between $260 million and $385 million, or between 34% decline and 2% decline
compared with first quarter 2010. This guidance includes approximately $140 million for stock-based compensation and
amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions or
investments are concluded and that there are no further revisions to stock-based compensation estimates.

These projections are subject to substantial uncertainty. See Item 1A of Part I, “Risk Factors.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations, and changes in the market
values of our investments. Information relating to quantitative and qualitative disclosures about market risk is set forth below
and in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity
and Capital Resources.”
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. All of our cash
equivalent and marketable fixed income securities are designated as available-for-sale and, accordingly, are presented at fair
value on our consolidated balance sheets. We generally invest our excess cash in investment grade short- to intermediate-term
fixed income securities and AAA-rated money market funds. Fixed rate securities may have their fair market value adversely
affected due to a rise in interest rates, and we may suffer losses in principal if forced to sell securities that have declined in
market value due to changes in interest rates.
The following table provides information about our current and long-term cash equivalent and marketable fixed income
securities, including principal cash flows by expected maturity and the related weighted average interest rates at December 31,
2010 (in millions, except percentages):

2011

Money market funds
$1,882
Weighted average interest
rate
0.11%
Corporate debt securities
90
Weighted average interest
rate
1.11%
U.S. Government and Agency
Securities
2,624
Weighted average interest
rate
0.17%
Asset backed securities
13
Weighted average interest
rate
2.18%
Foreign government and agency
securities
1,346
Weighted average interest
rate
0.37%
Other securities
10
Weighted average interest
rate
1.05%
$5,965

2012

2013

2014

2015

Thereafter

$ —

$—

$—

$—

$

—

Total

$1,882

—
128

—
219

—
1

—
—

—
—

0.11%
438

1.58%

2.01%

2.57%

—

—

137

1

—

—

0.72%
12

1.57%
7

2.86%

—
—

—
—

0.36%
32

1.83%

2.01%

—

—

337

30

—

—

0.84%
5

1.28%
1

1.66%
—

—
—

—
—

0.62%
16

1.34%
$1,505

2.03%
$ 701

—
—

1,882

2.01%

410

$

1.70%

950

Estimated
Fair Value at
December 31,
2010

1.22%
$8,203

$ 32

—
$—

$

3,712

2,123

459

3,756
33

2,158
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Cash equivalents and
marketable fixed- income
securities

$

8,305

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Table of Contents
Foreign Exchange Risk
During 2010, net sales from our International segment accounted for 45% 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
British Pounds, Euros, and Japanese Yen. The functional currency of our subsidiaries that either operate or support these
websites is the same as the corresponding local currency. The results of operations of, and certain of our intercompany
balances associated with, our internationally-focused websites are exposed to foreign exchange rate fluctuations. Upon
consolidation, as exchange rates vary, net sales and other operating results may differ materially from expectations, and we
may record significant gains or losses on the remeasurement of intercompany balances. For example, as a result of fluctuations
in foreign exchange rates during 2010, International segment revenues decreased $107 million in comparison with the prior
year.
We have foreign exchange risk related to foreign-denominated cash, cash equivalents, and marketable securities (“foreign
funds”). Based on the balance of foreign funds at December 31, 2010 of $3.4 billion, an assumed 5%, 10%, and 20% negative
currency movement would result in fair value declines of $172 million, $345 million, and $689 million. All investments are
classified as “available for sale.” Fluctuations in fair value are recorded in “Accumulated other comprehensive income (loss),”
a separate component of stockholders’ equity.
We have foreign exchange risk related to our intercompany balances denominated in various foreign currencies. Based on the
intercompany balances at December 31, 2010, an assumed 5%, 10%, and 20% adverse change to foreign currency exchange
rates would result in losses of $40 million, $90 million, and $195 million, recorded to “Other income (expense), net.”
See Item 7 of Part II, “Effect of Exchange Rates,” for additional information on the effect on reported results of changes in
exchange rates.
Investment Risk
As of December 31, 2010, our recorded basis in equity investments was $279 million. These investments primarily relate to
equity-method investments in private companies. We review our investments for impairment when events and circumstances
indicate that the decline in fair value of such assets below the carrying value is other-than-temporary. Our analysis includes
review of recent operating results and trends, recent sales or 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.
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Table of Contents
Item 8.

Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

36

Consolidated Statements of Cash Flows

37

Consolidated Statements of Operations

38

Consolidated Balance Sheets

39

Consolidated Statements of Stockholders’ Equity

40

Notes to Consolidated Financial Statements

41
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Table of Contents
Report of Ernst & Young LLP, 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, 2010 and 2009, and
the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2010. 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 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, 2010 and 2009, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2010, 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, 2010, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated January 27, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
January 27, 2011
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Table of Contents
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
2010

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of fixed assets, including internal-use software and website
development, and other amortization
Stock-based compensation
Other operating expense (income), net
Losses (gains) on sales of marketable securities, net
Other expense (income), net
Deferred income taxes
Excess tax benefits from stock-based compensation
Changes in operating assets and liabilities:
Inventories
Accounts receivable, net and other
Accounts payable
Accrued expenses and other
Additions to unearned revenue
Amortization of previously unearned revenue
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES:
Purchases of fixed assets, including internal-use software and website
development
Acquisitions, net of cash acquired, and other
Sales and maturities of marketable securities and other investments
Purchases of marketable securities and other investments
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 and of capital and financing leases
Net cash provided by (used in) financing activities
Foreign-currency effect on cash and cash equivalents
Net increase in cash and cash equivalents
CASH AND CASH EQUIVALENTS, END OF PERIOD
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes
Fixed assets acquired under capital leases
Fixed assets acquired under build-to-suit leases
Conversion of debt

Year Ended December 31,
2009
2008

$ 3,444

$ 2,769

$ 2,539

1,152

902

645

568
424
106
(2)
(79)
4
(259)

378
341
103
(4)
(15)
81
(105)

287
275
(24)
(2)
(34)
(5)
(159)

(1,019)
(295)
2,373
740
687
(905)
3,495

(531)
(481)
1,859
300
1,054
(589)
3,293

(232)
(218)
812
247
449
(344)
1,697

(979)
(352)
4,250
(6,279)
(3,360)

(373)
(40)
1,966
(3,890)
(2,337)

(333)
(494)
1,305
(1,677)
(1,199)

259
—
143
(221)
181
17
333
$ 3,777

105
—
87
(472)
(280)
(1)
675
$ 3,444

159
(100)
98
(355)
(198)
(70)
230
$ 2,769

$

$

$

11
75
405
172
—

32
48
147
188
—

64
53
148
72
605

See accompanying notes to consolidated financial statements.
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Table of Contents
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
2010

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
Basic earnings per share
Diluted earnings per share
Weighted average shares used in computation of earnings per share:
Basic
Diluted

Year Ended December 31,
2009
2008

$34,204

$24,509

$19,166

26,561
2,898
1,029
1,734
470
106
32,798
1,406
51
(39)
79
91
1,497
(352)
7
$ 1,152
$ 2.58
$ 2.53

18,978
2,052
680
1,240
328
102
23,380
1,129
37
(34)
29
32
1,161
(253)
(6)
$ 902
$ 2.08
$ 2.04

14,896
1,658
482
1,033
279
(24)
18,324
842
83
(71)
47
59
901
(247)
(9)
$ 645
$ 1.52
$ 1.49

447
456

433
442

423
432

(1) Includes stock-based compensation as follows:
Fulfillment
Marketing
Technology and content
General and administrative

$

90
27
223
84

$

79
20
182
60

$

61
13
151
50

See accompanying notes to consolidated financial statements.
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Table of Contents
AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
December 31,
2010
2009
ASSETS

Current assets:
Cash and cash equivalents
Marketable securities
Inventories
Accounts receivable, net and other
Deferred tax assets
Total current assets
Fixed assets, net
Deferred tax assets
Goodwill
Other assets
Total assets
LIABILITIES AND

$ 3,777
4,985
3,202
1,587
196
13,747
2,414
22
1,349
1,265
$18,797

$ 3,444
2,922
2,171
988
272
9,797
1,290
18
1,234
1,474
$13,813

$ 8,051
2,321
10,372
1,561

$ 5,605
1,759
7,364
1,192

S T O C K H O L D E R S’ E Q U I T Y

Current liabilities:
Accounts payable
Accrued expenses and other
Total current liabilities
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—468 and 461
Outstanding shares—451 and 444
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity

—

5
(600)
6,325
(190)
1,324
6,864
$18,797

—

5
(600)
5,736
(56)
172
5,257
$13,813

See accompanying notes to consolidated financial statements.
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AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)

Treasury
Stock

Additional
Paid-In
Capital

Accumulated Other
Comprehensive
Income (Loss)

Retained
Earnings
(Accumulated
Deficit)

Total
Stockholders’
Equity

$ (500)
—

$ 3,063
—

$

$

$

Common Stock
Shares

Balance at December 31, 2007
Net income
Foreign currency translation
losses, net of tax
Change in unrealized losses on
available-for-sale securities, net
of tax
Comprehensive income
Unrecognized excess tax benefits
from stock-based compensation
Exercise of common stock
options and conversion of debt
Repurchase of common stock
Excess tax benefits from stockbased compensation
Stock-based compensation and
issuance of employee benefit
plan stock
Balance at December 31, 2008
Net income
Foreign currency translation
gains net of tax
Change in unrealized gains on
available-for-sale securities, net
of tax
Amortization of unrealized loss
on terminated Euro Currency
Swap, net of tax
Comprehensive income
Exercise of common stock
options
Issuance of common stock for
acquisition activity
Excess tax benefits from stockbased compensation
Stock-based compensation and
issuance of employee benefit
plan stock
Balance at December 31, 2009
Net income
Foreign currency translation
gains net of tax
Change in unrealized gains on
available-for-sale securities, net
of tax
Comprehensive income
Exercise of common stock
options
Excess tax benefits from stock-

