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2016

Investment Potential Financial Analysis

Tiffany Brito
ACCT 2410
10/22/2016

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Table of Contents
Amazon Investment Potential Financial Analysis ........................................................................... 2
Liquidity ....................................................................................................................................... 2
Efficiency ..................................................................................................................................... 3
Solvency ....................................................................................................................................... 4
Profitability .................................................................................................................................. 6
Investment Potential ................................................................................................................... 6
Recommendations....................................................................................................................... 6
Personal Reflection ......................................................................................................................... 8
Appendices...................................................................................................................................... 9
Appendix 1: 2015 Amazon Financial Report and 2014 Amazon Financial Report ...................... 9
Appendix 2: Ratio analysis of Amazon.com ............................................................................ 188
Appendix 3: Industry Details Report ....................................................................................... 190

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Amazon Investment Potential Financial Analysis


Amazon.com is currently the largest and fastest growing online retailer in the world. Since its
founding in 1994 the company has grown and diversified their areas of expertise. By constantly
reinvesting in itself the company has made itself a household name. On the surface the
question of investing in this company seems like a no-brainer. Their unique strategy of growth,
though, complicates the question of investing and how to invest.
In this analysis, I will examine Amazon.com in five different areas. Each of these areas look at a
different aspect of the financial well-being of the company. I will then make my
recommendations on whether to invest and, if so, in what way.

Liquidity
The first area I would like to examine is the liquidity of Amazon.com. Liquidity evaluates the
companys ability to pay its current liabilities. The acid-test ratio is a common ratio used to
determine a companys ability to pay all of its current liabilities if they came due immediately.
In this industry, anything under a 1 is considered a sign of financial distress. As you can see from
figure 1, the industry as a whole sit below this benchmark, with Amazon.com sitting
significantly lower than the industry average.

Acid-Test Ratio
1

0.75

0.5

0.25

0
Large companies

Entire Industry

Amazon

Figure 1

Another ratio to consider when measuring the liquidity of the company is the current ratio. This
ratio measures the companys ability to pay current liabilities from all the current assets.
Amazon.coms current ratio is 1.076. When you compare this to their acid-test ratio of .774 it
becomes evident that much of the companys assets are tied up in inventory. This makes sense
when you consider the nature of the company.

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Efficiency
As we saw from the companys liquidity, much of Amazon.coms current assets are made up of
inventory. To be exact, inventory is 28.08% of the companys current assets as seen in figure 2.
To understand the effect this really has on the company we must examine the companys
efficiency. Efficiency measures a companys ability to sell inventory and collect receivables.

Current Assets
11%

Cash and cash equivalents


Inventories

18%

43%

Net accounts receivable


Marketable securities

28%

Figure 2

Due to Amazons dependence on inventory makes the days sales in inventory especially
important. The days sales in inventory is the number of days that inventory is held by a
company. The fewer days inventory is held the better the company is at turning inventory into
profit.
As you can see from figure 3, Amazon.com holds their inventory 35 days longer than the large
company industry average.

Days' Sales in Inventory


50
45
40
35
30
25
20
15
10
5
0
Large companies

Entire Industry

Amazon

Figure 3

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This would suggest that the company struggles to convert inventory into profit. With inventory
making up such a large portion of the current assets the inability to quickly convert it into profit
is detrimental.
Another measure of the companys efficiency is the gross profit percentage. This measures the
probability of each sales dollar above the cost of goods sold. As you can see in figure 4 this is
another area that Amazon.com falls short of the rest of the industry.

Gross Profit Percentage


39.00%
38.00%
37.00%
36.00%
35.00%
34.00%
33.00%
32.00%
31.00%
30.00%
Large companies

Entire Industry

Amazon

Figure 4

Solvency
The third area I would like to consider is solvency. Solvency is a companys ability to pay longterm debt. The debt to equity ratio, which is the companys total liabilities relative to the total
equity, for Amazon.com is much higher than the rest of the industry. Figure 5 shows that it is
nearly 4 times more than the large company portion of the industry. The higher this ratio, the
less likely a creditor is to be paid in full if the company was to fail.

Debt to Equity Ratio


4
3.5
3
2.5
2
1.5
1
0.5
0
Large companies

Entire Industry

Amazon

Figure 5

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The reason debt to equity ratio is so high is because the company is largely financed by debt, as
you can see in figure 6. This is not unexpected as Amazon.com has always reinvested its profit
back in the company in order to grow and diversify its market.

Liabilities vs. Stockholder's Equity

20%

Liabilites
Stockholder's Equity

80%

Figure 6

One ratio that speaks favorably of Amazon.com is the times-interest earned ratio. This ratio
shows a companys ability to pay its interest expense. In figure 7 you can see that, while they do
fall significantly behind the large companies in their industry, they are in line with the industry
as a whole.

Times-Interest-Earned Ratio
30
25
20
15
10
5
0
Large companies

Entire Industry

Amazon

Figure 7

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This would suggest that, while they do carry a large debt load, they are doing so in a way that
allows them to keep up with the interest payments. In keeping with their strategy of constant
growth, it appears they are accumulating debt, but being smart about it.

Profitability
Profitability is a measure of a companys ability to earn an adequate return relative to sales. A
common measure of profitability is profit margin. The larger a profit margin the better.
Amazon.com has a profit margin of .56%. This is extremely low. This means that it is very easy
to swing from a net income to a net loss. As you can see by figure 8 this has affected the
company in the past.

Net Income
700
600
500
400
300
200
100
0
-100
-200
-300
2012

2013

2014

2015

Figure 8

The asset turnover rate is also useful in measuring a companys profitability. Amazon.coms
asset turnover rate is .02. This means for every dollar in assets the company is only generating
two cents.

Investment Potential
The last area I would like to examine the in the investment potential. This is specific to investing
in company stock. In the past 3 years Amazon.com has not paid out dividends. This would
suggest that the investment potential is primarily in the increase of the market price. The stock
has risen 70% in the last year and continues to rise. The current price/earnings per share, which
calculates the value the stock market places on $1 of a companys earnings is currently $639.84.
This is a positive measure and suggests that the company is viewed as a positive investment.

Recommendations
Amazon.com on the surface would appear to be a good investment, but upon a thorough
evaluation the decision is more difficult than it appears. It is my recommendation that
Amazon.com is a worthwhile investment. I would also recommend that the investment be in
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their debt. As show by many measures the company I focused on their growth. They are
achieving this by accumulating debt to finance their assets. It would appear from various
measures that they are handling their debt well. While their stockholders are doing well, they
do not seem to be the focus of the company. The success of the stockholders seems a
byproduct of a company that is smartly reinvesting in itself yearly and handling their debt load
well. While their net income may go up and down easily and quickly the debt payments are
always being made. I would recommend that investing in the companys debt is the less risky
option.

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Personal Reflection
As I completed this start to finish financial analysis of Amazon.com I developed a much better
understanding of the ratios used. I better understand how they relate and help to explain each
other. If I was to just use one ratio to make a decision I would be missing the bigger picture.
I thought this exercise gave me more insight to the way decisions are made in the financial world.
Much of the evaluating can be very subjective. The analysis process is important. It helps to lower
the financial risk and give a company of better chance at making good investments, but ratios
and evaluations can never remove the risk entirely
To me, this is the worst part of accounting. I like cut-and-dry. This exercise reaffirms my desire to
focus on the financial accounting side of the program.
I would prefer to enter transactions, pull reports, calculate ratios, and then hand them off to
someone else to analyze, speculate and make decisions. While the process is interesting and
thought-provoking, I get stressed about whether I am interpreting the ratios correctly ort I am
reading too much or too little into them.

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Appendices
Appendix 1: 2015 Amazon Financial Report and 2014 Amazon Financial Report

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To our shareowners:
This year, Amazon became the fastest company ever to reach $100 billion in annual sales. Also this year,
Amazon Web Services is reaching $10 billion in annual sales doing so at a pace even faster than Amazon
achieved that milestone.
Whats going on here? Both were planted as tiny seeds and both have grown organically without significant
acquisitions into meaningful and large businesses, quickly. Superficially, the two could hardly be more different.
One serves consumers and the other serves enterprises. One is famous for brown boxes and the other for APIs. Is
it only a coincidence that two such dissimilar offerings grew so quickly under one roof? Luck plays an outsized
role in every endeavor, and I can assure you weve had a bountiful supply. But beyond that, there is a connection
between these two businesses. Under the surface, the two are not so different after all. They share a distinctive
organizational culture that cares deeply about and acts with conviction on a small number of principles. Im
talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness
to fail, the patience to think long-term, and the taking of professional pride in operational excellence. Through
that lens, AWS and Amazon retail are very similar indeed.
A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can
be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so,
youre discovering it, uncovering it not creating it. It is created slowly over time by the people and by events
by the stories of past success and failure that become a deep part of the company lore. If its a distinctive culture,
it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people
self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who
loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly
distinctive corporate cultures. We never claim that our approach is the right one just that its ours and over
the last two decades, weve collected a large group of like-minded people. Folks who find our approach
energizing and meaningful.
One area where I think we are especially distinctive is failure. I believe we are the best place in the world to
fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to
experiment, and if you know in advance that its going to work, its not an experiment. Most large organizations
embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.
Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually
right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But youre still
going to be wrong nine times out of ten. We all know that if you swing for the fences, youre going to strike out a
lot, but youre also going to hit some home runs. The difference between baseball and business, however, is that
baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball,
the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score
1,000 runs. This long-tailed distribution of returns is why its important to be bold. Big winners pay for so many
experiments.
AWS, Marketplace and Prime are all examples of bold bets at Amazon that worked, and were fortunate to
have those three big pillars. They have helped us grow into a large company, and there are certain things that
only large companies can do. With a tip of the hat to our Seattle neighbors, no matter how good an entrepreneur
you are, youre not going to build an all-composite 787 in your garage startup not one youd want to fly in
anyway. Used well, our scale enables us to build services for customers that we could otherwise never even
contemplate. But also, if were not vigilant and thoughtful, size could slow us down and diminish our
inventiveness.

As I meet with teams across Amazon, I am continually amazed at the passion, intelligence and creativity on
display. Our teams accomplished a lot in the last year, and Id like to share a few of the highlights of our efforts
to nourish and globalize our three big offerings Prime, Marketplace and AWS. And while Ill focus on those
three, I assure you that we also remain hard at work on finding a fourth.
Prime
We want Prime to be such a good value, youd be irresponsible not to be a member.
Weve grown Prime two-day delivery selection from 1 million items to over 30 million, added Sunday
Delivery, and introduced Free Same-Day Delivery on hundreds of thousands of products for customers in more
than 35 cities around the world. Weve added music, photo storage, the Kindle Owners Lending Library, and
streaming films and TV.
Prime Now offers members one-hour delivery on an important subset of selection, and was launched only
111 days after it was dreamed up. In that time, a small team built a customer-facing app, secured a location for an
urban warehouse, determined which 25,000 items to sell, got those items stocked, recruited and on-boarded new
staff, tested, iterated, designed new software for internal use both a warehouse management system and a
driver-facing app and launched in time for the holidays. Today, just 15 months after that first city launch, Prime
Now is serving members in more than 30 cities around the world.
Prime Video offers exclusives from some of the worlds most passionate storytellers. We want brilliant
creators like Jill Soloway, Jason Schwartzman and Spike Lee to take risks and push boundaries. Our original
series have already earned more than 120 nominations and won nearly 60 awards, including Golden Globe and
Emmy awards. Many of these are stories that might never have been told in the traditional linear programming
model. In the pipeline and coming soon are new series and movies from creators like Jeremy Clarkson, David E.
Kelley, Woody Allen and Kenneth Lonergan.
The Man in the High Castle, based on the Philip K. Dick novel, explores an alternate history where the U.S.
lost World War II. It debuted on Prime Video on November 20th and in four weeks became our most-viewed
show receiving acclaim from critics like ...Amazon has the best new drama of the season in The Man in the
High Castle and The Man in the High Castle accomplishes so much, where most new broadcast TV dramas
these days dont even try.
These shows are great for customers, and they feed the Prime flywheel Prime members who watch Prime
Video are more likely to convert from a free trial to a paid membership, and more likely to renew their annual
subscriptions.
Finally, our first ever Prime Day surpassed all our expectations more new members tried Prime that day
than any other day in our history. Worldwide order growth increased 266% over the same day the year before,
and sellers whose products are Prime-eligible through FBA saw record-breaking sales with growth nearing
300%.
Prime has become an all-you-can-eat, physical-digital hybrid that members love. Membership grew 51%
last year including 47% growth in the U.S. and even faster internationally and there are now tens of millions
of members worldwide. Theres a good chance youre already one of them, but if youre not please be
responsible join Prime.
Marketplace
We took two big swings and missed with Auctions and zShops before we launched Marketplace over 15
years ago. We learned from our failures and stayed stubborn on the vision, and today close to 50% of units sold
on Amazon are sold by third-party sellers. Marketplace is great for customers because it adds unique selection,
and its great for sellers there are over 70,000 entrepreneurs with sales of more than $100,000 a year selling on

Amazon, and theyve created over 600,000 new jobs. With FBA, that flywheel spins faster because sellers
inventory becomes Prime-eligible Prime becomes more valuable for members, and sellers sell more.
This year, we created a new program called Seller Fulfilled Prime. We invited sellers who are able to meet a
high bar for shipping speed and consistency in service to be part of the Prime program and ship their own orders
at Prime speed directly. Those sellers have already seen a significant bump in sales, and the program has led to
hundreds of thousands of additional items that are available to Prime customers via free two-day or next-day
shipping in the U.S., U.K. and Germany.
We also created the Amazon Lending program to help sellers grow. Since the program launched, weve
provided aggregate funding of over $1.5 billion to micro, small and medium businesses across the U.S., U.K. and
Japan through short-term loans, with a total outstanding loan balance of about $400 million. Stephen Aarstol,
surfer and owner of Tower Paddle Boards, is one beneficiary. His business has become one of the fastestgrowing companies in San Diego, in part with a little help from Amazon Lending. Click-to-cash access to capital
helps these small enterprises grow, benefits customers with greater selection, and benefits Amazon since our
marketplace revenue grows along with the sellers sales. We hope to expand Amazon Lending and are now
working on ways to partner with banks so they can use their expertise to take and manage the bulk of the credit
risk.
In addition to nourishing our big offerings, we work to globalize them. Our Marketplace creates
opportunities for sellers anywhere to reach buyers around the world. In the past, many sellers would limit their
customer base to their home country due to the practical challenges of selling internationally. To globalize
Marketplace and expand the opportunities available to sellers, we built selling tools that empowered
entrepreneurs in 172 countries to reach customers in 189 countries last year. These cross-border sales are now
nearly a quarter of all third-party units sold on Amazon. To make this possible, we translated hundreds of
millions of product listings and provided conversion services among 44 currencies. Even small and niche sellers
can now tap into our global customer base and global logistics network. The end result is very different from
sellers handling their own one-at-a-time, cross-border fulfillment. Plugable Technologies CEO, Bernie
Thompson, put it this way: It really changes the paradigm when youre able to ship the goods in bulk to a
warehouse in Europe or Japan and have those goods be fulfilled in one day or two days.
India is another example of how we globalize an offering like Marketplace through customer obsession and
a passion for invention. Last year we ran a program called Amazon Chai Cart where we deployed three-wheeled
mobile carts to navigate in a citys business districts, serve tea, water and lemon juice to small business owners
and teach them about selling online. In a period of four months, the team traveled 15,280 km across 31 cities,
served 37,200 cups of tea and engaged with over 10,000 sellers. Through this program and other conversations
with sellers, we found out there was a lot of interest in selling online, but that sellers struggled with the belief that
the process was time-consuming, tedious and complex. So, we invented Amazon Tatkal, which enables small
businesses to get online in less than 60 minutes. Amazon Tatkal is a specially designed studio-on-wheels offering
a suite of launch services including registration, imaging and cataloguing services, as well as basic seller training
mechanisms. Since its launch on February 17th, we have reached sellers in 25 cities.
Were also globalizing Fulfillment by Amazon, adapting the service to local customer needs. In India, we
launched a program called Seller Flex to combine Amazons logistics capabilities with sellers selection at the local
neighborhood level. Sellers set aside a part of their warehouse for storing items to be sold on Amazon, and we
configure it as a fulfillment center in our network that can receive and fulfill customer orders. Our team provides
guidance on warehouse layout, IT and operational infrastructure, and trains the seller on standard operating
procedures to be followed onsite. Weve now launched 25 operational Seller Flex sites across ten cities.
Amazon Web Services
Just over 10 years ago, AWS started in the U.S. with its first major service, a simple storage service. Today,
AWS offers more than 70 services for compute, storage, databases, analytics, mobile, Internet of Things, and
enterprise applications. We also offer 33 Availability Zones across 12 geographic regions worldwide, with

another five regions and 11 Availability Zones in Canada, China, India, the U.S., and the U.K. to be available in
the coming year. AWS started with developers and startups, and now is used by more than a million customers
from organizations of every size across nearly every industry companies like Pinterest, Airbnb, GE, Enel,
Capital One, Intuit, Johnson & Johnson, Philips, Hess, Adobe, McDonalds, and Time Inc.
AWS is bigger than Amazon.com was at 10 years old, growing at a faster rate, and most noteworthy in my
view the pace of innovation continues to accelerate we announced 722 significant new features and services
in 2015, a 40% increase over 2014.
Many characterized AWS as a bold and unusual bet when we started. What does this have to do with
selling books? We could have stuck to the knitting. Im glad we didnt. Or did we? Maybe the knitting has as
much to do with our approach as the arena. AWS is customer obsessed, inventive and experimental, long-term
oriented, and cares deeply about operational excellence.
Given 10 years and many iterations, that approach has allowed AWS to rapidly expand into the worlds
most comprehensive, widely adopted cloud service. As with our retail business, AWS is made up of many small
teams with single-threaded owners, enabling rapid innovation. The team rolls out new functionality almost daily
across 70 services, and that new functionality just shows up for customers theres no upgrading.
Many companies describe themselves as customer-focused, but few walk the walk. Most big technology
companies are competitor focused. They see what others are doing, and then work to fast follow. In contrast, 90
to 95% of what we build in AWS is driven by what customers tell us they want. A good example is our new
database engine, Amazon Aurora. Customers have been frustrated by the proprietary nature, high cost, and
licensing terms of traditional, commercial-grade database providers. And while many companies have started
moving toward more open engines like MySQL and Postgres, they often struggle to get the performance they
need. Customers asked us if we could eliminate that inconvenient trade-off, and thats why we built Aurora. It
has commercial-grade durability and availability, is fully compatible with MySQL, has up to 5 times better
performance than the typical MySQL implementation, but is 1/10th the price of the traditional, commercial-grade
database engines. This has struck a resonant chord with customers, and Aurora is the fastest-growing service in
the history of AWS. Nearly this same story could be told about Redshift, our managed data warehouse service,
which is the second fastest growing service in AWS history both small and large companies are moving their
data warehouses to Redshift.
Our approach to pricing is also driven by our customer-centric culture weve dropped prices 51 times, in
many cases before there was any competitive pressure to do so. In addition to price reductions, weve also
continued to launch new lower cost services like Aurora, Redshift, QuickSight (our new Business Intelligence
service), EC2 Container Service (our new compute container service), and Lambda (our pioneering server-less
computing capability), while extending our services to offer a range of highly cost-effective options for running
just about every type of application or IT use case imaginable. We even roll out and continuously improve
services like Trusted Advisor, which alerts customers when they can save money resulting in hundreds of
millions of dollars in savings for our customers. Im pretty sure were the only IT vendor telling customers how
to stop spending money with us.
Whether you are a startup founded yesterday or a business that has been around for 140 years, the cloud is
providing all of us with unbelievable opportunities to reinvent our businesses, add new customer experiences,
redeploy capital to fuel growth, increase security, and do all of this so much faster than before. MLB Advanced
Media is an example of an AWS customer that is constantly reinventing the customer experience. MLBs
Statcast tracking technology is a new feature for baseball fans that measures the position of each player, the
baserunners, and the ball as they move during every play on the field, giving viewers on any screen access to
empirical data that answers age-old questions like what could have happened if while also bringing new
questions to life. Turning baseball into rocket science, Statcast uses a missile radar system to measure every
pitched balls movements more than 2,000 times per second, streams and collects data in real-time through
Amazon Kinesis (our service for processing real-time streaming data), stores the data on Amazon S3, and then
performs analytics in Amazon EC2. The suite of services will generate nearly 7 TB of raw statistical data per
game and up to 17 PB per season, shedding quantitative light on age-old, but never verified, baseball pearls of
wisdom like never slide into first.

About seven years ago, Netflix announced that they were going to move all their applications to the cloud.
Netflix chose AWS because it provided them with the greatest scale and the broadest set of services and features.
Netflix recently completed their cloud migration, and stories like theirs are becoming increasingly common as
companies like Infor, Intuit, and Time Inc., have made plans to move all of their applications to AWS.
AWS is already good enough today to attract more than 1 million customers, and the service is only going to
get better from here. As the team continues their rapid pace of innovation, well offer more and more capabilities
to let builders build unfettered, it will get easier and easier to collect, store and analyze data, well continue to
add more geographic locations, and well continue to see growth in mobile and connected device applications.
Over time, its likely that most companies will choose not to run their own data centers, opting for the cloud
instead.
Invention Machine
We want to be a large company thats also an invention machine. We want to combine the extraordinary
customer-serving capabilities that are enabled by size with the speed of movement, nimbleness, and riskacceptance mentality normally associated with entrepreneurial start-ups.
Can we do it? Im optimistic. We have a good start on it, and I think our culture puts us in a position to
achieve the goal. But I dont think itll be easy. There are some subtle traps that even high-performing large
organizations can fall into as a matter of course, and well have to learn as an institution how to guard against
them. One common pitfall for large organizations one that hurts speed and inventiveness is one-size-fits-all
decision making.
Some decisions are consequential and irreversible or nearly irreversible one-way doors and these
decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk
through and dont like what you see on the other side, you cant get back to where you were before. We can call
these Type 1 decisions. But most decisions arent like that they are changeable, reversible theyre two-way
doors. If youve made a suboptimal Type 2 decision, you dont have to live with the consequences for that long.
You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high
judgment individuals or small groups.
As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making
process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk
aversion, failure to experiment sufficiently, and consequently diminished invention.1 Well have to figure out
how to fight that tendency.
And one-size-fits-all thinking will turn out to be only one of the pitfalls. Well work hard to avoid it and
any other large organization maladies we can identify.
Sustainability and Social Invention
Our growth has happened fast. Twenty years ago, I was driving boxes to the post office in my Chevy Blazer
and dreaming of a forklift. In absolute numbers (as opposed to percentages), the past few years have been
especially significant. Weve grown from 30,000 employees in 2010 to more than 230,000 now. Were a bit like
parents who look around one day and realize their kids are grown you blink and it happens.
One thing thats exciting about our current scale is that we can put our inventive culture to work on moving
the needle on sustainability and social issues.
Two years ago we set a long-term goal to use 100% renewable energy across our global AWS infrastructure.
Weve since announced four significant wind and solar farms that will deliver 1.6 million megawatt hours per
1

The opposite situation is less interesting and there is undoubtedly some survivorship bias. Any companies that
habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before
they get large.

year of additional renewable energy into the electric grids that supply AWS data centers. Amazon Wind Farm
Fowler Ridge has already come online. We reached 25% sustainable energy use across AWS last year, are on
track to reach 40% this year, and are working on goals that will cover all of Amazons facilities around the
world, including our fulfillment centers.
Well keep expanding our efforts in areas like packaging, where our culture of invention led to a big winner
the Frustration-Free Packaging program. Seven years ago we introduced the initiative with 19 products. Today,
there are more than 400,000 globally. In 2015, the program eliminated tens of millions of pounds of excess
packaging material. Frustration-Free Packaging is a customer delighter because the packages are easier to open.
Its good for the planet because it creates less waste. And its good for shareholders because, with tighter
packaging, we ship less air and save on transportation costs.
We also continue to pioneer new programs for employees like Career Choice, Leave Share, and Ramp
Back. Career Choice pre-pays 95% of tuition for courses that teach in-demand skills, regardless of whether those
skills are relevant to a career at Amazon. Well pay for nursing certifications, airplane mechanic courses, and
many others. Were building classrooms with glass walls right in our fulfillment centers as a way to encourage
employees to participate in the program and to make it easy. We see the impact through stories like Sharie
Warmack a single mother of eight who worked in one of our Phoenix fulfillment centers. Career Choice paid
for Sharie to get licensed to drive an 18-wheeler. Sharie worked hard, passed her tests, and shes now a long-haul
driver for Schneider Trucking and loving it. This coming year, were launching a program to teach other
interested companies the benefits of Career Choice and how to implement it.
Leave Share and Ramp Back are programs that give new parents flexibility with their growing families.
Leave Share lets employees share their Amazon paid leave with their spouse or domestic partner if their spouses
employer doesnt offer paid leave. Ramp Back gives birth mothers additional control over the pace at which they
return to work. Just as with our health care plan, these benefits are egalitarian theyre the same for our
fulfillment center and customer service employees as they are for our most senior executives.
Renewable energy, Frustration-Free Packaging, Career Choice, Leave Share, and Ramp Back are examples
of a culture that embraces invention and long-term thinking. Its very energizing to think that our scale provides
opportunities to create impact in these areas.
I can tell you its a great joy for me to get to work every day with a team of such smart, imaginative, and
passionate people. On behalf of all of us at Amazon, thank you for your support as shareholders. As always, I
attach a copy of our original 1997 letter. Our approach remains the same, and its still Day 1.

Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.

1997 LETTER TO SHAREHOLDERS


(Reprinted from the 1997 Annual Report)
To our shareholders:
Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers,
yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive
competitive entry.
But this is Day 1 for the Internet and, if we execute well, for Amazon.com. Today, online commerce saves
customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the
very process of discovery. Amazon.com uses the Internet to create real value for its customers and, by doing so,
hopes to create an enduring franchise, even in established and large markets.
We have a window of opportunity as larger players marshal the resources to pursue the online opportunity
and as customers, new to purchasing online, are receptive to forming new relationships. The competitive
landscape has continued to evolve at a fast pace. Many large players have moved online with credible offerings
and have devoted substantial energy and resources to building awareness, traffic, and sales. Our goal is to move
quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities
in other areas. We see substantial opportunity in the large markets we are targeting. This strategy is not without
risk: it requires serious investment and crisp execution against established franchise leaders.
Its All About the Long Term
We believe that a fundamental measure of our success will be the shareholder value we create over the long
term. This value will be a direct result of our ability to extend and solidify our current market leadership position.
The stronger our market leadership, the more powerful our economic model. Market leadership can translate
directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on
invested capital.
Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most
indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to
purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest
aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an
enduring franchise.
Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than
some companies. Accordingly, we want to share with you our fundamental management and decision-making
approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:

We will continue to focus relentlessly on our customers.

We will continue to make investment decisions in light of long-term market leadership considerations
rather than short-term profitability considerations or short-term Wall Street reactions.

We will continue to measure our programs and the effectiveness of our investments analytically, to
jettison those that do not provide acceptable returns, and to step up our investment in those that work
best. We will continue to learn from both our successes and our failures.

We will make bold rather than timid investment decisions where we see a sufficient probability of
gaining market leadership advantages. Some of these investments will pay off, others will not, and we
will have learned another valuable lesson in either case.

When forced to choose between optimizing the appearance of our GAAP accounting and maximizing
the present value of future cash flows, well take the cash flows.

We will share our strategic thought processes with you when we make bold choices (to the extent
competitive pressures allow), so that you may evaluate for yourselves whether we are making rational
long-term leadership investments.

We will work hard to spend wisely and maintain our lean culture. We understand the importance of
continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.

We will balance our focus on growth with emphasis on long-term profitability and capital management.
At this stage, we choose to prioritize growth because we believe that scale is central to achieving the
potential of our business model.

We will continue to focus on hiring and retaining versatile and talented employees, and continue to
weight their compensation to stock options rather than cash. We know our success will be largely
affected by our ability to attract and retain a motivated employee base, each of whom must think like,
and therefore must actually be, an owner.

We arent so bold as to claim that the above is the right investment philosophy, but its ours, and we
would be remiss if we werent clear in the approach we have taken and will continue to take.
With this foundation, we would like to turn to a review of our business focus, our progress in 1997, and our
outlook for the future.
Obsess Over Customers
From the beginning, our focus has been on offering our customers compelling value. We realized that the
Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply
could not get any other way, and began serving them with books. We brought them much more selection than
was possible in a physical store (our store would now occupy 6 football fields), and presented it in a useful, easyto-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged
focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer
customers gift certificates, 1-ClickSM shopping, and vastly more reviews, content, browsing options, and
recommendation features. We dramatically lowered prices, further increasing customer value. Word of mouth
remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers
have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader
in online bookselling.
By many measures, Amazon.com came a long way in 1997:

Sales grew from $15.7 million in 1996 to $147.8 million an 838% increase.

Cumulative customer accounts grew from 180,000 to 1,510,000 a 738% increase.

The percentage of orders from repeat customers grew from over 46% in the fourth quarter of 1996 to
over 58% in the same period in 1997.

In terms of audience reach, per Media Metrix, our Web site went from a rank of 90th to within the
top 20.

We established long-term relationships with many important strategic partners, including America
Online, Yahoo!, Excite, Netscape, GeoCities, AltaVista, @Home, and Prodigy.

Infrastructure
During 1997, we worked hard to expand our business infrastructure to support these greatly increased
traffic, sales, and service levels:

Amazon.coms employee base grew from 158 to 614, and we significantly strengthened our
management team.

Distribution center capacity grew from 50,000 to 285,000 square feet, including a 70% expansion of our
Seattle facilities and the launch of our second distribution center in Delaware in November.

Inventories rose to over 200,000 titles at year-end, enabling us to improve availability for our customers.

Our cash and investment balances at year-end were $125 million, thanks to our initial public offering in
May 1997 and our $75 million loan, affording us substantial strategic flexibility.

Our Employees
The past years success is the product of a talented, smart, hard-working group, and I take great pride in
being a part of this team. Setting the bar high in our approach to hiring has been, and will continue to be, the
single most important element of Amazon.coms success.
Its not easy to work here (when I interview people I tell them, You can work long, hard, or smart, but at
Amazon.com you cant choose two out of three), but we are working to build something important, something
that matters to our customers, something that we can all tell our grandchildren about. Such things arent meant to
be easy. We are incredibly fortunate to have this group of dedicated employees whose sacrifices and passion
build Amazon.com.
Goals for 1998
We are still in the early stages of learning how to bring new value to our customers through Internet
commerce and merchandising. Our goal remains to continue to solidify and extend our brand and customer base.
This requires sustained investment in systems and infrastructure to support outstanding customer convenience,
selection, and service while we grow. We are planning to add music to our product offering, and over time we
believe that other products may be prudent investments. We also believe there are significant opportunities to
better serve our customers overseas, such as reducing delivery times and better tailoring the customer experience.
To be certain, a big part of the challenge for us will lie not in finding new ways to expand our business, but in
prioritizing our investments.
We now know vastly more about online commerce than when Amazon.com was founded, but we still have
so much to learn. Though we are optimistic, we must remain vigilant and maintain a sense of urgency. The
challenges and hurdles we will face to make our long-term vision for Amazon.com a reality are several:
aggressive, capable, well-funded competition; considerable growth challenges and execution risk; the risks of
product and geographic expansion; and the need for large continuing investments to meet an expanding market
opportunity. However, as weve long said, online bookselling, and online commerce in general, should prove to
be a very large market, and its likely that a number of companies will see significant benefit. We feel good about
what weve done, and even more excited about what we want to do.
1997 was indeed an incredible year. We at Amazon.com are grateful to our customers for their business and
trust, to each other for our hard work, and to our shareholders for their support and encouragement.

Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________

FORM 10-K
____________________________________

(Mark One)

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

For the fiscal year ended December 31, 2015

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
(206) 266-1000
(Address and telephone number, including area code, of registrants 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 will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer

(Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2015
Number of shares of common stock outstanding as of January 20, 2016

No
$

166,381,236,673
470,842,035

____________________________________

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 registrants definitive
proxy statement relating to the Annual Meeting of Shareholders to be held in 2016, which definitive proxy statement shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

AMAZON.COM, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2015
INDEX
Page

PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

3
6
14
15
15
15

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

PART II
Market for the Registrants Common Stock, Related Shareholder Matters, and Issuer Purchases of
Equity Securities
Selected Consolidated Financial Data
Managements Discussion and Analysis of Financial Condition and Results of Operation
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

16
17
18
34
36
72
72
74

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

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, and Director Independence
Principal Accountant Fees and Services

74
74
74
74
74

Item 5.

PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures

75
76

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 IRisk Factors.
Amazon.com, Inc. was incorporated in 1994 in the state of Washington and reincorporated in 1996 in the state of
Delaware. Our principal corporate offices are located in Seattle, Washington. We completed our initial public offering in May
1997 and our common stock is listed on the NASDAQ Global Select Market under the symbol AMZN.
As used herein, Amazon.com, we, our, and similar terms include Amazon.com, Inc. and its subsidiaries, unless the
context indicates otherwise.
General
Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be Earths most customer-centric
company. We are guided by four principles: customer obsession rather than competitor focus, passion for invention,
commitment to operational excellence, and long-term thinking. In each of our segments, we serve our primary customer sets,
consisting of consumers, sellers, developers, enterprises, and content creators. In addition, we provide services, such as
advertising services and co-branded credit card agreements.
Beginning in the first quarter of 2015, we changed our reportable segments to North America, International, and Amazon
Web Services (AWS). These segments reflect the way the Company evaluates its business performance and manages its
operations. Additional information on our operating segments and product information is contained in Item 8 of Part II,
Financial Statements and Supplementary DataNote 11Segment Information. See Item 7 of Part II, Managements
Discussion and Analysis of Financial Condition and Results of OperationsResults of OperationsSupplemental
Information for supplemental information about our net sales. Our company-sponsored research and development expense is
set forth within Technology and content in Item 8 of Part II, Financial Statements and Supplementary DataConsolidated
Statements of Operations.
Consumers
We serve consumers through our retail websites and focus on selection, price, and convenience. We design our websites
to enable millions of unique products to be sold by us and by third parties across dozens of product categories. Customers
access our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices,
including Kindle e-readers, Fire tablets, Fire TVs, and Echo. We strive to offer our customers the lowest prices possible through
low everyday product pricing and shipping offers, and to improve our operating efficiencies so that we can continue to lower
prices for our customers. We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service.
In addition, we offer Amazon Prime, an annual membership program that includes unlimited free shipping on millions of items,
access to unlimited instant streaming of thousands of movies and TV episodes, and other benefits.
We fulfill customer orders in a number of ways, including through: North America and International fulfillment and
delivery networks that we operate; co-sourced and outsourced arrangements in certain countries; and 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, a percentage of sales, perunit activity fees, or some combination thereof.
Developers and Enterprises
We serve developers and enterprises of all sizes, including start-ups, government agencies, and academic institutions,
through our AWS segment, which offers a broad set of global compute, storage, database, and other service offerings.

Content Creators
We serve authors and independent publishers with Kindle Direct Publishing, an online platform that lets independent
authors and publishers choose a 70% royalty option and make their books available in the Kindle Store, along with Amazons
own publishing arm, Amazon Publishing. We also offer programs that allow authors, musicians, filmmakers, app developers,
and others to publish and sell content.
Competition
Our businesses encompass a large variety of product types, service offerings, and delivery channels. The international
marketplace in which we compete is evolving rapidly and intensely competitive, and we face a broad array of competitors from
many different industry sectors around the world. Our current and potential competitors include: (1) online, offline, and
multichannel retailers, publishers, vendors, distributors, manufacturers, and producers of the products we offer and sell to
consumers and businesses; (2) publishers, producers, and distributors of physical, digital, and interactive media of all types and
all distribution channels; (3) web search engines, comparison shopping websites, social networks, web portals, and other online
and app-based means of discovering, using, or acquiring goods and services, either directly or in collaboration with other
retailers; (4) companies that provide e-commerce services, including website development, advertising, fulfillment, customer
service, and payment processing; (5) companies that provide fulfillment and logistics services for themselves or for third
parties, whether online or offline; (6) companies that provide information technology services or products, including onpremises or cloud-based infrastructure and other services; and (7) companies that design, manufacture, market, or sell
consumer electronics, telecommunication, and electronic devices. We believe that the principal competitive factors in our retail
businesses include selection, price, and convenience, including fast and reliable fulfillment. Additional competitive factors for
our seller and enterprise services include the quality, speed, and reliability of our services and tools, as well as customers
ability and willingness to change business practices. Some of our current and potential competitors have greater resources,
longer histories, more customers, greater brand recognition, and greater control over inputs critical to our various businesses.
They may secure better terms from suppliers, adopt more aggressive pricing, pursue restrictive distribution agreements that
restrict our access to supply, direct consumers to their own offerings instead of ours, lock-in potential customers with restrictive
terms, and devote more resources to technology, infrastructure, fulfillment, and marketing. Each of our businesses is also
subject to rapid change and the development of new business models and the entry of new and well-funded competitors. 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 33%, 33%, and 34% of our annual revenue during the fourth quarter of 2015, 2014,
and 2013.
Employees
We employed approximately 230,800 full-time and part-time employees as of December 31, 2015. However,
employment levels fluctuate due to seasonal factors affecting our business. Additionally, we utilize independent contractors and
temporary personnel to supplement our workforce. We have works councils, statutory employee representation obligations, and
union agreements in certain countries outside the United States. We consider our employee relations to be good. Competition
for qualified personnel in our industry has historically been intense, particularly for software engineers, computer scientists,
and other technical staff.
Available Information
Our investor relations website is www.amazon.com/ir and we encourage investors to use it as a way of easily finding
information about us. We promptly make available on this website, free of charge, the reports that we file or furnish with the

Securities and Exchange Commission (SEC), corporate governance information (including our Code of Business Conduct
and Ethics), and select press releases and social media postings.
Executive Officers and Directors
The following tables set forth certain information regarding our Executive Officers and Directors as of January 20, 2016:
Executive Officers of the Registrant
Name

Age

Jeffrey P. Bezos
Jeffrey M. Blackburn
Andrew R. Jassy
Brian T. Olsavsky
Diego Piacentini
Shelley L. Reynolds
Jeffrey A. Wilke
David A. Zapolsky

52
46
48
52
55
51
49
52

Position

President, Chief Executive Officer, and Chairman of the Board


Senior Vice President, Business Development
Senior Vice President, Amazon Web Services
Senior Vice President and Chief Financial Officer
Senior Vice President, International Consumer Business
Vice President, Worldwide Controller, and Principal Accounting Officer
Senior Vice President, Consumer Business
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.
Andrew R. Jassy. Mr. Jassy has served as Senior Vice President, Amazon Web Services, since April 2006.
Brian T. Olsavsky. Mr. Olsavsky has served as Senior Vice President and Chief Financial Officer since June 2015, Vice
President, Finance for the Global Consumer Business from December 2011 to June 2015, and numerous financial leadership
roles across Amazon with global responsibility since April 2002.
Diego Piacentini. Mr. Piacentini has served as Senior Vice President, International Consumer Business, since February
2012, and as Senior Vice President, International Retail, from January 2007 until February 2012.
Shelley L. Reynolds. Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal Accounting
Officer since April 2007.
Jeffrey A. Wilke. Mr. Wilke has served as Senior Vice President, Consumer Business, since February 2012, and as
Senior Vice President, North America Retail, from January 2007 until February 2012.
David A. Zapolsky. Mr. Zapolsky has served as Senior Vice President, General Counsel, and Secretary since May 2014,
Vice President, General Counsel, and Secretary from September 2012 to May 2014, and as Vice President and Associate
General Counsel for Litigation and Regulatory matters from April 2002 until September 2012.
Board of Directors
Name

Age

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

52
75
75
65
65
63
65
59
71
59

Position

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
Partner, Wilmer Cutler Pickering Hale and Dorr LLP
President, Astronauts Wanted * No experience necessary
Chief Executive Officer, Ingram Micro Inc.
Former Chairman and CEO, Palm, Inc.
Retired, Former Chairman, Readers Digest Association, Inc.
President and Chief Executive Officer, Marthas Table

Item 1A.

Risk Factors

Please carefully consider the following risk factors. If any of the following risks occur, our business, financial condition,
operating results, and cash flows could be materially adversely affected. In addition, the current global economic climate
amplifies many of these risks.
We Face Intense Competition
Our businesses are rapidly evolving and intensely competitive, and we have many competitors in different industries,
including retail, e-commerce services, digital content and electronic devices, and web and infrastructure computing services.
Some of our current and potential competitors have greater resources, longer histories, more customers, and/or greater brand
recognition. They may secure better terms from vendors, adopt more aggressive pricing, and devote more resources to
technology, infrastructure, fulfillment, and marketing.
Competition may intensify as our competitors enter into business combinations or alliances and established companies in
other market segments expand to become competitive with our business. In addition, new and enhanced technologies, including
search, web and infrastructure computing services, digital content, and electronic devices, may increase our competition. The
Internet facilitates competitive entry and comparison shopping, and increased competition may reduce our sales and profits.
Our Expansion Places a Significant Strain on our Management, Operational, Financial, and Other Resources
We are rapidly and significantly expanding our global operations, including increasing our product and service offerings
and scaling our infrastructure to support our retail and services businesses. This expansion increases the complexity of our
business and places significant strain on our management, personnel, operations, systems, technical performance, financial
resources, and internal financial control and reporting functions. We may not be able to manage growth effectively, which could
damage our reputation, limit our growth, and negatively affect our operating results.
Our Expansion into New Products, Services, Technologies, and Geographic Regions Subjects Us to Additional Business,
Legal, Financial, and Competitive Risks
We may have limited or no experience in our newer market segments, and our customers may not adopt our new
offerings. These offerings may present new and difficult technology challenges, and we may be subject to claims if customers
of these offerings experience service disruptions or failures or other quality issues. In addition, profitability, if any, in our newer
activities may be lower than in our older activities, and we may not be successful enough in these newer activities to recoup our
investments in them. If any of this were to occur, it could damage our reputation, limit our growth, and negatively affect our
operating results.
We May Experience Significant Fluctuations in Our Operating Results and Growth Rate
We may not be able to accurately forecast our growth rate. We base our expense levels and investment plans on sales
estimates. A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending
quickly enough if our sales are less than expected.
Our revenue growth may not be sustainable, and our percentage growth rates may decrease. Our revenue and operating
profit growth depends on the continued growth of demand for the products and services offered by us or our sellers, and our
business is affected by general economic and business conditions worldwide. A softening of demand, whether caused by
changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.
Our sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in
this section and the following:

our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers
demands;

our ability to retain and expand our network of sellers;

our ability to offer products on favorable terms, manage inventory, and fulfill orders;

the introduction of competitive websites, products, services, price decreases, or improvements;

changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including
outside the U.S.;

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

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


6

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

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

variations in the mix of products and services we sell;

variations in our level of merchandise and vendor returns;

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

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

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

the extent to which our equity-method investees record significant operating and non-operating items;

the extent to which operators of the networks between our customers and our websites successfully charge fees to
grant our customers unimpaired and unconstrained access to our online services;

our ability to collect amounts owed to us when they become due;

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

terrorist attacks and armed hostilities.

Our International Operations Expose Us to a Number of Risks


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-tomarket advantages or otherwise succeed. It is costly to establish, develop, and maintain international operations and websites,
and promote our brand internationally. Our international operations may not be profitable on a sustained basis.
In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of
risks, including:

local economic and political conditions;

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

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

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

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

limited fulfillment and technology infrastructure;

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

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

lower levels of use of the Internet;

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

lower levels of credit card usage and increased payment risk;

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

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

compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting
corrupt payments to government officials and other third parties;
7

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

geopolitical events, including war and terrorism.

As international e-commerce and other online and web services grow, competition will intensify. Local companies may
have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as
their more established local brand names. We may not be able to hire, train, retain, and manage required personnel, which may
limit our international growth.
The Peoples Republic of China (PRC) and India regulate Amazons and its affiliates businesses and operations in
country through regulations and license requirements that may restrict (i) foreign investment in and operation of the Internet, IT
infrastructure, data centers, retail, delivery, and other sectors, (ii) Internet content, and (iii) the sale of media and other products
and services. For example, in order to meet local ownership and regulatory licensing requirements, www.amazon.cn is operated
by PRC companies that are indirectly owned, either wholly or partially, by PRC nationals. In addition, we provide certain
technology services in China in conjunction with third parties that hold PRC licenses to provide services. In India, the
government restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail
trading activities. For www.amazon.in, we provide certain marketing tools and logistics services to third party sellers to enable
them to sell online and deliver to customers, and we hold an indirect minority interest in an entity that is a third-party seller on
the www.amazon.in marketplace. Although we believe these structures and activities comply with existing laws, they involve
unique risks, and the PRC is actively considering changes in its foreign investment rules that could impact these structures and
activities. There are substantial uncertainties regarding the interpretation of PRC and Indian laws and regulations, and it is
possible that these governments will ultimately take a view contrary to ours. In addition, our Chinese and Indian businesses and
operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or in China
enforce contractual relationships with respect to management and control of such businesses. If our international activities were
found to be in violation of any existing or future PRC, Indian or other laws or regulations or if interpretations of those laws and
regulations were to change, our businesses in those countries could be subject to fines and other financial penalties, have
licenses revoked, or be forced to shut down entirely.
If We Do Not Successfully Optimize and Operate Our Fulfillment Network and Data Centers, Our Business Could Be
Harmed
If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment network and data
centers successfully, it could result in excess or insufficient fulfillment or data center capacity, or result in increased costs,
impairment charges, or both, or harm our business in other ways. As we continue to add fulfillment and data center capability
or add new businesses with different requirements, our fulfillment and data center networks become increasingly complex and
operating them becomes more challenging. There can be no assurance that we will be able to operate our networks effectively.
In addition, a failure to optimize inventory in our fulfillment network 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 network and customer service centers. 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 network.
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 network. 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 and
incur commitment costs, which could reduce profitability. We may experience an increase in our net shipping cost due to
complimentary upgrades, split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the
holiday season. If too many customers access our websites within a short period of time due to increased holiday demand, we
may experience system interruptions that make our websites unavailable or prevent us from efficiently fulfilling orders, which
may reduce the volume of goods we sell and the attractiveness of our products and services. In addition, we may be unable to
adequately staff our fulfillment network 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 network optimization and inventory.
We generally have payment terms with our retail vendors that extend beyond the amount of time necessary to collect
proceeds from our consumer customers. As a result of holiday sales, as of December 31 of each year, our cash, cash
equivalents, and marketable securities balances typically reach their highest level (other than as a result of cash flows provided
by or used in investing and financing activities). This operating cycle results in a corresponding increase in accounts payable as
of December 31. Our accounts payable balance generally declines during the first three months of the year, resulting in a
corresponding decline in our cash, cash equivalents, and marketable securities balances.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial Agreements,
Strategic Alliances, and Other Business Relationships
We provide e-commerce and other services to businesses through commercial agreements, strategic alliances, and
business relationships. Under these agreements, we provide web services, technology, fulfillment, computing, digital storage,
and other services, as well as enable sellers to offer products or services through our websites. These arrangements are complex
and require substantial infrastructure capacity, personnel, and other resource commitments, which may limit the amount of
business we can service. We may not be able to implement, maintain, and develop the components of these commercial
relationships, which may include web services, fulfillment, customer service, inventory management, tax collection, payment
processing, hardware, content, and third-party software, and engaging third parties to perform services. The amount of
compensation we receive under certain of our commercial agreements is partially dependent on the volume of the other
companys sales. Therefore, if the other companys offering is not successful, the compensation we receive may be lower than
expected or the agreement may be terminated. Moreover, we may not be able to enter into additional commercial relationships
and strategic alliances on favorable terms. We also may be subject to claims from businesses to which we provide these
services if we are unsuccessful in implementing, maintaining, or developing these services.
As our agreements terminate, we may be unable to renew or replace these agreements on comparable terms, or at all. We
may in the future enter into amendments on less favorable terms or encounter parties that have difficulty meeting their
contractual obligations to us, which could adversely affect our operating results.
Our present and future e-commerce services agreements, other commercial agreements, and strategic alliances create
additional risks such as:

disruption of our ongoing business, including loss of management focus on existing businesses;

impairment of other relationships;

variability in revenue and income from entering into, amending, or terminating such agreements or relationships; and

difficulty integrating under the commercial agreements.

Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions and
Investments
We have acquired and invested in a number of companies, and we may acquire or invest in or enter into joint ventures
with additional companies. These transactions create risks such as:

disruption of our ongoing business, including loss of management focus on existing businesses;

problems retaining key personnel;

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

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

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

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

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

for investments in which an investees financial performance is incorporated into our financial results, either in full or
in part, the dependence on the investees accounting, financial reporting, and similar systems, controls, and
processes;

the difficulty of implementing at companies we acquire the controls, procedures, and policies appropriate for a larger
public company;

potential unknown liabilities associated with a company we acquire or in which we invest; and

for foreign transactions, additional risks related to the integration of operations across different cultures and
languages, and the economic, political, and regulatory risks associated with specific countries.

