Amazon.com 2005 Annual Report Download - page 21

We generally have payment terms with our vendors that extend beyond the amount of time necessary to
collect proceeds from our customers. As a result of holiday sales, at December 31 of each year, our cash, cash
equivalents, and marketable securities balances typically reach their highest level (other than as a result of cash
flows provided by or used in investing and financing activities). This operating cycle results in a corresponding
increase in accounts payable. Our accounts payable balance should decline during the first three months
following year-end, which will result in a 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 may enter into commercial agreements, strategic alliances, and other business relationships with other
companies. We have entered into agreements to provide e-commerce services to other businesses and we plan to
enter into similar agreements in the future, including as part of our Merchants@, Syndicated Stores, and Amazon
Enterprise Solutions program initiatives. Under such agreements, we may perform services such as: providing
our technology services such as search, browse, and personalization; permitting other businesses and individuals
to offer products or services through our websites; and powering third-party websites, either with or without
providing accompanying fulfillment services. These arrangements are complex and require substantial personnel
and resource commitments by us, which may constrain the number of such agreements we are able to enter into
and may affect our ability to integrate and deliver services under the relevant agreements. If we fail to
implement, maintain, and develop successfully the various components of such commercial relationships, which
may include fulfillment, customer service, inventory management, tax collection, payment processing, licensing
of third-party software, hardware, and content, and engaging third parties to perform hosting and other services,
these initiatives may not be viable. The amount of compensation we receive under certain of these agreements is
partially dependent on the volume of sales that the other company makes. Therefore, if the other business’s
website or product or services offering is not successful, we may not receive all of the compensation we are
otherwise due under the agreement or may not be able to maintain the agreement. Moreover, we may not be able
to succeed in our plans to enter into additional commercial relationships and strategic alliances on favorable
terms.
As our commercial agreements expire or otherwise terminate, we may be unable to renew or replace these
agreements on comparable terms, or at all. In the past, we amended several of our commercial agreements to
reduce future cash proceeds to be received by us, shorten the term of the agreements, or both. Some of our
agreements involve high margin services, such as marketing and promotional agreements, and as such
agreements expire they may be replaced, if at all, by agreements involving lower margin services. In addition,
several past commercial agreements were with companies that experienced business failures and were unable to
meet their obligations to us. We may in the future enter into further amendments of our commercial agreements
or encounter other parties that have difficulty meeting their contractual obligations to us, which could adversely
affect our operating results. As an example, we are currently in litigation with Toysrus.com over our commercial
agreement, and Toysrus.com’s parent, Toysrus, Inc., recently was acquired by a private investment group. In the
event of the early termination of our commercial agreement with Toysrus.com, we would attempt to replace the
product selection currently provided by Toysrus.com with owned inventory and offerings from other parties, but
our operating results could be negatively impacted.
Our present and future third-party 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.
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