416
—

Amount

$

4
—

5

(1,375)
645

1,197
645

—

—

—

—

(127)

—

(127)

—
—

—
—

—
—

—
—

(1)
—

—
—

(1)
517

—

—

—

—

—

(8)

—
—

624
(100)

—
—

—
—

624
(100)

—

—

—

154

—

—

154

—
428
—

—
4
—

—
(600)
—

288
4,121
—

—
(123)
—

—
(730)
902

—

—

—

—

62

—

62

—

—

—

—

4

—

4

—

—

—

—

1

—

1
969

—

—

19

—

—

19

—

1,144

—

—

1,145

103

—

—

103

14
(2)

7
9

1

(8)

—

—

—

—
444
—

—
5
—

—
(600)
—

349
5,736
—

—
(56)
—

—
172
1,152

—

—

—

—

(137)

—

—

—

—

—

—

—

7

16

3

—

288
2,672
902

349
5,257
1,152
(137)

—

3
1,018

—

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based compensation
Stock-based compensation and
issuance of employee benefit
plan stock
Balance at December 31, 2010

—
—
451

—

$

—
5

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—
—
$ (600)

145
428
$ 6,325

—

$

—
(190)

—

$

—
1,324

145

$

428
6,864

See accompanying notes to consolidated financial statements.
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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
Amazon.com opened its virtual doors on the World Wide Web in July 1995 and offers Earth’s Biggest Selection. We seek to
be Earth’s most customer-centric company for three primary customer sets: consumers, sellers, and enterprises. We serve
consumers through our retail websites and focus on selection, price, and convenience. We also manufacture and sell the Kindle
e-reader. We offer programs that enable sellers to sell their products on our websites and their own branded websites and to
fulfill orders through us. We serve developers and enterprises of all sizes through Amazon Web Services (“AWS”), which
provides access to technology infrastructure that enables virtually any type of business. In addition, we generate revenue
through other marketing and promotional services, such as online advertising, and co-branded credit card agreements.
We have organized our operations into two principal segments: North America and International. See “Note 10—Segment
Information.”
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and those entities
in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the
consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining the selling
price of products and services in multiple element revenue arrangements and determining the lives of these elements, incentive
discount offers, sales returns, vendor funding, stock-based compensation, income taxes, valuation of investments and
inventory, collectability of receivables, valuation of acquired intangibles and goodwill, depreciable lives of fixed assets and
internally-developed software, and contingencies. Actual results could differ materially from those estimates.
Earnings per Share
Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is
calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined
under the treasury stock method.
The following table shows the calculation of diluted shares (in millions):
Year Ended December 31,
2010
2009
2008

Shares used in computation of basic earnings per share
Total dilutive effect of outstanding stock awards (1)
Shares used in computation of diluted earnings per share

447
9
456

433
9
442

423
9
432

(1) Calculated using the treasury stock method, which assumes proceeds are used to reduce the dilutive effect of outstanding
stock awards. Assumed proceeds include the unrecognized deferred compensation of stock awards, and assumed tax
proceeds from excess stock-based compensation deductions.
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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 accounted for using primarily the FIFO method, and are valued at the
lower of cost or market value. This valuation requires us to make judgments, based on currently-available information, about
the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and
expected recoverable values of each disposition category.
We provide fulfillment-related services in connection with certain of our sellers’ programs. Third party sellers maintain
ownership of their inventory, regardless of whether fulfillment is provided by us or the third party sellers, and therefore these
products are not included in our inventories.
Accounts Receivable, Net, and Other
Included in “Accounts receivable, net, and other” on our consolidated balance sheets are amounts primarily related to vendor
and customer receivables. At December 31, 2010 and 2009, vendor receivables, net, were $763 million and $495 million, and
customer receivables, net, were $561 million and $341 million.
Allowance for Doubtful Accounts
We estimate losses on receivables based on known troubled accounts and historical experience of losses incurred. The
allowance for doubtful customer and vendor receivables was $72 million and $72 million at December 31, 2010 and 2009.
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 2010, 2009, and 2008, we capitalized $213 million (including $38 million of stock-based
compensation), $187 million (including $35 million of stock-based compensation), and $187 million (including $27 million of
stock-based compensation) of costs associated with internal-use software and website development. Amortization of
previously capitalized amounts was $184 million, $172 million, and $143 million for 2010, 2009, and 2008.
Depreciation of Fixed Assets
Fixed assets include assets such as furniture and fixtures, heavy equipment, technology infrastructure, internal-use software
and website development. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets
(generally two years for assets such as internal-use software, three years for our technology infrastructure, 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
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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, 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 estimated 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 events or circumstances from the date of our assessment through December 31, 2010
that would impact this conclusion.
See “Note 4—Acquisitions, Goodwill, and Acquired Intangible Assets.”
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to marketable securities restricted
for longer than one year, the majority of which are attributable to collateralization of bank guarantees and debt related to our
international operations; acquired intangible assets, net of amortization; deferred costs; certain equity investments; and
intellectual property rights, net of amortization.
Investments
We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated
money market funds. Such investments are included in “Cash and cash equivalents,” or “Marketable securities” on the
accompanying consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and
losses included in “Accumulated other comprehensive income (loss).”
Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise
significant influence, but not control, over an investee. The total of these investments in equity-method investees, including
identifiable intangible assets, deferred tax liabilities and goodwill, is classified on our consolidated balance sheets as “Other
assets.” Our share of the investees’ earnings or losses, 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.
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
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our consolidated balance sheets. Under the cost method, investments are carried at cost and are adjusted only for other-thantemporary declines in fair value, certain distributions, and additional investments.
Equity investments that have readily determinable fair values are classified as available-for-sale and included in “Marketable
securities” in our consolidated balance sheet and are recorded at fair value with unrealized gains and losses, net of tax,
included in “Accumulated other comprehensive loss.”
We periodically evaluate whether declines in fair values of our investments below their book value are other-than-temporary.
This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss
as well as our ability and intent to hold the investment until a forecasted recovery occurs. Additionally, we assess whether we
have plans to sell the security or it is more likely than not we will be required to sell any investment before recovery of its
amortized cost basis. Factors considered include quoted market prices; recent financial results and operating trends; implied
values from any recent transactions or offers of investee securities; credit quality of debt instrument issuers; other publicly
available information that may affect the value of our investments; duration and severity of the decline in value; and our
strategy and intentions for holding the investment.
Long-Lived Assets
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment
include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which
an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of
assets may not be recoverable.
For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable
through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference
between the carrying amount and estimated fair value. Long-lived assets are considered held for sale when certain criteria are
met, including when management has committed to a plan to sell the asset, the asset is available for sale in its immediate
condition, and the sale is probable within one year of the reporting date. Assets held for sale are reported at the lower of cost or
fair value less costs to sell. Assets held for sale were not significant at December 31, 2010 or 2009.
Accrued Expenses and Other
Included in “Accrued expenses and other” at December 31, 2010 and 2009 were liabilities of $503 million and $347 million
for unredeemed gift certificates. We reduce the liability for a gift certificate when it is applied to an order. If a gift certificate is
not redeemed, we recognize revenue when it expires or, for a certificate without an expiration date, when the likelihood of its
redemption becomes remote, generally two years from the date of issuance.
Unearned Revenue
Unearned revenue is recorded when payments are received in advance of performing our service obligations and is recognized
over the service period. Current unearned revenue is included in “Accrued expenses and other” and non-current unearned
revenue is included in “Long-term liabilities” on our consolidated balance sheets. Current unearned revenue was $461 million
and $511 million at December 31, 2010 and 2009. Non-current unearned revenue was $34 million and $201 million at
December 31, 2010 and 2009.
Income Taxes
Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, we do not provide for
U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to invest
such undistributed earnings indefinitely outside of the U.S. Undistributed
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earnings of foreign subsidiaries that are indefinitely invested outside of the U.S were $1.6 billion at December 31, 2010.
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 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 based on quoted market prices of similar instruments and other
significant inputs derived from or corroborated by observable market data.
Revenue
We recognize revenue from product sales or services rendered when the following four criteria are met: persuasive evidence of
an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and
collectability is reasonably assured. Revenue arrangements with multiple deliverables are divided into separate units and
revenue is allocated using estimated selling prices if we do not have vendor-specific objective evidence or third-party evidence
of the selling prices of the deliverables. Also, see “Recent Accounting Pronouncements” below.
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We evaluate whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as
commissions. Generally, when we are primarily obligated in a transaction, are subject to inventory risk, have latitude in
establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sales
price. If we are not primarily obligated, and do not have latitude in establishing prices, amounts earned are determined using a
fixed percentage, a fixed-payment schedule, or a combination of the two, we generally record the net amounts as commissions
earned.
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. 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. Return allowances, which reduce product revenue, are
estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and
consumption taxes. Amounts received in advance for subscription services, including amounts received for Amazon Prime and
other membership programs, are deferred and recognized as revenue over the subscription term.
We periodically provide incentive offers to our customers to encourage purchases. Such offers include current discount offers,
such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a
minimum current purchase, and other similar offers. Current discount offers, when accepted by our customers, are treated as a
reduction to the purchase price of the related transaction, while inducement offers, when accepted by our customers, are
treated as a reduction to purchase price based on estimated future redemption rates. Redemption rates are estimated using our
historical experience for similar inducement offers. Current discount offers and inducement offers are presented as a net
amount in “Net sales.”
Commissions and per-unit fees received from sellers and similar amounts earned through other seller sites are recognized
when items are sold by sellers and our collectability is reasonably assured. We record an allowance for estimated refunds on
such commissions using historical experience.
Shipping Activities
Outbound shipping charges to customers are included in “Net sales.” Outbound shipping-related costs are included in “Cost of
sales.”
Cost of Sales
Cost of sales consists of the purchase price of consumer products and content sold by us, inbound and outbound shipping
charges, and packaging supplies. Shipping charges to receive products from our suppliers are included in inventory cost, and
recognized as “Cost of sales” upon sale of products to our customers. Payment processing and related transaction costs,
including those associated with seller transactions, are classified in “Fulfillment” on our consolidated statements of operations.
Vendor Agreements
We have agreements to receive cash consideration from certain of our vendors, including rebates and cooperative marketing
reimbursements. We generally consider amounts received from our vendors as a reduction of the prices we pay for their
products and, therefore, record such amounts as a reduction of the cost of inventory we buy from them. Vendor rebates are
typically dependent upon reaching minimum purchase thresholds. We evaluate the likelihood of reaching purchase thresholds
using past experience and current year forecasts. When volume rebates can be reasonably estimated, we record a portion of the
rebate as we make progress towards the purchase threshold.
When we receive direct reimbursements for costs incurred by us in advertising the vendor’s product or service, the amount we
receive is recorded as an offset to “Marketing” on our consolidated statements of operations.
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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; and responding to inquiries from customers. 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 $890 million, $593 million, and $420 million in
2010, 2009, and 2008. Prepaid advertising costs were not significant at December 31, 2010 and 2009.
Technology and Content
Technology and content expenses consist principally of payroll and related expenses for employees involved in application
development, category expansion, editorial content, buying, merchandising selection, and systems support, as well as costs
associated with the compute, storage and telecommunications infrastructure used internally and supporting AWS.
Technology and content costs are expensed as incurred, except for certain costs relating to the development of internal-use
software and website development, including software used to upgrade and enhance our websites and applications supporting
our business, which are capitalized and amortized over two years.
General and Administrative
General and administrative expenses consist of payroll and related expenses for employees involved in general corporate
functions, including accounting, finance, tax, legal, and human relations, among others; costs associated with use by these
functions of facilities and equipment, such as depreciation expense and rent; professional fees and litigation costs; and other
general corporate costs.
Stock-Based Compensation
Compensation cost for all stock-based awards expected to vest is measured at fair value on the date of grant and recognized
over the service period. The fair value of restricted stock units is determined based on the number of shares granted and the
quoted price of our common stock. Such value is recognized as expense over the service period, net of estimated forfeitures,
using the accelerated method. The estimation of stock awards that will ultimately vest requires judgment, and to the extent
actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment
in the period estimates are revised. We consider many factors when estimating expected forfeitures, including employee class,
economic environment, and historical experience.
Other Operating Expense (Income), Net
Other operating expense (income), net, consists primarily of intangible asset amortization expense, expenses related to legal
settlements, and certain gains and losses on the sale of assets.
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Other Income (Expense), Net
Other income (expense), net, consists primarily of gains and losses on sales of marketable securities and foreign currency
transaction gains and losses.
Foreign Currency
We have internationally-focused websites for the United Kingdom, Germany, France, Japan, Canada, China, and Italy. Net
sales generated from internationally-focused websites, as well as most of the related expenses directly incurred from those
operations, are denominated in the functional currencies of the resident countries. The functional currency of our subsidiaries
that either operate or support these international websites is the same as the local currency. Assets and liabilities of these
subsidiaries are translated into U.S. Dollars at period-end exchange rates, and revenues and expenses are translated at average
rates prevailing throughout the period. Translation adjustments are included in “Accumulated other comprehensive income
(loss),” a separate component of stockholders’ equity, and in the “Foreign currency effect on cash and cash equivalents,” on
our consolidated statements of cash flows. Transaction gains and losses including intercompany transactions denominated in a
currency other than the functional currency of the entity involved are included in “Other income (expense), net” on our
consolidated statements of operations. In connection with the remeasurement of intercompany balances, we recorded losses of
$70 million in 2010, and gains of $5 million, and $23 million in 2009 and 2008.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASU 2009-17, Improvements to Financial
Reporting by Enterprises Involved With Variable Interest Entities, which provides authoritative guidance on the consolidation
of variable interest entities. The new guidance requires a qualitative approach to identifying a controlling financial interest in a
variable interest entity (“VIE”), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a
VIE makes the holder the primary beneficiary of the VIE. We adopted this guidance on January 1, 2010. Adoption did not
have a material impact on our consolidated financial statements.
On January 1, 2010, we prospectively adopted ASU 2009-13, which amends Accounting Standards Codification (“ASC”)
Topic 605, Revenue Recognition. Under this standard, we allocate revenue in arrangements with multiple deliverables using
estimated selling prices if we do not have vendor-specific objective evidence or third-party evidence of the selling prices of the
deliverables. 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.
Sales of our Kindle e-reader are considered arrangements with multiple deliverables, consisting of the device, 3G wireless
access and delivery for some models, and software upgrades. Under the prior accounting standard, we accounted for sales of
the Kindle ratably over the average estimated life of the device. Accordingly, revenue and associated product cost of the
device through December 31, 2009, were deferred at the time of sale and recognized on a straight-line basis over the two year
average estimated economic life.
As of January 2010, we account for the sale of the Kindle as multiple deliverables. The revenue related to the device, which is
the substantial portion of the total sale price, and related costs are recognized upon delivery. Revenue related to 3G wireless
access and delivery and software upgrades is amortized over the average life of the device, which remains estimated at two
years.
Because we have adopted ASU 2009-13 prospectively, we are recognizing $508 million throughout 2010 and 2011 for
revenue previously deferred under the prior accounting standard.
In January 2010, the FASB issued ASU 2010-6, Improving Disclosures About Fair Value Measurements, which requires
reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant
transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and
settlements on a gross basis in the reconciliation of Level 3 fair-value
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measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3
reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The adoption of ASU
2010-6 did not have a material impact on our consolidated financial statement disclosures.
Note 2—CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
As of December 31, 2010 and 2009 our cash, cash equivalents, and marketable securities primarily consisted of cash, U.S. and
foreign government and agency securities, AAA-rated money market funds and other investment grade securities. Such
amounts are recorded at fair value. The following table summarizes, by major security type, our assets that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy (in millions):
Cost or
Amortized
Cost

