Amazon.com 2007 Annual Report Download - page 31

and out-of-the-money stock options. Total shares outstanding plus outstanding stock awards were 435 million
and 436 million at December 31, 2007 and 2006. These amounts exclude 14 million shares issuable upon
conversion of our long-term debt. In 2007, we repurchased 6 million shares of our common stock under a
repurchase program authorized by our Board of Directors.
We seek to reduce our variable costs per unit and work to leverage our fixed costs. Our variable costs
include product and content costs, payment processing and related transaction costs, picking, packaging, and
preparing orders for shipment, transportation, customer service support, and most aspects of our marketing costs.
Our fixed costs include the costs necessary to run our technology infrastructure, build, enhance, and add features
to our websites and build and optimize our fulfillment centers. Variable costs generally change directly with sales
volume, while fixed costs generally increase depending on the timing of capacity needs, geographic expansion,
category expansion, and other factors. To decrease our variable costs on a per unit basis and enable us to lower
prices for customers, we seek to increase our direct to publisher and manufacturer sourcing, maximize discounts
available to us from suppliers and reduce defects in our processes. To minimize growth in fixed costs, we seek to
improve process efficiencies and maintain a lean culture.
Because of our model we are able to turn our inventory quickly and have a cash-generating operating
cycle2.On average, our high inventory velocity means we generally collect from our customers before our
payments to suppliers come due. Inventory turnover3was 13, 13, and 14 for 2007, 2006, and 2005. Inventory
turnover has declined slightly over the last several years, primarily due to category expansion and changes in
product mix, and our continuing focus on in-stock inventory availability. We expect some variability in inventory
turnover over time since it is affected by several factors, including our product mix, the mix of sales by us and by
other sellers, our continuing focus on in-stock inventory availability, our investment in new geographies and
product lines, and the extent to which we choose to utilize outsource fulfillment providers. Accounts payable
days4were 57, 53, and 54 for 2007, 2006 and 2005. We expect some variability in accounts payable days over
time since they are affected by several factors, including the mix of product sales, the mix of sales by other
sellers, the mix of suppliers, seasonality, and changes in payment terms over time, including the effect of
balancing pricing and timing of payment terms with suppliers.
Our spending in technology and content will increase as we add computer scientists, software engineers,
and employees involved in category expansion, editorial content, buying, merchandising selection, and systems
support. We will continue to invest in several areas of technology and content, including seller platforms, web
services, digital initiatives, and expansion of new and existing product categories, as well as in technology
infrastructure to enhance the customer experience, improve our process efficiencies and support our
infrastructure web services. We believe that advances in technology, specifically the speed and reduced cost of
processing power, the improved customer experience of the Internet outside of the workplace through lower-cost
broadband service to the home, and the advances of wireless connectivity, will continue to improve the customer
experience on the Internet and increase its ubiquity in people’s lives. Amazon Web Services provides technology
services that give developers access to technology infrastructure that they can use to enable virtually any type of
business. Our challenge will be to continue to build and deploy innovative and efficient software that will best
take advantage of continued advances in technology.
Our financial reporting currency is the U.S. Dollar and changes in exchange rates significantly affect our
reported results and consolidated trends. For example, if the U.S. Dollar weakens year-over-year relative to
currencies in our international locations, our consolidated net sales, gross profit, and operating expenses will be
2The operating cycle is number of days of sales in inventory plus number of days of sales in accounts
receivable minus accounts payable days.
3Inventory turnover is the quotient of annualized cost of sales to average inventory over five quarters.
4Accounts payable days, calculated as the quotient of accounts payable to cost of sales, multiplied by the
number of days in the period.
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