Amazon.com 2007 Annual Report Download - page 30

Item 7. Management’s 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 forward-looking. We use words such as anticipates, believes, expects,
future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements
reflect management’s 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, outcomes of legal proceedings and claims, fulfillment 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. These risks and uncertainties, as well as other risks and uncertainties that could
cause our actual results to differ significantly from management’s expectations, are described in greater detail in
Item 1A of Part I, “Risk Factors,” which, along with the previous discussion, describes some, but not all, of the
factors that could cause actual results to differ significantly from management’s expectations.
Overview
Our primary source of revenue is the sale of a wide range of products and services to customers. The
products offered on our customer-facing websites primarily include merchandise and content we have purchased
for resale from vendors and products offered by marketplace sellers. Generally, we recognize gross revenue from
items we sell from our inventory and recognize our net share of revenue of items sold by other sellers. We also
offer services such as Amazon Web Services, Amazon Enterprise Solutions, co-branded credit cards, fulfillment,
and miscellaneous marketing and promotional offers.
Our financial focus is on long-term, sustainable growth in free cash flow1per share. Free cash flow is
driven primarily by increasing operating income and efficiently managing working capital and capital
expenditures. Increases in operating income primarily result from increases in sales through our websites and
efficiently managing our operating costs, offset by investments we make in longer-term strategic initiatives,
which generally require us to hire additional software engineers, computer scientists, and merchandisers. To
increase product sales, we focus on improving all aspects of the customer experience, including lowering prices,
improving availability, offering faster delivery times, increasing selection, increasing product categories,
expanding product information, improving ease of use, and earning customer trust. We generally focus on
growing gross profit and operating profit dollars rather than maximizing margin percentages.
We also seek to efficiently manage shareholder dilution while maintaining the flexibility to issue shares for
strategic purposes, such as financings and aligning employee compensation with shareholders’ interests. We
utilize restricted stock units as our primary vehicle for equity compensation because we believe they align the
interests of our shareholders and employees. In managing shareholder dilution, we include all stock awards
outstanding, without regard to estimated forfeitures, consisting of vested and unvested awards and in-the-money
1Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less
purchases of fixed assets, including capitalized internal-use software and website development, both of
which are presented on our consolidated statements of cash flows. See “Results of Operations—Non-GAAP
Financial Measures” below.
22