Total
Estimated
Fair Value

$

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

December 31, 2010
Gross
Gross
Unrealized
Unrealized
Gains
Losses

$

$

613
1,882
2

2,152
3,746
457
32
17
$ 8,901

—

$

—

613

—
—

$

—
(1)

1,882
1

7
11
3
1
—
22

(1)
(1)
(1)
—
—
(4)

2,158
3,756
459
33
17
8,919

$

Less: Long-term restricted cash, cash equivalents, and
marketable securities (1)
Total cash, cash equivalents, and marketable securities

(157)
$ 8,762

Cost or
Amortized
Cost

Total
Estimated
Fair Value

$

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

December 31, 2009
Gross
Gross
Unrealized
Unrealized
Gains
Losses

$

$

391
2,750
2

1,992
1,268
206
44
6
$ 6,659

Less: Long-term restricted cash, cash equivalents, and
marketable securities (1)
Total cash, cash equivalents, and marketable securities

—

$

—

391

—
—

$

—
(1)

2,750
1

7
5
5
2
—
19

—
(5)
—
—
—
(6)

1,999
1,268
211
46
6
6,672

$

(306)
$ 6,366

(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as
collateral for standby letters of credit, guarantees, debt, and real estate lease agreements. We classify cash and marketable
securities with use restrictions of twelve months or longer as non-current “Other assets” on our consolidated balance
sheets. See “Note 6—Commitments and Contingencies.”
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The following table summarizes gross gains and gross losses realized on sales of available-for-sale marketable securities (in
millions):
Year Ended December 31,
2010
2009
2008

Realized gains
Realized losses

$ 5
4

$

4

$ 9
7

—

The following table summarizes contractual maturities of our cash equivalent and marketable fixed-income securities as of
December 31, 2010 (in millions):
Amortized
Cost

$ 5,973
2,312
$ 8,285

Due within one year
Due after one year through five years

Estimated
Fair Value

$ 5,976
2,329
$ 8,305

Note 3—FIXED ASSETS
Fixed assets, at cost, consisted of the following (in millions):
December 31,
2010
2009

Gross Fixed Assets (1):
Fulfillment and customer service
Technology infrastructure
Internal-use software, content, and website development
Other corporate assets
Construction in progress
Gross fixed assets
Accumulated Depreciation (1):
Fulfillment and customer service
Technology infrastructure
Internal-use software, content, and website development
Other corporate assets
Total accumulated depreciation
Total fixed assets, net

