Amazon.com 2006 Annual Report Download - page 26

business, there are many transactions for which the ultimate tax determination is uncertain. For example, our
effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we
have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by
changes in the valuation of our deferred tax assets and liabilities, or by changes in the relevant tax, accounting
and other laws, regulations, principles and interpretations. We are subject to audit in various jurisdictions, and
certain jurisdictions may assess additional income tax against us. Although we believe our tax estimates are
reasonable, the final determination of tax audits and any related litigation could be materially different from our
historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on
our operating results or cash flows in the period or periods for which that determination is made.
Our Vendor Relationships Subject Us to a Number of Risks
We have significant vendors that are important to our sourcing of merchandise and content. We do not have
long-term arrangements with most of our vendors to guarantee availability of merchandise or content, particular
payment terms, or the extension of credit limits. If our current vendors were to stop selling merchandise or
content to us on acceptable terms, we may not be able to acquire merchandise or content from other vendors in a
timely and efficient manner and on acceptable terms, or at all.
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 may expose us to product liability claims relating to personal injury, death, 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 third-
party sellers do not indemnify us from product liability.
We Are Subject to a Number of Risks Related to Payments We Accept
We accept payments by a variety of methods, including credit card, debit card, gift certificates, direct debit
from a customer’s bank account, physical bank check and payment upon delivery. As we offer new payment
options to our customers, we may be subject to additional regulations, compliance requirements, and fraud. For
certain payment methods, including credit and debit cards, we pay interchange and other fees, which may
increase over time and raise our operating costs and lower our profit margins. We are also subject to payment
card association operating rules, certification requirements and rules governing electronic funds transfers, which
could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with
these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept
credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of
online payments, and our business and operating results could be adversely affected. Finally, we offer co-branded
credit card programs that represent a significant component of our services revenue and generate high margins. If
one or more of these agreements are terminated and we are unable to replace them on similar terms, or at all, it
could adversely affect our operating results.
We Could Be Liable for Breaches of Security on Our Websites
Although we have developed systems and processes that are designed to protect consumer information and
prevent fraudulent credit card transactions and other security breaches, failure to prevent or mitigate such fraud
or breaches may adversely affect our operating results.
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of providers of online payment services is currently unsettled. In addition,
governmental agencies could require changes in the way this business is conducted. Under Merchants@,
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