As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur
debt, contingent liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and
harm our business. In addition, valuations supporting our acquisitions and strategic investments could change rapidly given the
current global economic climate. We could determine that such valuations have experienced impairments or other-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 and
product and service offerings are exposed to foreign exchange rate fluctuations. Upon translation, operating results may differ
materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances.
As we have expanded our international operations, our exposure to exchange rate fluctuations has increased. We also hold cash
equivalents and/or marketable securities in foreign currencies including British Pounds, Chinese Yuan, Euros, and Japanese
Yen. If the U.S. Dollar strengthens compared to these currencies, cash equivalents, and marketable securities balances, when
translated, may be materially less than expected and vice versa.
The Loss of Key Senior Management Personnel Could Negatively Affect Our Business
We depend on our senior management and other key personnel, particularly Jeffrey P. Bezos, our President, CEO, and
Chairman. We do not have key person life insurance policies. The loss of any of our executive officers or other key
employees could harm our business.
We Could Be Harmed by Data Loss or Other Security Breaches
As a result of our services being web-based and the fact that we process, store, and transmit large amounts of data,
including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches, including
breaches of our vendors technology and systems, could expose us or our customers to a risk of loss or misuse of such
information, adversely affect our operating results, result in litigation or potential liability for us, and otherwise harm our
business. We use third party technology and systems for a variety of reasons, including, without limitation, encryption and
authentication technology, employee email, content delivery to customers, back-office support, and other functions. Some
subsidiaries had past security breaches, and, although they did not have a material adverse effect on our operating results, there
can be no assurance of a similar result in the future. Although we have developed systems and processes that are designed to
protect customer information and prevent data loss and other security breaches, including systems and processes designed to
reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security.
We Face Risks Related to System Interruption and Lack of Redundancy
We experience occasional system interruptions and delays that make our websites and services unavailable or slow to
respond and prevent us from efficiently fulfilling orders or providing services to third parties, which may reduce our net sales
and the attractiveness of our products and services. If we are unable to continually add software and hardware, effectively
upgrade our systems and network infrastructure, and take other steps to improve the efficiency of our systems, it could cause
system interruptions or delays and adversely affect our operating results.
10

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 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 network 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, including to satisfy indemnification obligations. We may need to
obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms
acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses
or other rights with respect to intellectual property we do not own. These risks have been amplified by the increase in third
parties whose sole or primary business is to assert such claims.
Our digital content offerings depend in part on effective digital rights management technology to control access to digital
content. If the digital rights management technology that we use is compromised or otherwise malfunctions, we could be
subject to claims, and content providers may be unwilling to include their content in our service.
We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile
We have a rapidly evolving business model. The trading price of our common stock fluctuates significantly in response
to, among other risks, the risks described elsewhere in this Item 1A, as well as:

changes in interest rates;

conditions or trends in the Internet and the industry segments we operate in;
11

quarterly variations in operating results;

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

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

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

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

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

Volatility in our stock price could adversely affect our business and financing opportunities and force us to increase our
cash compensation to employees or grant larger stock awards than we have historically, which could hurt our operating results
or reduce the percentage ownership of our existing stockholders, or both.
Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business
We are subject to general business regulations and laws, as well as regulations and laws specifically governing the
Internet, e-commerce, electronic devices, and other services. Existing and future laws and regulations may impede our growth.
These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile
communications, electronic device certification, electronic waste, energy consumption, environmental regulation, electronic
contracts and other communications, competition, consumer protection, web services, the provision of online payment services,
information reporting requirements, unencumbered Internet access to our services or access to our facilities, the design and
operation of websites, the characteristics and quality of products and services, and the commercial operation of unmanned
aircraft systems. It is not clear how existing laws governing issues such as property ownership, libel, and personal privacy
apply to the Internet, e-commerce, digital content, and web services. Jurisdictions may regulate consumer-to-consumer online
businesses, including certain aspects of our seller programs. Unfavorable regulations and laws could diminish the demand for
our products and services and increase our cost of doing business.
We Could Be Subject to Additional Sales Tax or Other Indirect Tax Liabilities
U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales taxes with respect to
remote sales in the U.S. However, an increasing number of states, and certain foreign jurisdictions, have considered or adopted
laws or administrative practices that attempt to impose obligations on remote sellers and online marketplaces to collect taxes on
their behalf. We support a Federal law that would allow states to require sales tax collection by remote sellers under a
nationwide system. More than half of our revenue is already earned in jurisdictions where we collect sales tax or its equivalent.
A successful assertion by one or more states or foreign countries requiring us to collect taxes where we do not do so could
result in substantial tax liabilities, including for past sales, as well as penalties and interest. In addition, if the tax authorities in
jurisdictions where we already collect sales tax or other indirect taxes were successfully to challenge our positions, our tax
liability could increase substantially.
We Could Be Subject to Additional Income Tax Liabilities
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations,
and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other
conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There
are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.
Our effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have
lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in
jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into
new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments,
changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other
laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws
applicable to corporate multinationals. The U.S., the European Union and its member states, and a number of other countries
are actively pursuing changes in this regard.
Except as required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign
subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the
U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes
on some or all of these undistributed earnings and our effective tax rate would be adversely affected. We are also currently
subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us.
Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations
could have a material effect on our operating results or cash flows in the period or periods for which that development occurs,
12

as well as for prior and subsequent periods. For instance, the IRS is seeking to increase our U.S. taxable income related to
transfer pricing with our foreign subsidiaries for transactions undertaken in 2005 and 2006, and we are currently contesting the
matter in U.S. Tax Court. In addition to the risk of additional tax for 2005 and 2006 transactions, if this litigation is adversely
determined or if the IRS were to seek transfer pricing adjustments of a similar nature for transactions in subsequent years, we
could be subject to significant additional tax liabilities. In addition, in October 2014, the European Commission opened a
formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income
tax paid by certain of our subsidiaries comply with European Union rules on state aid. If this matter is adversely resolved,
Luxembourg may be required to assess, and we may be required to pay, additional amounts with respect to current and prior
periods and our taxes in the future could increase. Although we believe our tax estimates are reasonable, the final outcome of
tax audits, investigations, and any related litigation could be materially different from our historical income tax provisions and
accruals.
Our Supplier Relationships Subject Us to a Number of Risks
We have significant suppliers, including licensors, and in some cases, limited or single-sources of supply, that are
important to our sourcing, services, manufacturing, and any related ongoing servicing of merchandise and content. We do not
have long-term arrangements with most of our suppliers to guarantee availability of merchandise, content, components, or
services, particular payment terms, or the extension of credit limits. If our current suppliers were to stop selling or licensing
merchandise, content, components, or services to us on acceptable terms, or delay delivery, including as a result of one or more
supplier bankruptcies due to poor economic conditions, as a result of natural disasters, or for other reasons, we may be unable
to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all. In addition, if
our suppliers or other vendors violate applicable laws, regulations, our code of standards and responsibilities, or implement
practices regarded as unethical, unsafe, or hazardous to the environment, it could damage our reputation, limit our growth, and
negatively affect our operating results.
We May Be Subject to Risks Related to Government Contracts and Related Procurement Regulations
Our contracts with U.S., as well as state, local, and foreign, government entities are subject to various procurement
regulations and other requirements relating to their formation, administration, and performance. We may be subject to audits
and investigations relating to our government contracts, and any violations could result in various civil and criminal penalties
and administrative sanctions, including termination of contract, refunding or suspending of payments, forfeiture of profits,
payment of fines, and suspension or debarment from future government business. In addition, such contracts may provide for
termination by the government at any time, without cause.
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
Some of the products we sell or manufacture may expose us to product liability claims relating to personal injury, death,
or environmental or property damage, and may require product recalls or other actions. Certain third parties also sell products
using our e-commerce platform that may increase our exposure to product liability claims, such as if these sellers do not have
sufficient protection from such claims. Although we maintain liability insurance, we cannot be certain that our coverage will be
adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms,
or at all. In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.
We Are Subject to Payments-Related Risks
We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional
financing), gift cards, direct debit from a customers bank account, consumer invoicing, physical bank check, and payment
upon delivery. For existing and future payment options we offer to our customers, we may become subject to additional
regulations and compliance requirements (including obligations to implement enhanced authentication processes that could
result in significant costs and reduce the ease of use of our payments products), as well as 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 certain Amazon-branded payment methods and payment processing
services, including the processing of credit cards, debit cards, electronic checks, and promotional financing. In each case, it
could disrupt our business if these companies become unwilling or unable to provide these services to us. We also offer cobranded credit card programs, which could adversely affect our operating results if terminated. We are also subject to payment
card association operating rules, including data security rules, certification requirements, and rules governing electronic funds
transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with
these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card issuing
banks costs, subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our
customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating
13

results could be adversely affected.


In addition, we provide regulated services in certain jurisdictions because we enable customers to keep account balances
with us and transfer money to third parties, and because we provide services to third parties to facilitate payments on their
behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital
maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also
subject to or voluntarily comply with a number of other laws and regulations relating to payments, money laundering,
international money transfers, privacy and information security, and electronic fund transfers. If we were found to be in
violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal penalties, or
forced to cease providing certain services.
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of providers of online payment services is currently unsettled. In addition, governmental
agencies could require changes in the way this business is conducted. Under our seller programs, we may be unable to prevent
sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the
products received are materially different from the sellers descriptions. Under our A2Z Guarantee, we reimburse buyers for
payments up to certain limits in these situations, and as our marketplace seller sales grow, the cost of this program will increase
and could negatively affect our operating results. We also may be unable to prevent sellers on our sites or through other seller
sites from selling unlawful goods, selling goods in an unlawful manner, or violating the proprietary rights of others, and could
face civil or criminal liability for unlawful activities by our sellers.
Item 1B.
Unresolved Staff Comments
None.

14

Item 2.

Properties

As of December 31, 2015, we operated the following facilities (in thousands):


Leased Square
Footage (1)

Description of Use

Office space
Office space
Fulfillment, data centers, and other
Fulfillment, data centers, and other
Total

7,245
4,843
69,890
47,976
129,954

Owned Square
Footage

2,601

1,765
670
5,036

Location

North America
International
North America
International

___________________
(1) For leased properties, represents the total leased space excluding sub-leased space.
Leased Square
Footage (1)

Segment

North America
International
AWS
Total

67,103
45,950
4,813
117,866

Owned Square
Footage (1)

398
143
1,894
2,435

___________________
(1) Segment amounts exclude corporate facilities. Shared facilities are allocated among the segments based on usage and
primarily relate to facilities that hold our technology infrastructure. See Item 8 of Part II, Financial Statements and
Supplementary DataNote 11Segment Information.
We own and lease our corporate headquarters in Seattle, Washington. Additionally, we own and lease corporate office,
fulfillment, sortation, delivery, 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 DataNote 7Commitments and Contingencies
Legal Proceedings.
Item 4.

Mine Safety Disclosures

Not applicable.

15

PART II
Item 5.

Market for the Registrants 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

Year ended December 31, 2014


First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Low

408.06 $
348.30
364.85
341.26

330.88
284.38
304.59
284.00

389.37 $
452.65
580.57
696.44

285.25
368.34
425.57
506.00

Holders
As of January 20, 2016, there were 2,578 shareholders of record of our common stock, although there is a much larger
number of beneficial owners.
Dividends
We have never declared or paid cash dividends on our common stock. See Item 7 of Part II, Managements Discussion
and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.

16

Item 6.

Selected Consolidated Financial Data

The following selected consolidated financial data should be read in conjunction with the consolidated financial
statements and the notes thereto in Item 8 of Part II, Financial Statements and Supplementary Data, and the information
contained in Item 7 of Part II, Managements Discussion and Analysis of Financial Condition and Results of Operations.
Historical results are not necessarily indicative of future results.
Year Ended December 31,
2015

2014

2013

2012

2011

(in millions, except per share data)

Statements of Operations:
Net sales
Income from operations
Net income (loss)
Basic earnings per share (1)
Diluted earnings per share (1)
Weighted-average shares used in computation of
earnings per share:
Basic
Diluted
Statements of Cash Flows:
Net cash provided by (used in) operating activities

$
$
$
$
$

107,006
2,233
596
1.28
1.25

$
$
$
$
$

88,988
178
(241)
(0.52)
(0.52)

$
$
$
$
$

74,452
745
274
0.60
0.59

$
$
$
$
$

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

$
$
$
$
$

467
477

462
462

457
465

453
453

11,920 $

6,842 $

5,475 $

4,180 $

48,077
862
631
1.39
1.37

453
461
3,903

December 31,
2015

2014

2013

2012

2011

(in millions)

Balance Sheets:
Total assets
$
65,444 $
54,505 $
40,159 $
32,555 $
25,278
Total long-term obligations
$
18,161 $
15,675 $
7,433 $
5,361 $
2,625
___________________
(1) For further discussion of earnings per share, see Item 8 of Part II, Financial Statements and Supplementary DataNote
1Description of Business and Accounting Policies.

17

Item 7.

Managements 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 forwardlooking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forwardlooking statements. Forward-looking statements reflect managements 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 customer 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, sortation, delivery, and data center optimization, risks of inventory
management, seasonality, the degree to which we enter into, maintain, and develop 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 managements expectations, are described in greater detail in Item 1A
of Part I, Risk Factors.
Overview
Our primary source of revenue is the sale of a wide range of products and services to customers. The products offered on
our consumer-facing websites primarily include merchandise and content we have purchased for resale from vendors and those
offered by third-party sellers, and we also manufacture and sell electronic devices. Generally, we recognize gross revenue from
items we sell from our inventory as product sales and recognize our net share of revenue of items sold by third-party sellers as
service sales. We also offer other services such as compute, storage, and database offerings, fulfillment, publishing, digital
content subscriptions, advertising, and co-branded credit cards.
Our financial focus is on long-term, sustainable growth in free cash flows1 per share. Free cash flows are driven
primarily by increasing operating income and efficiently managing working capital2 and cash capital expenditures, including
our decision to purchase or lease property and equipment. Increases in operating income primarily result from increases in sales
of products and services and efficiently managing our operating costs, partially offset by investments we make in longer-term
strategic initiatives. To increase sales of products and services, we focus on improving all aspects of the customer experience,
including lowering prices, improving availability, offering faster delivery and performance times, increasing selection,
increasing product categories and service offerings, expanding product information, improving ease of use, improving
reliability, and earning customer trust. We also seek to efficiently manage shareholder dilution while maintaining the flexibility
to issue shares for strategic purposes, such as financings, acquisitions, and aligning employee compensation with shareholders
interests. We utilize restricted stock units as our primary vehicle for equity compensation because we believe this compensation
model aligns the long-term interests of our shareholders and employees. In measuring shareholder dilution, we include all
vested and unvested stock awards outstanding, without regard to estimated forfeitures. Total shares outstanding plus
outstanding stock awards were 490 million and 483 million as of December 31, 2015 and 2014.
We seek to reduce our variable costs per unit and work to leverage our fixed costs. Our variable costs include product and
content costs, payment processing and related transaction costs, picking, packaging, and preparing orders for shipment,
transportation, customer service support, costs necessary to run AWS, and a portion of our marketing costs. Our fixed costs
include the costs necessary to run our technology infrastructure; to build, enhance, and add features to our websites and web
services, our electronic devices, and digital offerings; and to build and optimize our fulfillment centers. Variable costs generally
change directly with sales volume, while fixed costs generally are dependent 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 from suppliers, and reduce defects in our
processes. To minimize growth in fixed costs, we seek to improve process efficiencies and maintain a lean culture.
_______________________
(1) See Results of OperationsNon-GAAP Financial Measures below for additional information on our non-GAAP free
cash flows financial measures.
(2) Working capital consists of accounts receivable, inventory, and accounts payable.

18

Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle3. On
average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.
Inventory turnover4 was 8 for 2015 and 9 for 2014 and 2013. We expect variability in inventory turnover over time since it is
affected by several factors, including our product mix, the mix of sales by us and by third-party sellers, our continuing focus on
in-stock inventory availability and selection of product offerings, our investment in new geographies and product lines, and the
extent to which we choose to utilize third-party fulfillment providers. Accounts payable days5 were 77, 73, and 74 for 2015,
2014, and 2013. 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 third-party sellers, the mix of suppliers, seasonality, and changes in
payment terms over time, including the effect of balancing pricing and timing of payment terms with suppliers.
We expect spending in technology and content will increase over time as we add computer scientists, designers, software
and hardware engineers, and merchandising employees. Our technology and content investment and capital spending projects
often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems
and operations. We seek to invest efficiently in several areas of technology and content, including AWS, and expansion of new
and existing product categories and service offerings, as well as in technology infrastructure to enhance the customer
experience and improve our process efficiencies. We believe that advances in technology, specifically the speed and reduced
cost of processing power and the advances of wireless connectivity, will continue to improve the consumer experience on the
Internet and increase its ubiquity in peoples lives. To best take advantage of these continued advances in technology, we are
investing in initiatives to build and deploy innovative and efficient software and electronic devices. We are also investing in
AWS, which offers a broad set of global compute, storage, database, and other service offerings to developers and enterprises
of all sizes.
Our financial reporting currency is the U.S. Dollar and changes in foreign 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 foreign currency exchange rates. Currency volatilities may continue, which may significantly
impact (either positively or negatively) our reported results and consolidated trends and comparisons.
For additional information about each line item summarized above, refer to Item 8 of Part II, Financial Statements and
Supplementary DataNote 1Description 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 companys critical accounting policies as the ones that are most important to the portrayal of the
companys 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 DataNote 1Description
of Business and Accounting Policies. Although we believe that our estimates, assumptions, and judgments are reasonable, they
are based upon information presently available. Actual results may differ significantly from these estimates under different
assumptions, judgments, or conditions.

_______________________
(3) The operating cycle is the number of days of sales in inventory plus the number of days of sales in accounts receivable
minus accounts payable days.
(4) Inventory turnover is the quotient of trailing twelve month cost of sales to average inventory over five quarter ends.
(5) Accounts payable days, calculated as the quotient of accounts payable to current quarter cost of sales, multiplied by the
number of days in the current quarter.
19

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 currentlyavailable information, about the likely method of disposition, such as through sales to individual customers, returns to product
vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future
disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material
write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of
December 31, 2015, we would have recorded an additional cost of sales of approximately $115 million.
In addition, we enter into supplier commitments for certain electronic device components. These commitments are based
on forecasted customer demand. If we reduce these commitments, we may incur additional costs.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that
indicate the carrying value may not be recoverable. During the second quarter of 2015, we changed the measurement date of
our annual goodwill impairment test from October 1 to April 1. In testing for goodwill impairment, we may elect to utilize a
qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a twostep impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of
net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative
factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of
impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of
the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales
and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic
conditions. Certain estimates of discounted cash flows involve businesses and geographies with limited financial history and
developing revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any.
During the year, management monitored the actual performance of the business relative to the fair value assumptions
used during our annual goodwill impairment test. For the periods presented, no triggering events were identified that required
an interim impairment test. As a measure of sensitivity, a 10% decrease in the fair value of any of our reporting units as of
April 1, 2015, would have had no impact on the carrying value of our goodwill.
Financial and credit market volatility directly impacts the fair value measurement through our weighted-average cost of
capital that we use to determine a discount rate and through our stock price that we use to determine our market capitalization.
During times of volatility, significant judgment must be applied to determine whether credit or stock price changes are shortterm in nature or a longer-term trend. We have not made any significant changes to the accounting methodology used to
evaluate goodwill for impairment. Changes in our estimated future cash flows and asset fair values may cause us to realize
material impairment charges in the future. As a measure of sensitivity, a prolonged 20% decrease from our December 31, 2015
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 and the fair value of stock options is estimated on the date of grant using a BlackScholes model. The estimated number of stock awards that will ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the
period estimates are revised. We consider many factors when estimating expected forfeitures, including employee level,
economic conditions, time remaining to vest, and historical forfeiture experience. We update our estimated forfeiture rate
quarterly. We have not made any significant changes to the accounting methodology used to evaluate stock-based
compensation. Changes in our estimates and assumptions may cause us to realize material changes in stock-based
compensation expense in the future. As a measure of sensitivity, a 1% change to our estimated forfeiture rate would have had
an approximately $46 million impact on our 2015 operating income. Our estimated forfeiture rates as of December 31, 2015
and 2014, were 28% and 27%.
We utilize the accelerated method, rather than the straight-line method, for recognizing compensation expense. For
example, over 50% of the compensation cost related to an award vesting ratably over four years is expensed in the first year. If
forfeited early in the life of an award, the compensation expense adjustment is much greater under an accelerated method than
under a straight-line method.

20

Income Taxes
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations,
and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other
conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There
are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.
Our effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have
lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in
jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into
new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments,
changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other
laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws
applicable to corporate multinationals. The U.S., the European Union and its member states, and a number of other countries
are actively pursuing changes in this regard.
Except as required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign
subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the
U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes
on some or all of these undistributed earnings and our effective tax rate would be adversely affected. We are also currently
subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us.
Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations
could have a material effect on our operating results or cash flows in the period or periods for which that development occurs,
as well as for prior and subsequent periods. For instance, the IRS is seeking to increase our U.S. taxable income related to
transfer pricing with our foreign subsidiaries for transactions undertaken in 2005 and 2006, and we are currently contesting the
matter in U.S. Tax Court. In addition to the risk of additional tax for 2005 and 2006 transactions, if this litigation is adversely
determined or if the IRS were to seek transfer pricing adjustments of a similar nature for transactions in subsequent years, we
could be subject to significant additional tax liabilities. In addition, in October 2014, the European Commission opened a
formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income
tax paid by certain of our subsidiaries comply with European Union rules on state aid. If this matter is adversely resolved,
Luxembourg may be required to assess, and we may be required to pay, additional amounts with respect to current and prior
periods and our taxes in the future could increase. Although we believe our tax estimates are reasonable, the final outcome of
tax audits, investigations, and any related litigation could be materially different from our historical income tax provisions and
accruals.
Recent Accounting Pronouncements
See Item 8 of Part II, Financial Statements and Supplementary DataNote 1Description of Business and Accounting
PoliciesRecent Accounting Pronouncements.

21

Liquidity and Capital Resources


Cash flow information is as follows (in millions):
Year Ended December 31,
2015

Cash provided by (used in):


Operating activities
Investing activities
Financing activities

11,920 $
(6,450)
(3,763)

2014

6,842 $
(5,065)
4,432

2013

5,475
(4,276)
(539)

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 $19.8 billion, $17.4 billion, and $12.4 billion as of December 31,
2015, 2014, and 2013. Amounts held in foreign currencies were $7.3 billion, $5.4 billion, and $5.6 billion as of December 31,
2015, 2014, and 2013, and were primarily Euros, Japanese Yen, and British Pounds.
Cash provided by operating activities was $11.9 billion, $6.8 billion, and $5.5 billion in 2015, 2014, and 2013. Our
operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator
customers, advertising agreements, and our co-branded credit card agreements, offset by cash payments we make for products
and services, employee compensation (less amounts capitalized related to internal-use software that are reflected as cash used
in investing activities), payment processing and related transaction costs, operating leases, and interest payments on our longterm obligations. Cash received from our customers and other activities generally corresponds to our net sales. Because
consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly. The increase in operating
cash flow in 2015, compared to the comparable prior year period, was primarily due to the increase in net income (loss),
excluding non-cash charges to net income (loss) such as depreciation, amortization, and stock-based compensation, and
changes in working capital. The increase in operating cash flow in 2014, compared to the comparable prior year period, was
primarily due to the increase in non-cash charges to net income (loss), including depreciation, amortization, and stock-based
compensation, partially offset by changes in working capital.
Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold
improvements, internal-use software and website development costs, cash outlays for acquisitions, investments in other
companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash provided by
(used in) investing activities was $(6.5) billion, $(5.1) billion, and $(4.3) billion in 2015, 2014, and 2013, with the variability
caused primarily by our decision to purchase or lease property and equipment, purchases, maturities, and sales of marketable
securities, and changes in cash paid for acquisitions. Cash capital expenditures were $4.6 billion, $4.9 billion, and $3.4 billion
in 2015, 2014, and 2013. This primarily reflects additional investments in support of continued business growth due to
investments in technology infrastructure (the majority of which is to support AWS), and additional capacity to support our
fulfillment operations, during all three periods. Capital expenditures included $528 million, $537 million, and $493 million for
internal-use software and website development in 2015, 2014, and 2013. Stock-based compensation capitalized for internal-use
software and website development costs does not affect cash flows. In 2015, 2014, and 2013, we made cash payments, net of
acquired cash, related to acquisition and other investment activity of $795 million, $979 million, and $312 million.
Cash provided by (used in) financing activities was $(3.8) billion, $4.4 billion, and $(539) million in 2015, 2014, and
2013. Cash outflows from financing activities result from principal repayments on obligations related to capital leases and
finance leases and repayments of long-term debt and other. Principal repayments on obligations related to capital leases and
finance leases and repayments of long-term debt and other were $4.2 billion, $1.9 billion, and $1.0 billion in 2015, 2014, and
2013. The increase in 2015 primarily reflects additional repayments on capital leases as well as a $750 million repayment on
our unsecured senior notes. Property and equipment acquired under capital leases were $4.7 billion, $4.0 billion, and $1.9
billion in 2015, 2014, and 2013, with the increases reflecting additional investments in support of continued business growth
primarily due to investments in technology infrastructure for AWS. We expect this trend toward additional investment to
continue over time. Cash inflows from financing activities primarily result from proceeds from long-term debt and other and
tax benefits relating to excess stock-based compensation deductions. Proceeds from long-term debt and other were $353
million, $6.4 billion, and $394 million in 2015, 2014, and 2013. During 2014, cash inflows from financing activities consisted
primarily of net proceeds from the issuance of $6.0 billion of senior nonconvertible unsecured debt in five tranches maturing in
2019 through 2044. See Item 8 of Part II, Financial Statements and Supplementary DataNote 5Long-Term Debt for
additional discussion of the notes. Tax benefits relating to excess stock-based compensation deductions are presented as
financing cash flows. Cash inflows from tax benefits related to stock-based compensation deductions were $119 million, $6
million, and $78 million in 2015, 2014, and 2013.

22

We had no borrowings outstanding under our $2.0 billion Credit Agreement as of December 31, 2015. See Item 8 of Part
II, Financial Statements and Supplementary DataNote 5Long-Term Debt for additional information.
In 2015, 2014, and 2013, we recorded net tax provisions of $950 million, $167 million, and $161 million. Except as
required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have
not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent
changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of
these undistributed earnings, and our effective tax rate would be adversely affected. As of December 31, 2015, cash, cash
equivalents, and marketable securities held by foreign subsidiaries were $5.8 billion, which included undistributed earnings of
foreign subsidiaries indefinitely invested outside of the U.S. of $1.5 billion. We have tax benefits relating to excess stock-based
compensation deductions and accelerated depreciation deductions that are being utilized to reduce our U.S. taxable income. In
December 2015, U.S. legislation was enacted that extended accelerated depreciation deductions on qualifying property through
2019. Cash taxes paid (net of refunds) were $273 million, $177 million, and $169 million for 2015, 2014, and 2013. As of
December 31, 2015, our federal net operating loss carryforward was approximately $1.1 billion and we had approximately
$622 million of federal tax credits potentially available to offset future tax liabilities. Our federal tax credits are primarily
related to the U.S. federal research and development credit, which was made permanent in 2015. As we utilize our federal net
operating losses and tax credits, we expect cash paid for taxes to significantly increase. We endeavor to manage our global
taxes on a cash basis, rather than on a financial reporting basis.
Our liquidity is also affected by restricted cash balances that are pledged as collateral for standby and trade letters of
credit, guarantees, debt, and real estate leases. To the extent we process payments for third-party sellers or offer certain types of
stored value to our customers, some jurisdictions may restrict our use of those funds. These restrictions would result in the
reclassification of a portion of our cash and cash equivalents from Cash and cash equivalents to restricted cash, which is
classified within Accounts receivable, net and other on our consolidated balance sheets. As of December 31, 2015 and 2014,
restricted cash, cash equivalents, and marketable securities were $285 million and $450 million. See Item 8 of Part II,
Financial Statements and Supplementary DataNote 7Commitments and Contingencies for additional discussion of our
principal contractual commitments, as well as our pledged assets. Purchase obligations and open purchase orders, consisting of
inventory and significant non-inventory commitments, were $6.2 billion as of December 31, 2015. Purchase obligations and
open purchase orders are generally cancellable in full or in part through the contractual provisions.
On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers
come due. Inventory turnover was 8 for 2015 and 9 for 2014 and 2013. We expect variability in inventory turnover over time
since it is affected by several factors, including our product mix, the mix of sales by us and by third-party sellers, our
continuing focus on in-stock inventory availability and selection of product offerings, our investment in new geographies and
product lines, and the extent to which we choose to utilize third-party fulfillment providers.
We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances,
as well as borrowing available under our credit agreements, 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, obtain capital, finance, and operating lease arrangements, repurchase common stock, pay dividends, or
repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.
The sale of additional equity or convertible debt securities would likely be dilutive to our shareholders. In addition, we
will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital
infrastructure, and technologies, which might affect our liquidity requirements or cause us to secure additional financing, or
issue additional equity or debt securities. There can be no assurance that additional lines-of-credit or financing instruments will
be available in amounts or on terms acceptable to us, if at all.

23

Results of Operations
Beginning in the first quarter of 2015, we changed our reportable segments to North America, International, and AWS.
These segments reflect the way the Company evaluates its business performance and manages its operations. See Item 1 of Part
1,Financial StatementsNote 11Segment Information.
Net Sales
Net sales include product and service sales. Product sales represent revenue from the sale of products and related shipping
fees and digital media content where we record revenue gross. Service sales represent third-party seller fees earned (including
commissions) and related shipping fees, AWS sales, digital content subscriptions, advertising services, and our co-branded
credit card agreements. Amazon Prime membership fees are allocated between product sales and service sales and amortized
over the life of the membership according to the estimated delivery of services. Net sales information is as follows (in
millions):
Year Ended December 31,
2015

Net Sales:
North America
International
AWS

Total consolidated

Year-over-year Percentage Growth:


North America
International
AWS
Total consolidated
Year-over-year Percentage Growth, excluding the effect of foreign exchange
rates:
North America
International
AWS
Total consolidated
Net Sales Mix:
North America
International
AWS
Total consolidated

2014

63,708
35,418
7,880
107,006

2013

50,834
33,510
4,644
88,988

41,410
29,934
3,108
74,452

25%
6
70
20

23%
12
49
20

26%
14
69
22

26%
21
70
26

23%
14
49
20

26%
19
69
24

60%
33
7
100%

57%
38
5
100%

56%
40
4
100%

Sales increased 20%, 20%, and 22% in 2015, 2014, and 2013, compared to the comparable prior year periods. Changes in
foreign currency exchange rates impacted net sales by $(5.2) billion, $(636) million, and $(1.3) billion for 2015, 2014, and
2013. For a discussion of the effect on sales growth of foreign exchange rates, see Effect of Foreign Exchange Rates below.
North America sales increased 25%, 23%, and 26% in 2015, 2014, and 2013, compared to the comparable prior year
periods. The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers. Increased
unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers,
sales in faster growing categories such as electronics and other general merchandise, increased in-stock inventory availability,
and increased selection of product offerings.
International sales increased 6%, 12%, and 14% in 2015, 2014, and 2013, compared to the comparable prior year periods.
The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers, offset by the
unfavorable effect of foreign exchange rates. Changes in foreign currency exchange rates impacted International net sales by
$(5.0) billion, $(580) million, and $(1.3) billion in 2015, 2014, and 2013. Increased unit sales were driven largely by our
continued efforts to reduce prices for our customers, including from our shipping offers, sales in faster growing categories such
24

as electronics and other general merchandise, increased in-stock inventory availability, and increased selection of product
offerings.
AWS sales increased 70%, 49%, and 69% in 2015, 2014, and 2013, compared to the comparable prior year periods. The
sales growth primarily reflects increased customer usage, partially offset by pricing changes. Pricing changes were driven
largely by our continued efforts to reduce prices for our customers.
Segment Operating Income (Loss)
Segment operating income (loss) is as follows (in millions):
Year Ended December 31,
2015

Segment Operating Income (Loss)


North America
International
AWS

2,751 $
(91)
1,863

2014

1,292 $
(144)
660

2013

1,166
154
673

The increase in North America segment operating income in absolute dollars in 2015, 2014, and 2013, compared to the
comparable prior year periods, is primarily due to increased unit sales, including sales by marketplace sellers, partially offset by
increased levels of operating expenses to expand our fulfillment capacity and spending on technology infrastructure. There was
a favorable impact from foreign exchange rates of $30 million, $0, and $7 million for 2015, 2014, and 2013.
The decrease in International segment operating loss in absolute dollars in 2015, compared to the comparable prior year
period, is primarily due to increased unit sales, including sales by marketplace sellers, partially offset by increased levels of
operating expenses to expand our fulfillment capacity, spending on technology infrastructure and marketing efforts, and the
unfavorable impact from foreign exchange rates. The unfavorable impact from foreign exchange rates was $278 million, $27
million, and $70 million for 2015, 2014, and 2013. The decrease in International segment operating income (loss) in absolute
dollars in 2014, compared to the comparable prior year period, is primarily due to increased levels of operating expenses to
expand our fulfillment capacity and spending on technology infrastructure and marketing efforts, partially offset by increased
unit sales, including sales by marketplace sellers.
The increase in AWS segment operating income in absolute dollars in 2015, compared to the comparable prior year
period, is primarily due to increased customer usage and cost structure productivity, partially offset by pricing changes and
increased spending on technology infrastructure, which was primarily driven by additional investments to support the business
growth. The decrease in AWS segment operating income in absolute dollars in 2014, compared to the comparable prior year
period, is primarily due to pricing changes and increased spending on technology infrastructure, which was primarily driven by
increased usage. There was a favorable impact from foreign exchange rates of $264 million, $41 million, and $38 million for
2015, 2014, and 2013.

25

Supplemental Information
Supplemental information about outbound shipping results for our North America and International segments is as
follows (in millions):
Year Ended December 31,
2015

Outbound Shipping Activity:


Shipping revenue (1)(2)(3)
Shipping costs (4)

Net shipping cost

Year-over-year Percentage Growth:


Shipping revenue
Shipping costs
Net shipping cost
Percent of Net Sales (5):
Shipping revenue
Shipping costs
Net shipping cost

6,520
(11,539)
(5,019)

2014

$
$

4,486
(8,709)
(4,223)

2013

$
$

3,097
(6,635)
(3,538)

45 %
32
19

45 %
31
19

36 %
29
24

6.5 %
(11.6)
(5.1)%

5.3 %
(10.3)
(5.0)%

4.3 %
(9.3)
(5.0)%

___________________
(1) Excludes amounts charged on shipping activities by third-party sellers where we do not provide the fulfillment service.
(2) Includes a portion of amounts earned from Amazon Prime memberships.
(3) Includes amounts earned from Fulfillment by Amazon programs related to shipping services.
(4) Includes sortation and delivery center costs.
(5) Includes North America and International segment net sales.
We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an
increasing rate, our product mix shifts to the electronics and other general merchandise category, we reduce shipping rates, we
use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part
through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our
suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to
our future success, and one way we offer lower prices is through shipping offers.

26

We have aggregated our North America and International segments products and services into groups of similar products
and services and provided the supplemental disclosure of net sales (in millions) below. We evaluate whether additional
disclosure is appropriate when a product or service category begins to approach a significant level of net sales. For the periods
presented, no individual product or service represented more than 10% of net sales.
Year Ended December 31,
2015

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
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
Year-over-year Percentage Growth, excluding the effect of foreign exchange
rates:
North America
Media
Electronics and other general merchandise
Other
Total North America
International
Media
Electronics and other general merchandise
Other
Total International

2014

12,483

2013

11,567

50,401

38,517

824

750

10,809
29,985
616

63,708

50,834

41,410

10,026

10,938

10,907

25,196

22,369

196

203

35,418

8 %

33,510

7%

18,817
210
$

29,934

18%

31

28

29

10

22

20

25

23

26

(8)%

13

19

23

(3)

(3)

22

12

14

8 %

7%

1%

18%

31

29

29

10

22

20

26

23

26

4 %
29

2%

7%

21

27

10

(3)

26

21

14

19

_____________________________

(1) Includes sales from non-retail activities, such as certain advertising services and our co-branded credit card agreements.

27

Operating Expenses
Information about operating expenses with and without stock-based compensation is as follows (in millions):
Year Ended December 31, 2015
As
Reported

Stock-Based
Compensation

Year Ended December 31, 2014

Net

As
Reported

Stock-Based
Compensation

Year Ended December 31, 2013

Net

As
Reported

Stock-Based
Compensation

Net

Operating Expenses:
Cost of sales

$ 71,651

$ 62,752

$ 62,752

$ 54,181

Fulfillment

13,410

(482)

12,928

10,766

(375)

10,391

8,585

(294)

8,291

Marketing

5,254

(190)

5,064

4,332

(125)

4,207

3,133

(88)

3,045

12,540

(1,224)

11,316

9,275

(804)

8,471

6,565

(603)

5,962

1,747

(223)

1,524

1,552

(193)

1,359

1,129

(149)

980

Technology and content


General and administrative
Other operating expense
(income), net
Total operating expenses
Year-over-year Percentage Growth:
Fulfillment

$ 71,651

171
$ 104,773

(2,119)

171

133

$ 102,654

$ 88,810

(1,497)

133

114

$ 87,313

$ 73,707

(1,134)

$ 54,181

114
$ 72,573

25%

24%

25%

25%

34%

34%

Marketing

21

20

38

38

30

30

Technology and content

35

34

41

42

44

44

General and administrative

13

12

37

39

26

27

Fulfillment

12.5%

12.1%

12.1%

11.7%

11.5%

11.1%

Marketing

4.9

4.7

4.9

4.7

4.2

4.1

11.7

10.6

10.4

9.5

8.8

8.0

1.6

1.4

1.7

1.5

1.5

1.3

Percent of Net Sales:

Technology and content


General and administrative

Operating expenses without stock-based compensation are non-GAAP financial measures. See Non-GAAP Financial
Measures and Item 8 of Part II, Financial Statements and Supplementary DataNote 1Description of Business and
Accounting PoliciesStock-Based Compensation.
In 2014, we recorded charges estimated at $170 million primarily related to Fire phone inventory valuation and supplier
commitment costs, the majority of which was included in the North America segment.
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, digital media content costs where we record
revenue gross, including Prime Video and Prime Music, packaging supplies, sortation and delivery centers and related
equipment costs, and inbound and outbound shipping costs, including where we are the transportation service provider.
Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of
products to our customers.
The increase in cost of sales in absolute dollars in 2015, 2014, and 2013, compared to the comparable prior year periods,
is primarily due to increased product and shipping costs resulting from increased sales. The increase in 2014 was also impacted
by the expansion of digital offerings and Fire phone inventory valuation and supplier commitment costs.
Costs to operate our AWS segment are primarily classified as Technology and content as we leverage a shared
infrastructure that supports both our internal technology requirements and external sales to AWS customers.
Fulfillment
Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International
fulfillment and customer service centers and payment processing costs. While AWS payment processing and related transaction
costs are included in fulfillment, AWS costs are primarily classified as Technology and content. Fulfillment costs as a
percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of
productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, timing of fulfillment capacity
expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability
to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our
customer self-service features. Additionally, because payment processing and fulfillment costs associated with seller
transactions are based on the gross purchase price of underlying transactions, and payment processing and related transaction

28

and fulfillment costs are higher as a percentage of sales versus our retail sales, sales by our sellers have higher fulfillment costs
as a percent of net sales.
The increase in fulfillment costs in absolute dollars in 2015, 2014, and 2013, compared to the comparable prior year
periods, is primarily due to variable costs corresponding with increased physical and digital product and service sales volume,
inventory levels, and sales mix; costs from expanding fulfillment capacity; and payment processing and related transaction
costs.
We seek to expand our fulfillment capacity to accommodate a greater selection and in-stock inventory levels and to meet
anticipated shipment volumes from sales of our own products as well as sales by third parties for which we provide the
fulfillment services. We regularly evaluate our facility requirements.
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, direct sales, 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 2015, 2014, and 2013, compared to the comparable prior year
periods, is primarily due to increased spending on online marketing channels, as well as payroll and related expenses.
While costs associated with Amazon Prime memberships and other shipping offers are not included in marketing
expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.
Technology and Content
Technology costs consist principally of research and development activities including payroll and related expenses for
employees involved in application, production, maintenance, operation, and platform development for new and existing
products and services, as well as AWS and other technology infrastructure expenses. Content costs consist principally of payroll
and related expenses for employees involved in category expansion, editorial content, buying, and merchandising selection.
Digital media content costs related to revenue recorded gross, including Prime Video, are included in cost of sales.
We seek to invest efficiently in several areas of technology and content so we may continue to enhance the customer
experience and improve our process efficiency through rapid technology developments while operating at an ever increasing
scale. Our technology and content investment and capital spending projects often support a variety of product and service
offerings due to geographic expansion and the cross-functionality of our systems and operations. We expect spending in
technology and content to increase over time as we continue to add employees and technology infrastructure. The increase in
technology and content costs in absolute dollars in 2015, 2014, and 2013, compared to comparable prior year periods, is
primarily due to increased spending on technology infrastructure principally allocated to our AWS segment, and an increase in
payroll and related costs associated with expanding our products and services.
Technology infrastructure costs consist of servers, networking equipment, and data center related depreciation, rent,
utilities, and payroll expenses. These costs are allocated to segments based on usage. In 2015, 2014, and 2013, we expanded our
technology infrastructure principally by increasing our capacity for AWS service offerings globally, compared to the
comparable prior year periods. Additionally, the costs associated with operating and maintaining our expanded infrastructure
have increased over time, corresponding with increased usage. We expect these trends to continue over time as we invest in
technology infrastructure to support increased usage.
The increase in payroll and related costs is primarily due to the expansion of new and existing product categories and
service offerings, including AWS, and initiatives to expand our ecosystem of products and services.
For 2015, 2014, and 2013, we capitalized $642 million (including $114 million of stock-based compensation), $641
million (including $104 million of stock-based compensation), and $581 million (including $87 million of stock-based
compensation) of costs associated with internal-use software and website development. Amortization of previously capitalized
amounts was $635 million, $559 million, and $451 million for 2015, 2014, and 2013.
General and Administrative
The increase in general and administrative costs in absolute dollars in 2015, compared to the comparable prior year
period, is primarily due to increases in payroll and related expenses. The increase in general and administrative costs in
absolute dollars in 2014, compared to the comparable prior year period, is primarily due to increases in payroll and related
expenses and professional service fees.
29

Stock-Based Compensation
Stock-based compensation was $2.1 billion, $1.5 billion, and $1.1 billion during 2015, 2014, and 2013. The increase in
2015, 2014, and 2013, compared to the comparable prior year periods, is primarily due to an increase in the number of stockbased compensation awards granted to existing and new employees.
Other Operating Expense (Income), Net
Other operating expense (income), net was $171 million, $133 million, and $114 million during 2015, 2014, and 2013,
and was primarily related to the amortization of intangible assets.
Income from Operations
For the reasons discussed above, income from operations increased to $2.2 billion in 2015, from $178 million in 2014
and $745 million in 2013.
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.
Interest Income and Expense
Our interest income was $50 million, $39 million, and $38 million during 2015, 2014, and 2013. 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 based on the prevailing rates, which vary depending on
the geographies and currencies in which they are invested.
Interest expense was $459 million, $210 million, and $141 million in 2015, 2014, and 2013. The increase is primarily due
to increases in our long-term debt, and capital and finance lease arrangements.
Our long-term debt was $8.2 billion and $8.3 billion as of December 31, 2015 and 2014. Our other long-term liabilities
were $9.9 billion and $7.4 billion as of December 31, 2015 and 2014. See Item 8 of Part II, Financial Statements and
Supplementary DataNote 5Long-Term Debt and Note 6Other Long-Term Liabilities for additional information.
Other Income (Expense), Net
Other income (expense), net was $(256) million, $(118) million, and $(136) million during 2015, 2014, and 2013. The
primary component of other income (expense), net is related to foreign-currency gains (losses).
Income Taxes
Our effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and
taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do business, acquisitions
(including integrations) and investments, audit-related developments, foreign currency gains (losses), changes in law,
regulations, and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized.
Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the
impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.
We recorded a provision for income taxes of $950 million, $167 million, and $161 million in 2015, 2014, and 2013. Our
provision for income taxes in 2015 was higher than in 2014 primarily due to an increase in U.S. pre-tax income and increased
losses in certain foreign subsidiaries for which we may not realize a tax benefit. Losses for which we may not realize a related
tax benefit, primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our
tax expense, and therefore increase our effective tax rate. We have recorded valuation allowances against the deferred tax assets
associated with losses for which we may not realize a related tax benefit. We generated income in lower tax jurisdictions
primarily related to our European operations, which are headquartered in Luxembourg.
Our provision for income taxes in 2014 was higher than in 2013 primarily due to the increased losses in certain foreign
subsidiaries for which we may not realize a tax benefit and audit-related developments, partially offset by the favorable impact
of earnings in lower tax rate jurisdictions. Losses for which we may not realize a related tax benefit were primarily generated
by our foreign subsidiaries. Income earned in lower tax jurisdictions was primarily related to our European operations.
We have tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that
are being utilized to reduce our U.S. taxable income. In December 2015, U.S. legislation was enacted that extended accelerated
depreciation deductions on qualifying property through 2019 and made permanent the U.S. federal research and development
credit. As of December 31, 2015, our federal net operating loss carryforward was approximately $1.1 billion and we had
30

approximately $622 million of federal tax credits potentially available to offset future tax liabilities. Our federal tax credits are
primarily related to the U.S. federal research and development credit, which was made permanent in 2015.
See Item 8 of Part II, Financial Statements and Supplementary DataNote 10Income Taxes for additional
information.
Equity-Method Investment Activity, Net of Tax
Equity-method investment activity, net of tax, was $(22) million, $37 million, and $(71) million in 2015, 2014, and 2013,
and is primarily related to our investment in LivingSocial. The primary component of this activity during 2014 was our share of
a gain recorded by LivingSocial related to the sale of its Korean operations. This gain was partially offset by operating losses
incurred by LivingSocial during the period.
Effect of Foreign Exchange Rates
The effect on our income from operations from changes in foreign exchange rates versus the U.S. Dollar is as follows (in
millions):
Year Ended December 31, 2015
At Prior
Year
Rates (1)

Net sales
Operating expenses
Income from operations

Exchange
Rate
Effect (2)

$ 112,173 $
109,956

As
Reported

Year Ended December 31, 2014


At Prior
Year
Rates (1)

Exchange
Rate
Effect (2)

As
Reported

Year Ended December 31, 2013


At Prior
Year
Rates (1)

Exchange
Rate
Effect (2)

As
Reported

(5,167) $ 107,006 $ 89,624 $

(636) $ 88,988 $ 75,736 $

(1,284) $ 74,452

(5,183)

(656)

2,217

16

104,773

89,466

2,233

158

20

88,810

74,962

(1,255)

73,707

178

774

(29)

745

___________________

(1) Represents the outcome that would have resulted had foreign exchange rates in the reported period been the same as those
in effect in the comparable prior year period for operating results.
(2) Represents the increase or decrease in reported amounts resulting from changes in foreign exchange rates from those in
effect in the comparable prior year period for operating results.
Non-GAAP Financial Measures
Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and prescribe the
conditions for use of certain non-GAAP financial information. Our measures of free cash flows, operating expenses with and
without stock-based compensation, and the effect of foreign exchange rates on our consolidated statements of operations, meet
the definition of non-GAAP financial measures.
We provide multiple measures of free cash flows because we believe these measures provide additional perspective on
the impact of acquiring property and equipment with cash and through capital and finance leases.
Free Cash Flow
Free cash flow is cash flow from operations reduced by Purchases of property and equipment, including internal-use
software and website development, net which is included in cash flow from investing activities. The following is a
reconciliation of free cash flow to the most comparable GAAP cash flow measure, Net cash provided by (used in) operating
activities, for 2015, 2014, and 2013 (in millions):
Year Ended December 31,
2015

2014

2013

Net cash provided by (used in) operating activities


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

11,920 $

6,842 $

5,475

Free cash flow

(4,589)
7,331 $

(4,893)
1,949 $

(3,444)
2,031

Net cash provided by (used in) investing activities

(6,450) $

(5,065) $

(4,276)

Net cash provided by (used in) financing activities

(3,763) $

4,432 $

(539)

31

Free Cash Flow Less Lease Principal Repayments


Free cash flow less lease principal repayments is free cash flow reduced by Principal repayments of capital lease
obligations, and Principal repayments of finance lease obligations, which are included in cash flow from financing activities.
Free cash flow less lease principal repayments approximates the actual payments of cash for our capital and finance leases. The
following is a reconciliation of free cash flow less lease principal repayments to the most comparable GAAP cash flow
measure, Net cash provided by (used in) operating activities, for 2015, 2014, and 2013 (in millions):
Year Ended December 31,
2015

2014

2013

Net cash provided by (used in) operating activities


Purchases of property and equipment, including internal-use software and website
development, net
Principal repayments of capital lease obligations
Principal repayments of finance lease obligations

11,920 $

6,842 $

5,475

Free cash flow less lease principal repayments

(4,589)
(2,462)
(121)
4,748 $

(4,893)
(1,285)
(135)
529 $

(3,444)
(775)
(5)
1,251

Net cash provided by (used in) investing activities

(6,450) $

(5,065) $

(4,276)

Net cash provided by (used in) financing activities

(3,763) $

4,432 $

(539)

Free Cash Flow Less Finance Lease Principal Repayments and Assets Acquired Under Capital Leases
Free cash flow less finance lease principal repayments and assets acquired under capital leases is free cash flow reduced
by Principal repayments of finance lease obligations, which are included in cash flow from financing activities, and property
and equipment acquired under capital leases. In this measure, property and equipment acquired under capital leases is reflected
as if these assets had been purchased with cash, which is not the case as these assets have been leased. The following is a
reconciliation of free cash flow less finance lease principal repayments and assets acquired under capital leases to the most
comparable GAAP cash flow measure, Net cash provided by (used in) operating activities, for 2015, 2014, and 2013 (in
millions):
Year Ended December 31,
2015

Net cash provided by (used in) operating activities


Purchases of property and equipment, including internal-use software and website
development, net
Property and equipment acquired under capital leases
Principal repayments of finance lease obligations

11,920 $

2014

6,842 $

2013

5,475

(4,589)
(4,717)

(4,893)
(4,008)

(3,444)
(1,867)

(121)

(135)

(5)

Free cash flow less finance lease principal repayments and assets acquired under
capital leases

2,493 $

(2,194) $

Net cash provided by (used in) investing activities

(6,450) $

(5,065) $

(4,276)

Net cash provided by (used in) financing activities

(3,763) $

4,432 $

(539)

159

All of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement
and do not represent the residual cash flow available for discretionary expenditures. For example, these measures of free cash
flows do not incorporate the portion of payments representing principal reductions of debt or cash payments for business
acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change
over time. Therefore, we believe it is important to view free cash flows measures only as a complement to our entire
consolidated statements of cash flows.
Operating Expenses, Excluding Stock-Based Compensation
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
32

results, and therefore, excluding it from operating expenses is consistent with our segment presentation in our footnotes to the
consolidated financial statements.
Operating expenses without stock-based compensation has limitations since it does not include all expenses primarily
related to our workforce. More specifically, if we did not pay out a portion of our compensation in the form of stock-based
compensation, our cash salary expense included in the Fulfillment, Marketing, Technology and content, and General
and administrative line items would be higher.
Effect of Foreign Exchange Rates
Information regarding the effect of foreign exchange rates, versus the U.S. Dollar, on our consolidated statements of
operations is provided to show reported period operating results had the foreign exchange rates remained the same as those in
effect in the comparable prior year period.
Guidance
We provided guidance on January 28, 2016, in our earnings release furnished on Form 8-K as set forth below. These
forward-looking statements reflect Amazon.coms expectations as of January 28, 2016, and are subject to substantial
uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in
foreign exchange rates, changes in global economic conditions and customer spending, world events, the rate of growth of the
Internet and online commerce, as well as those outlined in Item 1A of Part I, Risk Factors.
First Quarter 2016 Guidance

Net sales are expected to be between $26.5 billion and $29.0 billion, or to grow between 17% and 28%
compared with first quarter 2015.

Operating income is expected to be between $100 million and $700 million, compared with $255 million in first
quarter 2015.