$ 778
1,240
487
491
260
3,256

$ 551
551
398
137
278
1,915

211
316
255
60
842
$2,414

202
178
207
38
625
$1,290

(1) Excludes the original cost and accumulated depreciation of fully-depreciated assets.
Depreciation expense on fixed assets was $552 million, $384 million, and $311 million which includes amortization of fixed
assets acquired under capital lease obligations of $164 million, $88 million, and $50 million for 2010, 2009, and 2008. Gross
assets remaining under capital leases were $818 million, and $430 million at December 31, 2010 and 2009. Accumulated
depreciation associated with capital leases was $331 million and $184 million at December 31, 2010 and 2009.
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We capitalize construction in progress and record a corresponding long-term liability for lease agreements where we are
considered the owner during the construction period for accounting purposes, including portions of our Seattle, Washington,
corporate office space that we do not currently occupy. The buildings which we have not yet occupied are scheduled to be
completed between 2011 and 2013.
For buildings that are under build-to-suit lease arrangements, where we have taken occupancy during the year ended
December 31, 2010, we determined that we continue to be the deemed owner. These arrangements do not qualify for sales
recognition under the sale-leaseback accounting guidance due principally to our significant investment in tenant
improvements. As a result, the buildings in the amount of $189 million have been reclassified within “Fixed assets” from
“Construction in progress” to “Other corporate assets” and are being depreciated over the shorter of their useful lives or the
related lease terms. The long-term construction obligation has been reclassified within “Long-term liabilities” from
“Construction liability” to “Long-term financing lease obligations” with amounts payable during the next 12 months recorded
as “Accrued expenses and other.”
Note 4—ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
2010 Acquisition Activity
In 2010, we acquired certain companies for an aggregate purchase price of $228 million, resulting in goodwill of $111 million
and acquired intangible assets of $91 million. The primary reasons for these acquisitions were to expand our customer base
and sales channels. The purchase price was allocated to the tangible assets and intangible assets acquired and liabilities
assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as
goodwill. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income
and cost approach. Purchased identifiable intangible assets are amortized on a straight-line or accelerated basis over their
respective useful lives.
The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The
financial effect of these acquisitions, individually and in the aggregate, was not material to our consolidated financial
statements. Pro forma results of operations have not been presented because the effects of these business combinations,
individually and in the aggregate, were not material to our consolidated results of operations.
2009 Acquisition Activity
On November 1, 2009, we acquired 100% of the outstanding equity of Zappos.com, Inc. (“Zappos”), in exchange for shares of
our common stock, to expand our presence in softline retail categories, such as shoes and apparel.
The fair value of Zappos’ stock options assumed was determined using the Black-Scholes model. The following table
summarizes the consideration paid for Zappos (in millions):
Stock issued
Assumed stock options, net

$1,079
55
$1,134

The purchase price was allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their
estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair
value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach.
Purchased identifiable intangible assets are amortized on a straight-line and accelerated basis over their respective useful lives.
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The following summarizes the allocation of the Zappos purchase price (in millions):
Goodwill
Other net assets acquired
Deferred tax liabilities net
Intangible assets (1):
Marketing-related
Contract-based
Customer-related

$ 778
83
(167)
223
103
114
$1,134

(1) Acquired intangible assets have estimated useful lives of between 1 and 10 years.
Zappos’ financial results have been included in our consolidated statements of income as of November 1, 2009. The following
pro forma financial information presents the results as if the Zappos acquisition had occurred at the beginning of each year
presented (in millions):
Year Ended December 31,
2009
2008

Net sales
Net income

$ 25,064
853

$ 19,801
606

We acquired certain additional companies during 2009 for an aggregate purchase price of $26 million, resulting in goodwill of
$16 million and acquired intangible assets of $5 million. All of the entities have been consolidated into our financial
statements since their respective acquisition dates. Pro forma results of operations have not been presented because the effects
of these business combinations, individually and in the aggregate, were not material to our consolidated results of operations.
2008 Acquisition Activity
We acquired certain companies during 2008 for an aggregate purchase price of $432 million, resulting in goodwill of $210
million and acquired intangible assets of $162 million. All of these entities have been consolidated into our financial
statements since their respective acquisition dates. Pro forma results of operations have not been presented because the effects
of these business combinations, individually and in the aggregate, were not material to our consolidated results of operations.
Goodwill
Goodwill is generally not deductible for tax purposes and is primarily comprised of intangible assets that do not qualify for
separate recognition. The following summarizes our goodwill activity in 2010 and 2009 (in millions):
North America

International

Consolidated

$

Goodwill—January 1, 2009
New acquisitions
Other adjustments (1)
Goodwill—December 31, 2009
New acquisitions
Other adjustments (1)
Goodwill—December 31, 2010

$

$

$

273
781
1
1,055
60
1
1,116

$

165
13
1
179
51
3
233

$

438
794
2
1,234
111
4
1,349

(1) Primarily includes changes in foreign exchange for goodwill in our International segment.
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Intangible Assets
Acquired intangible assets, included within “Other assets” on our consolidated balance sheets, consist of the following:
December 31,
2010
Weighted
Average Life
Remaining

Marketing-related
Contract-based
Technology and
content
Customer-related
Acquired
intangibles (2)

8.8
5.8

Acquired
Intangibles,
Gross (1)

$

8.6
4.9

277
183

Accumulated
Amortization (1)

Acquired
Intangibles,
Gross (1)

Accumulated
Amortization (1)

Acquired
Intangibles,
Net

$

$

$

$

$

34
251
$

745

2009
Acquired
Intangibles,
Net
(in millions)

(37)
(43)
(10)
(92)

$

(182)

240
140
24
159

$

563

249
166

(11)
(20)

15
215
$

645

(7)
(40)
$

(78)

238
146
8
175

$

567

(1) Excludes the original cost and accumulated amortization of fully-amortized intangibles.
(2) Intangible assets have estimated useful lives of between 1 and 10 years.
Amortization expense for acquired intangibles was $105 million, $48 million, and $29 million in 2010, 2009, and 2008.
Expected future amortization expense of acquired intangible assets as of December 31, 2010 is as follows (in millions):
Year Ended December 31,
2011
2012
2013
2014
2015
Thereafter

$112
94
81
68
60
148
$563

Note 5—LONG-TERM LIABILITIES
Our long-term liabilities are summarized as follows:
December 31,
2010
2009
(in millions)

Long-term debt
Long-term capital lease obligations
Long-term financing lease obligations
Construction liability
Tax contingencies
Other

$ 184
276
181
260
243
417
$1,561

$ 109
143
—
278
202
460
$1,192

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Long-term Debt
As of December 31, 2010, and 2009, our long-term debt was $184 million and $109 million, had a weighted average interest
rate of 5.5% and 6.4%, and maturities in 2011, 2012, and 2013. Long-term debt relates to amounts borrowed to fund certain
international operations.
Capital Leases
Certain of our equipment fixed assets, primarily related to technology infrastructure, have been acquired under capital leases.
Long-term capital lease obligations are as follows:
December 31, 2010
(in millions)

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

$

$

511
(17)
494
(218)
276

Financing leases
We continue to be the deemed owner after occupancy of certain facilities that were constructed as build-to-suit lease
arrangements and previously reflected as “Construction liability.” As such, these arrangements are accounted for as financing
leases. Long-term finance lease obligations are as follows:
December 31, 2010
(in millions)

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

$

$

271
(84)
187
(6)
181

Construction Liabilities
We capitalize construction in progress and record a corresponding long-term liability for certain build-to-suit lease agreements
where we are considered the owner during the construction period for accounting purposes, including our Seattle, Washington,
corporate office space that we do not currently occupy. See “Note 3—Fixed Assets” for a discussion of these leases.
Tax Contingencies
As of December 31, 2010 and 2009, we have recorded tax reserves for tax contingencies, inclusive of accrued interest and
penalties, of approximately $243 million and $202 million for U.S. and foreign income taxes. These contingencies primarily
relate to transfer pricing, state income taxes, and research and development credits. See “Note 9—Income Taxes” for
discussion of tax contingencies.
The remainder of our long-term liabilities primarily include deferred tax liabilities, unearned revenue, asset retirement
obligations, and deferred rental liabilities.
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Note 6—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 $225 million, $171 million, and $158 million for
2010, 2009, and 2008.
The following summarizes our principal contractual commitments, excluding open orders for inventory purchases that support
normal operations, as of December 31, 2010:
2011

$ 54
235
16
244
107
$656

Operating and capital commitments:
Debt principal and interest
Capital leases, including interest
Financing lease obligations, including interest (1)
Operating leases
Other commitments (2) (3)
Total commitments

Year Ended December 31,
2012
2013
2014
2015
(in millions)

