Amazon.com 2005 Annual Report Download - page 23

Our Investments and the Consideration We Receive under Certain Commercial Agreements May Subject Us
to a Number of Risks
In the past, we have entered into commercial agreements with other companies, including strategic alliances
whereby we perform certain e-commerce services, and in exchange for our services we received cash, equity
securities of these companies, and/or additional benefits, such as website traffic. The amount of compensation we
receive under certain of these agreements is dependent on the volume of sales made by the other company. In
some cases, we have also made separate investments in the other company by making a cash payment in
exchange for equity securities of that company. We may make similar investments in the future. To the extent we
have received equity securities as compensation, fluctuations in the value of such securities will affect our
ultimate realization of amounts we have received as compensation for services.
In the past, we amended several of our commercial agreements to reduce future cash proceeds to be received
by us, shorten the term of our commercial agreements, or both. We may in the future enter into further
amendments of our commercial agreements. Although these amendments did not affect the amount of unearned
revenue previously recorded by us (if any), the timing of revenue recognition of these recorded unearned
amounts was changed to correspond with the terms of the amended agreements. To the extent we believe any
such amendments cause or may cause the compensation to be received under an agreement to no longer be fixed
or determinable, we limit our revenue recognition to amounts received, excluding any future amounts not
deemed fixed or determinable. As future amounts are subsequently received, such amounts are incorporated into
our revenue recognition over the remaining term of the agreement.
Our investments in equity securities are included in “Marketable securities” and “Other assets” on our
consolidated balance sheets. We regularly review all of our investments in public and private companies for
other-than-temporary declines in fair value. When we determine that the decline in fair value of an investment
below our accounting basis is other-than-temporary, we reduce the carrying value of the securities we hold and
record a loss in the amount of any such decline. In recent years, securities of companies in the Internet and
e-commerce industries have experienced significant difficulties. We may conclude in future quarters that the fair
values of our investments have experienced additional other-than-temporary declines. As of December 31, 2005,
our recorded basis in equity securities was $14 million, including $6 million classified as “Marketable securities”
and $8 million classified as “Other assets.”
The Loss of Key Senior Management Personnel Could Negatively Affect Our Business
We depend on the continued services and performance of our senior management and other key personnel,
particularly Jeffrey P. Bezos, our President, Chief Executive Officer, and Chairman of the Board. 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.
System Interruption and the Lack of Integration and Redundancy in Our Systems May Affect Our Sales
Customer access to our websites and the speed with which a customer is able to navigate and make
purchases on our websites directly affects the volume of goods we sell and the services we offer and thus affects
our net sales. We experience occasional system interruptions and delays that make our websites unavailable or
slow to respond and prevent us from efficiently fulfilling orders or providing services to third parties, which may
reduce our net sales and the attractiveness of our products and services. If we are unable to continually add
software and hardware, effectively upgrade our systems and network infrastructure and take other steps to
improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our
operating results.
Our computer and communications systems and operations could be damaged or interrupted by fire, flood,
power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses,
physical or electronic break-ins, and similar events or disruptions. Any of these events could cause system
interruption, delays, and loss of critical data, and could prevent us from accepting and fulfilling customer orders.
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