This guidance includes approximately $600 million for stock-based compensation and other operating expense
(income), net. It assumes, among other things, that no additional business acquisitions, investments,
restructurings, or legal settlements are concluded and that there are no further revisions to stock-based
compensation estimates.

33

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, Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term
debt. Our long-term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial
statements. However, the fair value of our debt, which pays interest at a fixed rate, will generally fluctuate with movements of
interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. 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 intermediateterm fixed income securities and AAA-rated money market funds. Fixed income 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 equivalents and marketable fixed income
securities, including principal cash flows by expected maturity and the related weighted-average interest rates as of
December 31, 2015 (in millions, except percentages):

2016

Money market funds


Weighted-average interest rate
Corporate debt securities
Weighted-average interest rate
U.S. government and agency
securities
Weighted-average interest rate

8,025
0.21 %

2019

172

141

1.85 %

1.84 %

484

147

0.37 %

1.26 %

65

39

1.85 %

2020

Thereafter

Total

$ 8,025

469

1.69 %

14

11
0.74%

31

1.41 %

1.52%

2.23%

0.50 %

116

1.87 %

1.80 %

1.83%

1.85 %

24

16

(0.03 )%

(0.10)%

(0.04)%

0.01%

0.04%

15

18

4,487

0.64 %
$ 12,724

1.33 %
$

737

1.17 %
$

317

2.23%
$

53

%
$

23

%
$

8,025

0.21 %

0.57%

Other securities
Weighted-average interest rate

2018

131

Foreign government and agency


securities
Weighted-average interest rate

1.52 %

Asset backed securities


Weighted-average interest rate

2017

Estimated
Fair Value as
of December
31, 2015

477

5,155

5,167
117

48

49

(0.06)%
41

42

1.12 %
$ 13,854

Cash equivalent and marketable


fixed income securities

13,877

As of December 31, 2015, we had $8.5 billion of debt, including the current portion, primarily consisting of the following
fixed rate unsecured debt (in millions):
1.20% Notes due on November 29, 2017
2.50% Notes due on November 29, 2022
2.60% Notes due on December 5, 2019
3.30% Notes due on December 5, 2021
3.80% Notes due on December 5, 2024
4.80% Notes due on December 5, 2034
4.95% Notes due on December 5, 2044

$
$
$
$
$
$
$

34

1,000
1,250
1,000
1,000
1,250
1,250
1,500

The fair value of our debt will fluctuate with movements of interest rates, increasing in periods of declining rates of
interest and declining in periods of increasing rates of interest. Based upon quoted market prices and Level 2 inputs, the fair
value of our total debt was $8.8 billion as of December 31, 2015.
Foreign Exchange Risk
During 2015, net sales from our International segment accounted for 33% of our consolidated revenues. Net sales and
related expenses generated from our internationally-focused websites, and from www.amazon.ca and www.amazon.com.mx
(which are included in our North America segment), are primarily denominated in the functional currencies of the
corresponding websites and primarily include Euros, Japanese Yen, and British Pounds. The results of operations of, and certain
of our intercompany balances associated with, our internationally-focused websites and AWS are exposed to foreign exchange
rate fluctuations. Upon consolidation, as foreign 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 2015, International segment revenues decreased by $5.0
billion in comparison with the prior year.
We have foreign exchange risk related to foreign-denominated cash, cash equivalents, and marketable securities (foreign
funds). Based on the balance of foreign funds as of December 31, 2015, of $7.3 billion, an assumed 5%, 10%, and 20%
adverse change to foreign exchange would result in fair value declines of $365 million, $730 million, and $1.5 billion. All
investments are classified as available-for-sale. Fluctuations in fair value are recorded in Accumulated other comprehensive
loss, a separate component of stockholders equity.
We have foreign exchange risk related to our intercompany balances denominated in various foreign currencies. Based on
the intercompany balances as of December 31, 2015, an assumed 5%, 10%, and 20% adverse change to foreign exchange
would result in losses of $190 million, $405 million, and $905 million, recorded to Other income (expense), net.
See Item 7 of Part II, Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of OperationsEffect of Foreign Exchange Rates for additional information on the effect on reported results of
changes in foreign exchange rates.
Investment Risk
As of December 31, 2015, our recorded basis in equity investments was $280 million. These investments primarily relate
to equity-method and cost-method investments in private companies. We review our investments for impairment when events
and circumstances indicate that the decline in fair value of such assets below the carrying value is other-than-temporary. Our
analysis includes a review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other
publicly available data. The current global economic climate provides additional uncertainty. Valuations of private companies
are inherently more complex due to the lack of readily available market data. As such, we believe that market sensitivities are
not practicable.

35

Item 8.

Financial Statements and Supplementary Data


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Statements of Cash Flows
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Stockholders Equity
Notes to Consolidated Financial Statements

36

37
38
39
40
41
42
43

Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
Amazon.com, Inc.
We have audited the accompanying consolidated balance sheets of Amazon.com, Inc. as of December 31, 2015 and 2014,
and the related consolidated statements of operations, comprehensive income (loss), stockholders equity, and cash flows for
each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the
companys 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, 2015 and 2014, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2015, 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, 2015, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated January 28, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
January 28, 2016

37

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
2015

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


OPERATING ACTIVITIES:
Net income (loss)

Year Ended December 31,


2014

14,557 $

8,658 $

596

(241)

2013

8,084
274

Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation of property and equipment, including internal-use software and
website development, and other amortization, including capitalized content costs

6,281

4,746

3,253

Stock-based compensation

2,119

1,497

1,134

155

129

114

Other operating expense (income), net


Losses (gains) on sales of marketable securities, net

Other expense (income), net

(3)

245

62

166

81

(316)

(156)

(119)

(6)

(78)

Inventories

(2,187)

(1,193)

(1,410)

Accounts receivable, net and other

(1,755)

(1,039)

(846)

4,294

1,759

1,888

913

706

736

Deferred income taxes


Excess tax benefits from stock-based compensation
Changes in operating assets and liabilities:

Accounts payable
Accrued expenses and other
Additions to unearned revenue
Amortization of previously unearned revenue
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment, including internal-use software and website
development, net
Acquisitions, net of cash acquired, and other

7,401

4,433

2,691

(6,109)

(3,692)

(2,292)

11,920

6,842

5,475

(4,589)

(4,893)

(3,444)

(795)

Sales and maturities of marketable securities

(979)

(312)

3,025

3,349

2,306

Purchases of marketable securities

(4,091)

(2,542)

(2,826)

Net cash provided by (used in) investing activities


FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation

(6,450)

(5,065)

(4,276)

Proceeds from long-term debt and other

119

78

353

6,359

394

Repayments of long-term debt and other

(1,652)

(513)

(231)

Principal repayments of capital lease obligations

(2,462)

(1,285)

(775)

Principal repayments of finance lease obligations

(121)

Net cash provided by (used in) financing activities


Foreign-currency effect on cash and cash equivalents

(3,763)
(374)

Net increase (decrease) in cash and cash equivalents

1,333

CASH AND CASH EQUIVALENTS, END OF PERIOD

SUPPLEMENTAL CASH FLOW INFORMATION:


Cash paid for interest on long-term debt

Cash paid for interest on capital and finance lease obligations


Cash paid for income taxes (net of refunds)
Property and equipment acquired under capital leases
Property and equipment acquired under build-to-suit leases

(310)
5,899

(5)
(539)
(86)
574

15,890 $

14,557 $

8,658

325 $

91 $

97

153

86

41

273

177

169

4,717

4,008

1,867

544

920

877

See accompanying notes to consolidated financial statements.

38

(135)
4,432

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Year Ended December 31,
2015

Net product sales


Net service sales

Total net sales


Operating expenses (1):
Cost of sales
Fulfillment
Marketing
Technology and content
General and administrative
Other operating expense (income), net

2014

79,268 $
27,738
107,006

70,080 $
18,908
88,988

60,903
13,549
74,452

62,752
10,766
4,332
9,275
1,552
133
88,810
178
39
(210)
(118)
(289)
(111)
(167)
37
(241) $

54,181
8,585
3,133
6,565
1,129
114
73,707
745
38
(141)
(136)
(239)
506
(161)
(71)
274

(0.52) $
(0.52) $

Net income (loss)

71,651
13,410
5,254
12,540
1,747
171
104,773
2,233
50
(459)
(256)
(665)
1,568
(950)
(22)
596 $

Basic earnings per share


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

$
$

1.28 $
1.25 $

Total operating expenses


Income from operations
Interest income
Interest expense
Other income (expense), net
Total non-operating income (expense)
Income (loss) before income taxes
Provision for income taxes
Equity-method investment activity, net of tax

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

0.60
0.59

467

462

457

477

462

465

375 $
125
804
193

294
88
603
149

482 $
190
1,224
223

See accompanying notes to consolidated financial statements.

39

2013

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
Year Ended December 31,
2015

Net income (loss)


$
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $10, $(3), and
$(20)
Net change in unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses), net of tax of $(5), $1, and $3
Reclassification adjustment for losses (gains) included in Other
income (expense), net, net of tax of $0, $(1), and $(1)
Net unrealized gains (losses) on available-for-sale securities
Total other comprehensive income (loss)
Comprehensive income (loss)
$

2014

596 $

(210)

(241) $

(325)

274

63

(7)

(10)

5
(2)
(212)
384 $

(3)
(1)
(326)
(567) $

1
(9)
54
328

See accompanying notes to consolidated financial statements.

40

2013

AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
December 31,
2015

2014

ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Inventories
Accounts receivable, net and other

Total current assets


Property and equipment, net
Goodwill
Other assets
Total assets

LIABILITIES AND STOCKHOLDERS EQUITY


Current liabilities:
Accounts payable
Accrued expenses and other
Unearned revenue

Total current liabilities


Long-term debt
Other long-term liabilities
Commitments and contingencies (Note 7)
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 494 and 488
Outstanding shares 471 and 465
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings

15,890 $
3,918
10,243
6,423
36,474
21,838
3,759
3,373
65,444 $

14,557
2,859
8,299
5,612
31,327
16,967
3,319
2,892
54,505

20,397 $
10,384
3,118
33,899
8,235
9,926

16,459
9,807
1,823
28,089
8,265
7,410

Total stockholders equity


Total liabilities and stockholders equity

See accompanying notes to consolidated financial statements.

41

5
(1,837)
13,394
(723)
2,545
13,384
65,444 $

5
(1,837)
11,135
(511)
1,949
10,741
54,505

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in millions)

Common Stock

Shares

454 $

Balance as of January 1, 2013


Net income
Other comprehensive income (loss)
Exercise of common stock options
Excess tax benefits from stock-based
compensation

Treasury
Stock

Amount

5 $

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Total
Stockholders
Equity

(1,837) $

8,347 $

(239) $

54

1,916 $
274

73

8,192
274
54
4

459

Excess tax benefits from stock-based


compensation

Stock-based compensation and issuance of


employee benefit plan stock

1,510

1,510

465

44
11,135

(511)

(212)

Excess tax benefits from stock-based


compensation

119

119

Stock-based compensation and issuance of


employee benefit plan stock

2,131

2,131

(723) $

2,545 $

5
13,384

Stock-based compensation and issuance of


employee benefit plan stock
Balance as of December 31, 2013
Net loss
Other comprehensive income (loss)
Exercise of common stock options

Issuance of common stock for acquisition


activity
Balance as of December 31, 2014
Net income
Other comprehensive income (loss)
Exercise of common stock options

Issuance of common stock for acquisition


activity
Balance as of December 31, 2015

471 $

5 $

(1,837)

(1,837)

1,149
9,573

5
(1,837) $ 13,394 $

See accompanying notes to consolidated financial statements.

42

(185)

(326)

2,190
(241)

1,949
596

73
1,149
9,746
(241)
(326)
2

44
10,741
596
(212)
4

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES


Description of Business
Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be Earths most customer-centric
company. In each of our segments, we serve our primary customer sets, consisting of consumers, sellers, developers,
enterprises, and content creators. We serve consumers through our retail websites and focus on selection, price, and
convenience. We also manufacture and sell electronic devices. We offer programs that enable sellers to sell their products on
our websites and their own branded websites and to fulfill orders through us, and programs that allow authors, musicians,
filmmakers, app developers, and others to publish and sell content. We serve developers and enterprises of all sizes through our
AWS segment, which provides access to technology infrastructure that enables virtually any type of business. In addition, we
provide services, such as advertising services and co-branded credit card agreements.
We have organized our operations into three segments: North America, International, and AWS. See Note 11Segment
Information.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation, including recasting the
segment financial information within Note 11Segment Information as a result of changing our reportable segments to
include an AWS segment.
Principles of Consolidation
The consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned subsidiaries, and
those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in
India and China (collectively, the Company). Intercompany balances and transactions between consolidated entities are
eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the
consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining the selling
price of products and services in multiple element revenue arrangements and determining the amortization period of these
elements, incentive discount offers, sales returns, vendor funding, stock-based compensation forfeiture rates, income taxes,
valuation and impairment of investments, inventory valuation and inventory purchase commitments, collectability of
receivables, valuation of acquired intangibles and goodwill, depreciable lives of property and equipment, internal-use software
and website development costs, acquisition purchase price allocations, investments in equity interests, and contingencies.
Actual results could differ materially from those estimates.
Earnings per Share
Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share
is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as
determined under the treasury stock method. In periods when we have a net loss, stock awards are excluded from our
calculation of earnings per share as their inclusion would have an antidilutive effect. In 2014, we excluded stock awards of 17
million.
The following table shows the calculation of diluted shares (in millions):
Year Ended December 31,
2015

Shares used in computation of basic earnings per share


Total dilutive effect of outstanding stock awards

2014

467
10
477

Shares used in computation of diluted earnings per share

43

2013

462

462

457
8
465

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 service has been rendered, the selling price is fixed or
determinable, and collectability is reasonably assured. Revenue arrangements with multiple deliverables are divided into
separate units and revenue is allocated using estimated selling prices if we do not have vendor-specific objective evidence or
third-party evidence of the selling prices of the deliverables. We allocate the arrangement price to each of the elements based on
the relative selling prices of each element. Estimated selling prices are managements best estimates of the prices that we would
charge our customers if we were to sell the standalone elements separately and include considerations of customer demand,
prices charged by us and others for similar deliverables, and the price if largely based on the cost of producing the product or
service.
Sales of our digital devices, including Kindle e-readers, Fire tablets, Fire TVs, and Echo, are considered arrangements
with multiple deliverables, consisting of the device, undelivered software upgrades and/or undelivered non-software services
such as cloud storage and free trial memberships to other services. The revenue allocated to the device, which is the substantial
portion of the total sale price, and related costs are generally recognized upon delivery. Revenue related to undelivered software
upgrades and/or undelivered non-software services is deferred and recognized generally on a straight-line basis over the
estimated period the software upgrades and non-software services are expected to be provided for each of these devices.
Sales of Amazon Prime memberships are also considered arrangements with multiple deliverables, including shipping
benefits, Prime Video, Prime Music, Prime Photos, and access to the Kindle Owners Lending Library. The revenue related to
the deliverables is amortized over the life of the membership based on the estimated delivery of services. Amazon Prime
membership fees are allocated between product sales and service sales. Costs to deliver Amazon Prime benefits are recognized
as cost of sales as incurred. As we add more benefits to the Prime membership, we will update the method of determining the
estimated selling prices of each element as well as the allocation of Prime membership fees.
We evaluate whether it is appropriate to record the gross amount of product sales and related costs or the net amount
earned as commissions. Generally, when we are primarily obligated in a transaction, are subject to inventory risk, have latitude
in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sale
price. We generally record the net amounts as commissions earned if we are not primarily obligated and do not have latitude in
establishing prices. Such amounts earned are determined using fixed fees, a percentage of seller revenues, per-unit activity fees,
or some combination thereof.
Product sales represent revenue from the sale of products and related shipping fees and digital media content where we
record revenue gross. 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. Amazons electronic devices sold
through retailers are recognized at the point of sale to consumers.
Service sales represent third-party seller fees earned (including commissions) and related shipping fees, AWS sales,
digital content subscriptions, advertising services, and our co-branded credit card agreements. Service sales, net of promotional
discounts and return allowances, are recognized when service has been rendered.
Return allowances, which reduce revenue, are estimated using historical experience. Allowance for returns was $153
million, $147 million, and $167 million as of December 31, 2015, 2014, and 2013. Additions to the allowance were $1.3
billion, $1.1 billion, and $907 million, and deductions to the allowance were $1.3 billion, $1.1 billion, and $938 million in
2015, 2014, and 2013. Revenue from product sales and services rendered is recorded net of sales and consumption taxes.
Additionally, we periodically provide incentive offers to our customers to encourage purchases. Such offers include current
discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts
subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by our customers, are
treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by our
customers, are treated as a reduction to purchase price based on estimated future redemption rates. Redemption rates are
estimated using our historical experience for similar inducement offers. Current discount offers and inducement offers are
presented as a net amount in Total net sales.
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, digital media content costs where we record
revenue gross, including Prime Video and Prime Music, packaging supplies, sortation and delivery centers and related
equipment costs, and inbound and outbound shipping costs, including where we are the transportation service provider.
Shipping costs to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of
products to our customers. Payment processing and related transaction costs, including those associated with seller transactions,
are classified in Fulfillment on our consolidated statements of operations.

44

Vendor Agreements
We have agreements with our vendors to receive funds for advertising services, cooperative marketing efforts,
promotions, and volume rebates. We generally consider amounts received from vendors to be a reduction of the prices we pay
for their goods, including property and equipment, or services, and therefore record those amounts as a reduction of the cost of
inventory, cost of services, or cost of property and equipment. 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 vendors product or service, the
amount we receive is recorded as an offset to Marketing on our consolidated statements of operations.
Fulfillment
Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International
segments fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting, and
warehousing inventories; picking, packaging, and preparing customer orders for shipment; payment processing and related
transaction costs, including costs associated with our guarantee for certain seller transactions; responding to inquiries from
customers; and supply chain management for our manufactured electronic devices. Fulfillment costs also include amounts paid
to third parties that assist us in fulfillment and customer service operations.
Marketing
Marketing costs primarily consist of targeted online advertising, television advertising, public relations expenditures, and
payroll and related expenses for personnel engaged in marketing 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 $3.8 billion, $3.3 billion, and $2.4 billion in
2015, 2014, and 2013. Prepaid advertising costs were not significant as of December 31, 2015 and 2014.
Technology and Content
Technology costs consist principally of research and development activities including payroll and related expenses for
employees involved in application, production, maintenance, operation, and platform development for new and existing
products and services, as well as AWS and other technology infrastructure expenses.
Content costs consist principally of payroll and related expenses for employees involved in category expansion, editorial
content, buying, and merchandising selection.
Technology and content costs are expensed as incurred, except for certain costs relating to the development of internaluse 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 primarily consist of payroll and related expenses; facilities and equipment, such as
depreciation expense and rent; professional fees and litigation costs; and other general corporate costs for corporate functions,
including accounting, finance, tax, legal, and human resources, among others.
Stock-Based Compensation
Compensation cost for all stock awards expected to vest is measured at fair value on the date of grant and recognized
over the service period. The fair value of restricted stock units is determined based on the number of shares granted and the
quoted price of our common stock, and the fair value of stock options is estimated on the date of grant using a Black-Scholes
model. Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method.
The estimated number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated
estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates
are revised. We consider many factors when estimating expected forfeitures, including employee level, economic conditions,
time remaining to vest, and historical forfeiture experience.

45

Other Operating Expense (Income), Net


Other operating expense (income), net, consists primarily of marketing-related, contract-based, and customer-related
intangible asset amortization expense and expenses related to legal settlements.
Other Income (Expense), Net
Other income (expense), net, consists primarily of foreign currency losses of $(266) million, $(127) million, and $(137)
million in 2015, 2014, and 2013, and realized gains (losses) on marketable securities sales of $(5) million, $3 million, and $(1)
million in 2015, 2014, and 2013.
Income Taxes
Income tax expense includes U.S. (federal and state) and foreign income taxes. Except as required under U.S. tax laws,
we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since
we intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes or if these funds are needed
for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings and our
effective tax rate would be adversely affected. Undistributed earnings of foreign subsidiaries that are indefinitely invested
outside of the U.S were $1.5 billion as of December 31, 2015. 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 they
will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets,
including our recent cumulative earnings experience and expectations of future taxable income and capital gains by taxing
jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. We allocate our
valuation allowance to current and long-term deferred tax assets on a pro-rata basis.
We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely
than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second
step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate
settlement. We consider many factors when evaluating our tax positions and estimating our tax benefits, which may require
periodic adjustments and which may not accurately forecast actual outcomes. We include interest and penalties related to our
tax contingencies in income tax expense.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. To increase the comparability of fair value measures, the
following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2Valuations 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 3Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably
available assumptions made by other market participants. These valuations require significant judgment.
For our cash, cash equivalents, or marketable securities, we measure the fair value of money market funds and equity
securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued
either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other
significant inputs derived from or corroborated by observable market data. We did not hold any cash, cash equivalents, or
marketable securities categorized as Level 3 assets as of December 31, 2015, or December 31, 2014.
As part of entering into commercial agreements, we often obtain equity warrant assets giving us the right to acquire stock
primarily in private companies. We record these assets in Other assets on the accompanying consolidated balance sheets.
Equity warrant assets are classified as Level 3 assets, and the balances and related activity for our equity warrant assets were
not significant for the periods ended December 31, 2015, 2014, and 2013.
46

Cash and Cash Equivalents


We classify all highly liquid instruments with an original maturity of three months or less as cash equivalents.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out (FIFO)
method, and are valued at the lower of cost or market value. This valuation requires us to make judgments, based on currentlyavailable information, about the likely method of disposition, such as through sales to individual customers, returns to product
vendors, or liquidations, and expected recoverable values of each disposition category.
We provide Fulfillment by Amazon services in connection with certain of our sellers programs. Third-party sellers
maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and
therefore these products are not included in our inventories.
We also purchase electronic device components from a variety of suppliers and use several contract manufacturers to
provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead
times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers. A
portion of our reported purchase commitments arising from these agreements consists of firm, non-cancellable commitments.
These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional
costs.
Accounts Receivable, Net and Other
Included in Accounts receivable, net and other on our consolidated balance sheets are amounts primarily related to
customer and seller receivables and vendor receivables. As of December 31, 2015 and 2014, customer and seller receivables,
net, were $2.6 billion and $1.9 billion, and vendor receivables, net, were $1.8 billion and $1.4 billion.
We estimate losses on receivables based on known troubled accounts and historical experience of losses incurred.
Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected
in accordance with the terms of the agreement. The allowance for doubtful accounts was $189 million, $190 million, and $153
million as of December 31, 2015, 2014, and 2013. Additions to the allowance were $289 million, $225 million, and $172
million, and deductions to the allowance were $290 million, $188 million, and $135 million in 2015, 2014, and 2013.
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 2015, 2014, and 2013, we capitalized $642 million (including $114 million of stockbased compensation), $641 million (including $104 million of stock-based compensation), and $581 million (including $87
million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of
previously capitalized amounts was $635 million, $559 million, and $451 million for 2015, 2014, and 2013.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Property includes buildings and land that we
own, along with property we have acquired under build-to-suit, financing, and capital lease arrangements. Equipment includes
assets such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal-use software and
website development. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets (generally
the lesser of 40 years or the remaining life of the underlying building, two years for assets such as internal-use software, three
years for our servers, five years for networking equipment, five years for furniture and fixtures, and ten years for heavy
equipment). Depreciation expense is classified within the corresponding operating expense categories on our consolidated
statements of operations.
Leases and Asset Retirement Obligations
We categorize leases at their inception as either operating or capital leases. On certain of our lease agreements, we may
receive rent holidays and other incentives. We recognize lease costs on a straight-line basis without regard to deferred payment
terms, such as rent holidays, that defer the commencement date of required payments. Additionally, incentives we receive are
treated as a reduction of our costs over the term of the agreement. Leasehold improvements are capitalized at cost and
amortized over the lesser of their expected useful life or the non-cancellable term of the lease.
We establish assets and liabilities for the estimated construction costs incurred under build-to-suit lease arrangements to
the extent we are involved in the construction of structural improvements or take construction risk prior to commencement of a
47

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 finance 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 the carrying value may not be recoverable. In testing for goodwill impairment, we may elect to utilize a qualitative
assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If
our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test.
We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair
value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is
more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the
difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units
using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating
expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.
During the second quarter of 2015, we changed the measurement date of our annual goodwill impairment test from
October 1 to April 1. This change was not material to our consolidated financial statements as it did not result in the delay,
acceleration, or avoidance of an impairment charge. We believe this timing better aligns the goodwill impairment test with our
strategic business planning process, which is a key component of the goodwill impairment test. We completed the required
annual testing of goodwill for impairment for all reporting units as of April 1, 2015, and determined that goodwill is not
impaired. There were no triggering events identified from the date of our assessment through December 31, 2015 that would
require an update to our annual impairment test. See Note 4Acquisitions, Goodwill, and Acquired Intangible Assets.
Other Assets
Included in Other assets on our consolidated balance sheets are amounts primarily related to acquired intangible assets,
net of amortization; video and music content, net of amortization; long-term deferred tax assets; certain equity investments;
marketable securities restricted for longer than one year, the majority of which are attributable to collateralization of bank
guarantees and debt related to our international operations; intellectual property rights, net of amortization; and equity warrant
assets.
Video and Music Content
We obtain video and music content to be made available to Prime members through licensing agreements that have a
wide range of licensing provisions and generally have terms from one to five years with fixed payment schedules. When the
license fee for a specific movie, television, or music title is determinable or reasonably estimable and available for streaming,
we recognize an asset representing the fee per title and a corresponding liability for the amounts owed. We relieve the liability
as payments are made and we amortize the asset to Cost of sales on a straight-line basis or on an accelerated basis, based on
estimated viewing patterns over each titles contractual window of availability, which typically ranges from six months to five
years. If we are unable to reasonably estimate the cost per title, no asset or liability is recorded and licensing costs are expensed
as incurred. We also develop original content. The production costs of internally developed content are capitalized only if
persuasive evidence exists that the production will generate revenue. Prior to 2015, because we had limited history to support
the economic benefits of our content, we generally expensed such costs as incurred. In 2015, we began capitalizing a portion of
production costs as we have developed more experience to support that future revenue will be earned. Capitalized internally
developed costs are generally amortized to Cost of sales on an accelerated basis that follows the viewing pattern of customer
streams in the first months after availability.
Investments
We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAArated money market funds. Such investments are included in Cash and cash equivalents or Marketable securities on the
accompanying consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and
losses included in Accumulated other comprehensive loss.
Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to
exercise significant influence, but not control, over an investee. Equity-method investments are included within Other assets
48

on our consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of
basis differences, 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 and for which we do not have the ability to exercise
significant influence are accounted for using the cost method of accounting and classified as Other assets on our consolidated
balance sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines
in fair value, certain distributions, and additional investments.
Equity investments that have readily determinable fair values are classified as available-for-sale and are included in
Marketable securities on our consolidated balance sheets and are recorded at fair value with unrealized gains and losses, net
of tax, included in Accumulated other comprehensive loss.
We periodically evaluate whether declines in fair values of our investments below their book value are other-thantemporary. 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 assets carrying amount is not
recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the
difference between the carrying amount and estimated fair value. Long-lived assets are considered held for sale when certain
criteria are met, including when management has committed to a plan to sell the asset, the asset is available for sale in its
immediate condition, and the sale is probable within one year of the reporting date. Assets held for sale are reported at the
lower of cost or fair value less costs to sell. Assets held for sale were not significant as of December 31, 2015 or 2014.
Accrued Expenses and Other
Included in Accrued expenses and other on our consolidated balance sheets are liabilities primarily related to
unredeemed gift cards, leases and asset retirement obligations, current debt, acquired digital media content, and other operating
expenses.
As of December 31, 2015 and 2014, our liabilities for unredeemed gift cards was $2.0 billion and $1.7 billion. We reduce
the liability for a gift card when redeemed by a customer. If a gift card is not redeemed, we recognize revenue when it expires
or when the likelihood of its redemption becomes remote, generally two years from the date of issuance.
Unearned Revenue
Unearned revenue is recorded when payments are received in advance of performing our service obligations and is
recognized over the service period. Unearned revenue primarily relates to prepayments of Amazon Prime memberships and
AWS services.

49

Foreign Currency
We have internationally-focused websites for Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan,
Mexico, the Netherlands, Spain, and the United Kingdom. Net sales generated from these websites, as well as most of the
related expenses directly incurred from those operations, are denominated in local functional currencies. The functional
currency of our subsidiaries that either operate or support these websites is generally the same as the local currency. Assets and
liabilities of these subsidiaries are translated into U.S. Dollars at period-end foreign exchange rates, and revenues and expenses
are translated at average rates prevailing throughout the period. Translation adjustments are included in Accumulated other
comprehensive loss, a separate component of stockholders equity, and in the Foreign-currency effect on cash and cash
equivalents, on our consolidated statements of cash flows. Transaction gains and losses including intercompany transactions
denominated in a currency other than the functional currency of the entity involved are included in Other income (expense),
net on our consolidated statements of operations. In connection with the settlement and remeasurement of intercompany
balances, we recorded losses of $215 million, $98 million, and $84 million in 2015, 2014, and 2013.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU)
amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to
understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In
August 2015, the FASB deferred the effective date of the revenue recognition guidance to reporting periods beginning after
December 15, 2017. Early adoption is permitted for reporting periods beginning after December 15, 2016. We are continuing to
evaluate our method of adoption and the impact this ASU, and related amendments and interpretations, will have on our
consolidated financial statements.
In July 2015, the FASB issued an ASU modifying the accounting for inventory. Under this ASU, the measurement
principle for inventory will change from lower of cost or market value to lower of cost and net realizable value. The ASU
defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. The ASU is applicable to inventory that is accounted for under the first-in, first-out
method and is effective for reporting periods after December 15, 2016, with early adoption permitted. We do not expect
adoption to have a material impact on our consolidated financial statements.
In November 2015, the FASB issued an ASU amending the accounting for income taxes and requiring all deferred tax
assets and liabilities to be classified as non-current on the consolidated balance sheet. The ASU is effective for reporting
periods beginning after December 15, 2016, with early adoption permitted. The ASU may be adopted either prospectively or
retrospectively. We are currently evaluating the method of adoption and expect this ASU will have an impact on our
consolidated balance sheets as our current deferred tax assets were $769 million and current deferred tax liabilities were $13
million as of December 31, 2015.

50

Note 2CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES


As of December 31, 2015 and 2014, our cash, cash equivalents, and marketable securities primarily consisted of cash,
U.S. and foreign government and agency securities, AAA-rated money market funds, and other investment grade securities.
Cash equivalents and marketable securities are recorded at fair value. The following table summarizes, by major security type,
our cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized
using the fair value hierarchy (in millions):
December 31, 2015
Cost or
Amortized
Cost

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

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Total
Estimated
Fair Value

6,201 $

6,201

8,025
4

11

8,025
15

12 $

(5)
(2)
(1)

(8) $

49
5,171
479
118
42
20,089 $

Less: Restricted cash, cash equivalents, and marketable


securities (1)
Total cash, cash equivalents, and marketable securities

49
5,167
477
117
42
20,093
(285)
19,808

December 31, 2014


Cost or
Amortized
Cost

Cash
Level 1 securities:
Money market funds
Equity securities
Level 2 securities:
Foreign government and agency securities
U.S. government and agency securities
Corporate debt securities
Asset-backed securities
Other fixed income securities

$
Less: Restricted cash, cash equivalents, and marketable
securities (1)
Total cash, cash equivalents, and marketable securities

4,155 $

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Total
Estimated
Fair Value

10,718
2

10,718
4

80
2,407
401
69
33
17,865 $

1
1

4 $

(2)
(1)

(3) $

80
2,406
401
69
33
17,866

4,155

(450)
17,416

___________________
(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as
collateral for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers
in certain jurisdictions. We classify cash, cash equivalents, and marketable securities with use restrictions of less than
twelve months as Accounts receivable, net and other and of twelve months or longer as non-current Other assets on
our consolidated balance sheets. See Note 7Commitments and Contingencies.

51

The following table summarizes gross gains and gross losses realized on sales of available-for-sale marketable securities
(in millions):
Year Ended December 31,
2015

Realized gains
Realized losses

2014

2 $
7

2013

8 $
5

6
7

The following table summarizes the contractual maturities of our cash equivalents and marketable fixed-income
securities as of December 31, 2015 (in millions):
Amortized
Cost

Due within one year


Due after one year through five years
Due after five years through ten years
Due after ten years

Total

Estimated
Fair Value

12,533 $
1,086
96
169
13,884 $

12,531
1,084
95
167
13,877

Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.
Note 3PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following (in millions):
December 31,
2015

Gross property and equipment (1):


Land and buildings
Equipment and internal-use software (2)
Other corporate assets
Construction in progress
Gross property and equipment
Total accumulated depreciation (1)
Total property and equipment, net

2014

9,770 $
18,417
334
1,532
30,053
8,215
21,838 $

7,150
14,213
304
1,063
22,730
5,763
16,967

___________________
(1) Excludes the original cost and accumulated depreciation of fully-depreciated assets.
(2) Includes internal-use software of $1.4 billion and $1.3 billion as of December 31, 2015 and 2014.
Depreciation expense on property and equipment was $4.9 billion, $3.6 billion, and $2.5 billion, which includes
amortization of property and equipment acquired under capital leases of $2.7 billion, $1.5 billion, and $826 million for 2015,
2014, and 2013. Gross assets recorded under capital leases were $12.0 billion and $7.9 billion as of December 31, 2015 and
2014. Accumulated depreciation associated with capital leases was $5.4 billion and $3.3 billion as of December 31, 2015 and
2014.
We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements
where we are considered the owner, for accounting purposes, during the construction period. For buildings under build-to-suit
lease arrangements where we have taken occupancy, which do not qualify for sales recognition under the sale-leaseback
accounting guidance, we determined that we continue to be the deemed owner of these buildings. This is principally due to our
significant investment in tenant improvements. As a result, the buildings are being depreciated over the shorter of their useful
lives or the related leases terms. Additionally, certain build-to-suit lease arrangements and finance leases provide purchase
options. Upon occupancy, the long-term construction obligations are considered long-term finance lease obligations with
amounts payable during the next 12 months recorded as Accrued expenses and other. Gross assets remaining under finance
leases were $2.0 billion and $1.4 billion as of December 31, 2015 and 2014. Accumulated depreciation associated with finance
leases was $199 million and $87 million as of December 31, 2015 and 2014.

52

Note 4ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS


2015 Acquisition Activity
During 2015, we acquired certain companies for an aggregate purchase price of $690 million. The primary reasons for
these acquisitions, none of which was individually material to our consolidated financial statements, were to acquire
technologies and know-how to enable Amazon to serve customers more effectively.
Acquisition-related costs were expensed as incurred and not significant. The aggregate purchase price of these
acquisitions was allocated as follows (in millions):
Purchase Price
Cash paid, net of cash acquired
Stock options and restricted stock units assumed
Indemnification holdback

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

599
5
86
690

482

3
1
208
18
230
4
55
53
(85)
(49)
690

Property and equipment


Deferred tax assets
Other assets acquired
Deferred tax liabilities
Other liabilities assumed

___________________
(1) Acquired intangible assets have estimated useful lives of between one and six years, with a weighted-average amortization
period of five years.
The fair value of assumed stock options, estimated using the Black-Scholes model, and restricted stock units of $9 million
will be expensed over the remaining service period. We determined the estimated fair value of identifiable intangible assets
acquired primarily by using the income approach. These assets are included within Other assets on our consolidated balance
sheets and are being amortized to operating expenses on a straight-line basis over their estimated useful lives.
Pro Forma Financial Information 2015 Acquisition Activity (unaudited)
The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The
aggregate net sales and operating income (loss) of the companies acquired was $23 million and $(112) million for 2015. The
following financial information, which excludes certain acquired companies for which the pro forma impact is not meaningful,
presents our results as if the acquisitions during 2015 had occurred at the beginning of 2014 (in millions):
Year Ended December 31,
2015

Net sales
Net income (loss)

$
$

53

107,054 $
576 $

2014

89,039
(311)

2014 Acquisition Activity


On September 25, 2014, we acquired Twitch Interactive, Inc. (Twitch) for approximately $842 million in cash, as
adjusted for the assumption of options and other items. During 2014, we acquired certain other companies for an aggregate
purchase price of $20 million. We acquired Twitch because of its user community and the live streaming experience it
provides. The primary reasons for our other 2014 acquisitions were to acquire technologies and know-how to enable Amazon to
serve customers more effectively.
Acquisition-related costs were expensed as incurred and not significant. The aggregate purchase price of these
acquisitions was allocated as follows (in millions):
Purchase Price
Cash paid, net of cash acquired
Stock options assumed
Indemnification holdback

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

813
44
5
862

707

23
1
33
173
230
16
64
34
(88)
(101)
862

Property and equipment


Deferred tax assets
Other assets acquired
Deferred tax liabilities
Other liabilities assumed
___________________
(1) Acquired intangible assets have estimated useful lives of between one and five years, with a weighted-average
amortization period of five years.

The fair value of assumed stock options of $39 million, estimated using the Black-Scholes model, will be expensed over
the remaining service period. We determined the estimated fair value of identifiable intangible assets acquired primarily by
using the income approach. These assets are included within Other assets on our consolidated balance sheets and are being
amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives.
Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the
aggregate, were not material to our consolidated results of operations.
2013 Acquisition Activity
In 2013, we acquired several companies in cash transactions for an aggregate purchase price of $195 million, resulting in
goodwill of $103 million and acquired intangible assets of $83 million. The primary reasons for these acquisitions were to
expand our customer base and sales channels and to obtain certain technologies to be used in product development. We
determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost
approaches. These assets are included within Other assets on our consolidated balance sheets and are being amortized to
operating expenses on a straight-line or accelerated basis over their estimated useful lives. Acquisition-related costs were
expensed as incurred and were not significant.
Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the
aggregate, were not material to our consolidated results of operations.

54

Goodwill
The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected
improvements in technology performance and functionality, as well as sales growth from future product and service offerings
and new customers, together with certain intangible assets that do not qualify for separate recognition. The following
summarizes our goodwill activity in 2015 and 2014 by segment (in millions):
North
America

Goodwill - January 1, 2014


$
New acquisitions (1)
Other adjustments (2)
Goodwill - December 31, 2014
Segment reallocationJanuary 1, 2015 (3)
New acquisitions
Other adjustments (2)
Goodwill - December 31, 2015
$

International

2,033 $
553
(2)
2,584
(606)
41
(7)
2,012 $

AWS

Consolidated

622 $
162
(49)
735

18
(34)
719 $

606
423
(1)
1,028 $

2,655
715
(51)
3,319

482
(42)
3,759

___________________
(1) Primarily includes the goodwill of Twitch.
(2) Primarily includes changes in foreign exchange rates.
(3) In conjunction with the change in reportable segments, we reallocated goodwill on a relative fair value basis.
Intangible Assets
Acquired intangible assets, included within Other assets on our consolidated balance sheets, consist of the following (in
millions):
December 31,
Weighted
Average Life
Remaining

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

Acquired
Intangibles,
Gross (1)

2015
Accumulated
Amortization
(1)

Acquired
Intangibles,
Net

Acquired
Intangibles,
Gross (1)

2014
Accumulated
Amortization
(1)

Acquired
Intangibles,
Net

4.4 $
2.1

457 $
130

(250) $
(99)

207 $
31

457 $
172

(199) $
(125)

258
47

3.9
3.6

559
331

(205)
(161)

354
170

370
535

(129)
(317)

241
218

(715) $

762 $

(770) $

764

3.9 $

1,477 $

1,534 $

___________________
(1) Excludes the original cost and accumulated amortization of fully-amortized intangibles.
(2) Intangible assets have estimated useful lives of between one and ten years.
Amortization expense for acquired intangibles was $228 million, $181 million, and $168 million in 2015, 2014, and
2013. Expected future amortization expense of acquired intangible assets as of December 31, 2015 is as follows (in millions):
Year Ended December 31,
2016
2017
2018
2019
2020
Thereafter

55

218
191
131
103
41
78
762

Note 5LONG-TERM DEBT


In December 2014 and November 2012, we issued $6.0 billion and $3.0 billion of unsecured senior notes as described in
the table below (collectively, the Notes). As of December 31, 2015 and 2014, the unamortized discount on the Notes was $89
million and $96 million. We also have other long-term debt with a carrying amount, including the current portion, of $312
million and $881 million as of December 31, 2015 and 2014. The face value of our total long-term debt obligations is as
follows (in millions):
December 31,
2015

0.65% Notes due on November 27, 2015


1.20% Notes due on November 29, 2017 (1)
2.50% Notes due on November 29, 2022 (1)
2.60% Notes due on December 5, 2019 (2)
3.30% Notes due on December 5, 2021 (2)
3.80% Notes due on December 5, 2024 (2)
4.80% Notes due on December 5, 2034 (2)
4.95% Notes due on December 5, 2044 (2)
Other long-term debt

Total debt
Less current portion of long-term debt
Face value of long-term debt

$
1,000
1,250
1,000
1,000
1,250
1,250
1,500
312
8,562
(238)
8,324 $

2014

750
1,000
1,250
1,000
1,000
1,250
1,250
1,500
881
9,881
(1,520)
8,361

_____________________________

(1) Issued in November 2012, effective interest rates of the 2017 and 2022 Notes were 1.38% and 2.66%.
(2) Issued in December 2014, effective interest rates of the 2019, 2021, 2024, 2034, and 2044 Notes were 2.73%, 3.43%,
3.90%, 4.92%, and 5.11%.
Interest on the Notes issued in 2014 is payable semi-annually in arrears in June and December. Interest on the Notes
issued in 2012 is payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or
from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. The
proceeds from the Notes are used for general corporate purposes. The estimated fair value of the Notes was approximately $8.5
billion and $9.1 billion as of December 31, 2015 and 2014, which is based on quoted prices for our publicly-traded debt as of
those dates.
The other debt, including the current portion, had a weighted-average interest rate of 3.7% and 5.5% as of December 31,
2015 and 2014. We used the net proceeds from the issuance of this debt primarily to fund certain international operations. The
estimated fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of
December 31, 2015 and 2014.
As of December 31, 2015, future principal payments for our total debt were as follows (in millions):
Year Ended December 31,
2016
2017
2018
2019
2020
Thereafter

238
1,037
37
1,000

6,250
8,562

On September 5, 2014, we entered into an unsecured revolving credit facility (the Credit Agreement) with a syndicate
of lenders that provides us with a borrowing capacity of up to $2.0 billion. The Credit Agreement has a term of two years, but it
may be extended for up to three additional one-year terms if approved by the lenders. The initial interest rate applicable to
outstanding balances under the Credit Agreement is the London interbank offered rate (LIBOR) plus 0.625%, under our
current credit ratings. If our credit ratings are downgraded this rate could increase to as much as LIBOR plus 1.00%. There
were no borrowings outstanding under the Credit Agreement as of December 31, 2015 and 2014.
56

Note 6OTHER LONG-TERM LIABILITIES


Our other long-term liabilities are summarized as follows (in millions):
December 31,
2015

Long-term capital lease obligations


Long-term finance lease obligations
Construction liabilities
Tax contingencies
Long-term deferred tax liabilities
Other
Total other long-term liabilities

2014

4,212 $
1,736
378
932
1,084
1,584
9,926 $

3,026
1,198
467
510
1,021
1,188
7,410

Capital and Finance Leases


Certain of our equipment, primarily related to technology infrastructure, and buildings have been acquired under capital
leases. Long-term capital lease obligations are as follows (in millions):
December 31, 2015

Gross capital lease obligations


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

7,452
(213)
7,239
(3,027)
4,212

We continue to be the deemed owner after occupancy of certain facilities that were constructed as build-to-suit lease
arrangements and previously reflected as Construction liabilities. As such, these arrangements are accounted for as finance
leases. Long-term finance lease obligations are as follows (in millions):
December 31, 2015

Gross finance lease obligations


Less imputed interest

Present value of net minimum lease payments


Less current portion of finance lease obligations
Total long-term finance lease obligations

2,390
(555)
1,835
(99)
1,736

Construction Liabilities
We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements
where we are considered the owner during the construction period for accounting purposes. These liabilities primarily relate to
our corporate buildings and fulfillment, sortation, delivery, and data centers.
Tax Contingencies
We have recorded tax reserves for tax contingencies, inclusive of accrued interest and penalties, for U.S. and foreign
income taxes. These contingencies primarily relate to transfer pricing, state income taxes, and research and development
credits. See Note 10Income Taxes for discussion of tax contingencies.