$ 95
168
16
227
105
$611

$101
85
17
192
76
$471

$—
15
18
179
65
$277

$—
8
18
148
72
$246

Thereafter

$

—
—
186
563
789
$ 1,538

Total

$ 250
511
271
1,553
1,214
$3,799

(1) Relates to the 590,000 square feet of occupied corporate office space under build-to-suit lease arrangements
(2) Includes the estimated timing and amounts of payments for rent, operating expenses, and tenant improvements associated
with approximately 1.11 million square feet of corporate office space currently being developed under build-to-suit leases
and which we anticipate occupying in 2011 to 2013. The amount of space available and our financial and other
obligations under the lease agreements are affected by various factors, including government approvals and permits,
interest rates, development costs and other expenses and our exercise of certain rights under the lease agreements. See
“Note 3—Fixed Assets” for a discussion of these leases.
(3) Excludes $213 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and
period of payment, if any.
Pledged Securities
We have pledged or otherwise restricted $160 million and $303 million in 2010 and 2009 of our cash and marketable
securities as collateral for standby and trade letters of credit, guarantees, debt related to our international operations, as well as
real estate leases. We classify cash and marketable securities with use restrictions of twelve months or longer as non-current
“Other assets” on our consolidated balance sheets.
Inventory Suppliers
During 2010, no vendor accounted for 10% or more of our inventory purchases. We generally do not have long-term contracts
or arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of
credit limits.
Legal Proceedings
The Company is involved from time to time in claims, proceedings and litigation, including the following:
In June 2001, Audible, Inc., our subsidiary acquired in March 2008, was named as a defendant in a securities class-action filed
in United States District Court for the Southern District of New York related to its initial public offering in July 1999. The
lawsuit also named certain of the offering’s underwriters, as well as
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Audible’s officers and directors as defendants. Approximately 300 other issuers and their underwriters have had similar suits
filed against them, all of which are included in a single coordinated proceeding in the Southern District of New York. The
complaints allege that the prospectus and the registration statement for Audible’s offering failed to disclose that the
underwriters allegedly solicited and received “excessive” commissions from investors and that some investors allegedly
agreed with the underwriters to buy additional shares in the aftermarket in order to inflate the price of Audible’s stock. Audible
and its officers and directors were named in the suits pursuant to Section 11 of the Securities Act of 1933, Section 10(b) of the
Securities Exchange Act of 1934, and other related provisions. The complaints seek unspecified damages, attorney and expert
fees, and other unspecified litigation costs. In March 2009, all parties, including Audible, reached a settlement of these class
actions that would resolve this dispute entirely with no payment required from Audible. The settlement was approved by the
Court in October 2009, and that settlement is currently under appeal to the Court of Appeals for the Second Circuit.
Beginning in March 2003, we were served with complaints filed in several different states, including Illinois, by a private
litigant, Beeler, Schad & Diamond, P.C., purportedly on behalf of the state governments under various state False Claims Acts.
The complaints allege that we (along with other companies with which we have commercial agreements) wrongfully failed to
collect and remit sales and use taxes for sales of personal property to customers in those states and knowingly created records
and statements falsely stating we were not required to collect or remit such taxes. In December 2006, we learned that one
additional complaint was filed in the state of Illinois by a different private litigant, Matthew T. Hurst, alleging similar
violations of the Illinois state law. All of the complaints seek injunctive relief, unpaid taxes, interest, attorneys’ fees, civil
penalties of up to $10,000 per violation, and treble or punitive damages under the various state False Claims Acts. It is
possible that we have been or will be named in similar cases in other states as well. We dispute the allegations of wrongdoing
in these complaints and intend to vigorously defend ourselves in these matters.
In August 2006, Cordance Corporation filed a complaint against us for patent infringement in the United States District Court
for the District of Delaware. The complaint alleges that our website technology, including our 1-Click ordering system,
infringes a patent obtained by Cordance purporting to cover an “Object-Based Online Transaction Infrastructure” (U.S. Patent
No. 6,757,710) and seeks injunctive relief, monetary damages in an amount no less than a reasonable royalty, treble damages
for alleged willful infringement, prejudgment interest, costs, and attorneys’ fees. In response, we asserted a declaratory
judgment counterclaim in the same action alleging that a service that Cordance has advertised its intent to launch infringes a
patent owned by us entitled “Networked Personal Contact Manager” (U.S. Patent No. 6,269,369). In August 2009, a jury trial
was held and the jury found that all asserted claims of the ‘710 patent were not infringed by Amazon or were invalid. In
February 2010, the Court partially reversed the jury’s findings, ruling that some of the asserted claims of the ‘710 Patent were
valid and were infringed by Amazon. We commenced our appeal of the Court’s ruling in the U.S. Court of Appeals for the
Federal Circuit in August 2010.
In November 2007, an Austrian copyright collection society, Austro-Mechana, filed lawsuits against several Amazon.com EU
subsidiaries in the Commercial Court of Vienna, Austria and in the District Court of Munich, Germany seeking to collect a
tariff on blank digital media sold by our EU-based retail websites to customers located in Austria. In July 2008, the German
court stayed the German case pending a final decision in the Austrian case. In July 2010, the Austrian court ruled in favor of
Austro-Mechana and ordered us to report all sales of products to which the tariff potentially applies for a determination of
damages. We contest Austro-Mechana’s claim and in September 2010 commenced an appeal in the Commercial Court of
Vienna.
In March 2009, Discovery Communications, Inc. filed a complaint against us for patent infringement in the United States
District Court for the District of Delaware. The complaint alleges that our Kindle e-reader infringes a patent owned by
Discovery purporting to cover an “Electronic Book Security and Copyright Protection System” (U.S. Patent No. 7,298,851)
and seeks monetary damages, a continuing royalty sufficient to compensate Discovery for any future infringement, treble
damages, costs and attorneys fees. In May 2009, we filed counterclaims and an additional lawsuit in the United States District
Court for the Western District of
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Washington against Discovery alleging infringement of several patents owned by Amazon and requesting a declaration that
several Discovery patents, including the one listed above, are invalid and unenforceable. We dispute the allegations of
wrongdoing and intend to vigorously defend ourselves in this matter.
In April 2009, Parallel Networks, LLC filed a complaint against us for patent infringement in the United States District Court
for the Eastern District of Texas. The complaint alleges, among other things, that our website technology infringes a patent
owned by Parallel Networks purporting to cover a “Method And Apparatus For Client-Server Communication Using a Limited
Capability Client Over A Low-Speed Communications Link” (U.S. Patent No. 6,446,111) and seeks injunctive relief,
monetary damages, costs and attorneys fees. The complaint was dismissed without prejudice in February 2010, but the
plaintiff filed a new complaint against us the following month containing similar allegations. We dispute the allegations of
wrongdoing and intend to vigorously defend ourselves in this matter.
In May 2009, Big Baboon, Inc. filed a complaint against us for patent infringement in the United States District Court for the
Central District of California. The complaint alleges, among other things, that our third-party selling and payments technology
infringes a patent owned by Big Baboon, Inc. purporting to cover an “Integrated Business-to-Business Web Commerce and
Business Automation System” (U.S. Patent No. 6,115,690) and seeks injunctive relief, monetary damages, treble damages,
costs and attorneys fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In June 2009, Bedrock Computer Technologies LLC filed a complaint against us for patent infringement in the United States
District Court for the Eastern District of Texas. The complaint alleges, among other things, that our website technology
infringes a patent owned by Bedrock purporting to cover a “Method And Apparatus For Information Storage and Retrieval
Using a Hashing Technique with External Chaining and On-the-Fly Removal of Expired Data” (U.S. Patent Nos. 5,893,120)
and seeks injunctive relief, monetary damages, enhanced damages, a compulsory future royalty, costs and attorneys fees. The
complaint was dismissed without prejudice in March 2010, but the plaintiff filed a new complaint against us the following
month containing similar allegations. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in
this matter.
In September 2009, SpeedTrack, Inc. filed a complaint against us for patent infringement in the United States District Court
for the Northern District of California. The complaint alleges, among other things, that our website technology infringes a
patent owned by SpeedTrack purporting to cover a “Method For Accessing Computer Files and Data, Using Linked Categories
Assigned to Each Data File Record on Entry of the Data File Record” (U.S. Patent Nos. 5,544,360) and seeks injunctive relief,
monetary damages, enhanced damages, costs and attorneys fees. In November 2009, the Court entered an order staying the
lawsuit pending the outcome of the Patent and Trademark Office’s re-examination of the patent in suit and the resolution of
similar litigation against another party. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in
this matter.
In September 2009, Alcatel-Lucent USA Inc. filed a complaint against us for patent infringement in the United States District
Court for the Eastern District of Texas. The complaint alleges that our website technology and digital content distribution
systems infringe six of Alcatel-Lucent’s patents and seeks injunctive relief, monetary damages, a continuing royalty sufficient
to compensate Alcatel-Lucent for any future infringement, treble damages, costs and attorneys fees. In January 2010, we filed
counterclaims against Alcatel-Lucent alleging infringement of a patent owned by Amazon and that the patents asserted by
Alcatel-Lucent are invalid and unenforceable. We dispute the allegations of wrongdoing and intend to vigorously defend
ourselves in this matter.
In October 2009, Eolas Technologies Incorporated filed a complaint against us for patent infringement in the United States
District Court for the Eastern District of Texas. The complaint alleges, among other things, that our website technology
infringes two patents owned by Eolas purporting to cover “Distributed Hypermedia Method for Automatically Invoking
External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent
No. 5,838,906) and “Distributed Hypermedia Method and
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System for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a
Hypermedia Document” (U.S. Patent No. 7,599,985) and seeks injunctive relief, monetary damages, costs and attorneys fees.
We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In December 2009, Nazomi Communications, Inc. filed a complaint against us for patent infringement in the United States
District Court for the Eastern District of Texas. The complaint alleges, among other things, that the processor core in our
Kindle e-reader infringes two patents owned by Nazomi purporting to cover “Java virtual machine hardware for RISC and
CISC processors” and “Java hardware accelerator using microcode engine” (U.S. Patent Nos. 7,080,362 and 7,225,436) and
seeks monetary damages, injunctive relief, costs and attorneys fees. We dispute the allegations of wrongdoing and intend to
vigorously defend ourselves in this matter.
In February 2010, Texas OCR Technologies LLC filed a complaint against us for patent infringement in the United States
District Court for the Eastern District of Texas. The complaint alleged, among other things, that our Search Inside the Book
feature infringes a patent owned by Texas OCR Technologies purporting to cover a “Methodology for Displaying Search
Results Using Character Recognition” (U.S. Patent No. 6,363,179) and sought monetary damages, costs and attorneys fees. In
January 2011, we settled this litigation on terms that include a nonexclusive license to the patent in suit and, accordingly, the
lawsuit has been dismissed with prejudice.
In May 2010, Sharing Sound LLC filed a complaint against us for patent infringement in the United States District Court for
the Eastern District of Texas. The complaint alleged, among other things, that our website technology infringes a patent
licensed by the plaintiffs purporting to cover a “Distribution of Musical Products by a Website Vendor Over the
Internet” (U.S. Patent No. 6,233,682) and sought monetary damages, injunctive relief, costs and attorneys fees. In January
2011, we settled this litigation on terms that include a nonexclusive license to the patent in suit and, accordingly, we expect the
lawsuit to be dismissed with prejudice.
In May 2010, Site Update Solutions LLC filed a complaint against us for patent infringement in the United States District
Court for the Eastern District of Texas. The complaint alleges, among other things, that our website technology infringes a
patent owned by Site Update purporting to cover a “Process for Maintaining Ongoing Registration for Pages on a Given
Search Engine” (U.S. Patent No. RE40,683) and seeks monetary damages, a future royalty, costs and attorneys fees. We
dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In May 2010, Stragent, LLC and Seesaw Foundation filed a complaint against us for patent infringement in the United States
District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain of our AWS
technologies infringe a patent licensed by the plaintiffs purporting to cover a “Method of Providing Data Dictionary-Driven
Web-Based Database Applications” (U.S. Patent No. 6,832,226) and seeks monetary damages, a future royalty, costs and
attorneys fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In July 2010, Positive Technologies Inc. filed a complaint against us for patent infringement in the United States District Court
for the Eastern District of Texas. The complaint alleges, among other things, that certain of our products, including our Kindle
e-reader, infringe three patents owned by the plaintiff purporting to cover a “DC Integrating Display Driver Employing Pixel
Status Memories” (U.S. Patent Nos. 5,444,457, 5,627,558 and 5,831,588) and seeks monetary damages, injunctive relief, costs
and attorneys fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.
In July 2010, the Federal Trade Commission staff informed us that it was considering whether to recommend enforcement
proceedings against us for advertising and selling certain textile fiber products as “bamboo” when they are made of rayon
manufactured from bamboo, in violation of the Textile Fiber Product
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Identification Act, the FTC Act, and the regulations promulgated there under. We do not believe we have violated these laws
and regulations and are cooperating voluntarily with the Commission’s inquiry.
In September 2010, Olympic Developments AG, LLC filed a complaint against us for patent infringement in the United States
District Court for the Central District of California. The complaint alleges, among other things, that certain aspects of our
technology, including our Kindle e-reader, infringe two patents owned by the plaintiff purporting to cover a “Transactional
Processing System” (U.S. Patent No. 5,475,585) and a “Device for Controlling Remote Interactive Receiver” (U.S. Patent
No. 6,246,400B1) and seeks monetary damages, injunctive relief, costs and attorneys fees. We dispute the allegations of
wrongdoing and intend to vigorously defend ourselves in this matter.
In November 2010, Kelora Systems, LLC filed a complaint against us for patent infringement in the United States District
Court for the Western District of Wisconsin. The complaint alleges that our website infringes a patent owned by Kelora
Systems purporting to cover a “Method and system for executing a guided parametric search” (U.S. Patent No. 6,275,821) and
seeks monetary damages, costs, attorneys fees, and injunctive relief. We dispute the allegations of wrongdoing and intend to
vigorously defend ourselves in this matter.
In December 2010, Global Sessions LP filed a complaint against us for patent infringement in the United States District Court
for the Eastern District of Texas. The complaint alleges, among other things, that certain Amazon and AWS technologies
infringe four patents owned by the plaintiff purporting to cover a “System And Method For Maintaining A State For A User
Session Using A Web System Having A Global Session Server” (U.S. Patent No. 6,076,108), an “Enterprise Interaction Hub
For Managing An Enterprise Web System” (U.S. Patent Nos. 6,085,220 and 6,360,249), and a “System And Method For
Maintaining A State For A User Session Using A Web System” (U.S. Patent No. 6,480,894), and seeks monetary damages, a
future royalty, injunctive relief, costs and attorneys fees. We dispute the allegations of wrongdoing and intend to vigorously
defend ourselves in this matter.
In December 2010, Technology Innovations, LLC filed a complaint against us for patent infringement in the United States
District Court for the Southern District of Texas. The complaint alleges, among other things, that Amazon’s sale of e-books
and Kindle e-readers infringes a patent owned by the plaintiff purporting to cover a “Device For Including Enhancing
Information With Printed Information And Method For Electronic Searching Thereof” (U.S. Patent No. 5,517,407) and seeks
monetary damages, injunctive relief, costs, interest, and attorneys fees. We dispute the allegations of wrongdoing and intend to
vigorously defend ourselves in this matter.
Depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our
business, results of operations, financial position, or cash flows.
Other Contingencies
In September 2010, the State of Texas issued an assessment of $269 million for uncollected sales taxes for the period from
December 2005 to December 2009, including interest and penalties through the date of the assessment. The State of Texas is
alleging that we should have collected sales taxes on applicable sales transactions during those years. We believe that the State
of Texas did not provide a sufficient basis for its assessment and that the assessment is without merit. We intend to vigorously
defend ourselves in this matter.
Depending on the amount and the timing, an unfavorable resolution of this matter could materially affect our business, results
of operations, financial position, or cash flows.
See also “Note 9—Income Taxes.”
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Note 7—STOCKHOLDERS’ EQUITY
Preferred Stock
We have authorized 500 million shares of $0.01 par value Preferred Stock. No preferred stock was outstanding for any period
presented.
Common Stock
Common shares outstanding plus shares underlying outstanding stock awards totaled 465 million, 461 million, and
446 million, at December 31, 2010, 2009 and 2008. These totals include all vested and unvested stock-based awards
outstanding, before consideration of estimated forfeitures.
Stock Repurchase Activity
In January 2010, our Board of Directors authorized a program to repurchase up to $2 billion of our common stock, which
replaces the Board’s prior authorization. We did not repurchase any of our common stock in 2010 or 2009. We repurchased
2.2 million shares of common stock for $100 million in 2008 under the $1 billion repurchase program authorized by our Board
of Directors in February 2008.
Stock Award Plans
Employees vest in restricted stock unit awards over the corresponding service term, generally between two and five years.
Stock Award Activity
We granted restricted stock units representing 5.3 million, 6.0 million, and 7.3 million shares of common stock during 2010,
2009, and 2008 with a per share weighted average fair value of $140.43, $79.24, and $72.21.
The following summarizes our restricted stock unit activity (in millions):
Number of Units

