Amazon.com 2005 Annual Report Download - page 22

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 (such as through
joint ventures or other business combinations) additional companies. Acquisitions and investments create risks
such as:
• disruption of our ongoing business, including loss of management focus on existing businesses;
• problems retaining key technical and managerial personnel, resulting from, among other factors,
changes in compensation, responsibilities, reporting relationships, future prospects, and the direction of
the business;
• additional operating losses and expenses of the businesses we acquired or in which we invested;
• the potential impairment of amounts capitalized as intangible assets as part of the acquisition;
• the potential impairment of customer and other relationships of the company we acquired or in which
we invested or our own customers as a result of any integration of operations;
• the difficulty of incorporating acquired technology and rights into our offerings and unanticipated
expenses related to such integration;
• the difficulty of integrating a new company’s accounting, financial reporting, management, information,
human resource and other administrative systems to permit effective management, and the lack of
control if such integration is delayed or not implemented;
• the difficulty of implementing controls, procedures and policies appropriate for a larger public company
at companies that prior to acquisition or investment had lacked such controls, procedures and policies;
• potential unknown liabilities associated with a company we acquire or in which we invest; and
• for foreign acquisitions and investments, additional risks related to the integration of operations across
different cultures and languages, currency risks, and the particular economic, political, and regulatory
risks associated with specific countries.
Finally, 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.
We Have Foreign Exchange Risk
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 translation, 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. As we have expanded our international operations, our exposure to
exchange rate fluctuations has become more pronounced. See Item 7 of Part II, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Results of Operations—Effect of Exchange Rates”
for a table demonstrating the effect on our consolidated statements of operations from changes in exchange rates
versus the U.S. Dollar.
In addition, our 6.875% PEACS are denominated in Euros, not U.S. Dollars. We remeasure the principal of
the 6.875% PEACS quarterly based on fluctuations in the Euro/U.S. Dollar exchange ratio and record gains or
losses in “Remeasurements and other” on our consolidated statements of operations. As a result, increases in the
Euro relative to the U.S. Dollar increase the U.S. dollar amount we owe as interest and principal. Furthermore,
we hold cash equivalents and/or marketable securities primarily in Euros, British Pounds, and Yen. Accordingly,
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.
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