57

Note 7COMMITMENTS AND CONTINGENCIES


Commitments
We have entered into non-cancellable operating, capital, and finance leases for equipment and office, fulfillment,
sortation, delivery, data center, and renewable energy facilities. Rental expense under operating lease agreements was $1.1
billion, $961 million, and $759 million for 2015, 2014, and 2013.
The following summarizes our principal contractual commitments, excluding open orders for purchases that support
normal operations, as of December 31, 2015 (in millions):
Year Ended December 31,
2016

2017

2018

2019

2020

Thereafter

Total

Debt principal and interest


$
526 $ 1,322 $
310 $ 1,272 $
246 $ 9,157 $ 12,833
Capital lease obligations, including interest
3,128
2,521
1,277
304
139
83
7,452
Finance lease obligations, including
166
168
172
176
178
1,530
2,390
interest
Operating leases
1,181
897
800
698
616
2,325
6,517
Unconditional purchase obligations (1)
614
547
399
166
43
13
1,782
Other commitments (2) (3)
851
273
188
132
86
1,112
2,642
Total commitments
$ 6,466 $ 5,728 $ 3,146 $ 2,748 $ 1,308 $ 14,220 $ 33,616
___________________
(1) Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content
that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate the
total obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated
with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed
or a minimum amount is specified.
(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit
lease arrangements that have not been placed in service and digital media content liabilities associated with long-term
digital media content assets with initial terms greater than one year.
(3) Excludes $1.2 billion of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and
period of payment, if any.
Pledged Assets
As of December 31, 2015 and 2014, we have pledged or otherwise restricted $418 million and $602 million of our cash,
cash equivalents, and marketable securities, and certain property and equipment as collateral for standby and trade letters of
credit, guarantees, debt relating to certain international operations, real estate leases, and amounts due to third-party sellers in
certain jurisdictions.
Suppliers
During 2015, no vendor accounted for 10% or more of our purchases. We generally do not have long-term contracts or
arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit
limits.
Legal Proceedings
The Company is involved from time to time in claims, proceedings, and litigation, including the following:
In November 2007, an Austrian copyright collection society, Austro-Mechana, filed lawsuits against Amazon.com
International Sales, Inc., Amazon EU S. r.l., Amazon.de GmbH, Amazon.com GmbH, and Amazon Logistik in the
Commercial Court of Vienna, Austria and in the District Court of Munich, Germany seeking to collect a tariff on blank digital
media sold by our EU-based retail websites to customers located in Austria. In July 2008, the German court stayed the German
case pending a final decision in the Austrian case. In July 2010, the Austrian court ruled in favor of Austro-Mechana and
ordered us to report all sales of products to which the tariff potentially applies for a determination of damages. We contested
Austro-Mechanas claim and in September 2010 commenced an appeal in the Commercial Court of Vienna. We lost this appeal
and in March 2011 commenced an appeal in the Supreme Court of Austria. In October 2011, the Austrian Supreme Court
referred the case to the European Court of Justice (ECJ). In July 2013, the ECJ ruled that EU law does not preclude
application of the tariff where certain conditions are met and directed the case back to the Austrian Supreme Court for further
58

proceedings. In October 2013, the Austrian Supreme Court referred the case back to the Commercial Court of Vienna for
further fact finding to determine whether the tariff on blank digital media meets the conditions set by the ECJ. In August 2015,
the Commercial Court of Vienna ruled that the Austrian tariff regime does not meet the conditions the ECJ set and dismissed
Austro-Mechanas claims. In September 2015, Austro-Mechana appealed that judgment to the Higher Commercial Court of
Vienna. In December 2015, the Higher Commercial Court of Vienna confirmed that the Austrian tariff regime does not meet the
conditions the ECJ set and dismissed Austro-Mechanas appeal. A number of additional actions have been filed making similar
allegations. In December 2012, a German copyright collection society, Zentralstelle fr private berspielungsrechte (ZPU),
filed a complaint against Amazon EU S. r.l., Amazon Media EU S. r.l., Amazon Services Europe S. r.l., Amazon Payments
Europe SCA, Amazon Europe Holding Technologies SCS, and Amazon Eurasia Holdings S. r.l. in the District Court of
Luxembourg seeking to collect a tariff on blank digital media sold by the Amazon.de retail website to customers located in
Germany. In January 2013, a Belgian copyright collection society, AUVIBEL, filed a complaint against Amazon EU S. r.l. in
the Court of First Instance of Brussels, Belgium, seeking to collect a tariff on blank digital media sold by the Amazon.fr retail
website to customers located in Belgium. In November 2013, the Belgian court ruled in favor of AUVIBEL and ordered us to
report all sales of products to which the tariff potentially applies for a determination of damages. We dispute the allegations of
wrongdoing and intend to defend ourselves vigorously in these matters.
In May 2009, Big Baboon, Inc. filed a complaint against Amazon.com, Inc. and Amazon Payments, Inc. for patent
infringement in the United States District Court for the Central District of California. The complaint alleges, among other
things, that our third-party selling and payments technology infringes patents owned by Big Baboon, Inc. purporting to cover
an Integrated Business-to-Business Web Commerce And Business Automation System (U.S. Patent Nos. 6,115,690 and
6,343,275) and seeks injunctive relief, monetary damages, treble damages, costs, and attorneys fees. In February 2011, the
court entered an order staying the lawsuit pending the outcome of the Patent and Trademark Offices re-examination of the
patent. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In June 2012, Hand Held Products, Inc., a subsidiary of Honeywell, filed a complaint against Amazon.com, Inc., AMZN
Mobile, LLC, AmazonFresh, LLC, A9.com, Inc., A9 Innovations, LLC, and Quidsi, Inc. in the United States District Court for
the District of Delaware. The complaint alleges, among other things, that the use of mobile barcode reader applications,
including Amazon Mobile, Amazon Price Check, Flow, and AmazonFresh, infringes U.S. Patent No. 6,015,088, entitled
Decoding Of Real Time Video Imaging. The complaint seeks an unspecified amount of damages, interest, and an injunction.
We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In July 2012, Norman Blagman filed a purported class-action complaint against Amazon.com, Inc. for copyright
infringement in the United States District Court for the Southern District of New York. The complaint alleges, among other
things, that Amazon.com, Inc. sells digital music in our Amazon MP3 Store obtained from defendant Orchard Enterprises and
other unnamed digital music aggregators without obtaining mechanical licenses for the compositions embodied in that
music. The complaint seeks certification as a class action, statutory damages, attorneys fees, and interest. We dispute the
allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In November 2012, Lexington Luminance LLC filed a complaint against Amazon.com, Inc. and Amazon Digital
Services, Inc. in the United States District Court for the District of Massachusetts. The complaint alleges, among other things,
that certain light-emitting diodes in certain Kindle devices infringe U.S. Patent No. 6,936,851, entitled Semiconductor LightEmitting Device And Method For Manufacturing Same. The complaint seeks an unspecified amount of damages and an
injunction or, in the absence of an injunction, a compulsory ongoing royalty. In March 2014, the court invalidated the plaintiffs
patent and dismissed the case with prejudice, and the plaintiff appealed the judgment to the United States Court of Appeals for
the Federal Circuit. In February 2015, the Federal Circuit reversed the judgment of the district court. We dispute the allegations
of wrongdoing and intend to defend ourselves vigorously in this matter.
Beginning in August 2013, a number of complaints were filed alleging, among other things, that Amazon.com, Inc. and
several of its subsidiaries failed to compensate hourly workers for time spent waiting in security lines and otherwise violated
federal and state wage and hour statutes and common law. In August 2013, Busk v. Integrity Staffing Solutions, Inc. and
Amazon.com, Inc. was filed in the United States District Court for the District of Nevada, and Vance v. Amazon.com, Inc.,
Zappos.com Inc., another affiliate of Amazon.com, Inc., and Kelly Services, Inc. was filed in the United States District Court
for the Western District of Kentucky. In September 2013, Allison v. Amazon.com, Inc. and Integrity Staffing Solutions, Inc.
was filed in the United States District Court for the Western District of Washington, and Johnson v. Amazon.com, Inc. and an
affiliate of Amazon.com, Inc. was filed in the United States District Court for the Western District of Kentucky. In October
2013, Davis v. Amazon.com, Inc., an affiliate of Amazon.com, Inc., and Integrity Staffing Solutions, Inc. was filed in the
United States District Court for the Middle District of Tennessee. The plaintiffs variously purport to represent a nationwide
class of certain current and former employees under the Fair Labor Standards Act and/or state-law-based subclasses for certain
current and former employees in states including Arizona, California, Pennsylvania, South Carolina, Kentucky, Washington,
and Nevada, and one complaint asserts nationwide breach of contract and unjust enrichment claims. The complaints seek an
unspecified amount of damages, interest, injunctive relief, and attorneys fees. We have been named in several other similar
cases. In December 2014, the Supreme Court ruled in Busk that time spent waiting for and undergoing security screening is not
59

compensable working time under the federal wage and hour statute. In February 2015, the courts in those actions alleging only
federal law claims entered stipulated orders dismissing those actions without prejudice. We dispute any remaining allegations
of wrongdoing and intend to defend ourselves vigorously in these matters.
In September 2013, Personalized Media Communications, LLC filed a complaint against Amazon.com, Inc. and Amazon
Web Services, LLC in the United States District Court for the District of Delaware. The complaint alleges, among other things,
that the use of certain Kindle devices, Kindle apps and/or Amazon.com, Inc.s website to purchase and receive electronic media
infringes nine U.S. Patents: Nos. 5,887,243, 7,801,304, 7,805,749, 7,940,931, 7,769,170, 7,864,956, 7,827,587, 8,046,791, and
7,883,252, all entitled Signal Processing Apparatus And Methods. The complaint also alleges, among other things, that
CloudFront, S3, and EC2 web services infringe three of those patents, Nos. 7,801,304, 7,864,956, and 7,827,587. The
complaint seeks an unspecified amount of damages, interest, and injunctive relief. In August 2015, the court invalidated all
asserted claims of all asserted patents and dismissed the case with prejudice. In September 2015, Personalized Media appealed
that judgment to the United States Court of Appeals for the Federal Circuit. We dispute the allegations of wrongdoing and
intend to defend ourselves vigorously in this matter.
In November 2013, Memory Integrity, LLC filed a complaint against Amazon.com, Inc. for patent infringement in the
United States District Court for the District of Delaware. The complaint alleges, among other things, that certain Kindle devices
infringe U.S. Patent No. 7,296,121, entitled Reducing Probe Traffic In Multiprocessor Systems. The complaint seeks an
unspecified amount of damages, costs, expenses, and interest. In December 2014, the case was stayed pending resolution of
review petitions filed with the United States Patent and Trademark Office. We dispute the allegations of wrongdoing and intend
to defend ourselves vigorously in this matter.
In December 2013, Appistry, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent
infringement in the United States District Court for the Eastern District of Missouri. The complaint alleges, among other things,
that Amazons Elastic Compute Cloud infringes U.S. Patent Nos. 8,200,746, entitled System And Method For Territory-Based
Processing Of Information, and 8,341,209, entitled System And Method For Processing Information Via Networked
Computers Including Request Handlers, Process Handlers, And Task Handlers. The complaint seeks injunctive relief, an
unspecified amount of damages, treble damages, costs, and interest. In March 2015, the case was transferred to the United
States District Court for the Western District of Washington. In July 2015, the court granted our motion for judgment on the
pleadings and invalidated the patents-in-suit. In August 2015, the court entered judgment in our favor. In September 2015, the
plaintiff appealed that judgment to the United States Court of Appeals for the Federal Circuit, and filed a new complaint against
Amazon.com, Inc. and Amazon Web Services, Inc. in the United States District Court for the Western District of Washington.
The 2015 complaint alleges, among other things, that Amazons Elastic Compute Cloud, Simple Workflow, and Herd infringe
U.S. Patent Nos. 8,682,959, entitled System And Method For Fault Tolerant Processing Of Information Via Networked
Computers Including Request Handlers, Process Handlers, And Task Handlers, and 9,049,267, entitled System And Method
For Processing Information Via Networked Computers Including Request Handlers, Process Handlers, And Task Handlers.
The 2015 complaint seeks injunctive relief, an unspecified amount of damages, treble damages, costs, and interest. We dispute
the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.
In March 2014, Kaavo, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent
infringement in the United States District Court for the District of Delaware. The complaint alleges, among other things, that
Amazon Web Services Elastic Beanstalk and CloudFormation infringe U.S. Patent No. 8,271,974, entitled Cloud Computing
Lifecycle Management For N-Tier Applications. The complaint seeks injunctive relief, an unspecified amount of damages,
costs, and interest. In June 2015, the case was stayed pending resolution of a motion for judgment on the pleadings in a related
case. In July 2015, Kaavo Inc. filed another complaint against Amazon.com, Inc. and Amazon Web Services, Inc. in the United
States District Court for the District of Delaware. The 2015 complaint alleges, among other things, that CloudFormation
infringes U.S. Patent No. 9,043,751, entitled Methods And Devices For Managing A Cloud Computing Environment. The
2015 complaint seeks injunctive relief, an unspecified amount of damages, enhanced damages, attorneys fees, costs, and
interest. In January 2016, the 2015 case was stayed pending resolution of a motion for judgment on the pleadings. We dispute
the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.
In December 2014, Smartflash LLC and Smartflash Technologies Limited filed a complaint against Amazon.com, Inc.,
Amazon.com, LLC, AMZN Mobile, LLC, Amazon Web Services, Inc. and Audible, Inc. for patent infringement in the United
States District Court for the Eastern District of Texas. The complaint alleges, among other things, that Amazon Appstore,
Amazon Instant Video, Amazon Music, Audible Audiobooks, the Amazon Mobile Ad Network, certain Kindle and Fire devices,
Kindle e-bookstore, Amazons proprietary Android operating system, and the servers involved in operating Amazon Appstore,
Amazon Instant Video, Amazon Music, the Fire TV app, Audible Audiobooks, Cloud Drive, Cloud Player, Amazon Web
Services, and Amazon Mobile Ad Network infringe seven related U.S. Patents: Nos. 7,334,720; 7,942,317; 8,033,458;
8,061,598; 8,118,221; 8,336,772; and 8,794,516, all entitled Data Storage and Access Systems. In May 2015, the case was
stayed until further notice. The complaint seeks an unspecified amount of damages, an injunction, enhanced damages,
attorneys fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this
matter.
60

In March 2015, Zitovault, LLC filed a complaint against Amazon.com, Inc., Amazon.com, LLC, Amazon Web Services,
Inc., and Amazon Web Services, LLC for patent infringement in the United States District Court for the Eastern District of
Texas. The complaint alleges that Elastic Compute Cloud, Virtual Private Cloud, Elastic Load Balancing, Auto-Scaling, and
Elastic Beanstalk infringe U.S. Patent No. 6,484,257, entitled System and Method for Maintaining N Number of Simultaneous
Cryptographic Sessions Using a Distributed Computing Environment. The complaint seeks injunctive relief, an unspecified
amount of damages, enhanced damages, attorneys fees, costs, and interest. In January 2016, the case was transferred to the
United States District Court for the Western District of Washington. We dispute the allegations of wrongdoing and intend to
defend ourselves vigorously in this matter.
In June 2015, the European Commission opened a proceeding against Amazon.com, Inc. and Amazon EU S. r.l. to
investigate whether provisions in Amazons contracts with European publishers violate European competition rules. We believe
we comply with European competition rules and are cooperating with the Commission.
In November 2015, Eolas Technologies, Inc. filed a complaint against Amazon.com, Inc. in the United States District
Court for the Eastern District of Texas. The complaint alleges, among other things, that the use of interactive features on
www.amazon.com, including search suggestions and search results, infringes U.S. Patent No. 9,195,507, entitled Distributed
Hypermedia Method and System for Automatically Invoking External Application Providing Interaction and Display of
Embedded Objects Within A Hypermedia Document. The complaint seeks a judgment of infringement together with costs and
attorneys fees. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be
material to our operating results and cash flows for a particular period. In addition, for some matters for which a loss is
probable or reasonably possible, an estimate of the amount of loss or range of losses is not possible and we may be unable to
estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.
See also Note 10Income Taxes.

61

Note 8STOCKHOLDERS 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 490 million, 483 million, and 476
million, as of December 31, 2015, 2014, and 2013. These totals include all vested and unvested stock awards outstanding,
including those awards we estimate will be forfeited.
Stock Repurchase Activity
In January 2010, our Board of Directors authorized the Company to repurchase up to $2.0 billion of our common stock
with no fixed expiration. We have $763 million remaining under the $2.0 billion repurchase program.
Stock Award Plans
Employees vest in restricted stock unit awards and stock options over the corresponding service term, generally between
two and five years.
Stock Award Activity
Stock options outstanding, which were primarily obtained through acquisitions, totaled 0.2 million, 0.4 million and 0.2
million, as of December 31, 2015, 2014, and 2013. The compensation expense for stock options, the total intrinsic value for
stock options outstanding, the amount of cash received from the exercise of stock options, and the related tax benefits were not
material for 2015, 2014, and 2013.
The following table summarizes our restricted stock unit activity (in millions):
Weighted Average
Grant-Date
Fair Value

Number of Units

Outstanding as of January 1, 2013


Units granted
Units vested
Units forfeited
Outstanding as of December 31, 2013
Units granted
Units vested
Units forfeited
Outstanding as of December 31, 2014
Units granted
Units vested
Units forfeited
Outstanding as of December 31, 2015

15.4 $
7.2
(4.5)
(1.8)
16.3
8.5
(5.1)
(2.3)
17.4
9.8
(5.6)
(2.7)
18.9 $

184
283
160
209
233
328
202
264
285
426
253
321
362

Scheduled vesting for outstanding restricted stock units as of December 31, 2015, is as follows (in millions):

Year Ended December 31,


2016

Scheduled vestingrestricted stock units

2017

6.4

7.0

2018

3.6

2019

1.6

2020

0.1

Thereafter

0.2

Total

18.9

As of December 31, 2015, there was $3.1 billion of net unrecognized compensation cost related to unvested stock-based
compensation arrangements. This compensation is recognized on an accelerated basis with approximately half of the
compensation expected to be expensed in the next twelve months, and has a weighted-average recognition period of 1.1 years.
62

During 2015, 2014, and 2013, the fair value of restricted stock units that vested was $2.7 billion, $1.7 billion, and $1.4
billion.
As matching contributions under our 401(k) savings plan, we granted 0.2 million shares of common stock in 2015 and
2014. Shares granted as matching contributions under our 401(k) plan are included in outstanding common stock when issued,
and recorded as stock-based compensation expense.
Common Stock Available for Future Issuance
As of December 31, 2015, common stock available for future issuance to employees is 130 million shares.
Note 9ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the composition of accumulated other comprehensive loss for 2015, 2014, and 2013 are as follows (in
millions):
Foreign currency
translation
adjustments

Balances as of January 1, 2013


Other comprehensive income (loss)
Balances as of December 31, 2013
Other comprehensive income (loss)
Balances as of December 31, 2014
Other comprehensive income (loss)
Balances as of December 31, 2015

Unrealized gains on
available-for-sale
securities

(250) $
63
(187)
(325)
(512)
(210)
(722) $

Total

11 $
(9)
2
(1)
1
(2)
(1) $

(239)
54
(185)
(326)
(511)
(212)
(723)

Amounts included in accumulated other comprehensive loss are recorded net of their related income tax effects.
Note 10INCOME TAXES
In 2015, 2014, and 2013, we recorded net tax provisions of $950 million, $167 million, and $161 million. We have tax
benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that are being utilized
to reduce our U.S. taxable income. In December 2015, U.S. legislation was enacted that extended accelerated depreciation
deductions on qualifying property through 2019 and made permanent the U.S. federal research and development credit. As
such, cash taxes paid, net of refunds, were $273 million, $177 million, and $169 million for 2015, 2014, and 2013.
The components of the provision for income taxes, net are as follows (in millions):
Year Ended December 31,
2015

Current taxes:
U.S. Federal
U.S. State
International
Current taxes
Deferred taxes:
U.S. Federal
U.S. State
International
Deferred taxes
Provision for income taxes, net

63

2014

2013

215 $
237
417
869

214 $
65
204
483

99
45
173
317

473
(171)
(221)
81
950 $

(125)
(11)
(180)
(316)
167 $

(114)
(19)
(23)
(156)
161

U.S. and international components of income before income taxes are as follows (in millions):
Year Ended December 31,
2015

U.S.
International

Income (loss) before income taxes

2014

2,186 $
(618)
1,568 $

2013

292 $
(403)
(111) $

704
(198)
506

The items accounting for differences between income taxes computed at the federal statutory rate and the provision
recorded for income taxes are as follows (in millions):
Year Ended December 31,
2015

Income taxes computed at the federal statutory rate


Effect of:
Impact of foreign tax differential
State taxes, net of federal benefits
Tax credits
Nondeductible compensation
Domestic production activities deduction
Other, net
Total

2014

2013

549 $

(39) $

177

350
37
(99)
149
(44)
8
950 $

136
29
(85)
117
(20)
29
167 $

(41)
14
(84)
86
(11)
20
161

Our provision for income taxes in 2015 was higher than in 2014 primarily due to an increase in U.S. pre-tax income and
increased losses in certain foreign subsidiaries for which we may not realize a tax benefit. Losses for which we may not realize
a related tax benefit, primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding
reduction in our tax expense, and therefore increase our effective tax rate. We have recorded valuation allowances against the
deferred tax assets associated with losses for which we may not realize a related tax benefit. We generated income in lower tax
jurisdictions primarily related to our European operations, which are headquartered in Luxembourg.
Our provision for income taxes in 2014 was higher than in 2013 primarily due to the increased losses in certain foreign
subsidiaries for which we may not realize a tax benefit and audit-related developments, partially offset by the favorable impact
of earnings in lower tax rate jurisdictions. Losses for which we may not realize a related tax benefit were primarily generated
by our foreign subsidiaries. Income earned in lower tax jurisdictions was primarily related to our European operations.
Except as required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign
subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the
U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes
on some or all of these undistributed earnings and our effective tax rate would be adversely affected. Undistributed earnings of
foreign subsidiaries that are indefinitely invested outside of the U.S were $1.5 billion as of December 31, 2015. Determination
of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable.

64

Deferred income tax assets and liabilities are as follows (in millions):
December 31,
2015

Deferred tax assets (1):


Net operating losses U.S. - Federal/States (2)
Net operating losses foreign (3)
Accrued liabilities, reserves, & other expenses
Stock-based compensation
Deferred revenue
Assets held for investment
Depreciation & amortization
Other items
Tax credits (4)
Total gross deferred tax assets
Less valuation allowance (5)
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Depreciation & amortization
Acquisition related intangible assets
Other items
Net deferred tax assets, net of valuation allowance

2014

107 $
856
854
727
189
148
222
268
41
3,412
(1,069)
2,343

357
669
780
534
156
154
117
125
115
3,007
(901)
2,106

(1,970)
(203)
(88)
82 $

(1,609)
(195)
(31)
271

___________________
(1) Deferred tax assets related to net operating losses and tax credits are presented net of tax contingencies.
(2) Excluding $380 million and $261 million of deferred tax assets as of December 31, 2015 and 2014, related to net operating
losses that result from excess stock-based compensation and for which any benefit realized will be recorded to
stockholders equity.
(3) Excluding $2 million of deferred tax assets as of December 31, 2015 and 2014, related to net operating losses that result
from excess stock-based compensation and for which any benefit realized will be recorded to stockholders equity.
(4) Excluding $447 million and $268 million of deferred tax assets as of December 31, 2015 and 2014, related to tax credits
that result from excess stock-based compensation and for which any benefit realized will be recorded to stockholders
equity.
(5) Relates primarily to deferred tax assets that would only be realizable upon the generation of net income in certain foreign
taxing jurisdictions and future capital gains.
As of December 31, 2015, our federal, foreign, and state net operating loss carryforwards for income tax purposes were
approximately $1.1 billion, $3.4 billion, and $2.0 billion. The federal and state net operating loss carryforwards are subject to
limitations under Section 382 of the Internal Revenue Code and applicable state tax law. If not utilized, a portion of the federal,
foreign, and state net operating loss carryforwards will begin to expire in 2020, 2016, and 2016, respectively. As of
December 31, 2015, our tax credit carryforwards for income tax purposes were approximately $725 million. If not utilized, a
portion of the tax credit carryforwards will begin to expire in 2017.
The Companys consolidated balance sheets reflect deferred tax assets related to net operating losses and tax credit
carryforwards excluding amounts resulting from excess stock-based compensation. Amounts related to excess stock-based
compensation are accounted for as an increase to additional paid-in capital if and when realized through a reduction in income
taxes payable.
Tax Contingencies
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is
required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of
business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish
reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These
reserves are established when we believe that certain positions might be challenged despite our belief that our tax return
positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of
tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered
appropriate.
65

The reconciliation of our tax contingencies is as follows (in millions):


December 31,
2015

Gross tax contingencies January 1


Gross increases to tax positions in prior periods
Gross decreases to tax positions in prior periods
Gross increases to current period tax positions
Audit settlements paid
Lapse of statute of limitations
Gross tax contingencies December 31 (1)

2014

710 $
254
(22)
242

(3)
1,181 $

2013

407 $
351
(50)
20
(16)
(2)
710 $

294
78
(18)
54
(1)

407

___________________
(1) As of December 31, 2015, we had $1.2 billion of tax contingencies, of which $882 million, if fully recognized, would
decrease our effective tax rate.
As of December 31, 2015 and 2014, we had accrued interest and penalties, net of federal income tax benefit, related to
tax contingencies of $59 million and $41 million. Interest and penalties, net of federal income tax benefit, recognized for the
years ended December 31, 2015, 2014, and 2013 was $18 million, $8 million, and $8 million.
We are under examination, or may be subject to examination, by the Internal Revenue Service (IRS) for the calendar
year 2005 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or
our net operating losses with respect to years under examination as well as subsequent periods. As previously disclosed, we
have received Notices of Proposed Adjustment from the IRS for transactions undertaken in the 2005 and 2006 calendar years
relating to transfer pricing with our foreign subsidiaries. The IRS is seeking to increase our U.S. taxable income by an amount
that would result in additional federal tax of approximately $1.5 billion, subject to interest. To date, we have not resolved this
matter administratively and are currently contesting it in U.S. Tax Court. We continue to disagree with these IRS positions and
intend to defend ourselves vigorously in this matter. In addition to the risk of additional tax for 2005 and 2006 transactions, if
this litigation is adversely determined or if the IRS were to seek transfer pricing adjustments of a similar nature for transactions
in subsequent years, we could be subject to significant additional tax liabilities.
Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by
the French Tax Administration (FTA) for calendar year 2006 and thereafter. These examinations may lead to ordinary course
adjustments or proposed adjustments to our taxes. In September 2012, we received proposed tax assessment notices for
calendar years 2006 through 2010 relating to the allocation of income between foreign jurisdictions. In June 2015, we received
final tax collection notices for these years assessing additional French tax of 196 million, including interest and penalties
through September 2012. We disagree with the assessment and intend to contest it vigorously. We plan to pursue all available
administrative remedies at the FTA, and if we are not able to resolve this matter with the FTA, we plan to pursue judicial
remedies. In addition to the risk of additional tax for years 2006 through 2010, if this litigation is adversely determined or if the
FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax
liabilities. In addition, in October 2014, the European Commission opened a formal investigation to examine whether decisions
by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with
European Union rules on state aid. If this matter is adversely resolved, Luxembourg may be required to assess, and we may be
required to pay, additional amounts with respect to current and prior periods and our taxes in the future could increase. We are
also subject to taxation in various states and other foreign jurisdictions including Canada, China, Germany, India, Japan,
Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments in
respect of these particular jurisdictions for 2003 and thereafter.
We expect the total amount of tax contingencies will grow in 2016. In addition, changes in state, federal, and foreign tax
laws may increase our tax contingencies. The timing of the resolution of income tax examinations is highly uncertain, and the
amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts
accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax
authorities or possibly reach resolution of income tax examinations in one or more jurisdictions. These assessments or
settlements may or may not result in changes to our contingencies related to positions on tax filings in years through 2015. The
actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We
cannot currently provide an estimate of the range of possible outcomes.

66

Note 11SEGMENT INFORMATION


Beginning in the first quarter of 2015, we changed our reportable segments to North America, International, and AWS.
These segments reflect the way the Company evaluates its business performance and manages its operations.
We allocate to segment results the operating expenses Fulfillment, Marketing, Technology and content, and
General and administrative based on usage, which is generally reflected in the segment in which the costs are incurred. The
majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining
non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. We exclude from
our allocations the portions of these operating expense lines attributable to stock-based compensation. We do not allocate the
line item Other operating expense (income), net to our segment operating results. There are no internal revenue transactions
between our reportable segments.
North America
The North America segment consists primarily of amounts earned from retail sales of consumer products (including from
sellers) and subscriptions through North America-focused websites such as www.amazon.com, www.amazon.ca, and
www.amazon.com.mx. This segment includes export sales from these websites.
International
The International segment consists primarily of amounts earned from retail sales of consumer products (including from
sellers) and subscriptions through internationally-focused websites such as www.amazon.com.au, www.amazon.com.br,
www.amazon.cn, www.amazon.fr, www.amazon.de, www.amazon.in, www.amazon.it, www.amazon.co.jp, www.amazon.nl,
www.amazon.es, and www.amazon.co.uk. This segment includes export sales from these internationally-focused websites
(including export sales from these sites to customers in the U.S., Mexico, and Canada), but excludes export sales from our
North American websites.
AWS
The AWS segment consists of amounts earned from global sales of compute, storage, database, and other AWS service
offerings for start-ups, enterprises, government agencies, and academic institutions.

67

Information on reportable segments and reconciliation to consolidated net income (loss) is as follows (in millions):
Year Ended December 31,
2015

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

$
$
$
$
$
$
$

2014

2013

63,708 $
60,957
2,751 $

50,834 $
49,542
1,292 $

41,410
40,244
1,166

35,418 $
35,509
(91) $

33,510 $
33,654
(144) $

29,934
29,780
154

7,880 $
6,017
1,863 $

4,644 $
3,984
660 $

3,108
2,435
673

107,006 $
102,483
4,523
(2,119)
(171)
2,233
(665)
(950)
(22)
596 $

88,988 $
87,180
1,808
(1,497)
(133)
178
(289)
(167)
37
(241) $

74,452
72,459
1,993
(1,134)
(114)
745
(239)
(161)
(71)
274

___________________
(1) Excludes stock-based compensation and Other operating expense (income), net, which are not allocated to segments.
We have aggregated our products and services into groups of similar products and services and provided the
supplemental disclosure of net sales (in millions) below. We evaluate whether additional disclosure is appropriate when a
product or service category begins to approach a significant level of net sales. For the periods presented, no individual product
or service represented more than 10% of net sales.
Year Ended December 31,
2015

Net Sales:
Media
Electronics and other general merchandise
AWS
Other (1)

22,509 $
75,597
7,880
1,020
107,006 $

2014

22,505 $
60,886
4,644
953
88,988 $

2013

21,716
48,802
3,108
826
74,452

___________________
(1) Includes sales from non-retail activities, such as certain advertising services, and our co-branded credit card agreements.

68

Net sales generated from our internationally-focused websites are denominated in local functional currencies. Revenues
are translated at average rates prevailing throughout the period. Net sales attributed to countries that represent a significant
portion of consolidated net sales are as follows (in millions):
Year Ended December 31,
2015

United States
Germany
United Kingdom
Japan
Rest of world
Consolidated

2014

70,537 $
11,816
9,033
8,264
7,356
107,006 $

2013

54,717 $
11,919
8,341
7,912
6,099
88,988 $

43,959
10,535
7,291
7,639
5,028
74,452

Total segment assets exclude corporate assets, such as cash and cash equivalents, marketable securities, other long-term
investments, corporate facilities, goodwill and other acquired intangible assets, capitalized internal-use software and website
development costs, and tax assets. Technology infrastructure assets are allocated among the segments based on usage, with the
majority allocated to the AWS segment. Total segment assets reconciled to consolidated amounts are as follows (in millions):
December 31,
2015

North America (1)


International (1)
AWS (2)
Corporate
Consolidated

16,772 $
7,754
9,787
31,131
65,444 $

2014

13,257 $
6,747
6,981
27,520
54,505 $

2013

9,991
6,199
3,840
20,129
40,159

___________________
(1) North America and International segment assets primarily consist of inventory, accounts receivable, and property and
equipment.
(2) AWS segment assets primarily consist of property and equipment and accounts receivable.

69

Property and equipment, net by segment is as follows (in millions):


December 31,
2015

North America
International
AWS
Corporate
Consolidated

2014

6,707 $
2,266
8,356
4,509
21,838 $

5,373 $
2,000
6,043
3,551
16,967 $

2013

3,477
1,549
3,253
2,670
10,949

Total property and equipment additions by segment are as follows (in millions):
Year Ended December 31,
2015

North America (1)


International (1)
AWS (2)
Corporate
Consolidated

2014

2,485 $
658
4,681
1,801
9,625 $

2013

2,833 $
767
4,295
1,586
9,481 $

2,326
851
2,215
981
6,373

___________________
(1) Includes property and equipment added under capital leases of $938 million, $887 million, and $555 million in 2015, 2014,
and 2013, and under other financing arrangements of $219 million, $599 million, and $715 million in 2015, 2014, and
2013.
(2) Includes property and equipment added under capital leases of $3.7 billion, $3.0 billion, and $1.3 billion in 2015, 2014,
and 2013 and under finance leases of $81 million, $62 million, and $67 million in 2015, 2014, and 2013.
U.S. property and equipment, net was $16.8 billion, $13.1 billion, and $8.4 billion, in 2015, 2014, and 2013, and rest of
world property and equipment, net was $5.0 billion, $3.8 billion, and $2.5 billion in 2015, 2014, and 2013. Except for the U.S.,
property and equipment, net, in any single country was less than 10% of consolidated property and equipment, net.
Depreciation expense, including amortization of capitalized internal-use software and website development costs and
other corporate property and equipment depreciation expense, are allocated to all segments based on usage. Total depreciation
expense, by segment, is as follows (in millions):
Year Ended December 31,
2015

North America
International
AWS
Consolidated

70

2014

1,551 $
822
2,576
4,949 $

2013

1,203 $
740
1,673
3,616 $

914
583
963
2,460

Note 12QUARTERLY RESULTS (UNAUDITED)


The following tables contain selected unaudited statement of operations information for each quarter of 2015 and 2014.
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):
Year Ended December 31, 2015 (1)
Fourth
Quarter

Net sales
Income (loss) from operations
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Basic earnings per share
Diluted earnings per share
Shares used in computation of earnings per share:
Basic
Diluted

Third
Quarter

Second
Quarter

First
Quarter

35,747 $
1,108
938
(453)
482
1.03
1.00

25,358 $
406
247
(161)
79
0.17
0.17

23,185 $
464
362
(266)
92
0.20
0.19

470
481

468
478

467
476

22,717
255
21
(71)
(57)
(0.12)
(0.12)
465
465

Year Ended December 31, 2014 (1)


Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

Net sales
$
29,328 $
20,579 $
19,340 $
19,741
Income (loss) from operations
591
(544)
(15)
146
Income (loss) before income taxes
429
(634)
(27)
120
Benefit (provision) for income taxes
(205)
205
(94)
(73)
Net income (loss)
214
(437)
(126)
108
Basic earnings per share
0.46
(0.95)
(0.27)
0.23
Diluted earnings per share
0.45
(0.95)
(0.27)
0.23
Shares used in computation of earnings per share:
Basic
464
463
461
460
Diluted
472
463
461
468
___________________
(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.

71

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 Securities Exchange Act of 1934 (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, 2015.
Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31,
2015, 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 SECs 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 disclosure.
Managements 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, 2015 based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of
December 31, 2015, 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, 2015 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.

72

Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
Amazon.com, Inc.
We have audited Amazon.com, Inc.s internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (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 Managements Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys 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 companys 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 companys 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 companys 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, 2015, 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, 2015 and 2014, and the related consolidated
statements of operations, comprehensive income (loss), stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2015 of Amazon.com, Inc. and our report dated January 28, 2016 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Seattle, Washington
January 28, 2016

73

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 of the Registrant. 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 2016 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 2016 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 2016 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 2016 Annual Meeting of
Shareholders and is incorporated herein by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2016 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 2016 Annual Meeting of
Shareholders and is incorporated herein by reference.

74

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, 2015
Consolidated Statements of Operations for each of the three years ended December 31, 2015
Consolidated Statements of Comprehensive Income (Loss) for each of the three years ended
December 31, 2015
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Stockholders Equity for each of the three years ended December 31, 2015
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
(2) Index to Financial Statement Schedules:
All schedules have been omitted because the required information is included in the consolidated financial
statements or the notes thereto, or because it is not required.
(3) Index to Exhibits
See exhibits listed under the Exhibit Index below.

75

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized, as of January 28, 2016.

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 28, 2016.
Signature

Title

/s/ Jeffrey P. Bezos


Jeffrey P. Bezos

Chairman of the Board, President, and Chief Executive Officer


(Principal Executive Officer)

/s/ Brian T. Olsavsky


Brian T. Olsavsky

Senior Vice President and Chief Financial Officer (Principal


Financial Officer)

/s/ Shelley Reynolds


Shelley Reynolds

Vice President, Worldwide Controller (Principal Accounting


Officer)

/s/ Tom A. Alberg


Tom A. Alberg

Director

/s/ John Seely Brown


John Seely Brown

Director

/s/ William B. Gordon


William B. Gordon

Director

/s/ Jamie S. Gorelick


Jamie S. Gorelick

Director

/s/ Judith A. McGrath


Judith A. McGrath

Director

/s/ Alain Moni


Alain Moni

Director

/s/ Jonathan J. Rubinstein


Jonathan J. Rubinstein

Director

/s/ Thomas O. Ryder


Thomas O. Ryder

Director

/s/ Patricia Q. Stonesifer


Patricia Q. Stonesifer

Director
76

EXHIBIT INDEX
Exhibit
Number

Description

2.1

Form of Purchase and Sale Agreement dated as of October 1, 2012, between Acorn Development LLC, a wholly
owned subsidiary of the Company, and Lake Union III LLC, Lake Union IV LLC, City Place V LLC, City Place II
LLC, City Place III LLC, City Place IV LLC, and City Place V LLC, respectively (incorporated by reference to the
Companys Annual Report on Form 10-K for the Year ended December 31, 2012).

3.1

Restated Certificate of Incorporation of the Company (incorporated by reference to the Companys Quarterly
Report on Form 10-Q for the Quarter ended March 31, 2000).

3.2

Amended and Restated Bylaws of the Company (incorporated by reference to the Companys Current Report on
Form 8-K, filed February 18, 2009).

4.1

Indenture, dated as of November 29, 2012, between Amazon.com, Inc. and Wells Fargo Bank, National
Association, as trustee, and Form of 0.650% Note due 2015, Form of 1.200% Note due 2017, and Form of 2.500%
Note due 2022 (incorporated by reference to the Companys Current Report on Form 8-K, filed November 29,
2012).

4.2

Officers Certificate Establishing the Terms of Notes, dated as of December 5, 2014, containing Form of 2.600%
Note due 2019, Form of 3.300% Note due 2021, Form of 3.800% Note due 2024, Form of 4.800% Note due 2034,
and Form of 4.950% Note due 2044 (incorporated by reference to the Companys Current Report on Form 8-K,
filed December 5, 2014).

10.1

1997 Stock Incentive Plan (amended and restated) (incorporated by reference to the Companys Quarterly Report
on Form 10-Q for the Quarter ended March 31, 2013).

10.2

1999 Nonofficer Employee Stock Option Plan (amended and restated) (incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the Quarter ended March 31, 2013).

10.3

Offer Letter of Employment to Diego Piacentini, dated January 17, 2000 (incorporated by reference to the
Companys Annual Report on Form 10-K for the Year ended December 31, 2000).

10.4

Form of Indemnification Agreement between the Company and each of its Directors (incorporated by reference to
the Companys Registration Statement on Form S-1 (Registration No. 333-23795) filed March 24, 1997).

10.5

Form of Restricted Stock Unit Agreement for Officers and Employees (incorporated by reference to the Companys
Annual Report on Form 10-K for the Year ended December 31, 2002).

10.6

Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to the Companys Annual
Report on Form 10-K for the Year ended December 31, 2002).

10.7

Form of Restricted Stock Agreement (incorporated by reference to the Companys Annual Report on Form 10-K
for the Year ended December 31, 2001).

10.8

Form of Global Restricted Stock Unit Award Agreement for Executive Officers (incorporated by reference to the
Companys Quarterly Report on Form 10-Q for the Quarter ended March 31, 2014).

10.9

Credit Agreement, dated as of September 5, 2014, among Amazon.com, Inc., Bank of America, N.A., as
administrative agent, and the other lenders party thereto, and conformed page thereto (incorporated by reference to
the Companys Current Report on Form 8-K, filed September 5, 2014, and Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2014, respectively).

12.1

Computation of Ratio of Earnings to Fixed Charges.

21.1

List of Significant Subsidiaries.

23.1

Consent of Independent Registered Public Accounting Firm.

31.1

Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.

31.2

Certification of Brian T. Olsavsky, Senior Vice President and Chief Financial Officer of Amazon.com, Inc.,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

77

32.1

Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to 18
U.S.C. Section 1350.

32.2

Certification of Brian T. Olsavsky, Senior Vice President and Chief Financial Officer of Amazon.com, Inc.,
pursuant to 18 U.S.C. Section 1350.

101

The following financial statements from the Companys Annual Report on Form 10-K for the year ended
December 31, 2015, formatted in XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements
of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Balance Sheets,
(v) Consolidated Statements of Stockholders Equity, and (vi) Notes to Consolidated Financial Statements, tagged
as blocks of text and including detailed tags.
___________________

Executive Compensation Plan or Agreement

78

Stock Price Performance Graph


The graph set forth below compares cumulative total return on the common stock with the cumulative total
return of the Morgan Stanley Technology Index, the S&P 500 Index, and the S&P 500 Retailing Index, resulting
from an initial investment of $100 in each and, except in the case of the Morgan Stanley Technology Index,
assuming the reinvestment of any dividends, based on closing prices. Measurement points are the last trading day
of each of Amazons fiscal years ended December 31, 2010, 2011, 2012, 2013, 2014 and 2015.
$400
$350
$300
Dollars

$250
$200
$150
$100
$50
$0
2010

2011

2012

2013

2014

2015

Year Ended December 31

Cumulative Total Return


Year Ended December 31,

Legend
Amazon.com, Inc.

2010

2011

2012

2013

2014

2015

$100

$96

$139

$222

$172

$375

Morgan Stanley Technology Index

100

89

103

136

153

163

S&P 500 Index

100

102

118

157

178

181

S&P 500 Retailing Index

100

104

132

192

213

268

Note: Stock price performance shown in the Stock Price Performance Graph for the common stock is
historical and not necessarily indicative of future price performance.

amazon.com
amazon.ca
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amazon.co.uk
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amazon.de
a m a z o n . it

amazon.com.mx

amazon.fr
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amazon.com.au

amazon.co.jp
amazon.com.br
amazon.nl

To our shareowners:
A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large
size, it has strong returns on capital, and its durable in time with the potential to endure for decades. When you
find one of these, dont just swipe right, get married.
Well, Im pleased to report that Amazon hasnt been monogamous in this regard. After two decades of risk
taking and teamwork, and with generous helpings of good fortune all along the way, we are now happily wed to
what I believe are three such life partners: Marketplace, Prime, and AWS. Each of these offerings was a bold bet
at first, and sensible people worried (often!) that they could not work. But at this point, its become pretty clear
how special they are and how lucky we are to have them. Its also clear that there are no sinecures in business.
We know its our job to always nourish and fortify them.
Well approach the job with our usual tools: customer obsession rather than competitor focus, heartfelt
passion for invention, commitment to operational excellence, and a willingness to think long-term. With good
execution and a bit of continuing good luck, Marketplace, Prime, and AWS can be serving customers and earning
financial returns for many years to come.
Marketplace
Marketplaces early days were not easy. First, we launched Amazon Auctions. I think seven people came, if
you count my parents and siblings. Auctions transformed into zShops, which was basically a fixed price version
of Auctions. Again, no customers. But then we morphed zShops into Marketplace. Internally, Marketplace was
known as SDP for Single Detail Page. The idea was to take our most valuable retail real estate our product
detail pages and let third-party sellers compete against our own retail category managers. It was more
convenient for customers, and within a year, it accounted for 5% of units. Today, more than 40% of our units are
sold by more than two million third-party sellers worldwide. Customers ordered more than two billion units from
sellers in 2014.
The success of this hybrid model accelerated the Amazon flywheel. Customers were initially drawn by our
fast-growing selection of Amazon-sold products at great prices with a great customer experience. By then
allowing third parties to offer products side-by-side, we became more attractive to customers, which drew even
more sellers. This also added to our economies of scale, which we passed along by lowering prices and
eliminating shipping fees for qualifying orders. Having introduced these programs in the U.S., we rolled them out
as quickly as we could to our other geographies. The result was a marketplace that became seamlessly integrated
with all of our global websites.
We work hard to reduce the workload for sellers and increase the success of their businesses. Through our
Selling Coach program, we generate a steady stream of automated machine-learned nudges (more than 70
million in a typical week) alerting sellers about opportunities to avoid going out-of-stock, add selection thats
selling, and sharpen their prices to be more competitive. These nudges translate to billions in increased sales to
sellers.
To further globalize Marketplace, were now helping sellers in each of our geographies and in countries
where we dont have a presence reach out to our customers in countries outside their home geographies. We
hosted merchants from more than 100 different countries last year, and helped them connect with customers in
185 nations.
Almost one-fifth of our overall third-party sales now occur outside the sellers home countries, and our
merchants cross-border sales nearly doubled last year. In the EU, sellers can open a single account, manage their

business in multiple languages, and make products available across our five EU websites. More recently, weve
started consolidating cross-border shipments for sellers and helping them obtain ocean shipping from Asia to
Europe and North America at preferential, bulk rates.
Marketplace is the heart of our fast-growing operations in India, since all of our selection in India is offered
by third-party sellers. Amazon.in now offers more selection than any other e-commerce site in India with more
than 20 million products offered from over 21,000 sellers. With our Easy Ship service, we pick up products from
a seller and handle delivery all the way to the end customer. Building upon Easy Ship, the India team recently
piloted Kirana Now, a service that delivers everyday essentials from local kirana (mom and pop) stores to
customers in two to four hours, adding convenience for our customers and increasing sales for the stores
participating in the service.
Perhaps most important for sellers, weve created Fulfillment by Amazon. But Ill save that for after we
discuss Prime.
Amazon Prime
Ten years ago, we launched Amazon Prime, originally designed as an all-you-can-eat free and fast shipping
program. We were told repeatedly that it was a risky move, and in some ways it was. In its first year, we gave up
many millions of dollars in shipping revenue, and there was no simple math to show that it would be worth it.
Our decision to go ahead was built on the positive results wed seen earlier when we introduced Free Super Saver
Shipping, and an intuition that customers would quickly grasp that they were being offered the best deal in the
history of shopping. In addition, analysis told us that, if we achieved scale, we would be able to significantly
lower the cost of fast shipping.
Our owned-inventory retail business was the foundation of Prime. In addition to creating retail teams to
build each of our category-specific online stores, we have created large-scale systems to automate much of
inventory replenishment, inventory placement, and product pricing. The precise delivery-date promise of Prime
required operating our fulfillment centers in a new way, and pulling all of this together is one of the great
accomplishments of our global operations team. Our worldwide network of fulfillment centers has expanded
from 13 in 2005, when we launched Prime, to 109 this year. We are now on our eighth generation of fulfillment
center design, employing proprietary software to manage receipt, stowing, picking, and shipment. Amazon
Robotics, which began with our acquisition of Kiva in 2012, has now deployed more than 15,000 robots to
support the stowing and retrieval of products at a higher density and lower cost than ever before. Our ownedinventory retail business remains our best customer-acquisition vehicle for Prime and a critical part of building
out categories that attract traffic and third-party sellers.
Though fast delivery remains a core Prime benefit, we are finding new ways to pump energy into Prime.
Two of the most important are digital and devices.
In 2011 we added Prime Instant Video as a benefit, now with tens of thousands of movies and TV episodes
available for unlimited streaming in the U.S., and weve started expanding the program into the U.K. and
Germany as well. Were investing a significant amount on this content, and its important that we monitor its
impact. We ask ourselves, is it worth it? Is it driving Prime? Among other things, we watch Prime free trial starts,
conversion to paid membership, renewal rates, and product purchase rates by members entering through this
channel. We like what we see so far and plan to keep investing here.
While most of our PIV spend is on licensed content, were also starting to develop original content. The
team is off to a strong start. Our show Transparent became the first from a streaming service to win a Golden
Globe for best series and Tumble Leaf won the Annie for best animated series for preschoolers. In addition to the
critical acclaim, the numbers are promising. An advantage of our original programming is that its first run is on
Prime it hasnt already appeared anywhere else. Together with the quality of the shows, that first run status
appears to be one of the factors leading to the attractive numbers. We also like the fixed cost nature of original
programming. We get to spread that fixed cost across our large membership base. Finally, our business model for
original content is unique. Im pretty sure were the first company to have figured out how to make winning a
Golden Globe pay off in increased sales of power tools and baby wipes!

Amazon designed and manufactured devices from Kindle to Fire TV to Echo also pump energy into
Prime services such as Prime Instant Video and Prime Music, and generally drive higher engagement with every
element of the Amazon ecosystem. And theres more to come our device team has a strong and exciting
roadmap ahead.
Prime isnt done improving on its original fast and free shipping promise either. The recently launched
Prime Now offers Prime members free two-hour delivery on tens of thousands of items or one-hour delivery for a
$7.99 fee. Lots of early reviews read like this one, In the past six weeks my husband and I have made an
embarrassing number of orders through Amazon Prime Now. Its cheap, easy, and insanely fast. Weve
launched in Manhattan, Brooklyn, Miami, Baltimore, Dallas, Atlanta, and Austin, and more cities are coming
soon.
Now, Id like to talk about Fulfillment by Amazon. FBA is so important because it is glue that inextricably
links Marketplace and Prime. Thanks to FBA, Marketplace and Prime are no longer two things. In fact, at this
point, I cant really think about them separately. Their economics and customer experiences are now happily and
deeply intertwined.
FBA is a service for Marketplace sellers. When a seller decides to use FBA, they stow their inventory in our
fulfillment centers. We take on all logistics, customer service, and product returns. If a customer orders an FBA
item and an Amazon owned-inventory item, we can ship both items to the customer in one box a huge
efficiency gain. But even more important, when a seller joins FBA, their items can become Prime eligible.
Maintaining a firm grasp of the obvious is more difficult than one would think it should be. But its useful to
try. If you ask, what do sellers want? The correct (and obvious) answer is: they want more sales. So, what
happens when sellers join FBA and their items become Prime eligible? They get more sales.
Notice also what happens from a Prime members point of view. Every time a seller joins FBA, Prime
members get more Prime eligible selection. The value of membership goes up. This is powerful for our flywheel.
FBA completes the circle: Marketplace pumps energy into Prime, and Prime pumps energy into Marketplace.
In a 2014 survey of U.S. sellers, 71% of FBA merchants reported more than a 20% increase in unit sales
after joining FBA. In the holiday period, worldwide FBA units shipped grew 50% over the prior year and
represented more than 40% of paid third-party units. Paid Prime memberships grew more than 50% in the U.S.
last year and 53% worldwide. FBA is a win for customers and a win for sellers.
Amazon Web Services
A radical idea when it was launched nine years ago, Amazon Web Services is now big and growing fast.
Startups were the early adopters. On-demand, pay-as-you-go cloud storage and compute resources dramatically
increased the speed of starting a new business. Companies like Pinterest, Dropbox, and Airbnb all used AWS
services and remain customers today.
Since then, large enterprises have been coming on board as well, and theyre choosing to use AWS for the
same primary reason the startups did: speed and agility. Having lower IT cost is attractive, and sometimes the
absolute cost savings can be enormous. But cost savings alone could never overcome deficiencies in performance
or functionality. Enterprises are dependent on IT its mission critical. So, the proposition, I can save you a
significant amount on your annual IT bill and my service is almost as good as what you have now, wont get too
many customers. What customers really want in this arena is better and faster, and if better and faster can
come with a side dish of cost savings, terrific. But the cost savings is the gravy, not the steak.
IT is so high leverage. You dont want to imagine a competitor whose IT department is more nimble than
yours. Every company has a list of technology projects that the business would like to see implemented as soon
as possible. The painful reality is that tough triage decisions are always made, and many projects never get done.
Even those that get resourced are often delivered late or with incomplete functionality. If an IT department can
figure out how to deliver a larger number of business-enabling technology projects faster, theyll be creating
significant and real value for their organization.

These are the main reasons AWS is growing so quickly. IT departments are recognizing that when they
adopt AWS, they get more done. They spend less time on low value-add activities like managing datacenters,
networking, operating system patches, capacity planning, database scaling, and so on and so on. Just as
important, they get access to powerful APIs and tools that dramatically simplify building scalable, secure, robust,
high-performance systems. And those APIs and tools are continuously and seamlessly upgraded behind the
scenes, without customer effort.
Today, AWS has more than a million active customers as companies and organizations of all sizes use AWS
in every imaginable business segment. AWS usage grew by approximately 90% in the fourth quarter of 2014
versus the prior year. Companies like GE, Major League Baseball, Tata Motors, and Qantas are building new
applications on AWS these range from apps for crowdsourcing and personalized healthcare to mobile apps for
managing fleets of trucks. Other customers, like NTT DOCOMO, the Financial Times, and the Securities and
Exchange Commission are using AWS to analyze and take action on vast amounts of data. And many customers
like Conde Nast, Kelloggs, and News Corp are migrating legacy critical applications and, in some cases, entire
datacenters to AWS.
Weve increased our pace of innovation as weve gone along from nearly 160 new features and services in
2012, to 280 in 2013, and 516 last year. There are many that would be interesting to talk about from WorkDocs
and WorkMail to AWS Lambda and the EC2 Container Service to the AWS Marketplace but for purposes of
brevity, Im going to limit myself to one: our recently introduced Amazon Aurora. We hope Aurora will offer
customers a new normal for a very important (but also very problematic) technology that is a critical
underpinning of many applications: the relational database. Aurora is a MySQL-compatible database engine that
offers the speed and availability of high-end commercial databases with the simplicity and cost effectiveness of
open source databases. Auroras performance is up to 5x better than typical MySQL databases, at one-tenth the
cost of commercial database packages. Relational databases is an arena thats been a pain point for organizations
and developers for a long time, and were very excited about Aurora.
I believe AWS is one of those dreamy business offerings that can be serving customers and earning financial
returns for many years into the future. Why am I optimistic? For one thing, the size of the opportunity is big,
ultimately encompassing global spend on servers, networking, datacenters, infrastructure software, databases,
data warehouses, and more. Similar to the way I think about Amazon retail, for all practical purposes, I believe
AWS is market-size unconstrained.
Second, its current leadership position (which is significant) is a strong ongoing advantage. We work hard
very hard to make AWS as easy to use as possible. Even so, its still a necessarily complex set of tools with
rich functionality and a non-trivial learning curve. Once youve become proficient at building complex systems
with AWS, you do not want to have to learn a new set of tools and APIs assuming the set you already understand
works for you. This is in no way something we can rest on, but if we continue to serve our customers in a truly
outstanding way, they will have a rational preference to stick with us.
In addition, also because of our leadership position, we now have thousands of what are effectively AWS
ambassadors roaming the world. Software developers changing jobs, moving from one company to another,
become our best sales people: We used AWS where I used to work, and we should consider it here. I think wed
get more done. Its a good sign that proficiency with AWS and its services is already something software
developers are adding to their resumes.
Finally, Im optimistic that AWS will have strong returns on capital. This is one we as a team examine
because AWS is capital intensive. The good news is we like what we see when we do these analyses.
Structurally, AWS is far less capital intensive than the mode its replacing do-it-yourself datacenters which
have low utilization rates, almost always below 20%. Pooling of workloads across customers gives AWS much
higher utilization rates, and correspondingly higher capital efficiency. Further, once again our leadership position
helps: scale economies can provide us a relative advantage on capital efficiency. Well continue to watch and
shape the business for good returns on capital.