Outstanding at January 1, 2008
Units granted
Units vested
Units forfeited
Outstanding at December 31, 2008
Units granted
Units vested
Units forfeited
Outstanding at December 31, 2009
Units granted
Units vested
Units forfeited
Outstanding at December 31, 2010

16.3
7.3
(5.5)
(1.4)
16.7
6.0
(6.0)
(1.0)
15.7
5.3
(5.7)
(1.3)
14.0

Scheduled vesting for outstanding restricted stock units at December 31, 2010 is as follows (in millions):
2011

Scheduled vesting—restricted stock units

5.3

Year Ended December 31,
2012
2013
2014
2015

4.3

2.4

1.3

0.5

Thereafter

Total

0.2

14.0

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As of December 31, 2010, there was $601 million of net unrecognized compensation cost related to unvested stock-based
compensation arrangements. This compensation is recognized on an accelerated basis resulting in approximately half of the
compensation expected to be expensed in the next twelve months, and has a weighted average recognition period of 1.4 years.
During 2010 and 2009, the fair value of restricted stock units that vested was $792 million and $551 million.
As matching contributions under our 401(k) savings plan, we granted 0.1 million shares of common stock in both 2010 and
2009. Shares granted as matching contributions under our 401(k) plan are included in outstanding common stock when issued.
Common Stock Available for Future Issuance
At December 31, 2010, common stock available for future issuance to employees is 160 million shares.
Note 8—OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) are as follows:
Year Ended December 31,
2010
2009
2008
(in millions)

Net income
Net change in unrealized gains/losses on available-for-sale securities:
Unrealized gains (losses), net of tax of $(2), $(2), and $0
Reclassification adjustment for losses (gains) included in net income, net of
tax effect of $0, $1, and $1
Net unrealized gains (losses) on available for sale securities
Foreign currency translation adjustment, net of tax effect of $29, $0, and $3
Other
Other comprehensive income (loss)
Comprehensive income

$1,152

$902

5

7

(2)
3
(137)
—
(134)
$1,018

(3)
4
62
1
67
$969

$ 645
—
(1)
(1)
(127)
—
(128)
$ 517

Balances within accumulated other comprehensive income (loss) are as follows:
December 31,
2010
2009
(in millions)

Net unrealized losses on foreign currency translation, net of tax
Net unrealized gains on available-for-sale securities, net of tax
Total accumulated other comprehensive income (loss)

$(203)
13
$(190)

$(66)
10
$(56)

Note 9—INCOME TAXES
In 2010, 2009, and 2008 we recorded net tax provisions of $352 million, $253 million, and $247 million. A majority of this
provision is non-cash. We have current tax benefits and net operating losses relating to excess stock-based compensation that
are being utilized to reduce our U.S. taxable income. As such, cash taxes paid, net of refunds, were $75 million, $48 million,
and $53 million for 2010, 2009, and 2008.
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The components of the provision for income taxes, net are as follows:
Year Ended December 31,
2010
2009
2008
(in millions)

Current taxes:
U.S. and state
International
Current taxes
Deferred taxes:
U.S. and state
International
Deferred taxes
Provision for income taxes, net

$ 311
37
348

$ 149
23
172

$ 227
25
252

1
3
4
$ 352

89
(8)
81
$ 253

3
(8)
(5)
$ 247

U.S. and international components of income before income taxes are as follows:
Year Ended December 31,
2010
2009
2008
(in millions)

U.S.
International (1)
Income before income taxes

$ 886
611
$1,497

$ 529
632
$1,161

$436
465
$901

(1) Included in 2008 is the impact of the $53 million non-cash gain associated with the sale of our European DVD rental
assets. This gain was taxed at rates substantially below the 35% U.S. federal statutory rate.
The items accounting for differences between income taxes computed at the federal statutory rate and the provision recorded
for income taxes are as follows:
2010

Federal statutory rate
Effect of:
Impact of foreign tax differential
State taxes, net of federal benefits
Tax credits
Nondeductible stock-based compensation
Valuation allowance
Other, net
Total

Year Ended December 31,
2009

2008

35.0%

35.0%

35.0%

(12.7)
1.5
(1.1)
1.6
(0.1)
(0.7)
23.5%

(16.9)
1.1
(0.4)
1.7
0.4
1.0
21.9%

(13.8)
2.8
(2.2)
1.7
2.6
1.3
27.4%

The effective tax rate in 2010, 2009, and 2008 was lower than the 35% U.S. federal statutory rate primarily due to earnings of
our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in the U.S. Included in the total
tax provision as a discrete item during 2008 is the impact related to the $53 million noncash gain associated with the sale of
our European DVD rental assets. This gain was taxed at rates substantially below the 35% U.S. federal statutory rate.
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Deferred income tax assets and liabilities are as follows:
December 31,
2010
2009
(in millions )

Deferred tax assets:
Net operating losses—stock-based compensation (1)
Net operating losses—other
Net operating losses—obtained through acquisitions (2)
Stock-based compensation
Assets held for investment
Revenue items
Expense items
Other items
Net tax credits (3)
Total gross deferred tax assets
Less valuation allowance (4)
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Basis difference in intangible assets
Expense items
Deferred tax assets, net of valuation allowance and deferred tax liabilities

$

4
82
7
101
61
23
254
75
14
621
(146)
475

$ 120
50
7
118
125
58
172
42
6
698
(173)
525

(209)
(226)
$ 40

(218)
(168)
$ 139

(1) Excludes unrecognized federal net operating loss carryforward deferred tax assets of $40 million at December 31, 2009.
The total gross deferred tax assets relating to our federal excess stock-based compensation net operating loss
carryforwards at December 31, 2010 and 2009 were $4 million and $160 million (relating to approximately $13 million
and $456 million of our federal net operating loss carryforwards). The majority of our net operating loss carryforwards
begin to expire in 2023 and thereafter.
(2) The utilization of some of these net operating loss carryforwards is subject to an annual limitation under applicable
provisions of the Internal Revenue Code.
(3) Presented net of fully reserved deferred tax assets associated with tax credits of $230 million and $193 million at
December 31, 2010 and 2009. Total tax credits available to be claimed in future years are approximately $244 million
and $199 million as of December 31, 2010 and 2009, and begin to expire in 2015.
(4) Relates primarily to deferred tax assets that would only be realizable upon the generation of future capital gains and net
income in certain foreign taxing jurisdictions.
Tax Contingencies
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating
our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related
uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are
established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully
supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The
provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
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The reconciliation of our tax contingencies is as follows (in millions):
December 31,
2010
2009
(in millions)

Gross tax contingencies—January 1
Gross increases to tax positions in prior periods
Gross decreases to tax positions in prior periods
Gross increases to current period tax positions
Audit settlements paid during 2010
Foreign exchange gain (loss) on tax contingencies
Gross tax contingencies—December 31 (1)

$181
31
(1)
5
(3)
0
$213

$166
15
—
1
—
(1)
$181

(1) As of December 31, 2010, we had $213 million of tax contingencies all of which, if fully recognized, would decrease our
effective tax rate.
Due to the nature of our business operations we expect the total amount of tax contingencies for prior period tax positions will
grow in 2011 in comparable amounts to 2010, however changes in state and federal tax laws may increase our tax
contingencies. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax
authorities. These assessments may not result in changes to our contingencies.
As of December 31, 2010 and 2009, we had accrued interest and penalties, net of federal income tax benefit, related to tax
contingencies of $21 million and $17 million. Interest and penalties, net of federal income tax benefit, recognized for the year
ended December 31, 2010 and 2009 was $4 million and $3 million.
We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for calendar years 2005
through 2010. Additionally, any net operating losses that were generated in prior years and utilized in 2005 through 2010 may
also be subject to examination by the IRS. We are under examination, or may be subject to examination, in the following
major jurisdictions for the years specified: Kentucky for 2005 through 2010, France for 2007 through 2010, Germany for 2003
through 2010, Japan for 2006 through 2010, Luxembourg for 2005 through 2010, and the United Kingdom for 2004 through
2010. In December 2010, we learned that the French government is investigating certain of our European affiliates regarding
income taxes, and we are cooperating.
In addition, in 2007, Japanese tax authorities assessed income tax, including penalties and interest, of approximately $120
million against one of our U.S. subsidiaries for the years 2003 through 2005. Proceedings on the assessment were stayed
during negotiations between U.S. and Japanese tax authorities over the double taxation issues the assessment raised, and we
provided bank guarantees to suspend enforcement of the assessment. In 2010, the U.S. and Japanese tax authorities reached an
agreement, on the allocation of our income between the U.S. and Japan for 2003 through 2005. The amount of tax expense, net
of related deductions and foreign tax credits, recorded for this assessment was not significant. We have paid the assessment
and the Japanese tax authorities have released all of the bank guarantees.
Note 10—SEGMENT INFORMATION
We have organized our operations into two principal segments: North America and International. We present our segment
information along the same lines that our chief executive reviews our operating results in assessing performance and allocating
resources.
We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and content,” and “General
and administrative,” but exclude from our allocations the portions of these expense lines attributable to stock-based
compensation. We do not allocate the line item “Other operating expense (income),
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net” to our segment operating results. A majority of our costs for “Technology and content” are incurred in the United States
and most of these costs are allocated to our North America segment. There are no internal revenue transactions between our
reporting segments.
North America
The North America segment consists of amounts earned from retail sales of consumer products (including from sellers) and
subscriptions through North America-focused websites such as www.amazon.com and www.amazon.ca and include amounts
earned from AWS. This segment includes export sales from www.amazon.com and www.amazon.ca.
International
The International segment consists of amounts earned from retail sales of consumer products (including from sellers) and
subscriptions through internationally focused locations. This segment includes export sales from these internationally based
locations (including export sales from these sites to customers in the U.S. and Canada), but excludes export sales from our
U.S. and Canadian locations.
Information on reportable segments and reconciliation to consolidated net income is as follows:
2010

North America
Net sales
Segment operating expenses (1)
Segment operating income
International
Net sales
Segment operating expenses (1)
Segment operating income
Consolidated
Net sales
Segment operating expenses (1)
Segment operating income
Stock-based compensation
Other operating income (expense), net
Income from operations
Total non-operating income (expense), net
Provision for income taxes
Equity-method investment activity, net of tax
Net income

Year Ended December 31,
2009
2008
(in millions)

$18,707
17,752
$ 955

$12,828
12,119
$ 709

$10,228
9,783
$ 445

$15,497
14,516
$ 981

$11,681
10,818
$ 863

$ 8,938
8,290
$ 648

$34,204
32,268
1,936
(424)
(106)
1,406
91
(352)
7
$ 1,152

$24,509
22,937
1,572
(341)
(102)
1,129
32
(253)
(6)
$ 902

$19,166
18,073
1,093
(275)
24
842
59
(247)
(9)
$ 645

(1) Represents operating expenses, excluding stock-based compensation and “Other operating expense (income), net,” which
are not allocated to segments.
Net sales earned from retail sales of consumer products (including from sellers) and subscriptions outside of the U.S.
represented approximately half of net sales for 2010, 2009, and 2008. Net sales earned in Germany, Japan, and United
Kingdom each represented 11% to 15% of net sales in 2010, and 13% to 17% of net sales in 2009 and 2008.
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Total assets, by segment, reconciled to consolidated amounts were (in millions):
December 31,
2010
2009

North America
International
Consolidated

$12,460
6,337
$18,797

$ 9,252
4,561
$13,813

Fixed assets, net, by segment, reconciled to consolidated amounts were (in millions):
December 31,
2010
2009

North America
International
Consolidated

$1,958
456
$2,414

$1,059
231
$1,290

Fixed assets, net, located outside of the U.S. represented less than 10% of consolidated fixed assets, net, for any individual
country.
Depreciation expense, by segment, is as follows (in millions):
Year Ended December 31,
2010
2009
2008

North America
International
Consolidated

$455
97
$552

$327
57
$384

$262
49
$311

Note 11—QUARTERLY RESULTS (UNAUDITED)
The following tables contain selected unaudited statement of operations information for each quarter of 2010 and 2009. The
following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Our
business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter.
Unaudited quarterly results are as follows (in millions, except per share data):
Fourth
Quarter

Net sales
Income before income taxes
Provision for income taxes
Net income
Basic earnings per share
Diluted earnings per share
Shares used in computation of earnings per share:
Basic
Diluted

Year Ended December 31, 2010 (1)
Third
Second
First
Quarter
Quarter
Quarter

$12,948
506
84
416
$ 0.93
$ 0.91

$7,560
292
79
231
$ 0.51
$ 0.51

$6,566
297
88
207
$ 0.46
$ 0.45

$7,131
401
100
299
$ 0.67
$ 0.66

450
458

448
456

447
455

445
454

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Fourth
Quarter

Net sales
Income before income taxes
Provision for income taxes
Net income
Basic earnings per share
Diluted earnings per share
Shares used in computation of earnings per share:
Basic
Diluted

Year Ended December 31, 2009 (1)
Third
Second
First
Quarter
Quarter
Quarter

$9,519
471
85
384
$ 0.87
$ 0.85

$5,449
262
60
199
$ 0.46
$ 0.45

$4,651
179
39
142
$ 0.33
$ 0.32

$4,889
248
69
177
$ 0.41
$ 0.41

440
450

432
441

431
440

429
437

(1) The sum of quarterly amounts, including per share amounts, may not equal amounts reported for year-to-date periods.
This is due to the effects of rounding and changes in the number of weighted-average shares outstanding for each period.
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Item 9.