AWS is young, and it is still growing and evolving. We think we can continue to lead if we continue to
execute with our customers needs foremost in mind.
Career Choice
Before closing, I want to take a moment to update shareowners on something were excited about and proud
of. Three years ago we launched an innovative employee benefit the Career Choice program, where we pre-pay
95% of tuition for employees to take courses for in-demand fields, such as airplane mechanic or nursing,
regardless of whether the skills are relevant to a career at Amazon. The idea was simple: enable choice.
We know that, for some of our fulfillment and customer service center employees, Amazon will be a career.
For others, Amazon might be a stepping stone on the way to a job somewhere else a job that may require new
skills. If the right training can make the difference, we want to help, and so far we have been able to help over
2,000 employees who have participated in the program in eight different countries. Theres been so much interest
that we are now building onsite classrooms so college and technical classes can be taught inside our fulfillment
centers, making it even easier for associates to achieve these goals.
There are now eight FCs offering 15 classes taught onsite in our purpose-built classrooms with high-end
technology features, and designed with glass walls to inspire others to participate and generate encouragement
from peers. We believe Career Choice is an innovative way to draw great talent to serve customers in our
fulfillment and customer service centers. These jobs can become gateways to great careers with Amazon as we
expand around the world or enable employees the opportunity to follow their passion in other in-demand
technical fields, like our very first Career Choice graduate did when she started a new career as a nurse in her
community.
I would also like to invite you to come join the more than 24,000 people who have signed up so far to see
the magic that happens after you click buy on Amazon.com by touring one of our fulfillment centers. In addition
to U.S. tours, we are now offering tours at sites around the world, including Rugeley in the U.K. and Graben in
Germany and continuing to expand. You can sign up for a tour at www.amazon.com/fctours.
*

Marketplace, Prime, and Amazon Web Services are three big ideas. Were lucky to have them, and were
determined to improve and nurture them make them even better for customers. You can also count on us to
work hard to find a fourth. Weve already got a number of candidates in work, and as we promised some twenty
years ago, well continue to make bold bets. With the opportunities unfolding in front of us to serve customers
better through invention, we assure you we wont stop trying.
As always, I attach a copy of our original 1997 letter. Our approach remains the same, because its still
Day 1.

Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.

1997 LETTER TO SHAREHOLDERS


(Reprinted from the 1997 Annual Report)
To our shareholders:
Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers,
yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive
competitive entry.
But this is Day 1 for the Internet and, if we execute well, for Amazon.com. Today, online commerce saves
customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the
very process of discovery. Amazon.com uses the Internet to create real value for its customers and, by doing so,
hopes to create an enduring franchise, even in established and large markets.
We have a window of opportunity as larger players marshal the resources to pursue the online opportunity
and as customers, new to purchasing online, are receptive to forming new relationships. The competitive
landscape has continued to evolve at a fast pace. Many large players have moved online with credible offerings
and have devoted substantial energy and resources to building awareness, traffic, and sales. Our goal is to move
quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities
in other areas. We see substantial opportunity in the large markets we are targeting. This strategy is not without
risk: it requires serious investment and crisp execution against established franchise leaders.
Its All About the Long Term
We believe that a fundamental measure of our success will be the shareholder value we create over the long
term. This value will be a direct result of our ability to extend and solidify our current market leadership position.
The stronger our market leadership, the more powerful our economic model. Market leadership can translate
directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on
invested capital.
Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most
indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to
purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest
aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an
enduring franchise.
Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than
some companies. Accordingly, we want to share with you our fundamental management and decision-making
approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:

We will continue to focus relentlessly on our customers.

We will continue to make investment decisions in light of long-term market leadership considerations
rather than short-term profitability considerations or short-term Wall Street reactions.

We will continue to measure our programs and the effectiveness of our investments analytically, to
jettison those that do not provide acceptable returns, and to step up our investment in those that work
best. We will continue to learn from both our successes and our failures.

We will make bold rather than timid investment decisions where we see a sufficient probability of
gaining market leadership advantages. Some of these investments will pay off, others will not, and we
will have learned another valuable lesson in either case.

When forced to choose between optimizing the appearance of our GAAP accounting and maximizing
the present value of future cash flows, well take the cash flows.

We will share our strategic thought processes with you when we make bold choices (to the extent
competitive pressures allow), so that you may evaluate for yourselves whether we are making rational
long-term leadership investments.

We will work hard to spend wisely and maintain our lean culture. We understand the importance of
continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.

We will balance our focus on growth with emphasis on long-term profitability and capital management.
At this stage, we choose to prioritize growth because we believe that scale is central to achieving the
potential of our business model.

We will continue to focus on hiring and retaining versatile and talented employees, and continue to
weight their compensation to stock options rather than cash. We know our success will be largely
affected by our ability to attract and retain a motivated employee base, each of whom must think like,
and therefore must actually be, an owner.

We arent so bold as to claim that the above is the right investment philosophy, but its ours, and we
would be remiss if we werent clear in the approach we have taken and will continue to take.
With this foundation, we would like to turn to a review of our business focus, our progress in 1997, and our
outlook for the future.
Obsess Over Customers
From the beginning, our focus has been on offering our customers compelling value. We realized that the
Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply
could not get any other way, and began serving them with books. We brought them much more selection than
was possible in a physical store (our store would now occupy 6 football fields), and presented it in a useful, easyto-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged
focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer
customers gift certificates, 1-ClickSM shopping, and vastly more reviews, content, browsing options, and
recommendation features. We dramatically lowered prices, further increasing customer value. Word of mouth
remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers
have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader
in online bookselling.
By many measures, Amazon.com came a long way in 1997:

Sales grew from $15.7 million in 1996 to $147.8 million an 838% increase.

Cumulative customer accounts grew from 180,000 to 1,510,000 a 738% increase.

The percentage of orders from repeat customers grew from over 46% in the fourth quarter of 1996 to
over 58% in the same period in 1997.

In terms of audience reach, per Media Metrix, our Web site went from a rank of 90th to within the top
20.

We established long-term relationships with many important strategic partners, including America
Online, Yahoo!, Excite, Netscape, GeoCities, AltaVista, @Home, and Prodigy.

Infrastructure
During 1997, we worked hard to expand our business infrastructure to support these greatly increased
traffic, sales, and service levels:

Amazon.coms employee base grew from 158 to 614, and we significantly strengthened our
management team.

Distribution center capacity grew from 50,000 to 285,000 square feet, including a 70% expansion of our
Seattle facilities and the launch of our second distribution center in Delaware in November.

Inventories rose to over 200,000 titles at year-end, enabling us to improve availability for our customers.

Our cash and investment balances at year-end were $125 million, thanks to our initial public offering in
May 1997 and our $75 million loan, affording us substantial strategic flexibility.

Our Employees
The past years success is the product of a talented, smart, hard-working group, and I take great pride in
being a part of this team. Setting the bar high in our approach to hiring has been, and will continue to be, the
single most important element of Amazon.coms success.
Its not easy to work here (when I interview people I tell them, You can work long, hard, or smart, but at
Amazon.com you cant choose two out of three), but we are working to build something important, something
that matters to our customers, something that we can all tell our grandchildren about. Such things arent meant to
be easy. We are incredibly fortunate to have this group of dedicated employees whose sacrifices and passion
build Amazon.com.
Goals for 1998
We are still in the early stages of learning how to bring new value to our customers through Internet
commerce and merchandising. Our goal remains to continue to solidify and extend our brand and customer base.
This requires sustained investment in systems and infrastructure to support outstanding customer convenience,
selection, and service while we grow. We are planning to add music to our product offering, and over time we
believe that other products may be prudent investments. We also believe there are significant opportunities to
better serve our customers overseas, such as reducing delivery times and better tailoring the customer experience.
To be certain, a big part of the challenge for us will lie not in finding new ways to expand our business, but in
prioritizing our investments.
We now know vastly more about online commerce than when Amazon.com was founded, but we still have
so much to learn. Though we are optimistic, we must remain vigilant and maintain a sense of urgency. The
challenges and hurdles we will face to make our long-term vision for Amazon.com a reality are several:
aggressive, capable, well-funded competition; considerable growth challenges and execution risk; the risks of
product and geographic expansion; and the need for large continuing investments to meet an expanding market
opportunity. However, as weve long said, online bookselling, and online commerce in general, should prove to
be a very large market, and its likely that a number of companies will see significant benefit. We feel good about
what weve done, and even more excited about what we want to do.
1997 was indeed an incredible year. We at Amazon.com are grateful to our customers for their business and
trust, to each other for our hard work, and to our shareholders for their support and encouragement.

Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________

FORM 10-K
____________________________________

(Mark One)
_

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

For the fiscal year ended December 31, 2014

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
(206) 266-1000
(Address and telephone number, including area code, of registrants 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 will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer

_
(Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2014
Number of shares of common stock outstanding as of January 16, 2015

Yes




No _
$

122,614,381,040
464,383,939

____________________________________

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 registrants definitive
proxy statement relating to the Annual Meeting of Shareholders to be held in 2015, which definitive proxy statement shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

AMAZON.COM, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2014
INDEX
Page

PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

3
6
14
15
15
15

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

PART II
Market for the Registrants Common Stock, Related Shareholder Matters, and Issuer Purchases of
Equity Securities
Selected Consolidated Financial Data
Managements Discussion and Analysis of Financial Condition and Results of Operation
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

16
17
18
34
36
72
72
74

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

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, and Director Independence
Principal Accountant Fees and Services

74
74
74
74
74

Item 5.

PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures

75
76

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 IRisk Factors.
Amazon.com, Inc. was incorporated in 1994 in the state of Washington and reincorporated in 1996 in the state of
Delaware. Our principal corporate offices are located in Seattle, Washington. We completed our initial public offering in May
1997 and our common stock is listed on the NASDAQ Global Select Market under the symbol AMZN.
As used herein, Amazon.com, we, our, and similar terms include Amazon.com, Inc. and its subsidiaries, unless the
context indicates otherwise.
General
Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be Earths most customer-centric
company. We are guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment
to operational excellence, and long-term thinking. In each of our two geographic segments, we serve our primary customer sets,
consisting of consumers, sellers, enterprises, and content creators. In addition, we provide services, such as advertising services
and co-branded credit card agreements.
We manage our business primarily on a geographic basis. Accordingly, we have organized our operations into two
segments: North America and International. While each reportable operating segment provides similar products and services, a
majority of our technology costs are incurred in the U.S. and included in our North America segment. Additional information on
our operating segments and product information is contained in Item 8 of Part II, Financial Statements and Supplementary
DataNote 12Segment Information. See Item 7 of Part II, Managements Discussion and Analysis of Financial Condition
and Results of OperationsResults of OperationsSupplemental Information for supplemental information about our net
sales. Our company-sponsored research and development expense is set forth within Technology and content in Item 8 of Part
II, Financial Statements and Supplementary DataConsolidated Statements of Operations.
Consumers
We serve consumers through our retail websites and focus on selection, price, and convenience. We design our websites to
enable millions of unique products to be sold by us and by third parties across dozens of product categories. Customers access
our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices, including
Kindle e-readers, Fire tablets, Fire TVs, Echo, and Fire phones. We strive to offer our customers the lowest prices possible
through low everyday product pricing and shipping offers, and to improve our operating efficiencies so that we can continue to
lower prices for our customers. We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer
service. In addition, we offer Amazon Prime, an annual membership program that includes unlimited free shipping on millions of
items, access to unlimited instant streaming of thousands of movies and TV episodes, and access to hundreds of thousands of
books to borrow and read for free on a Kindle device.
We fulfill customer orders in a number of ways, including through: North America and International fulfillment and
delivery networks that we operate; co-sourced and outsourced arrangements in certain countries; and 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 offers a broad set of
global compute, storage, database, analytics, applications, and deployment services that enable virtually any type of business.
3

Content Creators
We serve authors and independent publishers with Kindle Direct Publishing, an online platform that lets independent
authors and publishers choose a 70% royalty option and make their books available in the Kindle Store, along with Amazons
own publishing arm, Amazon Publishing. We also offer programs that allow authors, musicians, filmmakers, app developers, and
others to publish and sell content.
Competition
Our businesses are rapidly evolving and intensely competitive. Our current and potential competitors include: (1) 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) media companies, web portals, comparison
shopping websites, web search engines, and social networks, either directly or in collaboration with other retailers; (4) companies
that provide e-commerce services, including website development, fulfillment, customer service, and payment processing;
(5) companies that provide information storage or computing services or products, including infrastructure and other web
services; and (6) companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic
devices. We believe that the principal competitive factors in our retail businesses include selection, price, and convenience,
including fast and reliable fulfillment. Additional competitive factors for our seller and enterprise services include the quality,
speed, and reliability of our services and tools. Many of our current and potential competitors have greater resources, longer
histories, more customers, and greater brand recognition. They may secure better terms from suppliers, adopt more aggressive
pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing. Other companies also may enter into
business combinations or alliances that strengthen their competitive positions.
Intellectual Property
We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary
technologies, and similar intellectual property as critical to our success, and we rely on trademark, copyright, and patent law,
trade-secret protection, and confidentiality and/or license agreements with our employees, customers, partners, and others to
protect our proprietary rights. We have registered, or applied for the registration of, a number of U.S. and international domain
names, trademarks, service marks, and copyrights. Additionally, we have filed U.S. and international patent applications covering
certain of our proprietary technology. We have licensed in the past, and expect that we may license in the future, certain of our
proprietary rights to third parties.
Seasonality
Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter,
which ends December 31. We recognized 33%, 34%, and 35% of our annual revenue during the fourth quarter of 2014, 2013,
and 2012.
Employees
We employed approximately 154,100 full-time and part-time employees as of December 31, 2014. However, employment
levels fluctuate due to seasonal factors affecting our business. Additionally, we utilize independent contractors and temporary
personnel to supplement our workforce. We have works councils, statutory employee representation obligations, and union
agreements in certain countries outside the United States. We consider our employee relations to be good. Competition for
qualified personnel in our industry has historically been intense, particularly for software engineers, computer scientists, and
other technical staff.
Available Information
Our investor relations website is www.amazon.com/ir and we encourage investors to use it as a way of easily finding
information about us. We promptly make available on this website, free of charge, the reports that we file or furnish with the
Securities and Exchange Commission (SEC), corporate governance information (including our Code of Business Conduct and
Ethics), and select press releases and social media postings.

Executive Officers and Directors


The following tables set forth certain information regarding our Executive Officers and Directors as of January 16, 2015:
Executive Officers of the Registrant
Name

Age

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

51
45
47
54
50
54
48
51

Position

President, Chief Executive Officer, and Chairman of the Board


Senior Vice President, Business Development
Senior Vice President, Amazon Web Services
Senior Vice President, International Consumer Business
Vice President, Worldwide Controller, and Principal Accounting Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, Consumer Business
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.
Andrew R. Jassy. Mr. Jassy has served as Senior Vice President, Amazon Web Services, since April 2006.
Diego Piacentini. Mr. Piacentini has served as Senior Vice President, International Consumer Business, since February
2012, and as Senior Vice President, International Retail, from January 2007 until February 2012.
Shelley L. Reynolds. Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal Accounting Officer
since April 2007.
Thomas J. Szkutak. Mr. Szkutak has served as Senior Vice President and Chief Financial Officer since joining
Amazon.com in October 2002. Mr. Szkutak plans to retire in June 2015.
Jeffrey A. Wilke. Mr. Wilke has served as Senior Vice President, Consumer Business, since February 2012, and as Senior
Vice President, North America Retail, from January 2007 until February 2012.
David A. Zapolsky. Mr. Zapolsky has served as Senior Vice President, General Counsel, and Secretary since May 2014,
Vice President, General Counsel, and Secretary from September 2012 to May 2014, and as Vice President and Associate General
Counsel for Litigation and Regulatory matters from April 2002 until September 2012.
Board of Directors
Name

Age

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

51
74
74
64
64
62
64
58
70
58

Position

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
Partner, Wilmer Cutler Pickering Hale and Dorr LLP
President, Astronauts Wanted * No experience necessary
Chief Executive Officer, Ingram Micro Inc.
Former Chairman and CEO, Palm, Inc.
Retired, Former Chairman, Readers Digest Association, Inc.
President and Chief Executive Officer, Marthas Table

Item 1A.

Risk Factors

Please carefully consider the following risk factors. If any of the following risks occur, our business, financial condition,
operating results, and cash flows could be materially adversely affected. In addition, the current global economic climate
amplifies many of these risks.
We Face Intense Competition
Our businesses are rapidly evolving and intensely competitive, and we have many competitors in different industries,
including retail, e-commerce services, digital content and electronic devices, and web and infrastructure computing services.
Some of our current and potential competitors have greater resources, longer histories, more customers, and/or greater brand
recognition. They may secure better terms from vendors, adopt more aggressive pricing, and devote more resources to
technology, infrastructure, fulfillment, and marketing.
Competition may intensify as our competitors enter into business combinations or alliances and established companies in
other market segments expand to become competitive with our business. In addition, new and enhanced technologies, including
search, web and infrastructure computing services, digital content, and electronic devices, may increase our competition. The
Internet facilitates competitive entry and comparison shopping, and increased competition may reduce our sales and profits.
Our Expansion Places a Significant Strain on our Management, Operational, Financial, and Other Resources
We are rapidly and significantly expanding our global operations, including increasing our product and service offerings
and scaling our infrastructure to support our retail and services businesses. This expansion increases the complexity of our
business and places significant strain on our management, personnel, operations, systems, technical performance, financial
resources, and internal financial control and reporting functions. We may not be able to manage growth effectively, which could
damage our reputation, limit our growth, and negatively affect our operating results.
Our Expansion into New Products, Services, Technologies, and Geographic Regions Subjects Us to Additional Business,
Legal, Financial, and Competitive Risks
We may have limited or no experience in our newer market segments, and our customers may not adopt our new offerings.
These offerings may present new and difficult technology challenges, and we may be subject to claims if customers of these
offerings experience service disruptions or failures or other quality issues. In addition, profitability, if any, in our newer activities
may be lower than in our older activities, and we may not be successful enough in these newer activities to recoup our
investments in them. If any of this were to occur, it could damage our reputation, limit our growth, and negatively affect our
operating results.
We May Experience Significant Fluctuations in Our Operating Results and Growth Rate
We may not be able to accurately forecast our growth rate. We base our expense levels and investment plans on sales
estimates. A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly
enough if our sales are less than expected.
Our revenue growth may not be sustainable, and our percentage growth rates may decrease. Our revenue and operating
profit growth depends on the continued growth of demand for the products and services offered by us or our sellers, and our
business is affected by general economic and business conditions worldwide. A softening of demand, whether caused by changes
in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.
Our sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in this
section and the following:

our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers
demands;

our ability to retain and expand our network of sellers;

our ability to offer products on favorable terms, manage inventory, and fulfill orders;

the introduction of competitive websites, products, services, price decreases, or improvements;

changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside
the U.S.;

timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure;
6

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

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

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

variations in the mix of products and services we sell;

variations in our level of merchandise and vendor returns;

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

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

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

the extent to which our equity-method investees record significant operating and non-operating items;

the extent to which operators of the networks between our customers and our websites successfully charge fees to grant
our customers unimpaired and unconstrained access to our online services;

our ability to collect amounts owed to us when they become due;

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

terrorist attacks and armed hostilities.

Our International Operations Expose Us to a Number of Risks


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

local economic and political conditions;

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

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

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

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

limited fulfillment and technology infrastructure;

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

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

lower levels of use of the Internet;

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

lower levels of credit card usage and increased payment risk;

difficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural
differences;
7

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

compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt
payments to government officials and other third parties;

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

geopolitical events, including war and terrorism.

As international e-commerce and other online and web services grow, competition will intensify. Local companies may
have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as
their more established local brand names. We may not be able to hire, train, retain, and manage required personnel, which may
limit our international growth.
The Peoples Republic of China (PRC) and India regulate Amazons and its affiliates businesses and operations in
country through regulations and license requirements that may restrict (i) foreign investment in and operation of the Internet, IT
infrastructure, data centers, retail, delivery, and other sectors, (ii) Internet content, and (iii) the sale of media and other products
and services. For example, in order to meet local ownership and regulatory licensing requirements, www.amazon.cn is operated
by PRC companies that are indirectly owned, either wholly or partially, by PRC nationals. In addition, we provide certain
technology services in conjunction with third parties that hold PRC licenses to provide services. In India, the government
restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities.
For www.amazon.in, we provide certain marketing tools and logistics services to third party sellers to enable them to sell online
and deliver to customers. Although we believe these structures and activities comply with existing laws, they involve unique
risks, and the PRC is actively considering changes in its foreign investment rules that could impact these structures and activities.
There are substantial uncertainties regarding the interpretation of PRC and Indian laws and regulations, and it is possible that the
government will ultimately take a view contrary to ours. In addition, our Chinese and Indian businesses and operations may be
unable to continue to operate if we or our affiliates are unable to access sufficient funding or in China enforce contractual
relationships with respect to management and control of such businesses. If our international activities were found to be in
violation of any existing or future PRC, Indian or other laws or regulations or if interpretations of those laws and regulations
were to change, our businesses in those countries could be subject to fines and other financial penalties, have licenses revoked, or
be forced to shut down entirely.
If We Do Not Successfully Optimize and Operate Our Fulfillment and Data Centers, Our Business Could Be Harmed
If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment and data centers
successfully, it could result in excess or insufficient fulfillment or data center capacity, or result in increased costs, impairment
charges, or both, or harm our business in other ways. As we continue to add fulfillment, warehouse, and data center capability or
add new businesses with different requirements, our fulfillment and data center networks become increasingly complex and
operating them becomes more challenging. There can be no assurance that we will be able to operate our networks effectively.
In addition, a failure to optimize inventory in our fulfillment centers will increase our net shipping cost by requiring longzone 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. 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.
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 and incur
commitment costs, which could reduce profitability. We may experience an increase in our net shipping cost due to
complimentary upgrades, split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday
season. If too many customers access our websites within a short period of time due to increased holiday demand, we may
experience system interruptions that make our websites unavailable or prevent us from efficiently fulfilling orders, which may
reduce the volume of goods we sell and the attractiveness of our products and services. In addition, we may be unable to
adequately staff our fulfillment and customer service centers during these peak periods and delivery and other fulfillment
companies and customer service co-sourcers may be unable to meet the seasonal demand. We also face risks described elsewhere
in this Item 1A relating to fulfillment center optimization and inventory.
We generally have payment terms with our retail vendors that extend beyond the amount of time necessary to collect
proceeds from our consumer customers. As a result of holiday sales, as of December 31 of each year, our cash, cash equivalents,
and marketable securities balances typically reach their highest level (other than as a result of cash flows provided by or used in
investing and financing activities). This operating cycle results in a corresponding increase in accounts payable as of
December 31. Our accounts payable balance generally declines during the first three months of the year, resulting in a
corresponding decline in our cash, cash equivalents, and marketable securities balances.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial Agreements,
Strategic Alliances, and Other Business Relationships
We provide e-commerce and other services to businesses through commercial agreements, strategic alliances, and business
relationships. Under these agreements, we provide web services, technology, fulfillment, computing, digital storage, and other
services, as well as enable sellers to offer products or services through our websites. These arrangements are complex and require
substantial infrastructure capacity, personnel, and other resource commitments, which may limit the amount of business we can
service. We may not be able to implement, maintain, and develop the components of these commercial relationships, which may
include web services, fulfillment, customer service, inventory management, tax collection, payment processing, hardware,
content, and third-party software, and engaging third parties to perform services. The amount of compensation we receive under
certain of our commercial agreements is partially dependent on the volume of the other companys sales. Therefore, if the other
companys offering is not successful, the compensation we receive may be lower than expected or the agreement may be
terminated. Moreover, we may not be able to enter into additional commercial relationships and strategic alliances on favorable
terms. We also may be subject to claims from businesses to which we provide these services if we are unsuccessful in
implementing, maintaining, or developing these services.
As our agreements terminate, we may be unable to renew or replace these agreements on comparable terms, or at all. We
may in the future enter into amendments on less favorable terms or encounter parties that have difficulty meeting their
contractual obligations to us, which could adversely affect our operating results.
Our present and future e-commerce services agreements, other commercial agreements, and strategic alliances create
additional risks such as:

disruption of our ongoing business, including loss of management focus on existing businesses;

impairment of other relationships;

variability in revenue and income from entering into, amending, or terminating such agreements or relationships; and

difficulty integrating under the commercial agreements.

Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions and Investments
We have acquired and invested in a number of companies, and we may acquire or invest in or enter into joint ventures with
additional companies. These transactions create risks such as:

disruption of our ongoing business, including loss of management focus on existing businesses;

problems retaining key personnel;

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

the potential impairment of tangible and intangible assets and goodwill, including as a result of acquisitions;
9

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 companys accounting, financial reporting, management, information and
information security, human resource, and other administrative systems to permit effective management, and the lack
of control if such integration is delayed or not implemented;

for investments in which an investees financial performance is incorporated into our financial results, either in full or
in part, the dependence on the investees accounting, financial reporting, and similar systems, controls, and processes;

the difficulty of implementing at companies we acquire the controls, procedures, and policies appropriate for a larger
public company;

potential unknown liabilities associated with a company we acquire or in which we invest; and

for foreign transactions, additional risks related to the integration of operations across different cultures and languages,
and the economic, political, and regulatory risks associated with specific countries.

As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur
debt, contingent liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and
harm our business. In addition, valuations supporting our acquisitions and strategic investments could change rapidly given the
current global economic climate. We could determine that such valuations have experienced impairments or other-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 and
product and service offerings are exposed to foreign exchange rate fluctuations. Upon translation, operating results may differ
materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. As
we have expanded our international operations, our exposure to exchange rate fluctuations has increased. We also hold cash
equivalents and/or marketable securities in foreign currencies including British Pounds, Chinese Yuan, Euros, and Japanese Yen.
If the U.S. Dollar strengthens compared to these currencies, cash equivalents, and marketable securities balances, when
translated, may be materially less than expected and vice versa.
The Loss of Key Senior Management Personnel Could Negatively Affect Our Business
We depend on our senior management and other key personnel, particularly Jeffrey P. Bezos, our President, CEO, and
Chairman. We do not have key person life insurance policies. The loss of any of our executive officers or other key employees
could harm our business.
We Could Be Harmed by Data Loss or Other Security Breaches
As a result of our services being web-based and the fact that we process, store, and transmit large amounts of data,
including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches, including
breaches of our vendors technology and systems, could expose us or our customers to a risk of loss or misuse of such
information, adversely affect our operating results, result in litigation or potential liability for us, and otherwise harm our
business. We use third party technology and systems for a variety of reasons, including, without limitation, encryption and
authentication technology, employee email, content delivery to customers, back-office support, and other functions. Some
subsidiaries had past security breaches, and, although they did not have a material adverse effect on our operating results, there
can be no assurance of a similar result in the future. Although we have developed systems and processes that are designed to
protect customer information and prevent data loss and other security breaches, including systems and processes designed to
reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security.
We Face Risks Related to System Interruption and Lack of Redundancy
We experience occasional system interruptions and delays that make our websites and services unavailable or slow to
respond and prevent us from efficiently fulfilling orders or providing services to third parties, which may reduce our net sales
and the attractiveness of our products and services. If we are unable to continually add software and hardware, effectively
upgrade our systems and network infrastructure, and take other steps to improve the efficiency of our systems, it could cause
system interruptions or delays and adversely affect our operating results.
10

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 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, including to satisfy indemnification obligations. We may need to obtain
licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms
acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses
or other rights with respect to intellectual property we do not own. These risks have been amplified by the increase in third
parties whose sole or primary business is to assert such claims.
Our digital content offerings depend in part on effective digital rights management technology to control access to digital
content. If the digital rights management technology that we use is compromised or otherwise malfunctions, we could be subject
to claims, and content providers may be unwilling to include their content in our service.
We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile
We have a rapidly evolving business model. The trading price of our common stock fluctuates significantly in response to,
among other risks, the risks described elsewhere in this Item 1A, as well as:

changes in interest rates;


11

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

quarterly variations in operating results;

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

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

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

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

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

Volatility in our stock price could adversely affect our business and financing opportunities and force us to increase our
cash compensation to employees or grant larger stock awards than we have historically, which could hurt our operating results or
reduce the percentage ownership of our existing stockholders, or both.
Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business
We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet,
e-commerce, electronic devices, and other services. Existing and future laws and regulations may impede our growth. These
regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile
communications, electronic device certification, electronic waste, energy consumption, environmental regulation, electronic
contracts and other communications, competition, consumer protection, web services, the provision of online payment services,
information reporting requirements, unencumbered Internet access to our services, the design and operation of websites, the
characteristics and quality of products and services, and the commercial operation of unmanned aircraft systems. It is not clear
how existing laws governing issues such as property ownership, libel, and personal privacy apply to the Internet, e-commerce,
digital content, and web services. Jurisdictions may regulate consumer-to-consumer online businesses, including certain aspects
of our seller programs. Unfavorable regulations and laws could diminish the demand for our products and services and increase
our cost of doing business.
We Do Not Collect Sales or Consumption Taxes in Some Jurisdictions
U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales taxes with respect to
remote sales. However, an increasing number of states have considered or adopted laws or administrative practices that attempt
to impose obligations on out-of-state retailers to collect taxes on their behalf. We support a Federal law that would allow states to
require sales tax collection under a nationwide system. More than half of our revenue is already earned in jurisdictions where we
collect sales tax or its equivalent. A successful assertion by one or more states or foreign countries requiring us to collect taxes
where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest.
We Could be Subject to Additional Income Tax Liabilities
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations,
and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other
conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are
many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our
effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower
statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions
for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses
and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our
deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations,
administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate
multinationals. The U.S., many countries in the European Union, and a number of other countries are actively considering
changes in this regard.
Except as required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign
subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the
U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes
on some or all of these undistributed earnings and our effective tax rate would be adversely affected. We are also subject to audit
in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us. In addition, in October
2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in
Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on
state aid. If this matter is adversely resolved, Luxembourg may be required to assess, and we may be required to pay, additional
12

amounts with respect to current and prior periods and our taxes in the future could increase. Although we believe our tax
estimates are reasonable, the final outcome of tax audits, investigations, and any related litigation could be materially different
from our historical income tax provisions and accruals. Developments in an audit, litigation, or the relevant laws, regulations,
administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the
period or periods for which that development occurs, as well as for prior and subsequent periods. For instance, the IRS is seeking
to increase our U.S. taxable income related to transfer pricing with our foreign subsidiaries for transactions undertaken in 2005
and 2006, and we are currently contesting the matter in U.S. Tax Court. In addition to the risk of additional tax for 2005 and
2006 transactions, if this litigation is adversely determined or if the IRS were to seek transfer pricing adjustments of a similar
nature for transactions in subsequent years, Amazon could be subject to significant additional tax liabilities.
Our Supplier Relationships Subject Us to a Number of Risks
We have significant suppliers, including licensors, and in some cases, limited or single-sources of supply, that are
important to our sourcing, services, manufacturing, and any related ongoing servicing of merchandise and content. We do not
have long-term arrangements with most of our suppliers to guarantee availability of merchandise, content, components, or
services, particular payment terms, or the extension of credit limits. If our current suppliers were to stop selling or licensing
merchandise, content, components, or services to us on acceptable terms, or delay delivery, including as a result of one or more
supplier bankruptcies due to poor economic conditions, as a result of natural disasters, or for other reasons, we may be unable to
procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all. In addition, if our
suppliers or other vendors violate applicable laws, regulations, our code of standards and responsibilities, or implement practices
regarded as unethical, unsafe, or hazardous to the environment, it could damage our reputation, limit our growth, and negatively
affect our operating results.
We May be Subject to Risks Related to Government Contracts and Related Procurement Regulations
Our contracts with U.S., as well as state, local, and foreign, government entities are subject to various procurement
regulations and other requirements relating to their formation, administration, and performance. We may be subject to audits and
investigations relating to our government contracts, and any violations could result in various civil and criminal penalties and
administrative sanctions, including termination of contract, refunding or suspending of payments, forfeiture of profits, payment
of fines, and suspension or debarment from future government business. In addition, such contracts may provide for termination
by the government at any time, without cause.
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
Some of the products we sell or manufacture may expose us to product liability claims relating to personal injury, death, or
environmental or property damage, and may require product recalls or other actions. Certain third parties also sell products using
our e-commerce platform that may increase our exposure to product liability claims, such as if these sellers do not have sufficient
protection from such claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate
for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In
addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.
We Are Subject to Payments-Related Risks
We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional
financing), gift cards, direct debit from a customers bank account, consumer invoicing, physical bank check, and payment upon
delivery. For existing and future payment options we offer to our customers, we may become subject to additional regulations
and compliance requirements (including obligations to implement enhanced authentication processes that could result in
significant costs and reduce the ease of use of our payments products), as well as 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 certain Amazon-branded payment methods and payment processing services,
including the processing of credit cards, debit cards, electronic checks, and promotional financing. In each case, it could disrupt
our business if these companies become unwilling or unable to provide these services to us. We also offer co-branded credit card
programs, which could adversely affect our operating results if terminated. We are also subject to payment card association
operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which
could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or
requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks costs,
subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers,
process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be
adversely affected.

13

In addition, we provide regulated services in certain jurisdictions because we enable customers to keep account balances
with us and transfer money to third parties, and because we provide services to third parties to facilitate payments on their behalf.
In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital maintenance,
the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also subject to or
voluntarily comply with a number of other laws and regulations relating to payments, money laundering, international money
transfers, privacy and information security, and electronic fund transfers. If we were found to be in violation of applicable laws
or regulations, we could be subject to additional requirements and civil and criminal penalties, or forced to cease providing
certain services.
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of providers of online payment services is currently unsettled. In addition, governmental
agencies could require changes in the way this business is conducted. Under our seller programs, we may be unable to prevent
sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the
products received are materially different from the sellers descriptions. Under our A2Z Guarantee, we reimburse buyers for
payments up to certain limits in these situations, and as our marketplace seller sales grow, the cost of this program will increase
and could negatively affect our operating results. We also may be unable to prevent sellers on our sites or through other seller
sites from selling unlawful goods, selling goods in an unlawful manner, or violating the proprietary rights of others, and could
face civil or criminal liability for unlawful activities by our sellers.
Item 1B.
Unresolved Staff Comments
None.

14

Item 2.

Properties

As of December 31, 2014, we operated the following facilities (in thousands):

Description of Use

Square
Footage (1)

Owned office space


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

1,802
5,672
3,371
10,845
735
57,898
272
43,969
102,874
113,719

Location

North America
North America
International
North America
North America
International
International

Lease
Expirations

From 2015 through 2028


From 2015 through 2027

From 2015 through 2029


From 2015 through 2033

___________________
(1) For leased properties, represents the total leased space excluding sub-leased space.
We own and lease our corporate headquarters in Seattle, Washington. Additionally, we own and lease corporate office,
fulfillment, sortation, delivery, 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 DataNote 8Commitments and Contingencies
Legal Proceedings.
Item 4.

Mine Safety Disclosures

Not applicable.

15

PART II
Item 5.

Market for the Registrants 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

Year ended December 31, 2013


First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Low

284.72 $
283.34
320.57
405.63

252.07
245.75
277.16
296.50

408.06 $
348.30
364.85
341.26

330.88
284.38
304.59
284.00

Holders
As of January 16, 2015, there were 2,744 shareholders of record of our common stock, although there is a much larger
number of beneficial owners.
Dividends
We have never declared or paid cash dividends on our common stock. See Item 7 of Part II, Managements Discussion
and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.

16

Item 6.

Selected Consolidated Financial Data

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements
and the notes thereto in Item 8 of Part II, Financial Statements and Supplementary Data, and the information contained in
Item 7 of Part II, Managements Discussion and Analysis of Financial Condition and Results of Operations. Historical results
are not necessarily indicative of future results.
Year Ended December 31,
2014

2013

2012

2011

2010

(in millions, except per share data)

Statements of Operations:
Net sales
Income from operations
Net income (loss)
Basic earnings per share (1)
Diluted earnings per share (1)
Weighted average shares used in computation of
earnings per share:
Basic
Diluted
Statements of Cash Flows:
Net cash provided by (used in) operating activities
Purchases of property and equipment, including
internal-use software and website development
Free cash flow (2)

$
$
$
$
$

88,988
178
(241)
(0.52)
(0.52)

$
$
$
$
$

$
$
$
$
$

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

$
$
$
$
$

48,077
862
631
1.39
1.37

$
$
$
$
$

462
462

457
465

453
453

453
461

6,842 $

5,475 $

4,180 $

3,903 $

(4,893)
$

74,452
745
274
0.60
0.59

1,949 $

(3,444)

(3,785)

2,031 $

395 $

(1,811)
2,092 $

34,204
1,406
1,152
2.58
2.53

447
456
3,495
(979)
2,516

December 31,
2014

2013

2012

2011

2010

(in millions)

Balance Sheets:
Total assets
Total long-term obligations

$
$

54,505 $
15,675 $

40,159 $
7,433 $

32,555 $
5,361 $

25,278 $
2,625 $

18,797
1,561

___________________
(1) For further discussion of earnings per share, see Item 8 of Part II, Financial Statements and Supplementary DataNote 1
Description of Business and Accounting Policies.
(2) Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less cash expenditures
for purchases of property and equipment, including internal-use software and website development, both of which are
presented on our consolidated statements of cash flows. See Item 7 of Part II, Managements Discussion and Analysis of
Financial Condition and Results of OperationsResults of OperationsNon-GAAP Financial Measures for additional
information as well as alternative free cash flow measures.

17

Item 7.

Managements 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 forwardlooking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking
statements. Forward-looking statements reflect managements 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, sortation, delivery, and data center optimization, risks of inventory
management, seasonality, the degree to which the Company enters into, maintains, and develops commercial agreements,
acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. In addition, the
current global economic climate amplifies many of these risks. These risks and uncertainties, as well as other risks and
uncertainties that could cause our actual results to differ significantly from managements expectations, are described in greater
detail in Item 1A of Part I, Risk Factors.
Overview
Our primary source of revenue is the sale of a wide range of products and services to customers. The products offered on
our consumer-facing websites primarily include merchandise and content we have purchased for resale from vendors and those
offered by third-party sellers, and we also manufacture and sell electronic devices. Generally, we recognize gross revenue from
items we sell from our inventory as product sales and recognize our net share of revenue of items sold by other sellers as service
sales. We also offer other services such as AWS, fulfillment, publishing, digital content subscriptions, 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 capital2 and cash capital expenditures. Increases in operating
income primarily result from increases in sales of products and services and efficiently managing our operating costs, partially
offset by investments we make in longer-term strategic initiatives. To increase sales of products and services, we focus on
improving all aspects of the customer experience, including lowering prices, improving availability, offering faster delivery and
performance times, increasing selection, increasing product categories and service offerings, expanding product information,
improving ease of use, improving reliability, and earning customer trust. We also seek to efficiently manage shareholder dilution
while maintaining the flexibility to issue shares for strategic purposes, such as financings, acquisitions, and aligning employee
compensation with shareholders interests. We utilize restricted stock units as our primary vehicle for equity compensation
because we believe this compensation model aligns the long-term interests of our shareholders and employees. In measuring
shareholder dilution, we include all vested and unvested stock awards outstanding, without regard to estimated forfeitures. Total
shares outstanding plus outstanding stock awards were 483 million and 476 million as of December 31, 2014 and 2013.
We seek to reduce our variable costs per unit and work to leverage our fixed costs. Our variable costs include product and
content costs, payment processing and related transaction costs, picking, packaging, and preparing orders for shipment,
transportation, customer service support, costs necessary to run AWS, and a portion of our marketing costs. Our fixed costs
include the costs necessary to run our technology infrastructure; to build, enhance, and add features to our websites and web
services, our electronic devices, and digital offerings; and to build and optimize our fulfillment centers. Variable costs generally
change directly with sales volume, while fixed costs generally are dependent 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 from suppliers, and reduce defects in our processes. To
minimize growth in fixed costs, we seek to improve process efficiencies and maintain a lean culture.
_______________________
(1) Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less cash expenditures
for purchases of property and equipment, including internal-use software and website development, both of which are
presented on our consolidated statements of cash flows. See Results of OperationsNon-GAAP Financial Measures
below for additional information as well as alternative free cash flow measures.
(2) Working capital consists of accounts receivable, inventory, and accounts payable.
18

Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle3. On average,
our high inventory velocity means we generally collect from consumers before our payments to suppliers come due. Inventory
turnover4 was 9 for 2014, 2013, and 2012. We expect variability in inventory turnover over time since it is affected by several
factors, including our product mix, the mix of sales by us and by other sellers, our continuing focus on in-stock inventory
availability and selection of product offerings, our investment in new geographies and product lines, and the extent to which we
choose to utilize third-party fulfillment providers. Accounts payable days5 were 73, 74, and 76 for 2014, 2013, and 2012. We
expect some variability in accounts payable days over time since they are affected by several factors, including the mix of
product sales, the mix of sales by other sellers, the mix of suppliers, seasonality, and changes in payment terms over time,
including the effect of balancing pricing and timing of payment terms with suppliers.
We expect spending in technology and content will increase over time as we add computer scientists, designers, software
and hardware engineers, and merchandising employees. Our technology and content investment and capital spending projects
often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems
and operations. We seek to efficiently invest in several areas of technology and content such as web services, expansion of new
and existing product categories and offerings, and initiatives to expand our ecosystem of digital products and services, as well as
in technology infrastructure to enhance the customer experience and improve our process efficiencies. We believe that advances
in technology, specifically the speed and reduced cost of processing power and the advances of wireless connectivity, will
continue to improve the consumer experience on the Internet and increase its ubiquity in peoples lives. To best take advantage of
these continued advances in technology, we are investing in initiatives to build and deploy innovative and efficient software and
electronic devices. We are also investing in AWS, which provides technology services that give developers and enterprises of all
sizes access to technology infrastructure that enables virtually any type of business.
Our financial reporting currency is the U.S. Dollar and changes in foreign 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 foreign currency exchange rates. Currency volatilities may continue, which may significantly impact
(either positively or negatively) our reported results and consolidated trends and comparisons.
For additional information about each line item summarized above, refer to Item 8 of Part II, Financial Statements and
Supplementary DataNote 1Description 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 companys critical accounting policies as the ones that are most important to the portrayal of the
companys 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 DataNote 1Description of Business and
Accounting Policies. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon
information presently available. Actual results may differ significantly from these estimates under different assumptions,
judgments, or conditions.
_______________________
(3) The operating cycle is the number of days of sales in inventory plus the number of days of sales in accounts receivable
minus accounts payable days.
(4) Inventory turnover is the quotient of trailing twelve month cost of sales to average inventory over five quarter ends.
(5) Accounts payable days, calculated as the quotient of accounts payable to current quarter cost of sales, multiplied by the
number of days in the current quarter.
19

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 currentlyavailable information, about the likely method of disposition, such as through sales to individual customers, returns to product
vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future
disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material
write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of
December 31, 2014, we would have recorded an additional cost of sales of approximately $95 million.
In addition, we enter into supplier commitments for certain electronic device components. These commitments are based
on forecasted customer demand. If we reduce these commitments, we may incur additional costs.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that
indicate the carrying value may not be recoverable. Our annual testing date is October 1. We test goodwill for impairment by first
comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the
book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to
compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We
estimate the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best
estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment
share, and general economic conditions. Certain estimates of discounted cash flows involve businesses and geographies with
limited financial history and developing revenue models. Changes in these forecasts could significantly change the amount of
impairment recorded, if any.
During the year, management monitored the actual performance of the business relative to the fair value assumptions used
during our annual goodwill impairment test. For the periods presented, no triggering events were identified that required an
interim impairment test. As a measure of sensitivity, a 10% decrease in the fair value of any of our reporting units as of
December 31, 2014, 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 a discount rate and through our stock price that we use to determine our market capitalization.
During times of volatility, significant judgment must be applied to determine whether credit or stock price changes are short-term
in nature or a longer-term trend. We have not made any significant changes to the accounting methodology used to evaluate
goodwill impairment. Changes in our estimated future cash flows and asset fair values may cause us to realize material
impairment charges in the future. As a measure of sensitivity, a prolonged 20% decrease from our December 31, 2014 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 estimated number of stock awards that will ultimately vest requires judgment,
and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a
cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures,
including employee classification, economic environment, and historical experience. We update our estimated forfeiture rate
quarterly. We have not made any significant changes to the accounting methodology used to evaluate stock-based compensation.
Changes in our estimates and assumptions may cause us to realize material changes in stock-based compensation expense in the
future. As a measure of sensitivity, a 1% change to our estimated forfeiture rate would have had an approximately $30 million
impact on our 2014 operating income. Our estimated forfeiture rate as of December 31, 2014 and 2013 was 27%.
We utilize the accelerated method, rather than the straight-line method, for recognizing compensation expense. For
example, over 50% of the compensation cost related to an award vesting ratably over four years is expensed in the first year. If
forfeited early in the life of an award, the compensation expense adjustment is much greater under an accelerated method than
under a straight-line method.
Income Taxes
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations,
and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other
conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are
20

many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our
effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower
statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions
for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses
and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our
deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations,
administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate
multinationals. The U.S., many countries in the European Union, and a number of other countries are actively considering
changes in this regard.
Except as required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign
subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the
U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes
on some or all of these undistributed earnings and our effective tax rate would be adversely affected. We are also subject to audit
in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us. In addition, in October
2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in
Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on
state aid. If this matter is adversely resolved, Luxembourg may be required to assess, and we may be required to pay, additional
amounts with respect to current and prior periods and our taxes in the future could increase. Although we believe our tax
estimates are reasonable, the final outcome of tax audits, investigations, and any related litigation could be materially different
from our historical income tax provisions and accruals. Developments in an audit, litigation, or the relevant laws, regulations,
administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the
period or periods for which that development occurs, as well as for prior and subsequent periods. For instance, the IRS is seeking
to increase our U.S. taxable income related to transfer pricing with our foreign subsidiaries for transactions undertaken in 2005
and 2006, and we are currently contesting the matter in U.S. Tax Court. In addition to the risk of additional tax for 2005 and
2006 transactions, if this litigation is adversely determined or if the IRS were to seek transfer pricing adjustments of a similar
nature for transactions in subsequent years, Amazon could be subject to significant additional tax liabilities.
Recent Accounting Pronouncements
See Item 8 of Part II, Financial Statements and Supplementary DataNote 1Description of Business and Accounting
PoliciesRecent Accounting Pronouncements.

21

Liquidity and Capital Resources


Cash flow information is as follows (in millions):
Year Ended December 31,
2014

Cash provided by (used in):


Operating activities
Investing activities
Financing activities

6,842 $
(5,065)
4,432

2013

5,475 $
(4,276)
(539)

2012

4,180
(3,595)
2,259

Our financial focus is on long-term, sustainable growth in free cash flow. Free cash flow, a non-GAAP financial measure,
was $1.9 billion for 2014, compared to $2.0 billion and $395 million for 2013 and 2012. See Results of OperationsNonGAAP Financial Measures for a reconciliation of free cash flow to cash provided by operating activities. The decrease in free
cash flow for 2014, compared to the comparable prior year period, was due to increased cash capital expenditures partially offset
by higher operating cash flows. The increase in free cash flow for 2013, compared to the comparable prior year period, was due
to higher operating cash flows and decreased cash capital expenditures. Operating cash flows and free cash flows can be volatile
and are sensitive to many factors, including changes in working capital, the timing and magnitude of capital expenditures,
including our decision to finance property and equipment under capital leases and other financing arrangements, and our net
income (loss). Working capital at any specific point in time is subject to many variables, including seasonality, inventory
management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in
foreign exchange rates.
Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable
securities balances, which, at fair value, were $17.4 billion, $12.4 billion, and $11.4 billion as of December 31, 2014, 2013, and
2012. Cash and cash equivalents also reflects net proceeds from the issuance of $6.0 billion of long-term debt as of December
31, 2014. Amounts held in foreign currencies were $5.4 billion, $5.6 billion, and $5.1 billion as of December 31, 2014, 2013, and
2012, and were primarily British Pounds, Chinese Yuan, Euros, and Japanese Yen.
Cash provided by operating activities was $6.8 billion, $5.5 billion, and $4.2 billion in 2014, 2013, and 2012. Our
operating cash flows result primarily from cash received from our consumer, seller, and enterprise customers, advertising
agreements, and our co-branded credit card agreements, offset by cash payments we make for products and services, employee
compensation (less amounts capitalized related to internal-use software that are reflected as cash used in investing activities),
payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations. Cash
received from our consumer, seller, and enterprise customers, and other activities generally corresponds to our net sales. Because
consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly. The increase in operating
cash flow in 2014, compared to the comparable prior year period, was primarily due to the increase in non-cash charges to net
income, including depreciation, amortization, and stock-based compensation, partially offset by changes in working capital. The
increase in operating cash flow in 2013, compared to the comparable prior year period, was primarily due to the increase in net
income, excluding depreciation, amortization, and stock-based compensation, partially offset by changes in working capital.
Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold
improvements, internal-use software and website development costs, cash outlays for acquisitions, investments in other
companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash provided by (used
in) investing activities was $(5.1) billion, $(4.3) billion, and $(3.6) billion in 2014, 2013, and 2012, with the variability caused
primarily by changes in capital expenditures, purchases, maturities, and sales of marketable securities and other investments, and
changes in cash paid for acquisitions. Cash capital expenditures were $4.9 billion, $3.4 billion, and $3.8 billion during 2014,
2013, and 2012. In December 2012, we acquired 11 buildings comprising 1.8 million square feet of our previously leased
corporate office space and three city blocks in Seattle, Washington for $1.4 billion. Excluding this acquisition, increases in
capital expenditures primarily reflect additional capacity to support our fulfillment operations and additional investments in
support of continued business growth due to investments in technology infrastructure, including AWS, during all three periods.
We expect this trend to continue over time. Capital expenditures included $537 million, $493 million, and $381 million for
internal-use software and website development during 2014, 2013, and 2012. Stock-based compensation capitalized for internaluse software and website development costs does not affect cash flows. In 2014, 2013, and 2012, we made cash payments, net of
acquired cash, related to acquisition and other investment activity of $979 million, $312 million, and $745 million.

22

Additionally, in January 2015, we signed an agreement to acquire a technology company for approximately $350 million in
cash, which we expect to satisfy with cash on hand. We expect the acquisition to close in the first half of 2015, subject to closing
conditions.
Cash provided by (used in) financing activities was $4.4 billion, $(539) million, and $2.3 billion in 2014, 2013, and 2012.
Cash outflows from financing activities result from common stock repurchases, principal payments on obligations related to
capital and finance leases, and repayments of long-term debt. Principal payments on obligations related to capital leases, finance
leases, and repayments of long-term debt were $1.9 billion, $1.0 billion, and $588 million in 2014, 2013, and 2012. Property and
equipment acquired under capital leases were $4.0 billion, $1.9 billion, and $802 million in 2014, 2013, and 2012, with the
increases reflecting additional investments in support of continued business growth primarily due to investments in technology
infrastructure for AWS. We expect this trend to continue over time. We repurchased 5.3 million shares of common stock for $960
million in 2012 under the $2.0 billion repurchase program authorized by our Board of Directors in January 2010. Cash inflows
from financing activities primarily result from proceeds from long-term debt and tax benefits relating to excess stock-based
compensation deductions. Proceeds from long-term debt and other were $6.4 billion, $394 million, and $3.4 billion in 2014,
2013, and 2012. During 2014, cash inflows from financing activities consisted primarily of net proceeds from the issuance of
$6.0 billion of senior nonconvertible unsecured debt in five tranches maturing in 2019 through 2044. During 2012, cash inflows
from financing activities consisted primarily of net proceeds from the issuance of $3.0 billion of senior nonconvertible unsecured
debt in three tranches maturing in 2015 through 2022. See Item 8 of Part II, Financial Statements and Supplementary Data
Note 6Long-Term Debt for additional discussion of the notes. Tax benefits relating to excess stock-based compensation
deductions are presented as financing cash flows. Cash inflows from tax benefits related to stock-based compensation deductions
were $6 million, $78 million, and $429 million in 2014, 2013, and 2012.
In September 2014, we entered into an unsecured revolving credit facility (the Credit Agreement) with a syndicate of
lenders that provides us with a borrowing capacity of up to $2.0 billion. We had no borrowings outstanding under the Credit
Agreement as of December 31, 2014. See Item 8 of Part II, Financial Statements and Supplementary DataNote 6LongTerm Debt for additional information.
In 2014, 2013, and 2012 we recorded net tax provisions of $167 million, $161 million, and $428 million. Except as
required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not
been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes
or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these
undistributed earnings and our effective tax rate would be adversely affected. As of December 31, 2014, cash, cash equivalents,
and marketable securities held by foreign subsidiaries were $4.6 billion, which included undistributed earnings of foreign
subsidiaries indefinitely invested outside of the U.S. of $2.5 billion. We have tax benefits relating to excess stock-based
compensation deductions and accelerated depreciation deductions that are being utilized to reduce our U.S. taxable income. In
December 2014, U.S. legislation was enacted providing a one year extension of accelerated depreciation deductions on
qualifying property through 2014. Cash taxes paid (net of refunds) were $177 million, $169 million, and $112 million for 2014,
2013, and 2012. As of December 31, 2014, our federal net operating loss carryforward was approximately $1.9 billion and we
had approximately $443 million of federal tax credits potentially available to offset future tax liabilities. Our federal tax credits
are primarily related to the U.S. federal research and development credit, which expired in 2014. As we utilize our federal net
operating losses and tax credits, we expect cash paid for taxes to significantly increase. We endeavor to manage our global taxes
on a cash basis, rather than on a financial reporting basis.
Our liquidity is also affected by restricted cash balances that are pledged as collateral for standby and trade letters of credit,
guarantees, debt, and real estate leases. To the extent we process payments for third-party sellers or offer certain types of stored
value to our customers, some jurisdictions may restrict our use of those funds. These restrictions would result in the
reclassification of a portion of our cash and cash equivalents from Cash and cash equivalents to Accounts receivable, net and
other on our consolidated balance sheets. As of December 31, 2014 and 2013, restricted cash, cash equivalents, and marketable
securities were $450 million and $301 million. See Item 8 of Part II, Financial Statements and Supplementary DataNote 8
Commitments and Contingencies for additional discussion of our principal contractual commitments, as well as our pledged
assets. Purchase obligations and open purchase orders, consisting of inventory and significant non-inventory commitments, were
$4.5 billion as of December 31, 2014. Purchase obligations and open purchase orders are generally cancellable in full or in part
through the contractual provisions.
On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers
come due. Inventory turnover was 9 for 2014, 2013, and 2012. We expect variability in inventory turnover over time since it is
affected by several factors, including our product mix, the mix of sales by us and by third-party sellers, our continuing focus
on in-stock inventory availability and selection of product offerings, our investment in new geographies and product lines, and
the extent to which we choose to utilize third-party fulfillment providers.
23

We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances,
and borrowing available under our credit agreements 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, obtain capital, finance, and operating lease arrangements, repurchase common stock, pay dividends, or repurchase,
refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.
The sale of additional equity or convertible debt securities would likely be dilutive to our shareholders. In addition, we
will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital
infrastructure and technologies, which might affect our liquidity requirements or cause us to secure additional financing, or issue
additional equity or debt securities. There can be no assurance that additional lines-of-credit or financing instruments will be
available in amounts or on terms acceptable to us, if at all.

24

Results of Operations
We have organized our operations into two segments: North America and International. We present our segment
information along the same lines that our Chief Executive Officer reviews our operating results in assessing performance and
allocating resources.
Net Sales
Net sales include product and service sales. Product sales represent revenue from the sale of products and related shipping
fees and digital media content where we record revenue gross. Service sales represent third-party seller fees earned (including
commissions) and related shipping fees, digital content subscriptions, and non-retail activities such as AWS, advertising services,
and our co-branded credit card agreements. Amazon Prime membership fees are allocated between product sales and service
sales and amortized over the life of the membership according to the estimated delivery of services. Net sales information is as
follows (in millions):
Year Ended December 31,
2014

Net Sales:
North America
International

Total consolidated

Year-over-year Percentage Growth:


North America
International
Total consolidated
Year-over-year Percentage Growth, excluding effect of foreign exchange rates:
North America
International
Total consolidated
Net Sales Mix:
North America
International
Total consolidated

2013

55,469
33,519
88,988

$
$

2012

44,517
29,935
74,452

$
$

34,813
26,280
61,093

25%
12
20

28%
14
22

30%
23
27

25%
14
20

28%
19
24

30%
27
29

62%
38
100%

60%
40
100%

57%
43
100%

Sales increased 20%, 22%, and 27% in 2014, 2013, and 2012, compared to the comparable prior year periods. Changes in
foreign currency exchange rates impacted net sales by $(636) million, $(1.3) billion, and $(854) million for 2014, 2013, and
2012. For a discussion of the effect on sales growth of foreign exchange rates, see Effect of Foreign Exchange Rates below.
North America sales increased 25%, 28%, and 30% in 2014, 2013, and 2012, compared to the comparable prior year
periods. The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers, and AWS,
which was partially offset by AWS pricing changes. Increased unit sales were driven largely by our continued efforts to reduce
prices for our customers, including from our shipping offers, by sales in faster growing categories such as electronics and other
general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings.
International sales increased 12%, 14%, and 23% in 2014, 2013, and 2012, compared to the comparable prior year periods.
The sales growth in each year primarily reflects increased unit sales, including sales by marketplace sellers. Increased unit sales
were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by sales in
faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by
increased selection of product offerings. Additionally, changes in foreign currency exchange rates impacted International net
sales by $(580) million, $(1.3) billion, and $(853) million in 2014, 2013, and 2012.

25

Supplemental Information
Supplemental information about outbound shipping results is as follows (in millions):
Year Ended December 31,
2014

Outbound Shipping Activity:


Shipping revenue (1)(2)(3)
Shipping costs (4)

Net shipping cost

Year-over-year Percentage Growth:


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

4,486
(8,709)
(4,223)

2013

$
$

3,097
(6,635)
(3,538)

2012

$
$

2,280
(5,134)
(2,854)

45 %
31
19

36 %
29
24

47 %
29
17

5.1 %
(9.8)
(4.7)%

4.1 %
(8.9)
(4.8)%

3.7 %
(8.4)
(4.7)%

___________________
(1) Excludes amounts earned on shipping activities by third-party sellers where we do not provide the fulfillment service.
(2) Includes a portion of amounts earned from Amazon Prime memberships.
(3) Includes amounts earned from Fulfillment by Amazon programs related to shipping services.
(4) Includes sortation and delivery center costs.
We expect our net cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at
an increasing rate, our product mix shifts to the electronics and other general merchandise category, we reduce shipping rates, we
use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part
through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our suppliers,
and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future
success, and one way we offer lower prices is through shipping offers.

26

We have aggregated our products and services into groups of similar products and services and provided the supplemental
disclosure of net sales (in millions) below. We evaluate whether additional disclosure is appropriate when a product or service
category begins to approach a significant level of net sales. For the periods presented, no individual product or service
represented more than 10% of net sales.
Year Ended December 31,
2014

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 effect of foreign 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

2013

11,567

38,517

10,809

5,385
$

10,938

34,813

10,907

10,753

18,817

212

211

33,519

22,505

172
$

26,280

21,716

19,942

48,802

5,597

3,934

7%

15,355

29,935

60,886
$

2,351

44,517

22,369
$

74,452

38,628
2,523
$

61,093

18%

15%

28

29

34

45

58

64

25

28

30

1%

9%

19

23

22

11

12

14

23

4%

9%

35

12%

25

26

35

42

56

59

20

22

27

2%

7%

12%

21

27

40

26

15

14

19

27

12%

14%

26

5%

28

36

42

56

59

20

24

29

25%

29%

33%

68

66

63

100%

100%

100%

_____________________________

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

27

9,189
23,273

3,723

55,469

88,988

29,985

2012

Operating Expenses
Information about operating expenses with and without stock-based compensation is as follows (in millions):
Year Ended December 31, 2014
As
Reported

Stock-Based
Compensation

Year Ended December 31, 2013

Net

As
Reported

Stock-Based
Compensation

Year Ended December 31, 2012


Stock-Based
Compensation

As
Reported

Net

Net

Operating Expenses:
Cost of sales

$ 62,752

$ 62,752

$ 54,181

$ 54,181

$ 45,971

$ 45,971

Fulfillment

10,766

(375)

10,391

8,585

(294)

8,291

6,419

(212)

6,207

Marketing

4,332

(125)

4,207

3,133

(88)

3,045

2,408

(61)

2,347

Technology and content

9,275

(804)

8,471

6,565

(603)

5,962

4,564

(434)

4,130

General and administrative

1,552

(193)

1,359

1,129

(149)

980

896

(126)

770

Other operating expense


(income), net
Total operating expenses
Year-over-year Percentage Growth:
Fulfillment

133
$ 88,810

(1,497)

133

114

$ 87,313

$ 73,707

(1,134)

114

159

$ 72,573

$ 60,417

(833)

159
$ 59,584

25%

25%

34%

34%

40%

40%

Marketing

38

38

30

30

48

47

Technology and content

41

42

44

44

57

58

General and administrative

37

39

26

27

36

36

Fulfillment

12.1%

11.7%

11.5%

11.1%

10.5%

10.2%

Marketing

4.9

4.7

4.2

4.1

3.9

3.8

10.4

9.5

8.8

8.0

7.5

6.8

1.7

1.5

1.5

1.3

1.5

1.3

Percent of Net Sales:

Technology and content


General and administrative

Operating expenses without stock-based compensation are non-GAAP financial measures. See Non-GAAP Financial
Measures and Item 8 of Part II, Financial Statements and Supplementary DataNote 1Description of Business and
Accounting PoliciesStock-Based Compensation.
We recorded charges related to Fire phone inventory valuation and supplier commitment costs, substantially all of which,
$170 million, was recorded during the third quarter of 2014.
Cost of Sales
Cost of sales consists of the purchase price of consumer products and digital media content where we record revenue gross,
including Prime Instant Video, packaging supplies, and inbound and outbound shipping costs, including sortation and delivery
centers, and related equipment costs. Shipping costs to receive products from our suppliers are included in our inventory, and
recognized as cost of sales upon sale of products to our customers.
The increase in cost of sales in absolute dollars in 2014, 2013, and 2012, compared to the comparable prior year periods, is
primarily due to increased product, digital media content, and shipping costs resulting from increased sales, as well as from
expansion of digital offerings. The increase in 2014 was also impacted by Fire phone inventory valuation and supplier
commitment costs.
Consolidated gross profit and gross margin for each of the periods presented were as follows (in millions):
Year Ended December 31,

Gross profit
Gross margin

2014

2013

2012

26,236 $
29.5%

20,271 $
27.2%

15,122
24.8%

Gross margin increased in 2014, compared to the comparable prior year periods, primarily due to service sales increasing
as a percentage of total sales. Service sales represent third-party seller fees earned (including commissions) and related shipping
fees, digital content subscriptions, and non-retail activities such as AWS, advertising services, and our co-branded credit card
agreements.

28

We believe that income (loss) from operations is a more meaningful measure than gross profit and gross margin due to the
diversity of our product categories and services.
Fulfillment
Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related
transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled,
timing of fulfillment capacity expansion, the extent we utilize fulfillment services provided by third parties, mix of products and
services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and
enhancements to our customer self-service features. Additionally, because payment processing and fulfillment costs associated
with seller transactions are based on the gross purchase price of underlying transactions, and payment processing and related
transaction and fulfillment costs are higher as a percentage of sales versus our retail sales, sales by our sellers have higher
fulfillment costs as a percent of net sales.
The increase in fulfillment costs in absolute dollars in 2014, 2013, and 2012, compared to the comparable prior year
periods, is primarily due to variable costs corresponding with increased physical and digital product and service sales volume,
inventory levels, and sales mix; costs from expanding fulfillment capacity; and payment processing and related transaction costs.
We seek to expand our fulfillment capacity to accommodate greater selection and in-stock inventory levels and to meet
anticipated shipment volumes from sales of our own products as well as sales by third parties for which we provide the
fulfillment services. We 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 2014, 2013, and 2012, compared to the comparable prior year
periods, is primarily due to increased spending on online marketing channels, such as our sponsored search programs, payroll
and related expenses, and television advertising.
While costs associated with Amazon Prime memberships and other shipping offers are not included in marketing expense,
we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.
Technology and Content
We seek to efficiently invest in several areas of technology and content such as technology infrastructure, including AWS,
expansion of new and existing product categories and offerings, and initiatives to expand our ecosystem of digital products and
services, as well as in technology infrastructure so we may continue to enhance the customer experience and improve our process
efficiency through rapid technology developments while operating at an ever increasing scale. We expect spending in technology
and content to increase over time as we continue to add employees and technology infrastructure. Digital media content where
we record revenue gross, including Prime Instant Video, is included in cost of sales.
Technology costs consist principally of research and development activities including payroll and related expenses for
employees involved in application, production, maintenance, operation, and platform development for new and existing products
and services, as well as AWS and other technology infrastructure expenses.
Content costs consist principally of payroll and related expenses for employees involved in category expansion, editorial
content, buying, and merchandising selection.
The increase in technology and content costs in absolute dollars in 2014, 2013, and 2012, compared to the comparable
prior year periods, is primarily due to increased spending on technology infrastructure, including AWS, and increases in payroll
and related expenses, including those associated with our initiatives to expand our ecosystem of digital products and services. We
expect these trends to continue over time as we invest in these areas by increasing payroll and related expenses and adding
technology infrastructure.
For 2014, 2013, and 2012, we capitalized $641 million (including $104 million of stock-based compensation), $581
million (including $87 million of stock-based compensation), and $454 million (including $74 million of stock-based
compensation) of costs associated with internal-use software and website development. Amortization of previously capitalized
29

amounts was $559 million, $451 million, and $327 million for 2014, 2013, and 2012. A majority of our technology costs are
incurred in the U.S., most of which are allocated to our North America segment. Infrastructure, other technology, and operating
costs incurred to support AWS are included in technology and content.
General and Administrative
The increase in general and administrative costs in absolute dollars in 2014, 2013, and 2012, 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 $1.5 billion, $1.1 billion, and $833 million during 2014, 2013, and 2012. The increase in
2014, 2013, and 2012, compared to the comparable prior year periods, is primarily due to an increase in the number of stockbased compensation awards granted to existing and new employees.
Other Operating Expense (Income), Net
Other operating expense (income), net was $133 million, $114 million, and $159 million during 2014, 2013, and 2012, and
was primarily related to the amortization of intangible assets.
Income from Operations
For the reasons discussed above, income from operations decreased 76% in 2014, increased 10% in 2013, and decreased
22% in 2012.
Interest Income and Expense
Our interest income was $39 million, $38 million, and $40 million during 2014, 2013, and 2012. 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 based on the prevailing rates, which vary depending on
the geographies and currencies in which they are invested.
The primary components of our interest expense are related to our long-term debt and capital and finance lease
arrangements. Interest expense was $210 million, $141 million, and $92 million in 2014, 2013, and 2012.
Our long-term debt was $8.3 billion and $3.2 billion as of December 31, 2014 and 2013. Our other long-term liabilities
were $7.4 billion and $4.2 billion as of December 31, 2014 and 2013. See Item 8 of Part II, Financial Statements and
Supplementary DataNote 6Long-Term Debt and Note 7Other Long-Term Liabilities for additional information.
Other Income (Expense), Net
Other income (expense), net was $(118) million, $(136) million, and $(80) million during 2014, 2013, and 2012. The
primary component of other income (expense), net is related to foreign-currency gains (losses).
Income Taxes
Our effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and
taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do business, acquisitions (including
integrations) and investments, audit-related developments, foreign currency gains (losses), changes in law, regulations, and
administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our
effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete
items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.
We recorded a provision for income taxes of $167 million, $161 million, and $428 million in 2014, 2013, and 2012. Our
provision for income taxes in 2014 was higher than in 2013 primarily due to the increased losses in certain foreign subsidiaries
for which we may not realize a tax benefit and audit-related developments, partially offset by the favorable impact of earnings in
lower tax rate jurisdictions. Losses for which we may not realize a related tax benefit reduce our pre-tax income without a
corresponding reduction in our tax expense, and therefore increase our effective tax rate. We have recorded valuation allowances
against the deferred tax assets associated with losses for which we may not realize a related tax benefit. Income earned in lower
tax jurisdictions is primarily related to our European operations, which are headquartered in Luxembourg.
In 2013, our provision for income taxes was lower than in 2012 primarily due to a decline in the proportion of our losses
for which we may not realize a related tax benefit, the favorable impact of earnings in lower tax rate jurisdictions, and the
30

retroactive extension in 2013 of the U.S. federal research and development credit to 2012. In 2013, we recognized tax benefits
for a greater proportion of losses for which we may not realize a tax benefit, primarily due to losses of certain foreign
subsidiaries, as compared to 2012. The favorable impact of earnings in lower tax rate jurisdictions was primarily related to our
European operations.
We have tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that
are being utilized to reduce our U.S. taxable income. In December 2014, U.S. legislation was enacted providing a one year
extension of accelerated depreciation deductions on qualifying property and the U.S. federal research and development credit
through December 31, 2014. As of December 31, 2014, our federal net operating loss carryforward was approximately $1.9
billion and we had approximately $443 million of federal tax credits potentially available to offset future tax liabilities. Our
federal tax credits are primarily related to the U.S. federal research and development credit, which expired in 2014.
See Item 8 of Part II, Financial Statements and Supplementary Data-Note 11-Income Taxes for additional information.
Equity-Method Investment Activity, Net of Tax
Equity-method investment activity, net of tax, was $37 million, $(71) million, and $(155) million in 2014, 2013, and 2012.
Details of the activity are provided below (in millions):
Year Ended December 31,
2014

Equity in earnings (loss) of LivingSocial:


Impairment charges recorded by LivingSocial
Gain on existing equity interests, LivingSocial acquisitions
Operating and other earnings (losses) (1)

Total equity in earnings (loss) of LivingSocial


Other equity-method investment activity:
Amazon dilution gains on LivingSocial investment
Other, net
Total other equity-method investment activity
Equity-method investment activity, net of tax

2013

2012

36
36

(12) $

(58)
(70)

(170)
75
(96)
(191)

1
1
37 $

(1)
(1)
(71) $

37
(1)
36
(155)

___________________
(1) Includes a $65 million gain related to LivingSocials disposal of its Korean operations in the first quarter of 2014.
Effect of Foreign Exchange Rates
The effect on our consolidated statements of operations from changes in foreign exchange rates versus the U.S. Dollar is as
follows (in millions):
Year Ended December 31, 2014
At Prior
Year
Rates (1)

Net sales
Operating expenses
Income (loss) from operations

Exchange
Rate
Effect (2)

$ 89,624 $
89,466
158

As
Reported

Year Ended December 31, 2013


At Prior
Year
Rates (1)

Exchange
Rate
Effect (2)

(636) $ 88,988 $ 75,736 $


(656)
20

As
Reported

Year Ended December 31, 2012


At Prior
Year
Rates (1)

Exchange
Rate
Effect (2)

As
Reported

(1,284) $ 74,452 $ 61,947 $

(854) $ 61,093

88,810

74,962

(1,255)

73,707

61,257

(840)

60,417

178

774

(29)

745

690

(14)

676

___________________

(1) Represents the outcome that would have resulted had foreign exchange rates in the reported period been the same as those in
effect in the comparable prior year period for operating results.
(2) Represents the increase or decrease in reported amounts resulting from changes in foreign exchange rates from those in
effect in the comparable prior year period for operating results.

31

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 foreign exchange rates on our consolidated statements of operations, meet
the definition of non-GAAP financial measures.
We provide multiple measures of free cash flow, and ratios based on them, because we believe these measures provide
additional perspective on the impact of acquiring property and equipment with cash and through capital and finance leases.
Free cash flow is cash flow from operations reduced by Purchases of property and equipment, including internal-use
software and website development, which are included in cash flow from investing activities. The following is a reconciliation
of free cash flow to the most comparable GAAP cash flow measure, Net cash provided by (used in) operating activities, for
2014, 2013, and 2012 (in millions):
Year Ended December 31,
2014

2013

2012

Net cash provided by (used in) operating activities


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

6,842 $

5,475 $

4,180

Free cash flow

(4,893)
1,949 $

(3,444)
2,031 $

(3,785)
395

Net cash provided by (used in) investing activities

(5,065) $

(4,276) $

(3,595)

Net cash provided by (used in) financing activities

4,432 $

(539) $

2,259

Free cash flow less lease principal repayments is free cash flow reduced by Principal repayments of capital lease
obligations, and Principal repayments of finance lease obligations, which are included in cash flow from financing activities.
The following is a reconciliation of free cash flow less lease principal repayments to the most comparable GAAP cash flow
measure, Net cash provided by (used in) operating activities, for 2014, 2013, and 2012 (in millions):
Year Ended December 31,
2014

2013

2012

Net cash provided by (used in) operating activities


Purchases of property and equipment, including internal-use software and website
development
Principal repayments of capital lease obligations
Principal repayments of finance lease obligations

6,842 $

5,475 $

4,180

Free cash flow less lease principal repayments

(4,893)
(1,285)
(135)
529 $

(3,444)
(775)
(5)
1,251 $

(3,785)
(486)
(20)
(111)

Net cash provided by (used in) investing activities

(5,065) $

(4,276) $

(3,595)

Net cash provided by (used in) financing activities

4,432 $

(539) $

32

2,259

Free cash flow less finance principal lease repayments and capital acquired under capital leases is free cash flow reduced
by Principal repayments of finance lease obligations, which are included in cash flow from financing activities, and property
and equipment acquired under capital leases. In this measure, property and equipment acquired under capital leases is reflected
as if these assets had been acquired with cash. The following is a reconciliation of free cash flow less finance principal lease
repayments and capital acquired under capital leases to the most comparable GAAP cash flow measure, Net cash provided by
(used in) operating activities, for 2014, 2013, and 2012 (in millions):
Year Ended December 31,
2014

Net cash provided by (used in) operating activities


Purchases of property and equipment, including internal-use software and website
development
Property and equipment acquired under capital leases
Principal repayments of finance lease obligations

6,842 $

2013

2012

5,475 $

4,180

(4,893)
(4,008)

(3,444)
(1,867)

(3,785)
(802)

(135)

(5)

(20)

Free cash flow less finance principal lease repayments and capital acquired under
capital leases

(2,194) $

159 $

(427)

Net cash provided by (used in) investing activities

(5,065) $

(4,276) $

(3,595)

Net cash provided by (used in) financing activities

4,432 $

(539) $

2,259

All of these free cash flow measures have limitations as they omit certain components of the overall cash flow statement
and do not represent the residual cash flow available for discretionary expenditures. For example, these measures of free cash
flow do not incorporate the portion of payments representing principal reductions of debt or cash payments for business
acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change over
time. Therefore, we believe it is important to view free cash flow measures only as a complement to our entire consolidated
statements of cash flows.
Operating expenses with and without stock-based compensation is provided to show the impact of stock-based
compensation, which is non-cash and excluded from our internal operating plans and measurement of financial performance
(although we consider the dilutive impact to our shareholders when awarding stock-based compensation and value such awards
accordingly). In addition, unlike other centrally-incurred operating costs, stock-based compensation is not allocated to segment
results and therefore excluding it from operating expenses is consistent with our segment presentation in our footnotes to the
consolidated financial statements.
Operating expenses without stock-based compensation has limitations since it does not include all expenses primarily
related to our workforce. More specifically, if we did not pay out a portion of our compensation in the form of stock-based
compensation, our cash salary expense included in the Fulfillment, Marketing, Technology and content, and General and
administrative line items would be higher.
Information regarding the effect of foreign exchange rates, versus the U.S. Dollar, on our consolidated statements of
operations is provided to show reported period operating results had the foreign exchange rates remained the same as those in
effect in the comparable prior year period.
Guidance
We provided guidance on January 29, 2015, in our earnings release furnished on Form 8-K as set forth below. These
forward-looking statements reflect Amazon.coms expectations as of January 29, 2015, and are subject to substantial uncertainty.
Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange
rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online
commerce, as well as those outlined in Item 1A of Part I, Risk Factors.
First Quarter 2015 Guidance

Net sales are expected to be between $20.9 billion and $22.9 billion, or to grow between 6% and 16% compared
with first quarter 2014.
Operating income (loss) is expected to be between $(450) million and $50 million, compared to $146 million in
first quarter 2014.
This guidance includes approximately $450 million for stock-based compensation and amortization of intangible
assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings, or
legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.
33

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, Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term
debt. Our long-term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial
statements. However, the fair value of our debt, on which we pay interest at a fixed rate, will generally fluctuate with movements
of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. 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 intermediateterm fixed income securities and AAA-rated money market funds. Fixed income securities may have their fair market value
adversely affected due to a rise in interest rates, and we may suffer losses in principal if forced to sell securities that have
declined in market value due to changes in interest rates.
The following table provides information about our current and long-term cash equivalent and marketable fixed income
securities, including principal cash flows by expected maturity and the related weighted average interest rates as of December 31,
2014 (in millions, except percentages):

2015

Money market funds


Weighted average interest rate

0.09%

Corporate debt securities

Weighted average interest rate


Foreign government and agency
securities
Weighted average interest rate
Other securities
Weighted average interest rate

2018

Total

$ 10,718

0.09%

392

1.65%

1.25%

19

1.11%

1.91%

2.17%

49

156

0.33%

0.79%

19

43

0.64%

0.95%

1.10%

27

0.04%

0.05%

12

10

0.48%

1.01%

1.23%

0.57%

342

553

Thereafter

1.48%

22

1.05%

$ 12,700

2019

154

1,865

Weighted average interest rate

2017

131

1.05%

Asset backed securities

85

Weighted average interest rate


U.S. government and agency
securities

2016

$ 10,718

Estimated
Fair Value as
of December
31, 2014

373

45

10,718
401

2,383

2,406

0.46%
69

69

0.88%
77

80

0.02%
33

33

0.81%
$ 13,672

Cash equivalent and marketable


fixed income securities

13,707

As of December 31, 2014, we had $9.9 billion of debt, including the current portion, primarily consisting of the following
fixed rate unsecured debt (in millions):
0.65% Notes due on November 27, 2015
1.20% Notes due on November 29, 2017
2.50% Notes due on November 29, 2022
2.60% Notes due on December 5, 2019
3.30% Notes due on December 5, 2021
3.80% Notes due on December 5, 2024
4.80% Notes due on December 5, 2034
4.95% Notes due on December 5, 2044

$
$
$
$
$
$
$
$

34

750
1,000
1,250
1,000
1,000
1,250
1,250
1,500

The fair value of our debt will fluctuate with movements of interest rates, increasing in periods of declining rates of interest
and declining in periods of increasing rates of interest. Based upon quoted market prices and Level 2 inputs, the fair value of our
total debt was $10.0 billion as of December 31, 2014.
Foreign Exchange Risk
During 2014, net sales from our International segment accounted for 38% of our consolidated revenues. Net sales and
related expenses generated from our internationally focused websites, as well as those relating to www.amazon.ca and
www.amazon.com.mx (which are included in our North America segment), are denominated in the functional currencies of the
corresponding websites and primarily include British Pounds, Chinese Yuan, Euros, and Japanese Yen. 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 foreign 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 2014, International segment revenues decreased $580
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 as of December 31, 2014, of $5.4 billion, an assumed 5%, 10%, and 20% adverse
change to foreign exchange would result in fair value declines of $270 million, $535 million, and $1.1 billion. All investments
are classified as available-for-sale. Fluctuations in fair value are recorded in Accumulated other comprehensive loss, a
separate component of stockholders equity.
We have foreign exchange risk related to our intercompany balances denominated in various foreign currencies. Based on
the intercompany balances as of December 31, 2014, an assumed 5%, 10%, and 20% adverse change to foreign exchange would
result in losses of $145 million, $310 million, and $700 million, recorded to Other income (expense), net.
See Item 7 of Part II, Managements Discussion and Analysis of Financial Condition and Results of OperationsResults
of OperationsEffect of Foreign Exchange Rates for additional information on the effect on reported results of changes in
foreign exchange rates.
Investment Risk
As of December 31, 2014, our recorded basis in equity investments was $209 million. These investments primarily relate
to equity-method and cost-method investments in private companies. We review our investments for impairment when events
and circumstances indicate that the decline in fair value of such assets below the carrying value is other-than-temporary. Our
analysis includes review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other
publicly available data. The current global economic climate provides additional uncertainty. Valuations of private companies are
inherently more complex due to the lack of readily available market data. As such, we believe that market sensitivities are not
practicable.

35

Item 8.

Financial Statements and Supplementary Data


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Statements of Cash Flows
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders Equity
Notes to Consolidated Financial Statements

36

37
38
39
40
41
42
43

Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
Amazon.com, Inc.
We have audited the accompanying consolidated balance sheets of Amazon.com, Inc. as of December 31, 2014 and 2013,
and the related consolidated statements of operations, comprehensive income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Companys
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, 2014 and 2013, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2014, 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, 2014, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated January 29, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
January 29, 2015

37

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
2014

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


OPERATING ACTIVITIES:

Net income (loss)

2013

2012

8,658 $

8,084 $

(241)

274

5,269
(39)

Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation of property and equipment, including internal-use software and
website development, and other amortization

4,746

3,253

2,159

Stock-based compensation

1,497

1,134

833

129

114

154

Other operating expense (income), net


Losses (gains) on sales of marketable securities, net

(3)

Other expense (income), net

62

166

(316)

(156)

(265)

(6)

(78)

(429)

Inventories

(1,193)

(1,410)

(999)

Accounts receivable, net and other

(1,039)

Deferred income taxes


Excess tax benefits from stock-based compensation

(9)
253

Changes in operating assets and liabilities:

Accounts payable

1,759

Accrued expenses and other


Additions to unearned revenue
Amortization of previously unearned revenue
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment, including internal-use software and website
development
Acquisitions, net of cash acquired, and other
Sales and maturities of marketable securities and other investments

(846)
1,888

(861)
2,070

706

736

1,038

4,433

2,691

1,796

(3,692)

(2,292)

(1,521)

6,842

5,475

4,180

(4,893)

(3,444)

(3,785)

(979)

(312)

(745)

3,349

2,306

4,237

Purchases of marketable securities and other investments

(2,542)

(2,826)

(3,302)

Net cash provided by (used in) investing activities


FINANCING ACTIVITIES:

(5,065)

(4,276)

(3,595)

Excess tax benefits from stock-based compensation


Common stock repurchased
Proceeds from long-term debt and other

78

429

(960)

6,359

Repayments of long-term debt

394

3,378

(513)

(231)

(82)

Principal repayments of capital lease obligations

(1,285)

(775)

(486)

Principal repayments of finance lease obligations

(135)

(5)

(20)

Net cash provided by (used in) financing activities


Foreign-currency effect on cash and cash equivalents

4,432

Net increase (decrease) in cash and cash equivalents

5,899

(310)

(539)
(86)

2,259
(29)

574

2,815

CASH AND CASH EQUIVALENTS, END OF PERIOD

14,557 $

8,658 $

8,084

SUPPLEMENTAL CASH FLOW INFORMATION:


Cash paid for interest on long-term debt

91 $

97 $

31

Cash paid for income taxes (net of refunds)


Property and equipment acquired under capital leases
Property and equipment acquired under build-to-suit leases

177

169

112

4,008

1,867

802

920

877

29

See accompanying notes to consolidated financial statements.

38

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Year Ended December 31,
2014

Net product sales


Net service sales

Total net sales


Operating expenses (1):
Cost of sales
Fulfillment
Marketing
Technology and content
General and administrative
Other operating expense (income), net

2013

70,080 $
18,908
88,988

60,903 $
13,549
74,452

51,733
9,360
61,093

54,181
8,585
3,133
6,565
1,129
114
73,707
745
38
(141)
(136)
(239)
506
(161)
(71)
274 $

45,971
6,419
2,408
4,564
896
159
60,417
676
40
(92)
(80)
(132)
544
(428)
(155)
(39)

0.60 $
0.59 $

(0.09)
(0.09)

Net income (loss)

62,752
10,766
4,332
9,275
1,552
133
88,810
178
39
(210)
(118)
(289)
(111)
(167)
37
(241) $

Basic earnings per share


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

$
$

(0.52) $
(0.52) $

Total operating expenses


Income from operations
Interest income
Interest expense
Other income (expense), net
Total non-operating income (expense)
Income (loss) before income taxes
Provision for income taxes
Equity-method investment activity, net of tax

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

462

457

453

462

465

453

375 $
125
804
193

294 $
88
603
149

212
61
434
126

See accompanying notes to consolidated financial statements.

39

2012

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Year Ended December 31,
2014

Net income (loss)


$
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $(3), $(20), and
$(30)
Net change in unrealized gains on available-for-sale securities:
Unrealized gains (losses), net of tax of $1, $3, and $(3)
Reclassification adjustment for losses (gains) included in Other
income (expense), net, net of tax of $(1), $(1), and $3
Net unrealized gains (losses) on available-for-sale securities
Total other comprehensive income (loss)
Comprehensive income (loss)
$

2013

(241) $

(325)
2
(3)
(1)
(326)
(567) $

See accompanying notes to consolidated financial statements.

40

2012

274 $

(39)

63

76

(10)

1
(9)
54
328 $

(7)
1
77
38

AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
December 31,
2014

2013

ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Inventories
Accounts receivable, net and other

Total current assets


Property and equipment, net
Goodwill
Other assets
Total assets

LIABILITIES AND STOCKHOLDERS EQUITY


Current liabilities:
Accounts payable
Accrued expenses and other
Unearned revenue

Total current liabilities


Long-term debt
Other long-term liabilities
Commitments and contingencies (Note 8)
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 488 and 483
Outstanding shares 465 and 459
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings

14,557 $
2,859
8,299
5,612
31,327
16,967
3,319
2,892
54,505 $

8,658
3,789
7,411
4,767
24,625
10,949
2,655
1,930
40,159

16,459 $
9,807
1,823
28,089
8,265
7,410

15,133
6,688
1,159
22,980
3,191
4,242

Total stockholders equity


Total liabilities and stockholders equity

See accompanying notes to consolidated financial statements.

41

5
(1,837)
11,135
(511)
1,949
10,741
54,505 $

5
(1,837)
9,573
(185)
2,190
9,746
40,159

AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in millions)

Common Stock

Shares

455 $

4
(5)

Balance as of January 1, 2012


Net loss
Other comprehensive income
Exercise of common stock options
Repurchase of common stock

Treasury
Stock

Amount

5 $

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Total
Stockholders
Equity

(877) $

(960)

6,990 $

(316) $

77

1,955 $
(39)

7,757
(39)
77
8
(960)

Excess tax benefits from stock-based


compensation

429

429

Stock-based compensation and issuance of


employee benefit plan stock

854

854

454

1,916
274

66
8,192
274
54
4

73

459

Excess tax benefits from stock-based


compensation

Stock-based compensation and issuance of


employee benefit plan stock

1,510

1,510

Issuance of common stock for acquisition


activity

44

44

(511) $

1,949 $

Issuance of common stock for acquisition


activity
Balance as of December 31, 2012
Net income
Other comprehensive income
Exercise of common stock options
Repurchase of common stock
Excess tax benefits from stock-based
compensation
Stock-based compensation and issuance of
employee benefit plan stock
Balance as of December 31, 2013
Net loss
Other comprehensive loss
Exercise of common stock options

Balance as of December 31, 2014

465 $

(1,837)

(1,837)

5 $

66
8,347

73
1,149
9,573

(1,837) $ 11,135 $

See accompanying notes to consolidated financial statements.

42

(239)

54

(185)

(326)

2,190
(241)

1,149
9,746
(241)
(326)
2

10,741

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES


Description of Business
Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be Earths most customer-centric
company. In each of our two geographic segments, we serve our primary customer sets, consisting of consumers, sellers,
enterprises, and content creators. We serve consumers through our retail websites and focus on selection, price, and convenience.
We also manufacture and sell electronic devices. We offer programs that enable sellers to sell their products on our websites and
their own branded websites and to fulfill orders through us, and programs that allow authors, musicians, filmmakers, app
developers, and others to publish and sell content. We serve developers and enterprises of all sizes through AWS, which provides
access to technology infrastructure that enables virtually any type of business. In addition, we provide services, such as
advertising services and co-branded credit card agreements.
We have organized our operations into two segments: North America and International. See Note 12Segment
Information.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation, including the expanded
presentation of Net cash provided by (used in) financing activities on our consolidated statements of cash flows and
components of the provision for income taxes in Note 11Income Taxes.
Principles of Consolidation
The consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned subsidiaries, and those
entities in which we have a variable interest and of which we are the primary beneficiary (collectively, the Company).
Intercompany balances and transactions between consolidated entities are eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the
consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining the selling
price of products and services in multiple element revenue arrangements and determining the lives of these elements, incentive
discount offers, sales returns, vendor funding, stock-based compensation forfeiture rates, income taxes, valuation and impairment
of investments, inventory valuation and inventory purchase commitments, collectability of receivables, valuation of acquired
intangibles and goodwill, depreciable lives of property and equipment, internal-use software and website development costs,
acquisition purchase price allocations, investments in equity interests, and contingencies. Actual results could differ materially
from those estimates.
Earnings per Share
Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share
is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined
under the treasury stock method. In periods when we have a net loss, stock awards of 17 million and 15 million in 2014 and
2012, were excluded as their inclusion would have an antidilutive effect.
The following table shows the calculation of diluted shares (in millions):
Year Ended December 31,
2014

Shares used in computation of basic earnings per share


Total dilutive effect of outstanding stock awards

2013

462

462

Shares used in computation of diluted earnings per share

43

2012

457
8
465

453

453

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 service has been rendered, the selling price is fixed or determinable,
and collectability is reasonably assured. Revenue arrangements with multiple deliverables are divided into separate units and
revenue is allocated using estimated selling prices if we do not have vendor-specific objective evidence or third-party evidence
of the selling prices of the deliverables. We allocate the arrangement price to each of the elements based on the relative selling
prices of each element. Estimated selling prices are managements best estimates of the prices that we would charge our
customers if we were to sell the standalone elements separately and include considerations of customer demand, prices charged
by us and others for similar deliverables, and the price if largely based on the cost of producing the product or service.
Sales of our digital devices, including Kindle e-readers, Fire tablets, Fire TVs, Echo, and Fire phones, are considered
arrangements with multiple deliverables, consisting of the device, undelivered software upgrades and/or undelivered nonsoftware services such as cloud storage and free trial memberships to other services. The revenue allocated to the device, which
is the substantial portion of the total sale price, and related costs are generally recognized upon delivery. Revenue related to
undelivered software upgrades and/or undelivered non-software services is deferred and recognized generally on a straight-line
basis over the estimated period the software upgrades and non-software services are expected to be provided for each of these
devices.
Sales of Amazon Prime memberships are also considered arrangements with multiple deliverables, including shipping
benefits, Prime Instant Video, Prime Music, Prime Photo, and access to the Kindle Owners Lending Library. The revenue related
to the deliverables is amortized over the life of the membership based on the estimated delivery of services. Amazon Prime
membership fees are allocated between product sales and service sales. Costs to deliver Amazon Prime benefits are recognized as
cost of sales as incurred. As we add more benefits to the Prime membership, we will update the method of determining the
estimated selling prices of each element as well as the allocation of Prime membership fees.
We evaluate whether it is appropriate to record the gross amount of product sales and related costs or the net amount
earned as commissions. Generally, when we are primarily obligated in a transaction, are subject to inventory risk, have latitude in
establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sale
price. We generally record the net amounts as commissions earned if we are not primarily obligated and do not have latitude in
establishing prices. Such amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of
the two.
Product sales represent revenue from the sale of products and related shipping fees and digital media content where we
record revenue gross. 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. Amazons electronic devices sold
through retailers are recognized at the point of sale to consumers.
Service sales represent third-party seller fees earned (including commissions) and related shipping fees, digital content
subscriptions, and non-retail activities such as AWS, advertising services, and our co-branded credit card agreements. Service
sales, net of promotional discounts and return allowances, are recognized when service has been rendered.
Return allowances, which reduce revenue, are estimated using historical experience. Allowance for returns was $147
million, $167 million, and $198 million as of December 31, 2014, 2013, and 2012. Additions to the allowance were $1.1 billion,
$907 million, and $702 million, and deductions to the allowance were $1.1 billion, $938 million, and $659 million as of
December 31, 2014, 2013, and 2012. Revenue from product sales and services rendered is recorded net of sales and consumption
taxes. Additionally, we periodically provide incentive offers to our customers to encourage purchases. Such offers include current
discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject
to a minimum current purchase, and other similar offers. Current discount offers, when accepted by our customers, are treated as
a reduction to the purchase price of the related transaction, while inducement offers, when accepted by our customers, are treated
as a reduction to purchase price based on estimated future redemption rates. Redemption rates are estimated using our historical
experience for similar inducement offers. Current discount offers and inducement offers are presented as a net amount in Total
net sales.
Cost of Sales
Cost of sales consists of the purchase price of consumer products and digital media content where we record revenue gross,
including Prime Instant Video, packaging supplies, and inbound and outbound shipping costs, including sortation and delivery
centers, and related equipment costs. Shipping costs to receive products from our suppliers are included in our inventory, and
44

recognized as cost of sales upon sale of products to our customers. Payment processing and related transaction costs, including
those associated with seller transactions, are classified in Fulfillment on our consolidated statements of operations.
Vendor Agreements
We have agreements with our vendors to receive funds for cooperative marketing efforts, promotions, and volume
rebates. We generally consider amounts received from vendors to be a reduction of the prices we pay for their goods or services,
and therefore record those amounts as a reduction of the cost of inventory or cost of services. Vendor rebates are typically
dependent upon reaching minimum purchase thresholds. We evaluate the likelihood of reaching purchase thresholds using past
experience and current year forecasts. When volume rebates can be reasonably estimated, we record a portion of the rebate as we
make progress towards the purchase threshold.
When we receive direct reimbursements for costs incurred by us in advertising the vendors product or service, the amount
we receive is recorded as an offset to Marketing on our consolidated statements of operations.
Fulfillment
Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer service centers,
including costs attributable to buying, receiving, inspecting, and warehousing inventories; picking, packaging, and preparing
customer orders for shipment; payment processing and related transaction costs, including costs associated with our guarantee
for certain seller transactions; responding to inquiries from customers; and supply chain management for our manufactured
electronic devices. Fulfillment costs also include amounts paid to third parties that assist us in fulfillment and customer service
operations.
Marketing
Marketing costs consist primarily of targeted online advertising, television advertising, public relations expenditures, and
payroll and related expenses for personnel engaged in marketing, business development, and selling activities. We pay
commissions to participants in our Associates program when their customer referrals result in product sales and classify such
costs as Marketing on our consolidated statements of operations. We also participate in cooperative advertising arrangements
with certain of our vendors, and other third parties.
Advertising and other promotional costs are expensed as incurred and were $3.3 billion, $2.4 billion, and $2.0 billion in
2014, 2013, and 2012. Prepaid advertising costs were not significant as of December 31, 2014 and 2013.
Technology and Content
Technology costs consist principally of research and development activities including payroll and related expenses for
employees involved in application, production, maintenance, operation, and platform development for new and existing products
and services, as well as AWS and other technology infrastructure expenses.
Content costs consist principally of payroll and related expenses for employees involved in category expansion, editorial
content, buying, and merchandising selection.
Technology and content costs are expensed as incurred, except for certain costs relating to the development of internal-use
software and website development, including software used to upgrade and enhance our websites and applications supporting our
business, which are capitalized and amortized over two years.
General and Administrative
General and administrative expenses consist of payroll and related expenses for employees involved in general corporate
functions, including accounting, finance, tax, legal, and human resources, among others; costs associated with use by these
functions of facilities and equipment, such as depreciation expense and rent; professional fees and litigation costs; and other
general corporate costs.
Stock-Based Compensation
Compensation cost for all stock awards expected to vest is measured at fair value on the date of grant and recognized over
the service period. The fair value of restricted stock units is determined based on the number of shares granted and the quoted
price of our common stock and the fair value of stock options are estimated on the date of grant using a Black-Scholes model.
Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method. The
estimated number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated
45

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 classification, economic
environment, and historical experience.
Other Operating Expense (Income), Net
Other operating expense (income), net, consists primarily of intangible asset amortization expense and expenses related to
legal settlements.
Other Income (Expense), Net
Other income (expense), net, consists primarily of foreign currency losses of $(127) million, $(137) million, and $(95)
million in 2014, 2013, and 2012, and realized gains and losses on marketable securities sales of $3 million, $(1) million, and $10
million in 2014, 2013, and 2012.
Income Taxes
Income tax expense includes U.S. (federal and state) and foreign income taxes. Except as required under U.S. tax laws, we
do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we
intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes or if these funds are needed for
our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings and our
effective tax rate would be adversely affected. Undistributed earnings of foreign subsidiaries that are indefinitely invested outside
of the U.S were $2.5 billion as of December 31, 2014. 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 they
will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets,
including our recent cumulative earnings experience and expectations of future taxable income and capital gains by taxing
jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. We allocate our
valuation allowance to current and long-term deferred tax assets on a pro-rata basis.
We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely
than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second
step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate
settlement. We consider many factors when evaluating our tax positions and estimating our tax benefits, which may require
periodic adjustments and which may not accurately forecast actual outcomes. We include interest and penalties related to our tax
contingencies in income tax expense.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. To increase the comparability of fair value measures, the
following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2Valuations 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 3Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably
available assumptions made by other market participants. These valuations require significant judgment.
For our cash, cash equivalents, or marketable securities, we measure the fair value of money market funds and equity
securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued
either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other
significant inputs derived from or corroborated by observable market data. We did not hold any cash, cash equivalents, or
marketable securities categorized as Level 3 assets as of December 31, 2014, or December 31, 2013.
46

As part of entering into commercial agreements, we often obtain equity warrant assets giving us the right to acquire stock
primarily in private companies. We record these assets in Other assets on the accompanying consolidated balance sheets.
Equity warrant assets are classified as Level 3 assets, and the balances and related activity for our equity warrant assets were not
significant for the periods ended December 31, 2014, 2013, and 2012.
Cash and Cash Equivalents
We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash
equivalents.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the FIFO method, and are valued at
the lower of cost or market value. This valuation requires us to make judgments, based on currently-available information, about
the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and
expected recoverable values of each disposition category.
We provide Fulfillment by Amazon services in connection with certain of our sellers programs. Third-party sellers
maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and therefore
these products are not included in our inventories.
We also purchase electronic device components from a variety of suppliers and use several contract manufacturers to
provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead
times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers. A portion
of our reported purchase commitments arising from these agreements consists of firm, non-cancellable commitments. These
commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional costs.
Accounts Receivable, Net and Other
Included in Accounts receivable, net and other on our consolidated balance sheets are amounts primarily related to
vendor and customer receivables. As of December 31, 2014 and 2013, vendor receivables, net, were $1.4 billion and $1.3 billion,
and customer receivables, net, were $1.9 billion and $1.7 billion.
We estimate losses on receivables based on known troubled accounts and historical experience of losses incurred.
Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected in
accordance with the terms of the agreement. The allowance for doubtful accounts was $190 million, $153 million, and $116
million as of December 31, 2014, 2013, and 2012. Additions to the allowance were $225 million, $172 million, and $136
million, and deductions to the allowance were $188 million, $135 million, and $102 million as of December 31, 2014, 2013, and
2012.
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 2014, 2013, and 2012, we capitalized $641 million (including $104 million of stockbased compensation), $581 million (including $87 million of stock-based compensation), and $454 million (including $74
million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of
previously capitalized amounts was $559 million, $451 million, and $327 million for 2014, 2013, and 2012.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Property includes buildings and land that we own,
along with property we have acquired under build-to-suit, financing, and capital lease arrangements. Equipment includes assets
such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal-use software and website
development. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets (generally the lesser of
40 years or the remaining life of the underlying building, two years for assets such as internal-use software, three years for our
servers, five years for networking equipment, five years for furniture and fixtures, and ten years for heavy equipment).
Depreciation expense is classified within the corresponding operating expense categories on our consolidated statements of
operations.
47

Leases and Asset Retirement Obligations


We categorize leases at their inception as either operating or capital leases. On certain of our lease agreements, we may
receive rent holidays and other incentives. We recognize lease costs on a straight-line basis without regard to deferred payment
terms, such as rent holidays, that defer the commencement date of required payments. Additionally, incentives we receive are
treated as a reduction of our costs over the term of the agreement. Leasehold improvements are capitalized at cost and amortized
over the lesser of their expected useful life or the non-cancellable term of the lease.
We establish assets and liabilities for the estimated construction costs incurred under build-to-suit lease arrangements to the
extent we are involved in the construction of structural improvements or take construction risk prior to commencement of a
lease. Upon occupancy of facilities under build-to-suit leases, we assess whether these arrangements qualify for sales recognition
under the sale-leaseback accounting guidance. If we continue to be the deemed owner, the facilities are accounted for as finance
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 the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of net
assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors
indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment
as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting
units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating
expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.
We conduct our annual impairment test as of October 1 of each year, and have determined there to be no impairment for
any of the periods presented. There were no triggering events identified from the date of our assessment through December 31,
2014 that would require an update to our annual impairment test. See Note 4Acquisitions, Goodwill, and Acquired Intangible
Assets.
Other Assets
Included in Other assets on our consolidated balance sheets are amounts primarily related to acquired intangible assets,
net of amortization; acquired digital media content, net of amortization; long-term deferred tax assets; certain equity investments;
marketable securities restricted for longer than one year, the majority of which are attributable to collateralization of bank
guarantees and debt related to our international operations; intellectual property rights, net of amortization; and equity warrant
assets.
Content Costs
We obtain video and music content to be made available to Prime members through licensing agreements that have a wide
range of licensing provisions and generally have terms from one to five years with fixed payment schedules. When the license
fee for a specific movie, television, or music title is determinable or reasonably estimable and available for streaming, we
recognize an asset representing the fee per title and a corresponding liability for the amounts owed. We relieve the liability as
payments are made and we amortize the asset as cost of sales on a straight-line basis over each titles contractual window of
availability, which typically ranges from six months to five years. If we are unable to reasonably estimate the cost per title, no
asset or liability is recorded and licensing costs are expensed as incurred. We also develop original content. The production costs
of internally developed content are capitalized only if persuasive evidence exists that the production will generate revenue.
Because we have limited history to support the economic benefits of our content, we have generally expensed such costs as
incurred. As we develop more experience or otherwise obtain the necessary evidence that future revenue will be earned through
licensing or Prime membership activity, a portion of future production costs may be capitalized.
Investments
We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAArated money market funds. Such investments are included in Cash and cash equivalents, or Marketable securities on the
accompanying consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and
losses included in Accumulated other comprehensive loss.
48

Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to
exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees,
including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within Other assets on our
consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of the
related intangible assets, and related gains or losses, if any, are classified as Equity-method investment activity, net of tax on
our consolidated statements of operations. Our share of the net income or loss of our equity-method investees includes operating
and non-operating gains and charges, which can have a significant impact on our reported equity-method investment activity and
the carrying value of those investments. In the event that net losses of the investee reduce our equity-method investment carrying
amount to zero, additional net losses may be recorded if other investments in the investee, not accounted for under the equity
method, are at-risk even if we have not committed to provide financial support to the investee. We regularly evaluate these
investments, which are not carried at fair value, for other-than-temporary impairment. We also consider whether our equitymethod investments generate sufficient cash flows from their operating or financing activities to meet their obligations and repay
their liabilities when they come due.
We record purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in our
ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between
fair value and our recorded cost reflected as a gain or loss in our equity-method investment activity. In the event we no longer
have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the
investment under the equity method.
Equity investments without readily determinable fair values for which we do not have the ability to exercise significant
influence are accounted for using the cost method of accounting and classified as Other assets on our consolidated balance
sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair
value, certain distributions, and additional investments.
Equity investments that have readily determinable fair values are classified as available-for-sale and are included in
Marketable securities in our consolidated balance sheets and are recorded at fair value with unrealized gains and losses, net of
tax, included in Accumulated other comprehensive loss.
We periodically evaluate whether declines in fair values of our investments below their book value are other-thantemporary. 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 assets carrying amount is not
recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the
difference between the carrying amount and estimated fair value. Long-lived assets are considered held for sale when certain
criteria are met, including when management has committed to a plan to sell the asset, the asset is available for sale in its
immediate condition, and the sale is probable within one year of the reporting date. Assets held for sale are reported at the lower
of cost or fair value less costs to sell. Assets held for sale were not significant as of December 31, 2014 or 2013.
Accrued Expenses and Other
Included in Accrued expenses and other on our consolidated balance sheets are liabilities primarily related to
unredeemed gift cards, leases and asset retirement obligations, current debt, acquired digital media content, and other operating
expenses.