Changes in and Disagreements with Accountants On Accounting and Financial Disclosure

None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by the 1934 Act, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) of the 1934 Act, as of December 31, 2010. Based on this evaluation, our principal
executive officer and principal financial officer concluded that, as of December 31, 2010, our disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we
file or submit under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our
management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rule 13a-15(f) of the 1934 Act. Management has assessed the effectiveness of our internal control over financial reporting as
of December 31, 2010 based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of
December 31, 2010, our internal control over financial reporting was effective in providing reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Ernst & Young has independently assessed the effectiveness of our internal control over
financial reporting and its report is included below.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2010 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable
assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls
and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system,
no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute,
assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements
due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been
detected.
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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Amazon.com, Inc.
We have audited Amazon.com, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Amazon.com, Inc.’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Amazon.com, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Amazon.com, Inc. as of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2010 of Amazon.com, Inc. and our report dated January 27, 2011 expressed an unqualified opinion thereon.
/s/

Ernst & Young LLP

Seattle, Washington
January 27, 2011
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Table of Contents
Item 9B. Other Information
None.
PART III
Item 10.

Directors, Executive Officers and Corporate Governance

Information regarding our Executive Officers required by Item 10 of Part III is set forth in Item 1 of Part I “Business—
Executive Officers and Directors.” Information required by Item 10 of Part III regarding our Directors and any material
changes to the process by which security holders may recommend nominees to the Board of Directors is included in our Proxy
Statement relating to our 2011 Annual Meeting of Shareholders, and is incorporated herein by reference. Information relating
to our Code of Business Conduct and Ethics and to compliance with Section 16(a) of the 1934 Act is set forth in our Proxy
Statement relating to our 2011 Annual Meeting of Shareholders and is incorporated herein by reference. To the extent
permissible under Nasdaq rules, we intend to disclose amendments to our Code of Business Conduct and Ethics, as well as
waivers of the provisions thereof, on our investor relations website under the heading “Corporate Governance” at
www.amazon.com/ir.
Item 11.

Executive Compensation

Information required by Item 11 of Part III is included in our Proxy Statement relating to our 2011 Annual Meeting of
Shareholders and is incorporated herein by reference.
Item 12.

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

Information required by Item 12 of Part III is included in our Proxy Statement relating to our 2011 Annual Meeting of
Shareholders and is incorporated herein by reference.
Item 13.

Certain Relationships and Related Transactions

Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2011 Annual Meeting of
Shareholders and is incorporated herein by reference.
Item 14.

Principal Accountant Fees and Services

Information required by Item 14 of Part III is included in our Proxy Statement relating our 2011 Annual Meeting of
Shareholders and is incorporated herein by reference.
PART IV
Item 15.

Exhibits, Financial Statement Schedules

(a) List of Documents Filed as a Part of This Report:
(1) Index to Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2010
Consolidated Statements of Operations for each of the three years ended December 31, 2010
Consolidated Balance Sheets as of December 31, 2010 and 2009
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Table of Contents
Consolidated Statements of Stockholders’ Equity for each of the three years ended December 31, 2010
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
(2) Index to Exhibits
See exhibits listed under the Exhibit Index below.
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Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized, as of January 27, 2011.
AMAZON.COM, INC.
By:

/S/ JEFFREY P. BEZOS
Jeffrey P. Bezos
President, Chief Executive Officer
and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated as of January 27, 2011.
Signature

Title

/S/ JEFFREY P. BEZOS

Chairman of the Board, President and Chief Executive
Officer (Principal Executive Officer)

Jeffrey P. Bezos

/S/ THOMAS J. SZKUTAK

Senior Vice President and Chief Financial Officer (Principal
Financial Officer)

Thomas J. Szkutak

/S/ SHELLEY REYNOLDS

Vice President, Worldwide Controller
(Principal Accounting Officer)

Shelley Reynolds

/S/ TOM A. ALBERG

Director

Tom A. Alberg

/S/

JOHN SEELY BROWN

Director

John Seely Brown

/S/ WILLIAM B. GORDON

Director

William B. Gordon

/S/ ALAIN MONIÉ

Director

Alain Monié

Director
Jonathan J. Rubinstein

/S/ THOMAS O. RYDER

Director

Thomas O. Ryder

/S/ PATRICIA Q. STONESIFER

Director

Patricia Q. Stonesifer

72
Exhibit 12.1
Ratio of Earnings to Fixed Charges
2010

Income before income taxes
Plus fixed charges:
Interest expense including amortization of debt issuance
costs
Assumed interest element included in rent expense

Year Ended December 31,
2009
2008
2007
(in millions)

2006

$1,497

$1,161

$ 901

$ 660

$ 377

39
27

34
21

71
21

77
17

78
16

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Adjusted earnings
Fixed charges
Excess of earnings to cover fixed charges
Ratio of earnings to fixed charges (1)

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66
1,563
(66)
$1,497
23.68

55
1,216
(55)
$1,161
22.29

92
993
(92)
$ 901
10.84

94
754
(94)
$ 660
8.02

94
471
(94)
$ 377
5.01

(1) The ratio of earnings to fixed charges is computed by dividing (i) income before income taxes and losses from equity
interests, plus fixed charges by (ii) fixed charges.
Exhibit 21.1
AMAZON.COM, INC.
LIST OF SIGNIFICANT SUBSIDIARIES
Legal Name

Jurisdiction

Amazon Corporate LLC
Amazon Digital Services, Inc.
NV Services, Inc.
Amazon.com Int’l Sales, Inc.
Amazon Global Resources, Inc.
Amazon Services LLC
Amazon Fulfillment Services, Inc.
Amazon EU S.à.r.l.
Amazon Europe Holding Technologies SCS.
Amazon Technologies, Inc.

Percent Owned

Delaware
Delaware
Nevada
Delaware
Delaware
Nevada
Delaware
Luxembourg
Luxembourg
Nevada

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Exhibit 23.1

Consent of Ernst & Young LLP,
Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(a) Registration Statement (Form S-4 No. 333-55943), as amended, pertaining to the acquisition shelf-registration of up
to 30 million shares of common stock,
(b) Registration Statement (Form S-8 No. 333-28763), as amended, pertaining to the Amazon.com, Inc. 1997 Stock
Incentive Plan (formerly the “1997 Stock Option Plan”) and the Amended and Restated 1994 Stock Option Plan of
Amazon.com, Inc.,
(c) Registration Statement (Form S-8 No. 333-88825) pertaining to the Convergence Corporation Stock Option Plan,
(d) Registration Statement (Form S-8 No. 333-80491) pertaining to the Alexa Internet Amended and Restated 1997
Stock Option Plan,
(e) Registration Statement (Form S-8 No. 333-80495) pertaining to the Accept.com Financial Services Corporation
1998 Stock Plan,
(f)

Registration Statement (Form S-8 No. 333-78651) pertaining to the Innerlinx Technologies, Incorporated 1997
Stock Option Plan,

(g) Registration Statement (Form S-8 No. 333-78653) pertaining to the e-Niche Incorporated Amended and Restated
1998 Stock Option and Grant Plan,
(h) Registration Statement (Form S-8 No. 333-74419) pertaining to the Amazon.com, Inc. 1999 Nonofficer Employee
Stock Option Plan,
(i)

Registration Statement (Form S-8 No. 333-63311), as amended, pertaining to the Junglee Corp. 1996 Stock Plan, the
Junglee Corp. 1998 Equity Incentive Plan, the Sage Enterprises, Inc. 1997 Amended Stock Option Plan, and the
Sage Enterprises, Inc. MVP Stock Option Plan,

(j)

Registration Statement (Form S-8 No. 333-118818) pertaining to the Joyo.com Limited 2004 Share Option Plan,

(k) Registration Statement (Form S-8 No. 333-149845) pertaining to the Audible, Inc. 1999 Stock Incentive Plan,
(l)

Registration Statement (Form S-4 No. 333-160831), as amended, pertaining to the acquisition of the outstanding
capital stock of Zappos.com, Inc., and

(m) Registration Statement (Form S-8 POS No. 333-160831) pertaining to the Zappos.com, Inc. 2009 Stock Plan
(n) Registration Statement (Form S-8 No. 333-169470) pertaining to 25,000,000 shares of Common Stock, par value
$0.01 per share, to be issued pursuant to the Company’s 1997 Stock Incentive Plan

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of our reports dated January 27, 2011, with respect to the consolidated financial statements of Amazon.com, Inc. and the
effectiveness of internal control over financial reporting of Amazon.com, Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 2010.
/s/ Ernst & Young LLP
Seattle, Washington
January 27, 2011
Exhibit 31.1
CERTIFICATIONS
I, Jeffrey P. Bezos, certify that:
1. I have reviewed this Form 10-K of Amazon.com, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Jeffrey P. Bezos
Jeffrey P. Bezos
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: January 27, 2011
Exhibit 31.2
CERTIFICATIONS
I, Thomas J. Szkutak, certify that:

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1. I have reviewed this Form 10-K of Amazon.com, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Thomas J. Szkutak
Thomas J. Szkutak
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: January 27, 2011
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350
In connection with the Annual Report of Amazon.com, Inc. (the “Company”) on Form 10-K for the year ended December 31,
2010, as filed with the SEC on or about the date hereof (the “Report”), I, Jeffrey P. Bezos, Chairman and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and
furnished to the SEC or its staff upon request.
/s/ Jeffrey P. Bezos
Jeffrey P. Bezos

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Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: January 27, 2011
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350
In connection with the Annual Report of Amazon.com, Inc. (the “Company”) on Form 10-K for the year ended December 31,
2010 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Thomas
J. Szkutak, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and
furnished to the SEC or its staff upon request.
/s/ Thomas J. Szkutak
Thomas J. Szkutak
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: January 27, 2011
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