49

As of December 31, 2014 and 2013 our liabilities for unredeemed gift cards was $1.7 billion and $1.4 billion. We reduce
the liability for a gift card when redeemed by a customer. If a gift card is not redeemed, we recognize revenue when it expires or
when the likelihood of its redemption becomes remote, generally two years from the date of issuance.
Unearned Revenue
Unearned revenue is recorded when payments are received in advance of performing our service obligations and is
recognized over the service period. Unearned revenue primarily relates to prepayments of Amazon Prime memberships and AWS
services.
Foreign Currency
We have internationally-focused websites for the United Kingdom, Germany, France, Japan, Canada, China, Italy, Spain,
Brazil, India, Mexico, Australia, and the Netherlands. Net sales generated from these websites, as well as most of the related
expenses directly incurred from those operations, are denominated in local functional currencies. The functional currency of our
subsidiaries that either operate or support these websites is generally the same as the local currency. Assets and liabilities of these
subsidiaries are translated into U.S. Dollars at period-end foreign exchange rates, and revenues and expenses are translated at
average rates prevailing throughout the period. Translation adjustments are included in Accumulated other comprehensive loss,
a separate component of stockholders equity, and in the Foreign-currency effect on cash and cash equivalents, on our
consolidated statements of cash flows. Transaction gains and losses including intercompany transactions denominated in a
currency other than the functional currency of the entity involved are included in Other income (expense), net on our
consolidated statements of operations. In connection with the settlement and remeasurement of intercompany balances, we
recorded losses of $98 million, $84 million, and $95 million in 2014, 2013, and 2012.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued an Accounting Standard Update (ASU) amending
revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the
nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is
effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are
currently evaluating the impact this ASU will have on our consolidated financial statements.

50

Note 2CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES


As of December 31, 2014 and 2013, our cash, cash equivalents, and marketable securities primarily consisted of cash, U.S.
and foreign government and agency securities, AAA-rated money market funds, and other investment grade securities. Cash
equivalents and marketable securities are recorded at fair value. The following table summarizes, by major security type, our
cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized using
the fair value hierarchy (in millions):
December 31, 2014
Cost or
Amortized
Cost

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

4,155 $

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Total
Estimated
Fair Value

10,718
2

10,718
4

80
2,407
401
69
33
17,865 $

1
1

4 $

(2)
(1)

(3) $

80
2,406
401
69
33
17,866

Less: Restricted cash, cash equivalents, and marketable


securities (1)
Total cash, cash equivalents, and marketable securities

4,155

(450)
17,416

December 31, 2013


Cost or
Amortized
Cost

Cash
Level 1 securities:
Money market funds
Equity securities
Level 2 securities:
Foreign government and agency securities
U.S. government and agency securities
Corporate debt securities
Asset-backed securities
Other fixed income securities

$
Less: Restricted cash, cash equivalents, and marketable
securities (1)
Total cash, cash equivalents, and marketable securities

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Total
Estimated
Fair Value

3,008 $

3,008

5,914
3

5,914
4

2
1
3

7 $

(1)
(3)
(1)

(5) $

757
2,224
739
65
36
12,746 $

758
2,222
741
65
36
12,748
(301)
12,447

___________________
(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as collateral
for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers in certain
jurisdictions. We classify cash, cash equivalents and marketable securities with use restrictions of less than twelve months as
Accounts receivable, net and other and of twelve months or longer as non-current Other assets on our consolidated
balance sheets. See Note 8Commitments and Contingencies.

51

The following table summarizes gross gains and gross losses realized on sales of available-for-sale marketable securities
(in millions):
Year Ended December 31,
2014

Realized gains
Realized losses

2013

8 $
5

2012

6 $
7

20
10

The following table summarizes the contractual maturities of our cash equivalents and marketable fixed-income securities
as of December 31, 2014 (in millions):
Amortized
Cost

Due within one year


Due after one year through five years
Due after five years through ten years
Due after ten years

Total

Estimated
Fair Value

12,553 $
798
132
224
13,707 $

12,552
799
132
224
13,707

Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.
Note 3PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following (in millions):
December 31,
2014

Gross property and equipment (1):


Land and buildings
Equipment and internal-use software (2)
Other corporate assets
Construction in progress
Gross property and equipment
Total accumulated depreciation (1)
Total property and equipment, net

2013

7,150 $
14,213
304
1,063
22,730
5,763
16,967 $

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

___________________
(1) Excludes the original cost and accumulated depreciation of fully-depreciated assets.
(2) Includes internal-use software of $1.3 billion and $1.1 billion as of December 31, 2014 and 2013.
Depreciation expense on property and equipment was $3.6 billion, $2.5 billion, and $1.7 billion, which includes
amortization of property and equipment acquired under capital leases of $1.5 billion, $826 million, and $510 million for 2014,
2013, and 2012. Gross assets remaining under capital leases were $7.9 billion and $4.2 billion as of December 31, 2014 and
2013. Accumulated depreciation associated with capital leases was $3.3 billion and $1.9 billion as of December 31, 2014 and
2013.
We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements
where we are considered the owner, for accounting purposes, during the construction period. For buildings under build-to-suit
lease arrangements where we have taken occupancy, which do not qualify for sales recognition under the sale-leaseback
accounting guidance, we determined that we continue to be the deemed owner of these buildings. This is principally due to our
significant investment in tenant improvements. As a result, the buildings are being depreciated over the shorter of their useful
lives or the related leases terms. Additionally, certain build-to-suit lease arrangements and finance leases provide purchase
options. Upon occupancy, the long-term construction obligations are considered long-term finance lease obligations with
amounts payable during the next 12 months recorded as Accrued expenses and other. Gross assets remaining under finance
leases were $1.4 billion and $578 million as of December 31, 2014 and 2013. Accumulated depreciation associated with finance
leases was $87 million and $22 million as of December 31, 2014 and 2013.
52

Cash paid for interest on capital and finance leases was $86 million, $41 million, and $51 million for 2014, 2013, and
2012.
Note 4ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
2014 Acquisition Activity
On September 25, 2014, we acquired Twitch Interactive, Inc. (Twitch) for approximately $842 million in cash, as
adjusted for the assumption of options and other items. During 2014, we acquired certain other companies for an aggregate
purchase price of $20 million. We acquired Twitch because of its user community and the live streaming experience it
provides. The primary reasons for our other 2014 acquisitions were to acquire technologies and know-how to enable Amazon to
serve customers more effectively.
Acquisition-related costs were expensed as incurred and not significant. The aggregate purchase price of these acquisitions
was allocated as follows (in millions):
Purchase Price
Cash paid, net of cash acquired
Stock options assumed
Indemnification holdback

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

813
44
5
862

707

23
1
33
173
230
16
64
34
(88)
(101)
862

Property and equipment


Deferred tax assets
Other assets acquired
Deferred tax liabilities
Other liabilities assumed

___________________
(1) Acquired intangible assets have estimated useful lives of between one and five years, with a weighted-average amortization
period of five years.
The fair value of assumed stock options of $39 million, estimated using the Black-Scholes model, will be expensed over
the remaining service period. We determined the estimated fair value of identifiable intangible assets acquired primarily by using
the income approach. These assets are included within Other assets on our consolidated balance sheets and are being amortized
to operating expenses on a straight-line or accelerated basis over their estimated useful lives.
Subsequent to September 30, 2014, we made minor measurement period adjustments to the preliminary purchase price
allocation that impacted goodwill, customer-related intangible assets, property and equipment, and deferred taxes and are
reflected in the table above. We have not retrospectively adjusted our previously reported consolidated financial statements.

53

Pro Forma Financial Information 2014 Acquisition Activity (unaudited)


The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The
aggregate net sales and operating loss of the companies acquired was $40 million and $30 million for the year ended December
31, 2014. The following pro forma financial information presents our results as if the current year acquisitions had occurred at
the beginning of 2013 (in millions):
Year Ended December 31,
2014

Net sales
Net income (loss)

$
$

2013

89,041 $
(287) $

74,505
180

2013 Acquisition Activity


In 2013, we acquired several companies in cash transactions for an aggregate purchase price of $195 million, resulting in
goodwill of $103 million and acquired intangible assets of $83 million. The primary reasons for these acquisitions were to
expand our customer base and sales channels and to obtain certain technologies to be used in product development. We
determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches.
These assets are included within Other assets on our consolidated balance sheets and are being amortized to operating
expenses on a straight-line or accelerated basis over their estimated useful lives. Acquisition-related costs were expensed as
incurred and were not significant.
Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the
aggregate, were not material to our consolidated results of operations.
2012 Acquisition Activity
In May 2012, we acquired Kiva Systems, Inc. (Kiva) for a purchase price of $678 million. The primary reason for this
acquisition was to improve fulfillment center productivity. Acquisition-related costs were expensed as incurred and were not
significant. The aggregate purchase price of this acquisition was allocated as follows (in millions):

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

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

613
65
678

560

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

Property and equipment


Deferred tax assets
Other assets acquired
Deferred tax liabilities
Other liabilities assumed

___________________
(1) Acquired intangible assets have estimated useful lives of between four and 10 years, with a weighted-average amortization
period of five years.
The fair value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair
value of identifiable intangible assets acquired primarily by using the income and cost approaches. These assets are included
54

within Other assets on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or
accelerated basis over their estimated useful lives.
Pro forma results of operations have not been presented because the effect of this acquisition was not material to our
consolidated results of operations.
Goodwill
The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected
improvements in sales growth from future product and service offerings and new customers and fulfillment center productivity,
together with certain intangible assets that do not qualify for separate recognition. The following summarizes our goodwill
activity in 2014 and 2013 by segment (in millions):
North
America

Goodwill - January 1, 2013


New acquisitions
Other adjustments (1)
Goodwill - December 31, 2013
New acquisitions (2)
Other adjustments (1)
Goodwill - December 31, 2014

International

1,937 $
99
(3)
2,033
553
(2)
2,584 $

Consolidated

615 $
4
3
622
162
(49)
735 $

2,552
103

2,655
715
(51)
3,319

___________________
(1) Primarily includes changes in foreign exchange rates.
(2) Primarily includes the goodwill of Twitch.
Intangible Assets
Acquired intangible assets, included within Other assets on our consolidated balance sheets, consist of the following (in
millions):
December 31,
Weighted
Average Life
Remaining

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

Acquired
Intangibles,
Gross (1)

2014
Accumulated
Amortization
(1)

Acquired
Intangibles,
Net

Acquired
Intangibles,
Gross (1)

2013
Accumulated
Amortization
(1)

Acquired
Intangibles,
Net

5.3 $
2.2

457 $
172

(199) $
(125)

258 $
47

429 $
173

(156) $
(110)

273
63

3.5
2.5

370
535

(129)
(317)

241
218

278
368

(74)
(263)

204
105

(770) $

764 $

(603) $

645

3.5 $

1,534 $

1,248 $

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

55

Amortization expense for acquired intangibles was $181 million, $168 million, and $163 million in 2014, 2013, and 2012.
Expected future amortization expense of acquired intangible assets as of December 31, 2014 is as follows (in millions):
Year Ended December 31,
2015
2016
2017
2018
2019
Thereafter

202
185
161
106
79
31
764

$
Note 5EQUITY-METHOD INVESTMENTS

LivingSocials summarized condensed financial information, as provided to us by LivingSocial, is as follows (in millions):
Year Ended December 31,
2014

Statement of Operations:
Revenue
Gross profit
Operating expenses
Operating loss from continuing operations
Net loss from continuing operations
Net income (loss) from discontinued operations, net of tax (1)
Net income (loss)

2013

231 $
194
296
(102)
(73)
173
100 $

2012

302 $
253
282
(29)
(16)
(156)
(172) $

347
280
367
(87)
(79)
(574)
(653)

___________________
(1) In January 2014, LivingSocial completed the sale of its Korean operations for approximately $260 million and, in the first
quarter of 2014, recognized a gain on disposal of $205 million, net of tax. The statement of operations information above
has been recast to present the Korean operations, and certain other operations, as discontinued operations.
December 31,
2014

Balance Sheet:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Redeemable stock

2013

163 $
29
137
34
366

182
61
301
33
315

Balance sheet financial information as of December 31, 2013 included $146 million in assets and $122 million in liabilities
that LivingSocial classified as held for sale for its Korean operations.
As of December 31, 2014, our total investment in LivingSocial is approximately 31% of voting stock and has a book value
of $75 million.

56

Note 6LONG-TERM DEBT


In December 2014 and November 2012, we issued $6.0 billion and $3.0 billion of unsecured senior notes as described in
the table below (collectively, the Notes). As of December 31, 2014 and 2013, the unamortized discount on the Notes was $96
million and $23 million. We also have other long-term debt with a carrying amount, including the current portion, of $881
million and $967 million as of December 31, 2014 and 2013. The face value of our total long-term debt obligations is as follows
(in millions):
December 31,
2014

0.65% Notes due on November 27, 2015 (1)


1.20% Notes due on November 29, 2017 (1)
2.50% Notes due on November 29, 2022 (1)
2.60% Notes due on December 5, 2019 (2)
3.30% Notes due on December 5, 2021 (2)
3.80% Notes due on December 5, 2024 (2)
4.80% Notes due on December 5, 2034 (2)
4.95% Notes due on December 5, 2044 (2)
Other long-term debt

Total debt
Less current portion of long-term debt
Face value of long-term debt

750 $
1,000
1,250
1,000
1,000
1,250
1,250
1,500
881
9,881
(1,520)
8,361 $

2013

750
1,000
1,250

967
3,967
(753)
3,214

_____________________________

(1) Issued in November 2012, effective interest rates of the 2015, 2017, and 2022 Notes were 0.84%, 1.38%, and 2.66%.
(2) Issued in December 2014, effective interest rates of the 2019, 2021, 2024, 2034, and 2044 Notes were 2.73%, 3.43%, 3.90%,
4.92%, and 5.11%.
Interest on the Notes issued in 2014 is payable semi-annually in arrears in June and December. Interest on the Notes issued
in 2012 is payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or from time
to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. The proceeds from
the Notes are used for general corporate purposes. The estimated fair value of the Notes was approximately $9.1 billion and $2.9
billion as of December 31, 2014 and 2013, which is based on quoted prices for our publicly-traded debt as of those dates.
The other debt, including the current portion, had a weighted average interest rate of 5.5% as of December 31, 2014 and
2013. We used the net proceeds from the issuance of this debt primarily to fund certain international operations. The estimated
fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of December 31,
2014 and 2013.
As of December 31, 2014, future principal payments for our total debt were as follows (in millions):
Year Ended December 31,
2015
2016
2017
2018
2019
Thereafter

1,520
36
1,037
38
1,000
6,250
9,881

On September 5, 2014, we entered into an unsecured revolving credit facility (the Credit Agreement) with a syndicate of
lenders that provides us with a borrowing capacity of up to $2.0 billion. The Credit Agreement has a term of two years, but it
may be extended for up to three additional one-year terms if approved by the lenders. The initial interest rate applicable to
outstanding balances under the Credit Agreement is the London interbank offered rate (LIBOR) plus 0.625%, under our
current credit ratings. If our credit ratings are downgraded this rate could increase to as much as LIBOR plus 1.00%. There were
no borrowings outstanding under the Credit Agreement as of December 31, 2014.
57

Note 7OTHER LONG-TERM LIABILITIES


Our other long-term liabilities are summarized as follows (in millions):
December 31,
2014

Long-term capital lease obligations


Long-term finance lease obligations
Construction liabilities
Tax contingencies
Long-term deferred tax liabilities
Other
Total other long-term liabilities

2013

3,026 $
1,198
467
510
1,021
1,188
7,410 $

1,435
555
385
457
571
839
4,242

Capital and Finance Leases


Certain of our equipment, primarily related to technology infrastructure, and buildings have been acquired under capital
leases. Long-term capital lease obligations are as follows (in millions):
December 31, 2014

Gross capital lease obligations


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

5,182
(143)
5,039
(2,013)
3,026

We continue to be the deemed owner after occupancy of certain facilities that were constructed as build-to-suit lease
arrangements and previously reflected as Construction liabilities. As such, these arrangements are accounted for as finance
leases. Long-term finance lease obligations are as follows (in millions):
December 31, 2014

Gross finance lease obligations


Less imputed interest

Present value of net minimum lease payments


Less current portion of finance lease obligations
Total long-term finance lease obligations

1,629
(364)
1,265
(67)
1,198

Construction Liabilities
We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements
where we are considered the owner during the construction period for accounting purposes. These liabilities primarily relate to
our corporate buildings and fulfillment, sortation, delivery, and data centers.
Tax Contingencies
We have recorded tax reserves for tax contingencies, inclusive of accrued interest and penalties, for U.S. and foreign
income taxes. These contingencies primarily relate to transfer pricing, state income taxes, and research and development credits.
See Note 11Income Taxes for discussion of tax contingencies.

58

Note 8COMMITMENTS AND CONTINGENCIES


Commitments
We have entered into non-cancellable operating, capital, and finance leases for equipment and office, fulfillment, sortation,
delivery, and data center facilities. Rental expense under operating lease agreements was $961 million, $759 million, and $561
million for 2014, 2013, and 2012.
The following summarizes our principal contractual commitments, excluding open orders for purchases that support
normal operations, as of December 31, 2014 (in millions):
Year Ended December 31,
2015

Operating and capital commitments:


Debt principal and interest
Capital leases, including interest
Finance lease obligations, including
interest
Operating leases
Unconditional purchase obligations (1)
Other commitments (2) (3)
Total commitments

2016

2017

$ 1,842 $
323 $ 1,322 $
2,060
1,727
1,030

2018

2019

Thereafter

310 $ 1,272 $
178
89

Total

9,403 $ 14,472
98
5,182

110
112
115
117
119
1,056
1,629
868
791
728
634
549
2,343
5,913
489
435
351
118
38
3
1,434
928
333
160
140
90
845
2,496
$ 6,297 $ 3,721 $ 3,706 $ 1,497 $ 2,157 $ 13,748 $ 31,126

___________________
(1) Includes unconditional purchase obligations related to long-term agreements to acquire and license digital content that are
not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate the total
obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with
renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a
minimum amount is specified.
(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease
arrangements that have not been placed in service and media content liabilities associated with long-term media content
assets with initial terms greater than one year.
(3) Excludes $710 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and
period of payment, if any.
Pledged Assets
As of December 31, 2014 and 2013, we have pledged or otherwise restricted $602 million and $482 million of our cash,
cash equivalents, and marketable securities, and certain property and equipment as collateral for standby and trade letters of
credit, guarantees, debt relating to certain international operations, real estate leases, and amounts due to third-party sellers in
certain jurisdictions.
Suppliers
During 2014, no vendor accounted for 10% or more of our purchases. We generally do not have long-term contracts or
arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit
limits.
Legal Proceedings
The Company is involved from time to time in claims, proceedings, and litigation, including the following:
In November 2007, an Austrian copyright collection society, Austro-Mechana, filed lawsuits against Amazon.com
International Sales, Inc., Amazon EU Sarl, Amazon.de GmbH, Amazon.com GmbH, and Amazon Logistik in the Commercial
Court of Vienna, Austria and in the District Court of Munich, Germany seeking to collect a tariff on blank digital media sold by
our EU-based retail websites to customers located in Austria. In July 2008, the German court stayed the German case pending a
final decision in the Austrian case. In July 2010, the Austrian court ruled in favor of Austro-Mechana and ordered us to report all
sales of products to which the tariff potentially applies for a determination of damages. We contested Austro-Mechanas claim
and in September 2010 commenced an appeal in the Commercial Court of Vienna. We lost this appeal and in March 2011
commenced an appeal in the Supreme Court of Austria. In October 2011, the Austrian Supreme Court referred the case to the
59

European Court of Justice (ECJ). In July 2013, the European Court of Justice ruled that EU law does not preclude application of
the tariff where certain conditions are met and directed the case back to the Austrian Supreme Court for further proceedings. In
October 2013, the Austrian Supreme Court referred the case back to the Commercial Court of Vienna for further fact finding to
determine whether the tariff on blank digital media meets the conditions set by the ECJ. In December 2012, a German copyright
collection society, Zentralstelle fr private berspielungsrechte (ZPU), filed a complaint against Amazon EU Sarl, Amazon
Media EU Sarl, Amazon Services Europe Sarl, Amazon Payments Europe SCA, Amazon Europe Holding Technologies SCS, and
Amazon Eurasia Holdings Sarl in the District Court of Luxembourg seeking to collect a tariff on blank digital media sold by the
Amazon.de retail website to customers located in Germany. In January 2013, a Belgian copyright collection society, AUVIBEL,
filed a complaint against Amazon EU Sarl in the Court of First Instance of Brussels, Belgium, seeking to collect a tariff on blank
digital media sold by the Amazon.fr retail website to customers located in Belgium. In November 2013, the Belgian court ruled
in favor of AUVIBEL and ordered us to report all sales of products to which the tariff potentially applies for a determination of
damages. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.
In May 2009, Big Baboon, Inc. filed a complaint against Amazon.com, Inc. and Amazon Payments, Inc. for patent
infringement in the United States District Court for the Central District of California. The complaint alleges, among other things,
that our third-party selling and payments technology infringes patents owned by Big Baboon, Inc. purporting to cover an
Integrated Business-to-Business Web Commerce And Business Automation System (U.S. Patent Nos. 6,115,690 and
6,343,275) and seeks injunctive relief, monetary damages, treble damages, costs, and attorneys fees. In February 2011, the Court
entered an order staying the lawsuit pending the outcome of the Patent and Trademark Offices re-examination of the patent. We
dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In April 2011, Walker Digital LLC filed several complaints against Amazon.com, Inc. for patent infringement in the United
States District Court for the District of Delaware. The complaints allege that we infringe several of the plaintiffs U.S. patents by,
among other things, providing cross benefits to customers through our promotions (U.S. Patent Nos. 7,831,470 and 7,827,056),
using a customers identified original product to offer a substitute product (U.S. Patent No. 7,236,942), using our product
recommendations and personalization features to offer complementary products together (U.S. Patent Nos. 6,601,036 and
6,138,105), enabling customers to subscribe to a delivery schedule for products they routinely use at reduced prices (U.S. Patent
No. 5,970,470), and offering personalized advertising based on customers preferences identified using a data pattern (U.S.
Patent No. 7,933,893). Another complaint, filed in the same court in October 2011, alleges that we infringe plaintiffs U.S. Patent
No. 8,041,711 by offering personalized advertising based on customer preferences that associate data with resource locators.
Another complaint, filed in the same court in February 2012, alleges that we infringe plaintiffs U.S. Patent No. 8,112,359 by
using product information received from customers to identify and offer substitute products using a manufacturer database. In
January 2013, the plaintiff filed another complaint in the same court alleging that we infringe U.S. Patent No. 6,381,582 by
allowing customers to make local payments for products ordered online. All of the complaints seek monetary damages, interest,
injunctive relief, costs, and attorneys fees. In March 2013, the complaints asserting U.S. Patent Nos. 7,236,942 and 7,933,893
were voluntarily dismissed with prejudice. In April 2013, the case asserting U.S. Patent No. 8,041,711 was stayed pending final
resolution of the reexamination of that patent. In June 2013, the court granted defendants motions to dismiss the complaints
asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 8,112,359 for lack of standing. In July 2013, we filed motions seeking entry
of a final judgment dismissing those claims with prejudice and for attorneys fees, and plaintiff filed notices of appeal from the
June 2013 order granting the motions to dismiss. In October 2013, the court ruled that its dismissals are with prejudice, and
Walker has appealed those rulings. In March 2014, the court stayed the case asserting U.S. Patent Nos. 6,601,036 and 6,138,105
pending the appeal of the cases asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 8,112,359. In September 2014, the court
dismissed the matter asserting U.S. Patent No. 6,381,582 with prejudice. In January 2015, the court dismissed with prejudice the
complaint asserting U.S. Patent No. 8,041,711, and the United States Court of Appeals for the Federal Circuit affirmed the
dismissal of the complaints asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 8,112,359. We dispute the remaining allegations
of wrongdoing and intend to defend ourselves vigorously in these matters.
In March 2012, OIP Technologies, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in the United
States District Court for the Northern District of California. The complaint alleged, among other things, that certain aspects of
our pricing methods infringed U.S. Patent No. 7,970,713, entitled Method And Apparatus For Automatic Pricing In Electronic
Commerce. The complaint sought three times an unspecified amount of damages, attorneys fees, and interest. In September
2012, the court invalidated the plaintiffs patent and dismissed the case with prejudice. In September 2012, OIP appealed the
judgment of the district court to the United States Court of Appeals for the Federal Circuit, which, in November 2012, stayed all
proceedings pending its decision in a separate case that raises a related question of law and, in June 2013, continued the stay
pending a decision by the United States Supreme Court. In July 2014, the court of appeals lifted the stay. We dispute the
allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In June 2012, Hand Held Products, Inc., a subsidiary of Honeywell, filed a complaint against Amazon.com, Inc., AMZN
Mobile, LLC, AmazonFresh, LLC, A9.com, Inc., A9 Innovations, LLC, and Quidsi, Inc. in the United States District Court for
the District of Delaware. The complaint alleges, among other things, that the use of mobile barcode reader applications,
60

including Amazon Mobile, Amazon Price Check, Flow, and AmazonFresh, infringes U.S. Patent No. 6,015,088, entitled
Decoding Of Real Time Video Imaging. The complaint seeks an unspecified amount of damages, interest, and an injunction.
We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In July 2012, Norman Blagman filed a purported class-action complaint against Amazon.com, Inc. for copyright
infringement in the United States District Court for the Southern District of New York. The complaint alleges, among other
things, that Amazon.com, Inc. sells digital music in our Amazon MP3 Store obtained from defendant Orchard Enterprises and
other unnamed digital music aggregators without obtaining mechanical licenses for the compositions embodied in that
music. The complaint seeks certification as a class action, statutory damages, attorneys fees, and interest. We dispute the
allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In August 2012, an Australian quasi-government entity named Commonwealth Scientific and Industrial Research
Organization filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas. The
complaint alleges, among other things, that the sale of products which are operable according to the Institute of Electrical and
Electronics Engineers (IEEE) 802.11a, g, n, and/or draft n standards infringe U.S. Patent No. 5,487,069, entitled Wireless
LAN. The complaint seeks an unspecified amount of damages, enhanced damages, attorneys fees, and injunctive relief. We
dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In November 2012, Lexington Luminance LLC filed a complaint against Amazon.com, Inc. and Amazon Digital Services,
Inc. in the United States District Court for the District of Massachusetts. The complaint alleges, among other things, that certain
light-emitting diodes in certain Kindle devices infringe U.S. Patent No. 6,936,851, entitled Semiconductor Light-Emitting
Device And Method For Manufacturing Same. The complaint seeks an unspecified amount of damages and an injunction or, in
the absence of an injunction, a compulsory ongoing royalty. In March 2014, the Court invalidated the plaintiffs patent and
dismissed the case with prejudice, and the plaintiff appealed the judgment to the United States Court of Appeals for the Federal
Circuit. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In May 2013, Adaptix, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern
District of Texas. The complaint alleges, among other things, that certain Kindle devices infringe U.S. Patent Nos. 7,454,212 and
6,947,748, both entitled OFDMA With Adaptive Subcarrier-Cluster Configuration And Selective Loading. The complaint
seeks an unspecified amount of damages, interest, injunctive relief, and attorneys fees. In March 2014, the case was transferred
to the United States District Court for the Northern District of California. We dispute the allegations of wrongdoing and intend to
defend ourselves vigorously in this matter.
In July 2013, Telebuyer, LLC filed a complaint against Amazon.com, Inc., Amazon Web Services, LLC, and VADATA,
Inc. in the United States District Court for the Eastern District of Virginia. The complaint alleges, among other things, that
certain features used on our retail websiteincluding high resolution video and still images, user-indicated areas of interest,
targeted follow-up communications, vendor proposals, on-line chat, Gold Box and Lightning Deals, and vendor ratingsinfringe
seven U.S. patents: Nos. 6,323,894, 7,835,508, 7,835,509, 7,839,984, 8,059,796, and 8,098,272, all entitled Commercial
Product Routing System With Video Vending Capability, and 8,315,364, entitled Commercial Product Routing System With
Mobile Wireless And Video Vending Capability. The complaint seeks an unspecified amount of damages, interest, and
injunctive relief. In September 2013, the case was transferred to the United States District Court for the Western District of
Washington. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In August 2013, Cellular Communications Equipment, LLC filed a complaint against Amazon.com, Inc. in the United
States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain Kindle devices
infringe U.S. Patent Nos.: 6,819,923, entitled Method For Communication Of Neighbor Cell Information; 7,215,962, entitled
Method For An Intersystem Connection Handover; 7,941,174, entitled Method For Multicode Transmission By A Subscriber
Station; and 8,055,820 entitled Apparatus, System, And Method For Designating A Buffer Status Reporting Format Based On
Detected Pre-Selected Buffer Conditions. In March 2014, the plaintiff filed an amended complaint that alleges, among other
things, that certain Kindle devices infringe U.S. Patent No. 8,055,820, entitled Apparatus, System, And Method For Designating
A Buffer Status Reporting Format Based On Detected Pre-Selected Buffer Conditions. The amended complaint seeks an
unspecified amount of damages and interest. In January 2015, the court dismissed with prejudice the claim of infringement of
U.S. Patent No. 7,215,962. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
Beginning in August 2013, a number of complaints were filed alleging, among other things, that Amazon.com, Inc. and
several of its subsidiaries failed to compensate hourly workers for time spent waiting in security lines and otherwise violated
federal and state wage and hour statutes and common law. In August 2013, Busk v. Integrity Staffing Solutions, Inc. and
Amazon.com, Inc. was filed in the United States District Court for the District of Nevada, and Vance v. Amazon.com, Inc.,
Zappos.com Inc., another affiliate of Amazon.com, Inc., and Kelly Services, Inc. was filed in the United States District Court for
the Western District of Kentucky. In September 2013, Allison v. Amazon.com, Inc. and Integrity Staffing Solutions, Inc. was
filed in the United States District Court for the Western District of Washington, and Johnson v. Amazon.com, Inc. and an

61

affiliate of Amazon.com, Inc. was filed in the United States District Court for the Western District of Kentucky. In October 2013,
Davis v. Amazon.com, Inc., an affiliate of Amazon.com, Inc., and Integrity Staffing Solutions, Inc. was filed in the United States
District Court for the Middle District of Tennessee. The plaintiffs variously purport to represent a nationwide class of certain
current and former employees under the Fair Labor Standards Act and/or state-law-based subclasses for certain current and
former employees in states including Arizona, California, Pennsylvania, South Carolina, Kentucky, and Nevada, and one
complaint asserts nationwide breach of contract and unjust enrichment claims. The complaints seek an unspecified amount of
damages, interest, injunctive relief, and attorneys fees. We have been named in several other similar cases. In December 2014,
the Supreme Court ruled in Busk that time spent waiting for and undergoing security screening is not compensable working time
under the federal wage and hour statute. We dispute any remaining allegations of wrongdoing and intend to defend ourselves
vigorously in these matters.
In September 2013, Personalized Media Communications, LLC filed a complaint against Amazon.com, Inc. and Amazon
Web Services, LLC in the United States District Court for the District of Delaware. The complaint alleges, among other things,
that the use of certain Kindle devices, Kindle apps and/or Amazon.com, Inc.s website to purchase and receive electronic media
infringes nine U.S. Patents: Nos. 5,887,243, 7,801,304, 7,805,749, 7,940,931, 7,769,170, 7,864,956, 7,827,587, 8,046,791, and
7,883,252, all entitled Signal Processing Apparatus And Methods. The complaint also alleges, among other things, that
CloudFront, S3, and EC2 web services infringe three of those patents, Nos. 7,801,304, 7,864,956, and 7,827,587. The complaint
seeks an unspecified amount of damages, interest, and injunctive relief. We dispute the allegations of wrongdoing and intend to
defend ourselves vigorously in this matter.
In October 2013, Mobile Telecommunications Technologies, LLC filed a complaint against Amazon.com, Inc. for patent
infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that
our network operation centers and our mobile devices, such as Kindle Fire models based on the Android operating system that
provide XMPP-compliant messaging services and applications, infringe U.S. Patent No. 5,809,428, entitled Method And Device
For Processing Undelivered Data Messages In A Two-Way Wireless Communications System. The complaint also alleges that
Amazons mobile devices infringe U.S. Patent No. 5,754,946, entitled Nationwide Communication System, and that
Amazon.com, Inc. infringes U.S. Patent No. 5,786,748, entitled Method And Apparatus For Giving Notification Of Express
Mail Delivery, by providing tracking and notification services to customers who purchase products directly from Amazon.com,
Inc. The complaint seeks an unspecified amount of damages, enhanced damages, attorneys fees, costs, interest, and injunctive
relief. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In October 2013, Tuxis Technologies, LLC filed a complaint against Amazon.com, Inc. for patent infringement in the
United States District Court for District of Delaware. The complaint alleges, among other things, that the Amazon.com website
with recommendation features infringes U.S. Patent No. 6,055,513, entitled Methods And Apparatus For Intelligent Selection
Of Goods And Services In Telephonic And Electronic Commerce. The complaint seeks an unspecified amount of damages,
attorneys fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this
matter.
In November 2013, Memory Integrity, LLC filed a complaint against Amazon.com, Inc. for patent infringement in the
United States District Court for the District of Delaware. The complaint alleges, among other things, that certain Kindle devices
infringe U.S. Patent No. 7,296,121, entitled Reducing Probe Traffic In Multiprocessor Systems. The complaint seeks an
unspecified amount of damages, costs, expenses, and interest. In December 2014, the case was stayed pending resolution of
review petitions filed with the United States Patent and Trademark Office. We dispute the allegations of wrongdoing and intend
to defend ourselves vigorously in this matter.
In November 2013, Vantage Point Technology, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in
the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that Kindle devices
with a Cortex A-9 core processor and OMAP 4430 chipset, Kindle device HD tablets with a Cortex A-9 core processor and
OMAP 4470 chipset, and Kindle devices with a Cortex A-8 core processor and Freescale MX50 family chipset infringe U.S.
Patent No. 5,463,750, entitled Method And Apparatus For Translating Virtual Addresses In A Data Processing System Having
Multiple Instruction Pipelines And Separate TLBs For Each Pipeline. The complaint seeks an unspecified amount of damages,
enhanced damages, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in
this matter.
In December 2013, Appistry, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent
infringement in the United States District Court for the Eastern District of Missouri. The complaint alleges, among other things,
that Amazons Elastic Compute Cloud infringes U.S. Patent Nos. 8,200,746, entitled System And Method For Territory-Based
Processing Of Information, and 8,341,209, entitled System And Method For Processing Information Via Networked
Computers Including Request Handlers, Process Handlers, And Task Handlers. The complaint seeks injunctive relief, an
unspecified amount of monetary damages, treble damages, costs, and interest. We dispute the allegations of wrongdoing and
intend to defend ourselves vigorously in this matter.
62

In December 2013, ContentGuard Holdings, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in the
United States District Court for Eastern District of Texas. The complaint alleges, among other things, that certain digital rights
management software used by various Kindle Fire software applications, including the Kindle Reader and Amazon Instant
Video, infringe seven U.S. Patents: Nos. 6,963,859, entitled Content Rendering Repository; 7,523,072, entitled System For
Controlling The Distribution And Use Of Digital Works; 7,269,576, entitled Content Rendering Apparatus; 8,370,956,
entitled System And Method For Rendering Digital Content In Accordance With Usage Rights Information; 8,393,007, entitled
System And Method For Distributing Digital Content In Accordance With Usage Rights Information; 7,225,160, entitled
Digital Works Having Usage Rights And Method For Creating The Same; and 8,583,556, entitled Method For Providing A
Digital Asset For Distribution. In January 2014, ContentGuard filed an amended complaint that, among other things, added
HTC Corporation and HTC America as defendants. The complaint seeks an unspecified amount of damages, an injunction,
enhanced damages, attorneys fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves
vigorously in this matter.
In March 2014, Kaavo, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent
infringement in the United States District Court for the District of Delaware. The complaint alleges, among other things, that
Amazon Web Services Elastic Beanstalk and CloudFormation infringe U.S. Patent No. 8,271,974, entitled Cloud Computing
Lifecycle Management For N-Tier Applications. The complaint seeks injunctive relief, an unspecified amount of monetary
damages, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In April 2014, Spansion LLC filed complaints for patent infringement against Amazon.com, Inc. in both the United States
District Court for the Northern District of California and the United States International Trade Commission. The complaints
allege, among other things, that certain Kindle devices infringe U.S. Patent Nos. 6,246,611, entitled System For Erasing A
Memory Cell, and 6,744,666, entitled Method And System To Minimize Page Programming Time For Flash Memory
Devices. The district court complaint seeks an unspecified amount of damages, enhanced damages, attorneys fees, interest, and
injunctive relief. The International Trade Commission complaint seeks an exclusion order preventing the importation of certain
Kindle devices into the United States, as well as a cease-and-desist order barring sale of certain Kindle devices after importation.
In June 2014, the district court case was stayed pending resolution of the International Trade Commission action. We dispute the
allegations of wrongdoing and intend to defend ourselves vigorously in these matters.
In June 2014, SimpleAir, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern
District of Texas. The complaint alleges, among other things, that Amazon Device Messaging and Simple Notification Service
infringe U.S Patent Nos. 7,035,914, 8,090,803, 8,572,279, 8,601,154, and 8,639,838, all of which are entitled System and
Method for Transmission of Data. The complaint seeks an unspecified amount of damages, pre-judgment interest, costs,
attorneys fees, enhanced damages, and injunctive relief. We dispute the allegations of wrongdoing and intend to defend
ourselves vigorously in this matter.
In December 2014, Smartflash LLC and Smartflash Technologies Limited filed a complaint against Amazon.com, Inc.,
Amazon.com, LLC, AMZN Mobile, LLC, Amazon Web Services, Inc. and Audible, Inc. for patent infringement in the United
States District Court for Eastern District of Texas. The complaint alleges, among other things, that Amazon Appstore, Amazon
Instant Video, Amazon Music, Audible Audiobooks, the Amazon Mobile Ad Network, certain Kindle and Fire devices, Kindle ebookstore, Amazons proprietary Android operating system, and the servers involved in operating Amazon Appstore, Amazon
Instant Video, Amazon Music, the Fire TV app, Audible Audiobooks, Cloud Drive, Cloud Player, Amazon Web Services, and
Amazon Mobile Ad Network infringe seven related U.S. Patents: Nos. 7,334,720; 7,942,317; 8,033,458; 8,061,598; 8,118,221;
8,336,772; and 8,794,516, all entitled Data Storage and Access Systems. The complaint seeks an unspecified amount of
damages, an injunction, enhanced damages, attorneys fees, costs, and interest. We dispute the allegations of wrongdoing and
intend to defend ourselves vigorously in this matter.
The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be
material to our operating results and cash flows for a particular period. In addition, for some matters for which a loss is probable
or reasonably possible, an estimate of the amount of loss or range of loss is not possible and we may be unable to estimate the
possible loss or range of losses that could potentially result from the application of non-monetary remedies.
See also Note 11Income Taxes.

63

Note 9STOCKHOLDERS 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 483 million, 476 million, and 470
million, as of December 31, 2014, 2013, and 2012. These totals include all vested and unvested stock awards outstanding,
including those awards we estimate will be forfeited.
Stock Repurchase Activity
In January 2010, our Board of Directors authorized the Company to repurchase up to $2.0 billion of our common stock
with no fixed expiration. We have $763 million remaining under the $2.0 billion repurchase program.
Stock Award Plans
Employees vest in restricted stock unit awards and stock options over the corresponding service term, generally between
two and five years.
Stock Award Activity
Stock options outstanding, which were primarily obtained through acquisitions, totaled 0.4 million, 0.2 million and 0.4
million, as of December 31, 2014, 2013, and 2012. The after-tax compensation expense for stock options was not material for
2014, 2013, and 2012, as well as the total intrinsic value for stock options outstanding, the amount of cash received from the
exercise of stock options, and the related tax benefits.
The following table summarizes our restricted stock unit activity (in millions):
Weighted Average
Grant-Date
Fair Value

Number of Units

Outstanding as of January 1, 2012


Units granted
Units vested
Units forfeited
Outstanding as of December 31, 2012
Units granted
Units vested
Units forfeited
Outstanding as of December 31, 2013
Units granted
Units vested
Units forfeited
Outstanding as of December 31, 2014

13.1 $
8.2
(4.2)
(1.7)
15.4
7.2
(4.5)
(1.8)
16.3
8.5
(5.1)
(2.3)
17.4 $

143
209
110
168
184
283
160
209
233
328
202
264
285

Scheduled vesting for outstanding restricted stock units as of December 31, 2014, is as follows (in millions):

Year Ended December 31,


2015

Scheduled vestingrestricted stock units

2016

5.9

6.1

64

2017

3.4

2018

1.7

2019

0.2

Thereafter

0.1

Total

17.4

As of December 31, 2014, there was $2.2 billion of net unrecognized compensation cost related to unvested stock-based
compensation arrangements. This compensation is recognized on an accelerated basis with approximately half of the
compensation expected to be expensed in the next twelve months, and has a weighted-average recognition period of 1.2 years.
During 2014 and 2013, the fair value of restricted stock units that vested was $1.7 billion and $1.4 billion.
As matching contributions under our 401(k) savings plan, we granted 0.2 million and 0.1 million shares of common stock
in 2014 and 2013. Shares granted as matching contributions under our 401(k) plan are included in outstanding common stock
when issued, and recorded as stock-based compensation expense.
Common Stock Available for Future Issuance
As of December 31, 2014, common stock available for future issuance to employees is 137 million shares.
Note 10ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the composition of accumulated other comprehensive loss for 2014, 2013, and 2012 are as follows (in
millions):
Foreign currency
translation
adjustments

Balances as of January 1, 2012


Other comprehensive income
Balances as of December 31, 2012
Other comprehensive income (loss)
Balances as of December 31, 2013
Other comprehensive income (loss)
Balances as of December 31, 2014

Unrealized gains on
available-for-sale
securities

(326) $
76
(250)
63
(187)
(325)
(512) $

Total

10 $
1
11
(9)
2
(1)
1 $

(316)
77
(239)
54
(185)
(326)
(511)

Amounts included in accumulated other comprehensive loss are recorded net of their related income tax effects.
Note 11INCOME TAXES
In 2014, 2013, and 2012, we recorded net tax provisions of $167 million, $161 million, and $428 million. We have tax
benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that are being utilized
to reduce our U.S. taxable income. In December 2014, U.S. legislation was enacted providing a one year extension of accelerated
depreciation deductions on qualifying property and the U.S. federal research and development credit through 2014. As such, cash
taxes paid, net of refunds, were $177 million, $169 million, and $112 million for 2014, 2013, and 2012.
The components of the provision for income taxes, net are as follows (in millions):
Year Ended December 31,
2014

Current taxes:
U.S. Federal
U.S. State
International
Current taxes
Deferred taxes:
U.S. Federal
U.S. State
International
Deferred taxes
Provision for income taxes, net

65

2013

2012

214 $
65
204
483

99 $
45
173
317

528
34
131
693

(125)
(11)
(180)
(316)
167 $

(114)
(19)
(23)
(156)
161 $

(129)
(27)
(109)
(265)
428

U.S. and international components of income before income taxes are as follows (in millions):
Year Ended December 31,
2014

U.S.
International

Income (loss) before income taxes

2013

292 $
(403)
(111) $

2012

704 $
(198)
506 $

882
(338)
544

The items accounting for differences between income taxes computed at the federal statutory rate and the provision
recorded for income taxes are as follows (in millions):
Year Ended December 31,
2014

Income taxes computed at the federal statutory rate


Effect of:
Impact of foreign tax differential
State taxes, net of federal benefits
Tax credits
Nondeductible compensation
Domestic production activities deduction
Other, net
Total

2013

2012

(39) $

177 $

191

136
29
(85)
117
(20)
29
167 $

(41)
14
(84)
86
(11)
20
161 $

172
1
(24)
72

16
428

Our provision for income taxes in 2014 was higher than in 2013 primarily due to the increased losses in certain foreign
subsidiaries for which we may not realize a tax benefit and audit-related developments, partially offset by the favorable impact of
earnings in lower tax rate jurisdictions. Losses for which we may not realize a related tax benefit reduce our pre-tax income
without a corresponding reduction in our tax expense, and therefore increase our effective tax rate. We have recorded valuation
allowances against the deferred tax assets associated with losses for which we may not realize a related tax benefit. Income
earned in lower tax jurisdictions is primarily related to our European operations, which are headquartered in Luxembourg.
In 2013, our provision for income taxes was lower than in 2012 primarily due to a decline in the proportion of our losses
for which we may not realize a related tax benefit, the favorable impact of earnings in lower tax rate jurisdictions, and the
retroactive extension in 2013 of the U.S. federal research and development credit to 2012. In 2013, we recognized tax benefits
for a greater proportion of losses for which we may not realize a related tax benefit, primarily due to losses of certain foreign
subsidiaries, as compared to 2012. The favorable impact of earnings in lower tax rate jurisdictions was primarily related to our
European operations.
Except as required under U.S. tax laws, we do not provide for U.S. taxes on our undistributed earnings of foreign
subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the
U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes
on some or all of these undistributed earnings and our effective tax rate would be adversely affected. Undistributed earnings of
foreign subsidiaries that are indefinitely invested outside of the U.S were $2.5 billion as of December 31, 2014. Determination of
the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable.

66

Deferred income tax assets and liabilities are as follows (in millions):
December 31,
2014 (1)

Deferred tax assets:


Net operating losses U.S. - Federal/States (2)
Net operating losses foreign (3)
Accrued liabilities, reserves, & other expenses
Stock-based compensation
Deferred revenue
Assets held for investment
Other items
Tax credits (4)
Total gross deferred tax assets
Less valuation allowance (5)
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Depreciation & amortization
Acquisition related intangible assets
Other items
Net deferred tax assets, net of valuation allowance

2013

357 $
669
780
534
156
154
242
115
3,007
(901)
2,106

53
427
590
396
249
164
177
107
2,163
(698)
1,465

(1,609)
(195)
(31)
271 $

(1,021)
(201)
(16)
227

___________________
(1) Deferred tax assets related to net operating losses and tax credits are presented net of tax contingencies.
(2) Excluding $261 million and $81 million of deferred tax assets as of December 31, 2014 and 2013, related to net operating
losses that result from excess stock-based compensation and for which any benefit realized will be recorded to stockholders
equity.
(3) Excluding $2 million and $2 million of deferred tax assets as of December 31, 2014 and 2013, related to net operating losses
that result from excess stock-based compensation and for which any benefit realized will be recorded to stockholders equity.
(4) Excluding $268 million and $227 million of deferred tax assets as of December 31, 2014 and 2013, related to tax credits that
result from excess stock-based compensation and for which any benefit realized will be recorded to stockholders equity.
(5) Relates primarily to deferred tax assets that would only be realizable upon the generation of net income in certain foreign
taxing jurisdictions and future capital gains.
As of December 31, 2014, our federal, foreign, and state net operating loss carryforwards for income tax purposes were
approximately $1.9 billion, $2.5 billion, and $1.1 billion. The federal and state net operating loss carryforwards are subject to
limitations under Section 382 of the Internal Revenue Code and applicable state tax law. If not utilized, a portion of the federal,
foreign, and state net operating loss carryforwards will begin to expire in 2020, 2015, and 2015, respectively. As of
December 31, 2014, our tax credit carryforwards for income tax purposes were approximately $506 million. If not utilized, a
portion of the tax credit carryforwards will begin to expire in 2017.
The Companys consolidated balance sheets reflect deferred tax assets related to net operating losses and tax credit
carryforwards excluding amounts resulting from excess stock-based compensation. Amounts related to excess stock-based
compensation are accounted for as an increase to additional paid-in capital if and when realized through a reduction in income
taxes payable.
Tax Contingencies
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is
required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business,
there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for taxrelated uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are
established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully
supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The
provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

67

The reconciliation of our tax contingencies is as follows (in millions):


December 31,
2014

Gross tax contingencies January 1


Gross increases to tax positions in prior periods
Gross decreases to tax positions in prior periods
Gross increases to current period tax positions
Audit settlements paid
Lapse of statute of limitations
Gross tax contingencies December 31 (1)

2013

407 $
351
(50)
20
(16)
(2)
710 $

2012

294 $
78
(18)
54
(1)

407 $

229
91
(47)
26
(4)
(1)
294

___________________
(1) As of December 31, 2014, we had $710 million of tax contingencies, of which $604 million, if fully recognized, would
decrease our effective tax rate.
As of December 31, 2014 and 2013, we had accrued interest and penalties, net of federal income tax benefit, related to tax
contingencies of $41 million and $33 million. Interest and penalties, net of federal income tax benefit, recognized for the years
ended December 31, 2014, 2013, and 2012 was $8 million, $8 million, and $1 million.
We are under examination, or may be subject to examination, by the Internal Revenue Service (IRS) for the calendar
year 2005 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or
our net operating losses with respect to years under examination as well as subsequent periods. As previously disclosed, we have
received Notices of Proposed Adjustment from the IRS for transactions undertaken in the 2005 and 2006 calendar years relating
to transfer pricing with our foreign subsidiaries. The IRS is seeking to increase our U.S. taxable income by an amount that would
result in additional federal tax of approximately $1.5 billion, subject to interest. To date, we have not resolved this matter
administratively and are currently contesting it in U.S. Tax Court. We continue to disagree with these IRS positions and intend to
defend ourselves vigorously in this matter. In addition to the risk of additional tax for 2005 and 2006 transactions, if this
litigation is adversely determined or if the IRS were to seek transfer pricing adjustments of a similar nature for transactions in
subsequent years, Amazon could be subject to significant additional tax liabilities.
Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by the
French Tax Administration (FTA) for calendar year 2006 or thereafter. These examinations may lead to ordinary course
adjustments or proposed adjustments to our taxes. While we have not yet received a final assessment from the FTA, in September
2012, we received proposed tax assessment notices for calendar years 2006 through 2010 relating to the allocation of income
between foreign jurisdictions. The notices propose additional French tax of approximately $250 million, including interest and
penalties through the date of the assessment. We disagree with the proposed assessment and intend to contest it vigorously. We
plan to pursue all available administrative remedies at the FTA, and if we are not able to resolve this matter with the FTA, we
plan to pursue judicial remedies. In addition, in October 2014, the European Commission opened a formal investigation to
examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our
subsidiaries comply with European Union rules on state aid. If this matter is adversely resolved, Luxembourg may be required to
assess, and we may be required to pay, additional amounts with respect to current and prior periods and our taxes in the future
could increase. We are also subject to taxation in various states and other foreign jurisdictions including Canada, China,
Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and
additional assessments in respect of these particular jurisdictions for 2003 and thereafter.
We expect the total amount of tax contingencies will grow in 2015. In addition, changes in state, federal, and foreign tax
laws may increase our tax contingencies. The timing of the resolution of income tax examinations is highly uncertain, and the
amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts
accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities
or possibly reach resolution of income tax examinations in one or more jurisdictions. These assessments or settlements may or
may not result in changes to our contingencies related to positions on tax filings in years through 2014. The actual amount of any
change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an
estimate of the range of possible outcomes.

68

Note 12SEGMENT INFORMATION


We have organized our operations into two segments: North America and International. We present our segment
information along the same lines that our Chief Executive Officer reviews our operating results in assessing performance and
allocating resources. We expect to change our reportable segments to report North America, International, and AWS, beginning
with the first quarter of 2015.
We allocate to segment results the operating expenses Fulfillment, Marketing, Technology and content, and
General and administrative, but exclude from our allocations the portions of these expense lines attributable to stock-based
compensation. We do not allocate the line item Other operating expense (income), net to our segment operating results. Our
Technology and content costs included in our segments are primarily based on the geographic location of where the costs are
incurred, the majority of these costs are incurred in the U.S. and included in 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 websites. This segment includes export sales from these internationally based
websites (including export sales from these sites to customers in the U.S. and Canada), but excludes export sales from our U.S.
and Canadian websites.
Information on reportable segments and reconciliation to consolidated net income (loss) is as follows (in millions):
Year Ended December 31,
2014

North America
Net sales
Segment operating expenses (1)
Segment operating income
International
Net sales
Segment operating expenses (1)
Segment operating income (loss)
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)
Provision for income taxes
Equity-method investment activity, net of tax
Net income (loss)

$
$
$
$
$

2013

2012

55,469 $
53,364
2,105 $

44,517 $
42,631
1,886 $

34,813
33,221
1,592

33,519 $
33,816
(297) $

29,935 $
29,828
107 $

26,280
26,204
76

88,988 $
87,180
1,808
(1,497)
(133)
178
(289)
(167)
37
(241) $

74,452 $
72,459
1,993
(1,134)
(114)
745
(239)
(161)
(71)
274 $

61,093
59,425
1,668
(833)
(159)
676
(132)
(428)
(155)
(39)

___________________
(1) Represents operating expenses, excluding stock-based compensation and Other operating expense (income), net, which
are not allocated to segments.

69

We have aggregated our products and services into groups of similar products and services and provided the supplemental
disclosure of net sales (in millions) below. We evaluate whether additional disclosure is appropriate when a product or service
category begins to approach a significant level of net sales. For the periods presented, no individual product or service
represented more than 10% of net sales.

Year Ended December 31,


2014

Net Sales:
Media
Electronics and other general merchandise
Other (1)

2013

22,505 $
60,886
5,597
88,988 $

21,716 $
48,802
3,934
74,452 $

2012

19,942
38,628
2,523
61,093

___________________
(1)
Includes sales from non-retail activities, such as AWS, advertising services, and our co-branded credit card agreements.
Net sales generated from these internationally-focused websites are denominated in local functional currencies. Revenues
are translated at average rates prevailing throughout the period. Net sales attributed to foreign countries are as follows (in
millions):
Year Ended December 31,
2014

Germany
Japan
United Kingdom

2013

11,919 $
7,912
8,341

2012

10,535 $
7,639
7,291

8,732
7,800
6,478

Total assets, property and equipment, net, and total property and equipment additions, by geography, reconciled to
consolidated amounts are (in millions):
December 31,
2014

North America
Total assets
Property and equipment, net
Total property and equipment additions
International
Total assets
Property and equipment, net
Total property and equipment additions
Consolidated
Total assets
Property and equipment, net
Total property and equipment additions

2013

2012

39,157 $
13,163
7,464

26,108 $
8,447
4,837

20,703
5,481
3,348

15,348 $
3,804
2,017

14,051 $
2,502
1,536

11,852
1,579
969

54,505 $
16,967
9,481

40,159 $
10,949
6,373

32,555
7,060
4,317

Except for the U.S., property and equipment, net, in any single country was less than 10% of consolidated property and
equipment, net.

70

Depreciation expense, by segment, is as follows (in millions):


Year Ended December 31,
2014

North America
International
Consolidated

$
$

2013

2,701 $
915
3,616 $

2012

1,863 $
597
2,460 $

1,229
424
1,653

Note 13QUARTERLY RESULTS (UNAUDITED)


The following tables contain selected unaudited statement of operations information for each quarter of 2014 and 2013.
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):
Year Ended December 31, 2014 (1)
Third
Quarter

Fourth
Quarter

Net sales
Income (loss) from operations
Income (loss) before income taxes
Benefit (provision) for income taxes
Net income (loss)
Basic earnings per share
Diluted earnings per share
Shares used in computation of earnings per share:
Basic
Diluted

Second
Quarter

First
Quarter

29,328 $
591
429
(205)
214
0.46
0.45

20,579 $
(544)
(634)
205
(437)
(0.95)
(0.95)

19,340 $
(15)
(27)
(94)
(126)
(0.27)
(0.27)

464
472

463
463

461
461

19,741
146
120
(73)
108
0.23
0.23
460
468

Year Ended December 31, 2013 (1)


Fourth
Quarter

Net sales
Income (loss) from operations
Income (loss) before income taxes
Benefit (provision) for income taxes
Net income (loss)
Basic earnings per share
Diluted earnings per share
Shares used in computation of earnings per share:
Basic
Diluted

Third
Quarter

Second
Quarter

First
Quarter

25,587 $
510
451
(179)
239
0.52
0.51

17,092 $
(25)
(43)
12
(41)
(0.09)
(0.09)

15,704 $
79
17
(13)
(7)
(0.02)
(0.02)

458
467

457
457

456
456

16,070
181
81
18
82
0.18
0.18
455
463

___________________
(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.

71

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 Securities Exchange Act of 1934 (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, 2014.
Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2014,
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 SECs 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 disclosure.
Managements 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, 2014 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of
December 31, 2014, 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, 2014 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.

72

Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
Amazon.com, Inc.
We have audited Amazon.com, Inc.s internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (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 Managements Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys 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 companys 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 companys 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 companys
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, 2014, 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, 2014 and 2013, and the related consolidated
statements of operations, comprehensive income, stockholders equity, and cash flows for each of the three years in the period
ended December 31, 2014 of Amazon.com, Inc. and our report dated January 29, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
January 29, 2015

73

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 of the Registrant. 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 2015 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 2015 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 2015 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 2015 Annual Meeting of
Shareholders and is incorporated herein by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2015 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 2015 Annual Meeting of
Shareholders and is incorporated herein by reference.

74

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, 2014
Consolidated Statements of Operations for each of the three years ended December 31, 2014
Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2014
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Stockholders Equity for each of the three years ended December 31, 2014
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
(2) Index to Financial Statement Schedules:
All schedules have been omitted because the required information is included in the consolidated financial
statements or the notes thereto, or because it is not required.
(3) Index to Exhibits
See exhibits listed under the Exhibit Index below.

75

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized, as of January 29, 2015.

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 29, 2015.
Signature

Title

/s/ Jeffrey P. Bezos


Jeffrey P. Bezos

Chairman of the Board, President, and Chief Executive Officer


(Principal Executive Officer)

/s/ Thomas J. Szkutak


Thomas J. Szkutak

Senior Vice President and Chief Financial Officer (Principal


Financial Officer)

/s/ Shelley Reynolds


Shelley Reynolds

Vice President, Worldwide Controller (Principal Accounting


Officer)

/s/ Tom A. Alberg


Tom A. Alberg

Director

/s/ John Seely Brown


John Seely Brown

Director

/s/ William B. Gordon


William B. Gordon

Director

/s/ Jamie S. Gorelick


Jamie S. Gorelick

Director

/s/ Judith A. McGrath


Judith A. McGrath

Director

/s/ Alain Moni


Alain Moni

Director

/s/ Jonathan J. Rubinstein


Jonathan J. Rubinstein

Director

/s/ Thomas O. Ryder


Thomas O. Ryder

Director

/s/ Patricia Q. Stonesifer


Patricia Q. Stonesifer

Director
76

EXHIBIT INDEX
Exhibit
Number

Description

2.1

Form of Purchase and Sale Agreement dated as of October 1, 2012, between Acorn Development LLC, a wholly
owned subsidiary of the Company, and Lake Union III LLC, Lake Union IV LLC, City Place V LLC, City Place II
LLC, City Place III LLC, City Place IV LLC, and City Place V LLC, respectively (incorporated by reference to the
Companys Annual Report on Form 10-K for the Year ended December 31, 2012).

3.1

Restated Certificate of Incorporation of the Company (incorporated by reference to the Companys Quarterly
Report on Form 10-Q for the Quarter ended March 31, 2000).

3.2

Amended and Restated Bylaws of the Company (incorporated by reference to the Companys Current Report on
Form 8-K, filed February 18, 2009).

4.1

Indenture, dated as of November 29, 2012, between Amazon.com, Inc. and Wells Fargo Bank, National
Association, as trustee, and Form of 0.650% Note due 2015, Form of 1.200% Note due 2017, and Form of 2.500%
Note due 2022 (incorporated by reference to the Companys Current Report on Form 8-K, filed November 29,
2012).

4.2

Officers Certificate Establishing the Terms of Notes, dated as of December 5, 2014, containing Form of 2.600%
Note due 2019, Form of 3.300% Note due 2021, Form of 3.800% Note due 2024, Form of 4.800% Note due 2034,
and Form of 4.950% Note due 2044 (incorporated by reference to the Companys Current Report on Form 8-K,
filed December 5, 2014).

10.1

1997 Stock Incentive Plan (amended and restated) (incorporated by reference to the Companys Quarterly Report
on Form 10-Q for the Quarter ended March 31, 2013).

10.2

1999 Nonofficer Employee Stock Option Plan (amended and restated) (incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the Quarter ended March 31, 2013).

10.3

Offer Letter of Employment to Diego Piacentini, dated January 17, 2000 (incorporated by reference to the
Companys Annual Report on Form 10-K for the Year ended December 31, 2000).

10.4

Form of Indemnification Agreement between the Company and each of its Directors (incorporated by reference to
the Companys Registration Statement on Form S-1 (Registration No. 333-23795) filed March 24, 1997).

10.5

Form of Restricted Stock Unit Agreement for Officers and Employees (incorporated by reference to the Companys
Annual Report on Form 10-K for the Year ended December 31, 2002).

10.6

Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to the Companys Annual
Report on Form 10-K for the Year ended December 31, 2002).

10.7

Form of Restricted Stock Agreement (incorporated by reference to the Companys Annual Report on Form 10-K
for the Year ended December 31, 2001).

10.8

Form of Global Restricted Stock Unit Award Agreement for Executive Officers (incorporated by reference to the
Companys Quarterly Report on Form 10-Q for the Quarter ended March 31, 2014).

10.9

Credit Agreement, dated as of September 5, 2014, among Amazon.com, Inc., Bank of America, N.A., as
administrative agent, and the other lenders party thereto, and conformed page thereto (incorporated by reference to
the Companys Current Report on Form 8-K, filed September 5, 2014, and Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2014, respectively).

12.1

Computation of Ratio of Earnings to Fixed Charges.

21.1

List of Significant Subsidiaries.

23.1

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.

31.1

Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.

31.2

Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of Amazon.com, Inc.,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1

Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to 18
U.S.C. Section 1350.
77

32.2

Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of Amazon.com, Inc.,
pursuant to 18 U.S.C. Section 1350.

101

The following financial statements from the Companys Annual Report on Form 10-K for the year ended
December 31, 2014, formatted in XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements
of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, (v)
Consolidated Statements of Stockholders Equity, and (vi) Notes to Consolidated Financial Statements, tagged as
blocks of text and including detailed tags.
___________________

Executive Compensation Plan or Agreement

78

Stock Price Performance Graph


The graph set forth below compares cumulative total return on the common stock with the cumulative total
return of the Morgan Stanley Technology Index, the S&P 500 Index, and the S&P 500 Retailing Index, resulting
from an initial investment of $100 in each and, except in the case of the Morgan Stanley Technology Index,
assuming the reinvestment of any dividends, based on closing prices. Measurement points are the last trading day
of each of Amazons fiscal years ended December 31, 2009, 2010, 2011, 2012, 2013, and 2014.

$350
$300

Dollars

$250
$200
$150
$100
$50
$0
2009

2010

2011

2012

2013

2014

Year Ended December 31

Cumulative Total Return


Year Ended December 31,

Legend
Amazon.com, Inc.

2009

2010

2011

2012

2013

2014

$100

$134

$129

$186

$296

$231

Morgan Stanley Technology Index

100

115

102

119

156

176

S&P 500 Index

100

115

117

136

180

205

S&P 500 Retailing Index

100

125

131

165

241

267

Note: Stock price performance shown in the Stock Price Performance Graph for the common stock is
historical and not necessarily indicative of future price performance.

amazon.com
amazon.ca
amazon.in

amazon.co.uk
amazon.cn

amazon.de
a m a z o n . it

amazon.com.mx

amazon.fr
a m a z o n . es

amazon.com.au

amazon.co.jp
amazon.com.br
amazon.nl

Appendix 2: Ratio analysis of Amazon.com

188 | P a g e

Ratio Analysis of Amazon.com


Liquidity
Working Capital
Current Ratio
Cash Ratio
Acid-Test ratio

$2,575,000
1.0760
0.4689
0.7738

Efficiency
Inventory Turnover
7.7285
Day's sales in inventory 47.2277
Gross Profit Percentage 0.3304

Solvency
Debt Ratio
0.7955
Debt to Equity Ratio
3.8883
Times-Interest-Earned Ratio 4.4161

Profitability
Profit Margin Ratio
0.0056
Rate of Return on Total Assets
0.0176
Asset Turnover Ratio
1.7842
Rate of Return on Common Stockholder's Equity 119.2000
Earning per share
$1.28

Investment Potential
Price/Earnings Ratio $639.84
Dividend Yield
0
Dividend Payout
0

Appendix 3: Industry Details Report

190 | P a g e

INDUSTRY PROFILE

Internet & Mail-Order Retail


8.15.2016
NAICS CODES: 454111, 454113
SIC CODES: 5961

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Industry Overview
Companies in this industry sell products directly to consumers via the Internet, TV, or mail order. Major
companies include the US-based Amazon, HSN, J Crew, and Liberty Interactive (parent company of QVC), as
well as Shop Direct Home Shopping (based in the UK), Otto Group (Germany), Alibaba Group-owned Taobao
(China), and Rakuten (Japan).
Globally, annual e-commerce revenue is about $1.7 trillion and is expected to top $3.5 billion by 2019, according
to eMarketer. Growth is driven in large part by rapidly expanding online and mobile user bases in emerging
markets, increases in mobile commerce sales, and the push into new international markets by major brands. The
Asia/Pacific region is the world's fastest-growing market for online sales. Much of the growth in the region will
come from rural consumers making purchases from mobile phones.
The Internet and mail-order retail industry in the US includes about 30,000 companies with combined annual
revenue of about $410 billion. Over the past five years, the bulk of the industry's revenue has shifted from
catalog to Internet sales. While most brick-and-mortar retailers have an online presence and many also offer
catalog sales, this profile focuses on retailers who use the Internet or catalogs as their sole or primary sales
channel.

Competitive Landscape
Demand is driven by consumers personal income. Profitability of individual companies depends on effective
marketing to build a customer base. Larger firms enjoy central purchasing efficiencies and economies of scale
in inventory management, customer service, and telecommunications. Smaller firms compete on outstanding
customer service and providing niche products. The industry is concentrated: the top 50 companies account for
about 75% of industry revenue.
Amazon.com is by far the dominant global force in Internet retail. As of late 2015 the company's annual online
sales exceeded those of the next nine largest competitors combined. The Seattle-based company captured
nearly 35% of all visits to the 500 leading online sites in November and December 2015, up from about 26%
during the same period in 2014, according to data from Hitwise reported by Internet Retailer.
With 1,800 different catalogs, Germany's Otto Group is the world's largest mail-order operation, although
e-commerce accounts for more than half of the group's total sales.

Products, Operations & Technology


Although Internet and mail-order retailers sell a variety of products and services, some of the largest product
categories are drugs, health, and beauty aids; computer hardware and software; and clothing. Many Internet and
catalog companies specialize in a single product category, but larger companies are expanding offerings to
maintain growth and leverage brand awareness. Amazon has expanded from being an online bookstore to offering
millions of products across dozens of categories.
Catalog retailers specialize in target marketing, which identifies specific customers and customer groups most
likely to buy their products. Catalogers mail about 12 billion catalogs a year to existing customers and targeted
prospects in the US. Catalog firms maintain a proprietary customer list of those who have bought in the past.
This list is supplemented by purchased and rented lists of consumers with desired buying behavior, and names
from print advertising and promotional inserts.
The direct-to-consumer home shopping market is dominated by industry leaders QVC and HSN. The
business model traditionally operated by showcasing products on TV channels, and then selling large volumes of
product over the phone at low prices in a short timeframe. Home shopping companies are increasingly focusing
on the Internet as an additional sales channel. Also, they are working to cultivate long-term relationships with the
huge databases of customers that they have amassed over the years.
In-stock items are usually shipped the next day from the companys warehouse(s) or distribution center(s) or
from a third party through a sponsoring agreement. Company warehouses can be several hundred thousand
square feet and contain thousands of different products. Shipments are made via the US Postal Service (USPS)
or a commercial shipping firm, and fulfillment may be enhanced by providing the customer a delivery date and
delivery shipment notification. Most catalogers have flexible return policies. Disputes regarding purchases and
deliveries are resolved by the credit card issuing bank. Credit card association procedures require the retailer to
prove the sale and delivery of the disputed merchandise.
Some Internet retailers specialize in daily deals or "flash sales" that offer big discounts in limited-time sales
events. The Internet retail customer puts items for purchase in an online shopping cart and then provides
shipping and payment information before checking out. Internet retailers typically have call centers for customer
service calls. Customers order online by going directly to a firms website, through third party websites by clickthrus where the retailer pays a commission, and from online advertising. Also, catalogs sent to consumers

are a major generator of online orders.


Technology
Catalog, Internet, and home shopping retailers have invested heavily in management information systems that
allow easy access to data, including product availability, product specifications, and shipment dates. Information
systems are used to automate warehouse operations, inventory management, and call center operations.
Companies also use technology to track customer data such as purchase history. The customer database is the
source for marketing and promotional campaigns. Due to customer privacy and security issues, Internet retailers
have invested in encryption technology to protect sensitive customer information transmitted over the Web.
Mobile technology is a key driver of e-commerce growth as retailers seek to reach the rapidly growing number
of consumers who shop via smartphones and tablets. Mobile retail accounts for about one-third of US
e-commerce sales, according to Internet Retailer.

Sales & Marketing


Consumers are the major customers of mail-order and Internet retailers, although business-to-business
Internet retailing is increasing. Many companies have an advertising campaign that uses national, regional, and
local media, including network and cable TV and consumer magazines. Internet retailers also use sponsored links,
email, and cooperative advertising with vendors. Internet retailers sponsor ads on other websites, and create
pop-up ads and special portals for online shopping.
Catalogs are mailed to customers multiple times each year. The types of catalogs are regular product, seasonal,
and sale catalogs, and abridged versions typically mailed to prospective customers. Catalog, home shopping,
and Internet companies maintain extensive databases of their customers, including shopping and buying habits,
and demographic data. The database is routinely updated and refined based on most recent and frequency and
size of purchases, and specific products purchased.

Finance & Regulation


The Internet and mail-order retailing industry is highly seasonal, as the fourth quarter has the greatest sales
volume, accounting for as much as a third of annual sales. Most customer payments are via credit cards. Pricing
is an issue with both Internet and catalog retailers, as the increasing importance of discount retailers has
significantly eroded prices for many products, especially apparel. The industry is capital-intensive: average
annual revenue per worker is more than $1 million.
Inventories for the industry overall are typically about 35 days' sales; for larger retailers, inventories are likely
to be lower. Unsold inventory is liquidated. Internet retailers can minimize inventory risk through third-party
service relationships where the partner bears the financial risk of inventory obsolescence. While some Internet
retailers have product warehouses, they usually fulfill orders via third parties and have to locate a supplier for
the needed item after an order is received. Accounts receivable are minimal, as customers generally pay at the
time of purchase.
Catalog postage, shipping, and paper costs can account for a significant percentage of company revenue.
Some firms have responded to rising postage costs by producing slimmer, lighter-weight catalogs or by cutting
back on mailings.

Working Capital Turnover by Company Size


The working capital turnover ratio, also known as working capital to sales, is a measure of
how efficiently a company uses its capital to generate sales. Companies should be
compared to others in their industry.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents
financial performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of
companies in over 900 industries (SIC and NAICS). More data available by subscription or single report
purchase at www.microbilt.com/firstresearch.

Regulation
Internet, TV, and catalog retailing is relatively free of regulation. Internet and catalog retailers aren't required to
collect sales taxes unless they have a physical presence in the buyers state. An increasing number of states
and some foreign jurisdictions are considering, or have passed, laws that require remote sellers and online
marketplaces to collect sales tax. Currently, more than half of Amazon's revenue is earned in jurisdictions where
the company collects sales tax.

International Insights
Globally, annual e-commerce revenue is about $1.7 trillion, according to eMarketer. Growth is driven in large part
by rapidly expanding online and mobile user bases in emerging markets, increases in mobile commerce sales,
and the push into new international markets by major brands. Global e-commerce revenue is expected to reach
$3.5 trillion, or 12% of total retail sales worldwide, by 2019. US-based Amazon is a global industry leader; major
companies based outside the US include Shop Direct Home Shopping of the UK, Otto Group of Germany,
JD.com and Alibaba Group-owned Taobao (China), and Rakuten of Japan.
China and the US are the world's leading e-commerce markets. Together they accounted for more than 55% of
global Internet retail sales in 2014. Other countries with significant e-commerce sales include the UK, Japan, and
Germany, each with about 5% of worldwide Internet sales, according to eMarketer.

E-Commerce Sales by Region - eMarketer, 2014

China, with about $675 billion in projected online sales in 2015 (up 42% from 2014), has eclipsed the US (about
$350 billion). The gap between China and the US is widening, with China exceeding $1 trillion in retail e-commerce
sales by 2018, according to eMarketer. "Singles Day," created by China's Alibaba in 2009, is the world's biggest
shopping day, with more than $5 billion in online sales, 74% of which were from mobile phones. After China, other
countries experiencing the highest growth levels are Indonesia, Mexico, and India. Strong sales in emerging
markets is largely due to their large populations coming online and buying there for the first time. Other countries
driving e-commerce sales growth include Argentina, Brazil, Russia, Italy, and Canada.
The world's growing middle class offers new opportunities to Internet and mail-order retailers. By 2030, the
middle class will more than double in size, from 2 billion today to 4.9 billion. Asia accounts for 30% of the global
middle class, but rapid growth in China, India, Indonesia, Vietnam, Thailand, and Malaysia will cause its share to
more than double, according to The Brookings Institution. By 2030, Asia will host more than 60% of the global
middle class and account for over 40% of global middle-class consumption.
Although operating globally presents opportunities for companies, retailers must carefully select countries to
market and develop detailed specifications for those countries' sites. Successful retailers will be sensitive to
different cultures, currency conversions, and different product delivery mechanisms. Poor parcel delivery is a
major risk factor for companies that operate in economically unstable regions. Singapore, Hong Kong, Finland,
and Germany boast the best logistics performance for the shipments reaching their destinations; Chad, Haiti,
Djibouti, and Burundi are among the worst performers, according to the World Bank.

Regional Highlights
US Internet and catalog retailers often maintain distribution facilities in states where populations are growing
fastest. The states that gained the most people between 2014 and 2015 were Texas, Florida, California, Georgia,
and Washington. State tax policies may also affect online and catalog retailers' choice of where to establish a
physical presence.

Human Resources
Average US hourly earnings for the industry are about the same as the national average. Turnover in the retail
sector overall is high, primarily due to low wages and the seasonality of the industry; most companies use
contract and temporary personnel during the fourth quarter. The injury rate for electronic shopping and mail-order
houses in the US is less than half the national average.
Industry Employment Growth
Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase


Bureau of Labor Statistics

Industry Growth Rating


Demand: Depends on consumer income
Need effective marketing
Risk: Economic health affects spending on non-essentials

Quarterly Industry Update


8.15.2016
Opportunity: E-Commerce Poised for Expansion in India - With a need to add 80 million jobs by 2025 for its
bulging youth population, India can look to e-commerce for job growth, according to Bloomberg News. India, which
is still largely a cash-based economy and does not have an extensive network of brick-and-mortar retailers
outside major cities, reflects Chinas economic environment seven years ago. Up to 5 million rural Indian
residents could set up shops online by 2025, according to a report from HSBC. The development would be similar
to the rapid adoption of Alibabas Taobao platform by Chinese villagers. The Indian youth population's rising
acceptance of new technologies would also assist with growth of e-commerce. HSBC economists forecast online
sales in India to increase from $21 billion today to $420 billion by 2025.
Industry Impact - Expected growth of e-commerce in India could provide expansion opportunities for internet
retailers.

Industry Indicators
Total US consumer spending, an indicator of internet and catalog sales, rose 0.9%, primarily from service
expenditures, in May 2016 compared to the same month in 2015.
The average US retail price for diesel and regular gas, which influences discretionary consumer spending on
internet and catalog items, fell 14.2% and 20.5%, respectively, in the week ending July 11, 2016, compared to
the same week in 2015.
US retail sales for nonstore retailers, a potential measure of internet and catalog retailer demand, increased
10.6% in the first six months of 2016 compared to the same period in 2015.

Industry Forecast
The output for US electronic shopping and mail-order houses is forecast to grow at an annual compounded rate of
6% between 2016 and 2020. Data Published: February 2016

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic
Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the
economy captures the links between industries and the aggregate economy. Forecast FAQs

Industry Drivers
Changes in the economic environment that may positively or negatively affect industry growth.
Data provided by First Research analysts and reviewed annually

Consumer Spending Change in overall level of consumer spending on goods and services

Technology Innovation Advances in science and technology, including information technology

Critical Issues
Demand Depends on Consumer Income - Catalog and Internet retailers sell primarily discretionary goods and
services, so demand varies with changes in personal income. Consumers delay or cut back on computers, new
clothing, home furnishings, and other discretionary items when the economy weakens.
Competition from Traditional Retailers - Traditional retailers are becoming the dominant online retailers by
leveraging high consumer awareness. Consumers are moving to large brands that have online capability and that
they're familiar with. Internet retailing has been growing rapidly: from 2.6% of US retail sales in 2005 to 7.4% in
2015. Traditional retailers that offer multi-channel marketing will profit from serving online customers.

Business Challenges
Security, Privacy Concerns - A fundamental requirement for e-commerce is the secure transmission of private
information over public networks. Credit card fraud is much higher for Web retailers than traditional stores. The
industry has historically suffered from a general public mistrust of entering personal and credit card information
online. Security measures have been installed by most online retailers, but information security and privacy
remain consumer concerns.
Advent of National Internet Sales Tax - State governments are moving forward with plans to create a national
infrastructure to manage collection of sales taxes on e-commerce transactions. Since a 1992 Supreme Court
ruling, catalog and Internet retailers have been exempt from collecting sales taxes in states where they don't
have a physical presence. Because billions in uncollected revenue is at stake, many states are seeking ways to
get around the ruling, including legislation.

Increased Postal, Telecommunication Costs - Catalog firms use the US Postal Service to mail their catalogs.
Since many companies mail millions of catalogs each year, even a small increase in postal rates greatly affects
variable costs; mailing and package shipment costs approximate a significant percentage of company revenues.
Any telecommunication cost increase affects call center operations for both catalogers and online customer
service centers.
Anticipating Consumer Preferences - Due to lead times required for catalog production and distribution, catalog
retailers may be unable to respond as rapidly as traditional retailers or Internet retailers to changing customer
product preferences, fashion changes, or to rapidly changing prices, increasing inventory risk.
Maintaining System Availability - With the explosive increase in users and need for 24/7 availability, system
availability and capacity are stressed. E-commerce companies find forecasting the number of site visits,
particularly during peak holiday shopping periods, increasingly difficult. System outages and slow response times
during peak demands can result in losing sales and customers to competitors.
Building Strong Brand Awareness - Internet retailers that can dominate a category of the market can expand
their brand into other categories. Amazon struggled to make its book site profitable, but once it did, has expanded
into many other product categories. The Amazon brand is now synonymous with online purchases. The large
advertising spending by leading companies such as Amazon challenges other Internet retailers in growing their
own brand awareness.

Business Trends
Growth in Online Households - The growth in retail purchases online will be due in large part to new online
buyers, not just increased buying by veteran online shoppers. The number of US households with Internet
access has grown to nearly 85% of total households, and 97% of those households subscribe to a high-speed
(broadband) Internet service, according to Leichtman Research Group.
Technology Alliances - Internet retailers are allying with marketing analytic firms to better mine customer data.
Catalog companies have long used the information provided by customers to learn more about them and to
target specific catalogs based on interests and past purchase behavior. Alliances with companies that offer
secure payment processing are helping allay consumer privacy fears.
One-to-One Marketing - Marketing segmentation techniques have become so specialized that retailers can
personalize catalogs and websites. Catalog companies have multiple versions of the same catalog emphasizing
different products based on the buying patterns of their customer base. Personalized messages can be placed on
targeted catalogs based on customer addresses. As home pages get less traffic and customers enter retailer
sites from other entry points, Internet sites are being remodeled for custom messaging. Consumer-centric
content and messages based on past shopping behavior are replacing generic advertising messages.
Home Shopping Modernizes - To keep up with the times, home shopping networks are introducing Internet and
mobile content to increase sales. For example, a QVC mobile app may feature a product that's simultaneously
broadcast for sale on TV; as viewers watch a televised product pitch while accessing the app, they can engage
with other viewers or communicate with the host of the show. Home shopping companies are also adopting
practices such as high profile celebrity endorsements and overseas expansion.

Industry Opportunities
Increasing Online Purchase Rates - Some industry estimates suggest that as many as two-thirds of Internet
shoppers place items in their carts but then abandon them without buying anything, though no industrywide data
supports this. Some retailers view abandoned shopping carts as a missed opportunity, and attempt to woo back
shoppers with e-mail reminders and even discount offers. Other companies are reformatting click routines to
simplify the shopping experience and reduce high abandonment rates.
Multi-Channel Marketing - Catalog retailers have adapted to online marketing successfully; they enjoy the
advantages of having an established infrastructure and have extensive experience selling to customers
remotely. They also focus on their best customers rather than allocating large marketing budgets to acquiring new
ones. Customers who use multiple channels (print catalog consumption followed by online ordering) are more
valuable than single-channel shoppers, and catalog delivery is often accompanied by a spike in activity on a
merchant's website, according to Forbes.
Leveraging Customer Data - Catalog firms, and increasingly Internet retailers as well, have a wealth of
customer-specific data that can be used to improve decision-making through data warehousing, sales
forecasting, statistical modeling, and geographic analysis. These analyses can be used to personalize marketing

efforts through targeted mailings and customized emails. Boosting email relevance begins with customer
segmentation.
Creating Loyalty Programs - Generating repeat business is important to Internet retailers. Customer reward
programs, such as frequent shopper discounts and online coupons, are being used by some retailers. Online
retailers are using the techniques of mainline retailers in looking at the long-term value of customers rather than
the short-term sale. Frequent buyers may also be the first to be offered new merchandise or sale prices as a
reward for loyalty.

Executive Insight
Chief Executive Officer - CEO
Leveraging Catalog and Internet Sales
The Internet has evolved into a widely accepted sales channel that is supplementing catalogs, if not replacing
them, for multi-channel retailers. Catalog operators are embracing the Internet while strengthening their marketing
segmentation expertise to deepen the relationship with existing customers. The Internet reaches a broader
audience for prospecting and allows a broader selection of products. Some companies are shifting their
advertising mix to increase support for Internet sales.
Selecting Merchandise
Merchandising is the primary concern of all retailers and is especially important to catalogers, which have greater
inventory exposure than Internet retailers. Merchandise decisions are made months before the product is
advertised for sale. The ability to anticipate consumer preferences and fashion trends is particularly important
given these long lead times.

Chief Financial Officer - CFO


Managing Seasonal Cash Flow
Like other retailers, catalogers and Internet retailers receive the majority of revenue in fourth quarter. Catalog
companies mail catalogs throughout the year and usually offer seasonal specials each quarter to try to smooth
revenues. Internet traffic is lowest in summer; some Internet retailers are copying catalogers and offering special
deals throughout the year to try and spur sales.
Understanding Product and Customer Profitability
Unconstrained by the location and size of brick-and-mortar stores, Internet and catalog retailers have greater
flexibility to target new customers and expand product offerings. Taking advantage of this flexibility requires that
they have a firm grasp of the profitability of existing product lines and customer segments. Companies are
investing in systems that help allocate costs and analyze operating data, expenses, worker productivity, and
customer sales patterns to maximize profitability.

Chief Information Officer - CIO


Enhancing the Online Experience
Site design is increasingly important to differentiate the shopping experience. Many retailers are installing
applications to enhance product previews and let customers choose product sizes and colors without leaving the
product page. This makes the purchase process easier, faster, and more enjoyable to the customer. Retailers
find this enhancement increases the likelihood of purchase as it removes steps in the check-out process.
Developing Wireless Capabilities
The increased acceptance of mobile phones and the cultural shift to impulse communications has created a
growing market for electronic commerce via wireless phones and other handheld devices. Revenue from wireless
data connectivity and services is increasing and Internet retailers are viewing wireless as an opportunity to reach
new consumer groups, particularly teens, young adults, and minorities.

Human Resources - HR
Training and Monitoring Telephone Staff
Quality service is critical to acquiring and retaining customers. While Internet retailers have customer service
centers that handle service issues and complaints, catalog retailers conduct their business via phone, making call
centers the lifeblood of the company. Training is continual on software systems, telephone techniques, regulatory
requirements, and customer service. Many call centers record calls to monitor, measure, and improve service.
Reducing High Turnover
Employee turnover, high due to relatively low wages and seasonality, is a significant challenge. To reduce

turnover, retailers offer flexible work hours, discounts on merchandise, and partial benefits. Some companies are
implementing employee satisfaction initiatives such as matching responsibilities with strengths and offering
monetary rewards for good ideas.

VP Sales/Marketing - Sales
Driving Site Traffic
As the Internet has gained acceptance as a sales channel, complex sites and advertising are giving way to easier
to use websites with less clutter. Retailers realize many customers come to the site from entry points other than
the retailers home page, so they create the best designs with easy navigation that makes buying easy.
Companies improve search engine capabilities, advertise on other sites, and develop general marketing
campaigns to get more hits and increase the likelihood of purchase.
Creating Loyalty Programs
Online retailers are challenged by the high level of abandonment. Some are considering customer loyalty
programs to reduce abandonment and focus on the long-term value of the customer. Online retailers are creating
programs to develop relationships with customers, offering rewards for purchase levels and coupons. These
programs are aimed at addressing low purchase volumes and increasing the likelihood of returning for future
purchases.

Executive Conversation Starters


Chief Executive Officer - CEO
What strategies does the company use to increase sales?
Companies may shift their advertising mix to increase support for the Internet, which can reach a broader
audience and present a wider product selection.
How is the company challenged by selecting merchandise far in advance of availability?
Anticipating consumer preferences and trends is important, because merchandise selection typically occurs
months before product availability.

Chief Financial Officer - CFO


What strategies does the company use to manage seasonal cash flow?
Companies offer seasonal specials quarterly and deals throughout the year to spur sales beyond the
high-revenue fourth quarter.
How does the company improve its understanding of product and customer profitability?
Companies invest in software that helps allocate costs and analyze operating data, expenses, worker
productivity, and customer buying patterns.

Chief Information Officer - CIO


What plans does the company have to enhance customers' online shopping experience?
Companies improve website design to enhance product previews, and enable customers to select and pay for
items while on the same Web page.
How important are wireless capabilities to the company's electronic commerce strategy?
Internet retailers view wireless capabilities as an opportunity to reach new consumer groups, particularly teens,
young adults, and minorities.

Human Resources - HR
What are the company's training priorities for its call center personnel?
Call center training focuses on software, telephone techniques, regulatory requirements, and customer service.
What incentives does the company use to reduce high turnover?
To reduce high turnover, retailers offer flexible work hours, merchandise discounts, and partial benefits for
part-timers.

VP Sales/Marketing - Sales
What tactics does the company use to increase website traffic?
Companies improve online marketing campaigns, search engine rankings, ads on other sites, and website

ease-of-use.
How do customer loyalty programs help or hurt sales?
Customer loyalty programs aim to keep customers returning and to increase long-term, per-customer sales.

Call Prep Questions


Conversation Starters
How does the current economic environment affect the company's sales outlook?
Catalog and Internet retailers sell primarily discretionary goods and services, so demand varies with changes in
personal income.
How does the company compete with online sales by traditional retailers?
Traditional retailers are becoming the dominant online retailers by leveraging high consumer awareness.
How is the company improving its site and information security?
A fundamental requirement for e-commerce is the secure transmission of private information over public
networks.
How is the company increasing the amount consumers buy?
Some industry estimates suggest that as many as two-thirds of Internet shoppers place items in their carts but
then abandon them without buying anything, though no industrywide data supports this.
What is the companys mix of sales channels and how do they support each other?
Catalog retailers have adapted to online marketing successfully; they enjoy the advantages of having an
established infrastructure and have extensive experience selling to customers remotely.
How is the company leveraging its customer database?
Catalog firms, and increasingly Internet retailers as well, have a wealth of customer-specific data that can be
used to improve decision-making through data warehousing, sales forecasting, statistical modeling, and
geographic analysis.

Quarterly Industry Update


What new geographic markets look most promising to the company?
With a need to add 80 million jobs by 2025 for its bulging youth population, India can look to e-commerce for job
growth, according to Bloomberg News.

Operations, Products, and Facilities


What types of products does the company specialize in?
Most catalog and Internet retailers specialize in a product line, such as Lands' End in clothing, but many have
started to branch into categories other than their original specialty.
How many distribution centers does the company operate?
Phone and online orders are filled by shipping products from centralized distribution centers.
To what extent does the company offer both catalog and online shopping?
Most catalog companies have broadened their capabilities to include Internet shopping.
What volume of calls does the company's call center handle in a typical month? During peaks in
demand?
While Internet retailers have customer service centers that handle service issues and complaints, catalog
retailers conduct their business via phone, making call centers the lifeblood of the company.
How many names are in the company's customer database?
Internet and catalog companies maintain extensive databases on customers, including shopping and buying
habits and demographics.
How does the company add to its customer database?
In addition to tracking buying behavior, companies rent lists from other retailers and get new names from
promotional inserts.
How many catalogs does the company mail? How does this compare to prior years?
Companies mail hundreds of millions catalogs a year. Most firms that have added online capabilities have
reduced the number of mailed catalogs.
How does the company ship its merchandise to customers?

Orders are filled and shipped via the US Postal Service or commercial shipping firms.
How many suppliers does the company have?
Catalog and Internet retailers have been reducing the number of vendors they buy inventory from.

Customers, Marketing, Pricing, Competition


What kind of customer does the company target?
Catalog retailers pioneered target marketing, collecting a wealth of data on their customers to better anticipate
their future needs.
What forms of marketing does the company find most effective?
National advertising campaigns include network, cable, and print advertising; Internet retailers design personalized
emails and use cooperative advertising with partner vendors.
Who are the companys primary competitors?
Increasingly, traditional retailers are entering the online retail business; thus, competitors may not be limited to
other dot-coms or catalogers.
How does the company position itself versus competitors?
Large firms leverage their brand awareness. Smaller firms compete on outstanding customer service and
providing niche products.
How does the company stay abreast of market trends and consumer preferences?
Due to lead times required for catalog production and distribution, catalog retailers may be unable to respond as
rapidly as traditional retailers or Internet retailers to changing customer product preferences.
How is the company building customer loyalty?
Some retailers are using customer reward programs, such as frequent shopper discounts and online coupons.
What is the company doing in the way of one-to-one marketing?
Marketing segmentation techniques have become so specialized that retailers can personalize catalogs and
websites.
How is the company increasing website traffic?
Companies improve search engine capabilities, advertise on other sites, and develop general marketing
campaigns to get more hits and increase the likelihood of purchase.

Regulations, R&D, Imports and Exports


What percentage of the company's products is imported?
A high percentage of imports adds to currency exchange risks.
How much of the company's sales come from outside the US?
E-commerce sales in Spain, Brazil, China, Russia, and Mexico will rise 26 percent or more per year through 2015,
according to Cisco Systems.
What is the company's position on a national Internet sales tax?
State governments are moving forward with plans to create a national infrastructure to manage collection of sales
taxes on e-commerce transactions.
What types of products does the company primarily import?
Like other retailers, much merchandise is imported, especially apparel.

Organization and Management


How does the company train and measure the performance of call center employees?
Training is continual on software systems, telephone techniques, regulatory requirements, and customer service.
Many call centers record calls to monitor, measure, and improve service.
How is the company reducing employee turnover?
Employee turnover, high due to relatively low wages and seasonality, can pose a significant challenge. To reduce
turnover, retailers offer flexible work hours as many call centers are 24/7, discounts on merchandise, and partial
benefits.

Financial Analysis
How seasonal is the companys revenue?
Most firms revenues peak in fourth quarter. Internet retailers see a dramatic drop in traffic in summer.
How often must the company take a loss on unsold inventory?
Substantial price markdowns are common at end of the season.

How profitable is the company?


Most Internet retailers undergo an early period of unprofitability before making money.
How is the company improving operating margins?
Improving inventory management and reducing marketing expenses are common ways to increase margins.
How does the company analyze the profitability of product lines and customer segments?
Companies are investing in systems that help allocate costs and analyze operating data, expenses, worker
productivity, and customer sales patterns to maximize their profitability.

Business and Technology Strategies


What growth opportunities is the company pursuing?
Opportunities include improving purchase rates, creating loyalty programs, expanding product offerings, and
expanding internationally.
How is the company planning to expand its international sales?
While e-commerce sales in foreign markets are expected to rise, retailers must be sensitive to different cultures
and the challenges of different currencies and delivery mechanisms.
What technology is the company investing in to enhance the online experience for consumers?
Site design is increasingly important to differentiate the shopping experience. Many retailers are installing
applications to enhance product previews and let customers choose product sizes and colors without leaving the
product page.
What opportunities does the company see for e-commerce via mobile phones and other wireless
devices?
The increased acceptance of mobile phones and the cultural shift to impulse communications has created a
growing market for electronic commerce via wireless phones and other handheld devices.
What tools is the company investing in to better leverage its customer database?
Catalog firms, and increasingly Internet retailers, have a wealth of customer-specific data that can be used to
improve decision-making through data warehousing, sales forecasting, statistical modeling, and geographic
analysis.

Financial Information
COMPANY BENCHMARK TRENDS

Quick Ratio by Company Size


The quick ratio, also known as the acid test ratio, measures a company's ability to meet short-term obligations
with liquid assets. The higher the ratio, the better; a number below 1 signals financial distress. Use the quick ratio
to determine if companies in an industry are typically able to pay off their current liabilities.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available by subscription or single report purchase at www.microbilt.com/firstresearch.

Current Liabilities to Net Worth by Company Size


The ratio of current liabilities to net worth, also called current liabilities to equity, indicates the amount due
creditors within a year as a percentage of stockholders' equity in a company. A high ratio (above 80 percent) can
indicate trouble.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available by subscription or single report purchase at www.microbilt.com/firstresearch.

COMPANY BENCHMARK INFORMATION


NAICS: 454111, 454113
Data Period: 2014

Last Update April 2016

Table Data Format

Mean

Large

Medium

Small

Over $50M

$5M - $50M

Under $5M

21282

167

1788

19327

100%

100%

100%

100%

37.1%

38.4%

36.3%

36.6%

Officer Compensation

2.3%

1.7%

2.0%

4.1%

Advertising & Sales

3.1%

3.3%

3.1%

2.7%

Other Operating Expenses

29.8%

31.5%

29.3%

27.6%

Operating Expenses

35.1%

36.4%

34.4%

34.4%

2.0%

1.9%

1.9%

2.2%

Company Size

All

Size by Revenue
Company Count

Income Statement
Net Sales
Gross Margin

Operating Income

0.7%

0.6%

0.6%

0.8%

Cash

14.7%

15.4%

14.0%

15.7%

Accounts Receivable

11.6%

12.0%

12.2%

10.6%

Inventory

41.3%

39.5%

42.0%

41.1%

Total Current Assets

77.0%

77.5%

76.9%

77.0%

6.3%

6.3%

6.8%

5.5%

16.7%

16.2%

16.4%

17.4%

100.0%

100.0%

100.0%

100.0%

Accounts Payable

17.1%

15.1%

17.8%

16.8%

Total Current Liabilities

37.1%

33.2%

37.1%

38.6%

Total Long Term Liabilities

20.5%

15.0%

19.0%

25.0%

Net Worth

42.5%

51.8%

43.9%

36.4%

Quick Ratio

0.83

0.96

0.82

0.81

Current Ratio

2.08

2.33

2.07

2.00

Current Liabilities to Net Worth

87.3%

64.1%

84.5%

105.8%

Current Liabilities to Inventory

x0.90

x0.84

x0.88

x0.94

Total Debt to Net Worth

x1.36

x0.93

x1.28

x1.74

Fixed Assets to Net Worth

x0.15

x0.12

x0.15

x0.15

Days Accounts Receivable

11

Inventory Turnover

x10.50

x29.98

x8.95

x5.61

Total Assets to Sales

14.9%

5.4%

17.5%

28.4%

Working Capital to Sales

6.0%

2.4%

7.0%

10.9%

Accounts Payable to Sales

2.5%

0.8%

3.0%

4.6%

Pre-Tax Return on Sales

1.1%

1.0%

1.0%

1.3%

Pre-Tax Return on Assets

7.0%

17.7%

5.8%

4.5%

16.6%

34.2%

13.2%

12.5%

Interest Coverage

x4.71

x27.71

x3.67

x2.47

EBITDA to Sales

4.0%

4.1%

3.9%

4.0%

Capital Expenditures to Sales

2.2%

2.2%

2.2%

2.1%

Net Income

Balance Sheet

Property, Plant & Equipment


Other Non-Current Assets
Total Assets

Financial Ratios

Pre-Tax Return on Net Worth

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available by subscription or single report purchase at www.microbilt.com/firstresearch.

ECONOMIC STATISTICS AND INFORMATION

Retail Annual Sales Growth - Census Bureau

VALUATION MULTIPLES
Internet & Mail-Order Retail
Acquisition multiples below are calculated using at least 25 US private, middle-market (valued at less than $1
billion) industry asset transactions completed between 11/2006 and 8/2015. Data updated annually. Last updated:
November 2015.

Valuation Multiple

MVIC/Net Sales

Median Value

MVIC/Gross Profit
0.5

MVIC/EBIT

1.3

MVIC/EBITDA
3.5

3.5

MVIC (Market Value of Invested Capital) = Also known as the selling price, the MVIC is the total consideration
paid to the seller and includes any cash, notes and/or securities that were used as a form of payment plus any
interest-bearing liabilities assumed by the buyer.
Net Sales = Annual Gross Sales, net of returns and discounts allowed, if any.
Gross Profit = Net Sales - Cost of Goods Sold
EBIT = Operating Profit
EBITDA = Operating Profit + Noncash Charges

SOURCE: Pratt's Stats, 2014 (Portland, OR: Business Valuation Resources, LLC). Used with permission. Pratt's Stats is available at
https://www.bvresources.com/prattsstats

Industry Websites
American Catalog Mailers Association
Industry news, events, issues.
Direct Marketing Association (DMA)
News and links.
Industry Canada - Electronic Shopping and Mail-Order Houses
Industry statistics and company directory.
Internet Retailer
Industry news, events, articles, listing of top 500 Internet retailers.
National Retail Federation
Retail industry news, legislative issues.

Retail Council of Canada


Trade association for independent retailers.
RetailingToday
Retail industry news.
Shop.org
Association for retailers online.

Glossary of Acronyms
DMA - Direct Marketing Association
NRF - National Retail Federation
SKU - stock-keeping unit

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